Case Law Details
Akola Janta Commercial Co-Op Bank Ltd. Vs ACIT (ITAT Nagpur)
A plain reading of Section 263 makes it clear that, the precondition to exercise revisionary jurisdiction by the PCIT/CIT suo moto under it, is that the order of AO is erroneous insofar as it is prejudicial to the interests of the revenue is concern. Consequently, the provision mandates the satisfaction of existence of twofold conditions before invocationand these explicitly are; (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If any one of two is absent or unsatisfied, that is where the order of the assessing officer is erroneous but is not prejudicial to the revenue or where order is not erroneous but is prejudicial to the revenue, then the recourse to Section 263(1) of the Act fails.
Albeit the foresaid twin satisfaction drawn from the assessment records may trigger the revisionary jurisdiction, yet such shall not automatically empower the revisionary tax authorities to conclude the revision proceedings without obeying additional dual riders such as;(i) making or causing to be made such enquiry as necessary and(ii) according an opportunity of being heard to the assessee following the principle of natural justice.
In the light of provision of law, it is of paramount importance to note that, an incorrect assumption of facts or an incorrect application of law or passing an order without application of mind or without applying the principle of natural justice, shall discretely be sufficient to hold the order being erroneous. Albeit the term prejudicial to the interests of the revenue is not at all defined in the Act, but is needs to be understood in its ordinary meaning and it is of wide import and is not confined to mere loss to ex-chequer.
Having said so, where the revisionary proceedings are concluded entirely on invariable submission of the assessee which were the part of assessment records, shall clearly establishes the jeopardy to the independence of assessment proceedings, which is never been the intent of 263 legislation.
In the light of ration laid down by Hon’ble Supreme Court of India on the subject matter, we have the audacity to summarise the inferential but harmonious analysis of revisionary provision laid in section 263 of the Act, into a five steps “Queen Principle”, falling the case into it shall debark the tax authorities from assuming revisionary jurisdiction u/s 263, and these steps are;
a. There must be an explicit query from the adjudicating tax authority as regards to any claim made including information supplied in the return of income filed or to be filed, and
b. There must be direct, clear and an unreserved submission from the assessee in reply to aforesaid query, and
c. The submission must be followed by detailed enquiry by the tax authorities into assessee’s eligibility of claim, basis of claim and compliance of pre as well post conditions as may be attached to the claim under scrutiny, and
d. There should be even-handed application of mind by the adjudicating authority in reaching out the allowability or dis-allowability of claim under consideration,
e. And finally, the adjudication must ensure the correct application of law as regards to aforesaid following principle of natural justice.
In the instance appeal, considering the facts of the case extenso, we concede with the contention of the Ld AR that, in support of appellant claim as expounded hereinbefore at para 6, there was indeed unvarying and indistinguishable material placed before both these tax authorities during the course of regular assessment vis-à-vis revisionary proceeding, which in turn demonstrates that, the Ld AO considering the same submission of the assessee carried out enquiry with respect to eligibility of claim, basis of claim and compliance relating thereto(if any) and then finalized the assessment taking one of the plausible view in the light of settled legal position in allowing the deduction u/s 36(1)(viia) and claim of loss on account of diminution in the value of securities / investment reclassification, this evidently concludes that the adjudication squarely fell within aforementioned “Queen Principle”. Whereas under revisionary proceedings Ld PCIT yet again conducted an enquiry into the claim of the appellant based on the like material and sitting on the same fence displaced with the views of Ld AO and directed for modification of assessment by additional disallowance which is ostensibly impermissible under a law following the ration laid in down by Hon’ble Jurisdictional High Court in “CIT Vs Gabriel India Ltd.” reported in 203 ITR 108 (Bom) and the Hon’ble Apex Court in “Malabar Industrial Co Ltd. Vs CIT” reported in 243 ITR 83.Ergo,in the above context, we find the order of Ld PCIT is unsustainable in law, consequently we set aside the 263 revisionary order and restore the order of assessment passed u/s 143(3).
FULL TEXT OF THE ORDER OF ITAT NAGPUR
Against the revisionary order of Principal of Commissioner of Income Tax, Nagpur [for short “PCIT”] passed u/s 263of the Income-tax Act, 1961 [for short “the Act”] vide order dt02/03/2017, the appellant assessee filed this appeal before Income Tax Appellate Tribunal [for short “the Tribunal”] u/s 253.
2. The short issue under appeal is that, the appellant challenges the revisionary action of the Ld PCIT directing the Ld AO to revise and modify the regular assessment order culminated u/s 143(3).
3. The appellant upstretched both legal grounds as well grounds of merit in the appeal, however before proceeding to adjudication, it is essential to reproduce groundschallenged by the appellant assessee,which are as under;
”1. Under the facts and in the circumstances of the case the Learned Commissioner of Income Tax not justified in making an addition of Rs1,87,01,808/- through assessee itself made an addition of Rs83,44,403/- in computation of income being amount inadmissible to whichno consideration was given and the current year’s deduction of Ps1,10,00,000/- is as per the provisions of law.”
2. Under the facts and in the circumstances of the case the Learned Commissioner of Income Tax not justified in making an addition of account a sum of Rs75,53,495/- which is on account of amortization of premium of securities under “Held to Maturity” category by-passing the legal position which is settled by the higher authorities including jurisdictional High Court and various instruction of CBDT.”
3. Under the facts and in the circumstances of the case the Learned Commissioner of Income Tax not justified in making an addition of account a sum of Rs45,55,000/- which is on account of amortization of premium of securities under “Available for Sale” category shifted to “Held to Maturity” category by-passing the legal position which is settled by the higher authorities including jurisdictional High Court and various instruction of CBDT.”
4. The Learned Commissioner of Income Tax not justified in invoking the provisions of revision u/s 263 of the Income Tax Act particularly in the circumstances that all the claims and deduction were subject matter of enquiry and addition was made to returned income in appropriate circumstances.”
5. The Learned Commissioner of Income Tax not justified in misinterpreting the CBDT instruction no 17 dt 28-11-2008 and saying that “The instruction does not in any way direct for allowance of disallowance of the deduction in a particular manner (para 4.12 of CIT’s order)” particularly in the circumstances that in most of the decisions higher authorities have followed the instruction.”
4. The facts as accentuated from the records of the case pithily are;
4.1 The assessee is a registered commercial co-operative bank,engaged in the business of banking, had for the assessment year [for short “AY”] 2012-2013 filed its e-return on 29/09/2012 declaring the total income of ₹14,49,92,887/-.The case of the appellant was selected for scrutiny under CASS and the assessment u/s 143(3) was completed on 21/01/2015 with an addition of ₹25,00,000/- dislodging the claim of loss of investment u/s 37(1).
4.2 Not concurring with the action of assessing officer, Ld PCIT invoked the revisionary powers vested in him by virtue of section 263(1)and by an order directed the Ld AO to modify the assessment withan additional disallowance of ₹1,87,01,808/-with respect to excess bad debts debited to Profit & Loss Account [for short “P&L”] and ₹1,21,08,495towards disallowance of amortisation of premium on investment in security arisen on account of reclassification of / change in the category of investment under the guidelines of the banking regulator.
4.3 Pending such direction before the Ld. AO, the appellant co-operative bank challenged the revisionary action of Ld PCIT before this Tribunal for justice on the premise that, both the issues falling under revision were duly considered while carrying out the regular assessment in the light of prevailing judicial precedents and thus the action of the Ld PCIT allegedasuntenable in law.
5. After hearing to the rival contention of both the parties; perused material placed on record and duly considered the facts of the case in the light of settled legal position and the case law relied upon by the appellant assessee as well the respondent revenue.
6. What is evidentlydiscernible form the records arethat;
6.1 The primary issue in the present controversy is as to whether the order passed by the assessing officer u/s143(3) can besaid to be erroneous and prejudicial to the interest of the revenue within the preview of section 263 of the Act.
6.2 During the course of regular assessment proceedings, the appellant laid detailed submissions including the copy of audit report obtained u/s 44AB of the Act and audited financial statement duly accompanied by the requisite explanation in reply to the questionnaire raised by the Ld AO.On a specific query, the appellant also made available the copies of investment valuation, details of amount transferred to Investment Depreciation Reserve Fund [for short “IDRF”], detailed chart of amortisation of premium pertaining to change in investment category etc. Considering those evidential material placed on record and after conducting an enquiry into the claim of the assessee in respect of provision for loss, provisions carried out to IDRF including that of provision for diminution in the value of investment ascended on account of change in the category and written off of bad debts etc., Ld AO concluded the assessment proceedings with a solitary addition on ₹25,00,000/- denying the claim of loss of investment (loss of fixed deposit) made with Nanded District Central Co-operative Bank Ltd., Nanded [for short “NDCC”] which then was declared as non-operational or defunct by the banking regulator.
6.3 As it transpires from the show cause notice [for short “SCN”] issued u/s 263 of the Act that, there were two bullet premises with which the invocation of revisionary jurisdiction was triggered viz;
a. Non-disallowance of amount of provision of ₹1,56,43,495/- out of provision for IDRF, as an unascertained liability and
b. Excess provision of ₹4,27,90,200/- for bad debts claimed u/s 36(1)(viia) of the Act.
6.4 In this count, the appellant bank demonstrated before the bench that, during263 proceedings before Ld PCIT, has substantiated its claim for provision for diminution in the value of securities on change of investment category from Available for Sale [for short “AFS”] to Held for Maturity [for short “HTM”] and the allowability of its claim u/s 36(1)(viia)by placing the copies of like submission made before the Ld AO and also be sought the application of the principle of consistency before the Ld PCIT.
6.5 The counsel for the appellant [for short “AR”] relied upon catena of judicial pronouncement in support of meritorious as well legal grounds raised in the appeals, whereas the Ld departmental representative [for short “DR”] supported the 263 order and by way of alternate submission intreated for reminding back the file to the Ld AO for de-nova consideration for the limited purpose.
6.6 At this juncture, without going into the merits of the case, we a shall first deal with the ground number 4 of the appeals and if the appellant succeeds, then the residual meritorious grounds shall become academic and infructuous.
7. To hit the ball on the head, it will be apt to reproduce the provision of section 263(1)in verbatim as it stood and applicable to the AY under consideration;
7.1 “263. Revision of orders prejudicial to revenue –
(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.”
7.2 A plain reading of this provision makes it clear that, the precondition to exercise revisionary jurisdiction by the PCIT/CIT suo moto under it, is that the order of AO is erroneous insofar as it is prejudicial to the interests of the revenue is concern. Consequently, the provision mandates the satisfaction of existence of twofold conditions before invocationand these explicitly are; (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If any one of two is absent or unsatisfied, that is where the order of the assessing officer is erroneous but is not prejudicial to the revenue or where order is not erroneous but is prejudicial to the revenue, then the recourse to Section 263(1) of the Act fails.
7.3 Albeit the foresaid twin satisfaction drawn from the assessment records may trigger the revisionary jurisdiction, yet such shall not automatically empower the revisionary tax authorities to conclude the revision proceedings without obeying additional dual riders such as;(i) making or causing to be made such enquiry as necessary and(ii) according an opportunity of being heard to the assessee following the principle of natural justice.
7.4 In the light of provision of law, it is of paramount importance to note that, an incorrect assumption of facts or an incorrect application of law or passing an order without application of mind or without applying the principle of natural justice, shall discretely be sufficient to hold the order being erroneous. Albeit the term prejudicial to the interests of the revenue is not at all defined in the Act, but is needs to be understood in its ordinary meaning and it is of wide import and is not confined to mere loss to ex-chequer.
7.5 Having said so, where the revisionary proceedings are concluded entirely on invariable submission of the assessee which were the part of assessment records, shall clearly establishes the jeopardy to the independence of assessment proceedings, which is never been the intent of 263 legislation.
7.6 In the light of ration laid down by Hon’ble Supreme Court of India on the subject matter, we have the audacity to summarise the inferential but harmonious analysis of revisionary provision laid in section 263 of the Act, into a five steps “Queen Principle”, falling the case into it shall debark the tax authorities from assuming revisionary jurisdiction u/s 263, and these steps are;
a. There must be an explicit query from the adjudicating tax authority as regards to any claim made including information supplied in the return of income filed or to be filed, and
b. There must be direct, clear and an unreserved submission from the assessee in reply to aforesaid query, and
c. The submission must be followed by detailed enquiry by the tax authorities into assessee’s eligibility of claim, basis of claim and compliance of pre as well post conditions as may be attached to the claim under scrutiny, and
d. There should be even-handed application of mind by the adjudicating authority in reaching out the allowability or dis-allowability of claim under consideration,
e. And finally, the adjudication must ensure the correct application of law as regards to aforesaid following principle of natural justice.
8. In the instance appeal, considering the facts of the case extenso, we concede with the contention of the Ld AR that, in support of appellant claim as expounded hereinbefore at para 6, there was indeed unvarying and indistinguishable material placed before both these tax authorities during the course of regular assessment vis-à-vis revisionary proceeding, which in turn demonstrates that, the Ld AO considering the same submission of the assessee carried out enquiry with respect to eligibility of claim, basis of claim and compliance relating thereto(if any) and then finalized the assessment taking one of the plausible view in the light of settled legal position in allowing the deduction u/s 36(1)(viia) and claim of loss on account of diminution in the value of securities / investment reclassification, this evidently concludes that the adjudication squarely fell within aforementioned “Queen Principle”. Whereas under revisionary proceedings Ld PCIT yet again conducted an enquiry into the claim of the appellant based on the like material and sitting on the same fence displaced with the views of Ld AO and directed for modification of assessment by additional disallowance which is ostensibly impermissible under a law following the ration laid in down by Hon’ble Jurisdictional High Court in “CIT Vs Gabriel India Ltd.” reported in 203 ITR 108 (Bom) and the Hon’ble Apex Court in “Malabar Industrial Co Ltd. Vs CIT” reported in 243 ITR 83.Ergo,in the above context, we find the order of Ld PCIT is unsustainable in law, consequently we set aside the 263 revisionary order and restore the order of assessment passed u/s 143(3).
9. In the event, the meritorious ground number 1 to 3 and 5 has become academic and infructuous.
10. Resultantly, the appeal of the appellant assessee is allowed in above terms, with no order as to cost.
Order pronounced on this Friday, 18thday of February, 2022.
