Case Law Details
Gujarat Power Corporation Ltd. Vs PCIT (ITAT Ahmedabad)
ITAT Ahmedabad held that order passed u/s. 263 of the Income Tax Act is liable to be set aside since PCIT failed to consider or deal with any arguments or submission filed by the assessee.
Facts- PCIT observed that the assessee company made investment in listed and unlisted equity shares for Rs. 197,74,06,788/- and earned exempt income of Rs. 1,42,39,767/- from share of profit and debited an amount of Rs. 1,00,000/- as expenses related to exempt income. On perusal of assessment order the PCIT observed that the AO made disallowance under Section 14A considering investment made in quoted shares of other companies, however, investment made in subsidiaries, Joint Venture and Associated concerns were not taken into account.
According to the PCIT the quantum of disallowance as per Rule 8D works out to 1,98,36,285/- as against which the AO made disallowance of Rs. 86,88,523/- which has resulted into under assessment of income. Further, the PCIT pointed out that the assessee had claimed interest on grant of a sum of Rs. 4,18,06,612/- as revenue expenditure. PCIT was of the view that the assessee failed to explain the nature of interest on grant and even the AO has failed to verify as to how his expenditure is allowable as revenue expenditure since grants are not in the nature of loan.
Conclusion- Held that the PCIT in the 263 order has failed to taken into consideration / dealt with any of the arguments taken / submissions filed by the assessee during the course of 263 proceedings. Therefore, we are of the view that the 263 order and has been passed against the principles of natural justice, wherein none of the arguments / submissions of the assessee were discussed or dealt with in the 263 order. Secondly, we observe that the 263 order, there is not discussion whatsoever as to why the assessment order is erroneous while allowing the claim of expenditure on this issue. For the aforesaid reasons, we are of the view that order passed under Section 263 of the Act on this issue is liable to be set-aside.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income Tax, (in short “Ld. PCIT”), Ahmedabad-3 vide order dated 13.03.2024 passed for A.Y. 2018-19.
2. The Assessee has taken the following grounds of appeal:-
“1. Revision by learned Pr. CIT is on account of change of opinion and is contrary to the provisions of law.
2. Disallowance U/s. 14A w. Rule 8D(2) of Rs. 1,10,47,762/- in addition to disallowance u/s 14A made in the assessment order dated 24-09-21 while Calculating Income Under Normal Provision of the Act (Disallowance as computed in Revision Order dated 13-03-24 Rs. 1,98,36,285 Less: Disallowance as per Assessment Order dated 24-09-21 Rs. 86,88,253 Less: Already disallowed in the return Rs. 1,00,000)
3. Disallowance U/s. 14A w. Rule 8D(2) of Rs. 1,10,47,762/- in addition to disallowance u/s 14A made in the assessment order dated 24-09-21 while Calculating Book Profit U/s. 115JB of the Act – MAT (Disallowance as computed in Revision Order dated 13-03-24 Rs. 1,98,36,285 Less: Disallowance as per Assessment Order dated 24-09-21 Rs. 86,88,523 Less: Already disallowed in the return Rs. 1,00,000)
4. Disallowance of Interest on grant of Rs. 4,18,06,812/-”
3. The brief facts of the case are that on verification of case records the PCIT observed that the assessee company made investment in listed and unlisted equity shares for Rs. 197,74,06,788/- and earned exempt income of Rs. 1,42,39,767/- from share of profit and debited an amount of Rs. 1,00,000/- as expenses related to exempt income. On perusal of assessment order the PCIT observed that the AO made disallowance under Section 14A considering investment made in quoted shares of other companies, however, investment made in subsidiaries, Joint Venture and Associated concerns were not taken into account. According to the PCIT the quantum of disallowance as per Rule 8D works out to 1,98,36,285/- as against which the AO made disallowance of Rs. 86,88,523/- which has resulted into under assessment of income. Further, the PCIT pointed out that the assessee had claimed interest on grant of a sum of Rs. 4,18,06,612/- as revenue expenditure in Note 24 reflected as “other expenses”. The PCIT was of the view that the assessee failed to explain the nature of interest on grant and even the AO has failed to verify as to how his expenditure is allowable as revenue expenditure since grants are not in the nature of loan. Accordingly, the PCIT set-aside the assessment order as being erroneous in so far as prejudicial to the interest of the Revenue for the aforesaid reasons.
4. The assessee is in appeal before us against the order passed by Ld. PCIT.
Ground No. 2: Disallowance under Section 14A of Rs. 1,10,47,762/-
5. At the outset, the Counsel for the assessee submitted that the PCIT has erred in observing that the AO failed to make due enquiries during the course of assessment proceedings. The Counsel for the assessee drew our attention to notice dated 12.2020 issued by the AO, wherein the AO had made a specific enquiry on this issue. Further, the Counsel for the assesse drew our attention to response filed by the assessee dated 28.01.2021 wherein the assessee had filed a detailed written submission on this issue. Further, the Counsel for the assessee drew our attention to notice dated 30.04.2021 issued by the AO wherein the AO again made a specific enquiry into this issue, in response to which the assessee filed it’s reply dated 11.05.2021, wherein a specific response was given by the assessee on this issue. It was submitted before us that in view of the submissions filed by the assessee on this issue, the AO made a disallowance of a sum of Rs. 86.88 lakhs and therefore, clearly the AO had duly enquired into this issue and after due application of mind had made appropriate disallowance under Section 14A of the Act. Secondly, the Counsel for the assessee submitted that the assessee had filed detailed written submissions in response to the notice issued under Section 263 of the Act, however, while passing the order, the Ld. PCIT did not deal with any of the submissions made by the assessee in response to the 263 notice issued by Ld. PCIT. Thirdly, the Counsel for the assessee submitted that the Ld. PCIT has not pointed out to any error committed by the AO while making the disallowance of a sum of Rs. 86.88 lakhs under Section 14A of the Act in the assessment order. Therefore, for the aforesaid reasons, the order passed under Section 263 of the Act is liable to be set-aside.
6. In response, the Ld. D.R. placed reliance on the observations made by the PCIT in the 263 order.
7. We have heard the rival contentions and perused the material on record.
8. On going through the contents of the 263 order, we observed that firstly, Ld. PCIT has failed to appreciate that the AO had made detailed and specific enquiries in to this aspect and had also issued to notices specific to this issue. The assessee has also filed detailed written submissions in response to notices issued by the AO and after taking the same into consideration, had passed a speaking assessment order wherein after taking into consideration the written submissions filed by the assessee, a disallowance of Rs. 86.88 lakhs was made by the AO. Therefore, clearly this is not a case where there was any lack of enquiries or non-application of mind by the AO related to this issue. Secondly, on perusl of the order under Section 263 of the Act, we observe that the assessee had filed detailed written submissions dated 30.01.2024 before the PCIT with respect to disallowance under Section 14A of the Act, wherein various details / submissions were filed in which it was inter alia contended that this issue finds support from various decisions including that of the assessee given by Ahmedabad Tribunal for previous assessment years. In the written submissions filed by the assessee, it was submitted that the assessee had made investment in earlier years and no new investments were made by the assessee during the current year. However, we observe that while passing the 263 order, the Ld. PCIT has failed to take into consideration any of the arguments / written submissions filed by the assessee during the course of 263 proceedings. We observe that the Ld. PCIT, has not dealt with or even discussed any of the submissions filed by the assessee during the 263 proceedings. Therefore, clearly, the order passed by Ld. PCIT is against the principle of natural justice wherein none of the arguments / submissions filed by the assessee were even bothered to be considered by Ld. PCIT while framing the 263order. For this reason also, we are of the view that the 263 order is liable to be set-aside. Thirdly, it is a well settled principle of law that once AO has taken a legally plausible view after due application of mind, then 263 proceedings cannot be resorted to only with a view to substitute the view of PCIT as against the view to taken by the AO.
9. The Hon’ble Punjab & Haryana High Court in the case of CIT Indo German Fabs IT Appeal No. 248 of 2012, dated 24 12-2014, has made the following observations on this issue:
“Section 263 of the Act confers power to examine an assessment order so as to ascertain whether it is erroneous and prejudicial to the interest of the revenue but does not confer jurisdiction upon the CIT to substitute his opinion for the opinion of the Assessing Officer. The words prejudicial and erroneous have to be read in conjunction and therefore, it is not each and every error in an assessment that invites exercise of powers under Section 263 of the Act, but only orders that are erroneous and prejudicial to the interest of the revenue.”
10. The Delhi HC in the case of Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.) has made the following observations in this regard:
“From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous.”
11. In the case of Rajgul Credit Invest P. Ltd. Vs. PCIT, I.T.A. No. 2519/DEL/2019, dt. 19.09.2019, made the following observations on this aspect of the matter:
“Thus, we are of the view that the assessing officer has taken a plausible view in the facts and circumstances of the case. Even though the Ld Pr. CIT has drawn certain adverse inferences from the document, yet it can seen that they are debatable in nature. Further, as noticed earlier, the Ld Pr. CIT has not brought any material on record by making enquiries or verifications to substantiate his inferences. He has also not shown that the view taken by him is not sustainable in law. Thus, we are of the view that the Ld Pro CIT has passed the impugned revision orders only to carry out fishing and roving enquiries with the objective of substituting his views with that of the AO. Hence we are of the view that the Ld Pr. CIT was not justified was not correct in law in holding that the impugned assessment orders were erroneous.”
12. Accordingly, in light of the above reasons, we are of the view that the 263 order is liable to be set-aside and no further disallowance is called for under Section 14A of the Act r.w.r. 8D of the Income Tax Rules. We hold that the order passed by PCIT is clearly against the principles of natural justice wherein none of the submissions filed by the assessee has been taken into consideration / have not been dealt with and therefore, in our view, the assessment order is not erroneous and prejudicial in the interest of the Revenue and the 263 order is liable to be set-aside on this issue.
13. In the result, Ground 2 of the assessee’s appeal is allowed.
Ground No. 3: Disallowance under Section 14A of Rs. 1,10,47,762/- by calculating Book Profit under Section 115JB of the Act.
14. Since we have already held that no disallowance is called for under Section 14A r.w.r. 8D, Ground No. 3 of the assessee’s appeal, being consequential, is hereby allowed.
Ground No. 4: Disallowance of interest on grant of Rs. 4,18,06,812/-
15. Regarding this disallowance, the Counsel for the assessee submitted that there is not specific error pointed out by the Ld. PCIT in the 263 order as to why this amount of Rs. 4,18,06,812 should be disallowed and in what manner has the AO erred in allowing the claim of revenue expenditure relating to this amount. The Counsel for the assessee submitted that the assessee had made detailed written submissions on this issue during the course of 263 proceedings, however, the Ld. PCIT has not taken into consideration the written submissions filed by the assessee, while framing the 263 order. The Counsel for the assessee submitted that the assessee had pointed out that in the interest in question was paid on funds received as Government grants, which were kept as deposits with Gujarat State Financial Services, until the same was It was submitted that the interest earned on those deposits were offered for tax in the return for A.Y. 2018-19. The interest paid by the assessee includes a sum of Rs. 2.10 crores paid to Solar Energy Corporation of India and a sum of Rs. 2.08 crores approximately to various Government entities with regards to unutilized grants as of 31.03.2018. The Counsel for the assessee submitted that in accordance with the letter from Ministry of New and Renewable Energy (MNRE) dated 22.03.2016, funds received from SECI for the 700 Mega Watt Ultra Mega Project may be kept in an interest bearing format, with the interest accrued to be credited to the Government account. Therefore, it was submitted that the assessee has paid interest of Rs. 2.10 crores as interest on this grant, which is in line with the guidelines provided by the Government. In addition, the assessee has paid a sum of Rs. 2.08 crores as interest on various Government grants as on 31.03.2018 to cover unspent balances. The Counsel for the assessee submitted that the PCIT failed to appreciate that the assessee had received various grants / financial assistance for implementing and executing various projects and these grants are kept in deposit with Gujarat State Financial Services until utilized. Further, the interest earned on deposit kept with Gujarat State Financial Services has been duly offered to tax while filing return of income for A.Y. 2018-19. Out of the same, the assessee has paid interest of Rs. 2.10 crores to SECI and interest of Rs. 2.08 crores to various Government entities towards unspent funds for grants / assistance as on 31.03.2018. The Counsel for the assessee submitted that the PCIT has failed to consider that the assessee has correctly debited and claimed interest expense on unspend amount of grant / financial assistance which is paid as per directions of the Government of India / G.R. of Government of Gujarat against interest income earned and offered to tax on such amount kept with Gujarat State Financial Services.
16. In response, the Ld. D.R. placed reliance on the observations made by the Ld. PCIT in the 263 order.
17. We have heard the rival contentions and perused the materials on record.
18. On going through the facts of the instant case, we observe that the PCIT in the 263 order has failed to taken into consideration / dealt with any of the arguments taken / submissions filed by the assessee during the course of 263 proceedings. Therefore, we are of the view that the 263 order and has been passed against the principles of natural justice, wherein none of the arguments / submissions of the assessee were discussed or dealt with in the 263 order. Secondly, we observe that the 263 order, there is not discussion whatsoever as to why the assessment order is erroneous while allowing the claim of expenditure on this issue. For the aforesaid reasons, we are of the view that order passed under Section 263 of the Act on this issue is liable to be set-aside.
19. In the result, Ground 4 of the assessee’s appeal is allowed.
20. In the combined result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 21/11/2024
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