TMI Blog2022 (11) TMI 1110X X X X Extracts X X X X X X X X Extracts X X X X ..... rected to be disallowed u/s. 40(a)(ia) - Counsel has evidently demonstrated that the said payment forms part of the salary of the two directors which has been subjected to TDS u/s. 192 - We also note that issue relating to compliance of section 197 of the Companies Act, 2013 though not formed part of the show cause notice issued by the Pr. CIT, has been evidently demonstrated to be complied with, by the assessee as noted above. All the evidence in respect of TDS done on the amount of commission paid to the two directors and as reported in Form 16 as well as in quarterly TDS statement filed by the assessee, are on record which factually demonstrates that commission paid has been subjected to required TDS which is contrary to the observations made by the Pr. CIT. Double claim of depreciation by the assessee on the fixed assets of its SEZ unit at Falta - Assessee has factually demonstrated that no such double claim much less the original claim of depreciation has been made by the assessee in computing the eligible profits of the SEZ unit for making a claim of deduction u/s. 10A of the Act. Details of this computation have already been noted above. Also important to note that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in respect commission paid to the Managing Director/Directors of the assessee company for nondeduction of tax at source as well as non-compliance of section 197 of the Companies Act, 2013; (iii) In respect of double claim of depreciation on fixed assets of SEZ unit at Falta. 2.1. Brief facts of the case are that assessee filed its return of income on 25.10.2017 reporting total income of Rs.74,31,92,720/-. The case was selected for scrutiny assessment u/s. CASS. Statutory notices were issued and served through the Departmental ITBA portal. Assessee complied with these notices by making submissions through departmental ITBA portal on various dates along with relevant documentary evidence. After considering the submissions of the assessee filed through the e-filing portal, assessment was completed by accepting the returned income as assessed income. Subsequently, Ld. Pr. CIT called for and examined the assessment records and observed on the three above issues as under: (i) Test check of the assessment revealed that the assessee claimed deduction u/s 80G to the tune of Rs. 3,81,72,500/- (50% of Rs. 7,63,45,000/- donated to 09 private Charitable Trusts during the F.Y 2016-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x effect of Rs.66.29 lakh. 2.2. On the above three issues observed by the Ld. Pr. CIT, a show cause notice was issued u/s. 263 of the Act dated 21.02.2022 for which a detailed reply was submitted by the assessee along with relevant documentary evidence. The written submission furnished by the assessee before the Ld. Pr. CIT, on each of the three issues is reproduced in the impugned order u/s. 263 from pages 2 to 6. After considering the submissions made by the assessee on the three above listed issues, Ld. Pr. CIT concluded that the papers submitted before him were not submitted in the course of assessment proceedings and, therefore, were not verified by the AO in the assessment completed by him. He also noted that whether the approval given u/s. 80G(5) by the appropriate authorities were withdrawn or not is not known. On the second issue relating to commission paid to the directors of the assessee company, Ld. Pr. CIT noted that remuneration given to the Directors should have been in accordance with the provisions of section 197 of the Companies Act, 2013 which appears to have been violated. On the third issue, Ld. Pr. CIT noted that the claim of double depreciation is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money receipts as well as 80G certificates were filed on 01.03.2019 before the Ld. AO and the same were resubmitted before the Ld. Pr. CIT on 07.03.2022. Ld. Counsel also referred to Schedule 80G of the income tax return form wherein details of donations entitled for deduction u/s. 80G are to be furnished. In the said schedule, name and address of the donation, PAN of donee, amount of donation and eligible amount of donation entitled for 50% deduction, without qualifying limit, has been duly furnished. This is placed at page 40 of the paper book. In respect of observation made by the Ld. Pr. CIT relating to four charitable trusts namely, Swarnim Foundation, Vishnu Charitable Trust, Jashidi and HP Bhudia Charitable Trust for which it was alleged that no certificate u/s. 80G and payment proof is found in the assessment record, Ld. Counsel referred to the relevant documents placed in the paper book. 3.2. In respect of Swarnim Foundation, certificate issued by the Commissioner of Income Tax (exemption), Kolkata u/s. 80G(5)(vi) of the Act has given an approval which is valid in perpetuity i.e. w.e.f. 30.03.2015 unless specifically withdrawn. This certificate is placed at page 134 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s one relating to payment of commission to the two directors which form part for their salary subjected to TDS u/s. 192 of the Act. According to the Ld. Counsel, the conclusion drawn by Ld. Pr. CIT that no tax has been deducted on the payment of commission and the same is to be disallowed u/s. 40(a)(ia) of the Act is without examination of the records and without considering the applicable provisions of the Act. He also submitted that issue relating to violation of the provisions of section 197 of the Companies Act, 2013 was never raised in the show cause notice issued u/s. 263 of the Act by the Ld. Pr. CIT though he has drawn his conclusion to set aside the assessment order on this aspect also. For section 197 of the Companies Act, 2013, Ld. Counsel submitted that this section puts a ceiling on the remuneration payable to directors at 11% of the profit and it is 10% in case of payment to Managing directors/whole time directors. He pointed out that net profit of the assessee is Rs.115.05 Cr. and the remuneration including commission paid is of Rs.11.42 Cr. which is 9.93%. He further submitted that section 17(1)(iv) of the Act includes commission as part and parcel of salary for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pointing out how it is erroneous and prejudicial to the interest of revenue. 4. Per contra, Ld. CIT, DR emphasized that AO has not undertaken the requisite examination and has simply taken the records submitted by the assessee to allow the claim made by it and completed the assessment. Ld. Pr. CIT has rightfully raised these three issues and has set aside the assessment for the purpose of re-examination by the Ld. AO which does not lead to any prejudice to the assessee. He placed reliance on the order of the Ld. Pr. CIT. 5. We have heard the rival contentions and perused the material available on record and given our thoughtful consideration to the submissions made. In respect of first issue relating to donation made by the assessee to nine charitable trusts, we note that the requisite documents desired by the Ld. Pr. CIT in the revisionary proceeding for justifying the claim of deduction made by the assessee u/s. 80G of the Act in the form of donation receipts and approvals issued by the department to the donees u/s. 80G(5)(vi) of the Act are on record. We also note that the validity of approval granted to the three trusts out of four as noted by the Ld. Pr. CIT in his sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not applied his mind to arrive at a consideration which is erroneous in so far as prejudicial to the interest of the revenue, for passing the impugned order u/s 263 of the Act. We observe that in the course of proceedings u/s 263 of the Act before the Ld. PCIT, assessee had furnished the relevant details and explained the issues raised through the show cause notice by the Ld. PCIT, supporting its contentions by corroborative documentary evidences. It is well settled law that for invoking the provisions of section 263 of the Act, both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts. 6. For this, let us take the guidance of judicial precedence laid down by the Hon ble Apex Court in the case of Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordships have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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