2022 (4) TMI 1509 - AT - Income Tax

Tribunal quashes PCIT's order due to inadequate inquiry, allows appeal by assessee.

The tribunal found that the Assessing Officer (AO) had adequately examined all issues raised except for the deferred payment guarantee commission. The ... Revision u/s 263 - As per PCIT AO has failed to examine/make enquiries on Contribution to Pension Fund - HELD THAT:- We find that this issue was examined by the Assessing Officer during the assessment proceedings. A specific query was raised by way of notice u/s. 142(1) dated 19/12/2017. In reply to the notice, the assessee made detailed reply, reference has also been made to the Tax Audit Report where the Auditors have made note that the Bank has paid Rs.72.15 Crores as contributing to Pension Fund during the FY 2014-15 which has not been debited to P & L account and carried as prepaid liability as per AS-15. As is evident from the documents on record and notice issued u/s 142(1) of the Act, this issue was examined by the Assessing Officer. The payment of Pension Fund was allowed on payment basis. The assessee has been able to demonstrate that amount has been accounted in the books as per AS-15. Disallowance u/s. 14A r.w.r 8D - AO vide notice dated 16/11/2017 as well as notice dated 19/12/2017 made enquiries in respect of disallowance u/s. 14A r.w.r. 8D. After having examined replies of the assessee and also suo-motu disallowance made by the assessee, the Assessing Officer enhanced disallowance u/s. 14A - Therefore, it cannot be said that the Assessing Officer has made no enquiries on this issue. The findings of the PCIT on this issue are contrary to facts and documents on record. Depreciation in value of investments - PCIT while passing the impugned order has not touched this issue. Interest on NPA - Hon’ble Apex Court in the case of CIT vs. Vasisth Chya Vyapar Ltd [2018 (3) TMI 56 - SUPREME COURT] has held that NPA on which no interest was received and possibility of recovery was almost nil, it could not be treated to have been accrued in favour of assessee and was therefore not exigible to tax. This issue was also considered in the case of DCIT vs. Bank of Maharashtra [2019 (6) TMI 1456 - ITAT PUNE]. The issue was enquired into by the AO during assessment proceedings. Even otherwise on merits the issue is squarely covered in favour of the assessee by the decision of Hon’ble Supreme Court of India render in the case of Vasisth Chay Vyapar (supra). The PCIT without pointing queries that the Assessing Officer has failed to make while passing the assessment order, has erred in racking up this issue in revision proceedings. Deferred payment guarantee commission - Assessee has fairly stated that this is the only issue raised in revisional proceedings which was not examined by the Assessing Officer. In reply to the notice u/s. 263 of the Act, the assessee has explained that the guarantee commission is recorded in the books on realization. Assessee referred to the Revenue Recognition Policy of the assessee Bank. A perusal of the same reveals that bank guarantee commission is recognized on realization basis. Thus Guarantee Commission are recorded in the books on the basis of realization. The query raised by the PCIT with regard to deferred payment receipt on Guarantee Commission is merely on surmises and conjectures, hence, without any merit. Loss on Sale of Asset to ARC - assessee has pointed that there is no loss on sale of asset to ARC during the relevant period. In fact, what emerges from the perusal of Annual accounts of the assessee for FY 2014-15 is that during the relevant period only single NPA property was sold to ARC on which the assessee has earned profit. Therefore, the observations made by PCIT in the impugned order are contrary to the facts. Interest on Perpetual Bonds - The assessee in submissions before the PCIT has categorically stated that the interest paid on bonds is debited to Profit & Loss Account. The assessee has substantiated that Bonds are reflected in the Balance Sheet under the head Borrowings. The details of the borrowings are given in Schedule-4 to the Balance Sheet. The assessee in an unequivocal manner had stated before the PCIT that interest paid on bonds is wholly and exclusively for the purpose of business and allowable as deduction u/s. 36(1)(iii) or Sec. 37 of the Act. It is relevant to note that the assessee is a nationalised Bank, there is no question of assessee investing in perpetual Bonds other than for Banking business. Hence, the objection raised by the PCIT is absolutely unfounded. In the present case twin conditions for exercising revisionary powers i.e. (i) the assessment order is erroneous, and (ii) prejudicial to the interest of revenue, are not satisfied concurrently. Hence, the impugned order is liable to be set aside on this ground alone. Only issue that was not examined by Assessing Officer during assessment proceedings was deferred payment guarantee commission - We find in reply to notice as well as during revision proceedings the assessee had pointed that the issue is regarding Revenue Recognition Policy. The assessee has shown that as per Revenue Recognition policy guarantee commission is recorded in books on realization basis. Hence, on merits revision proceedings are not legally sustainable on this issue as well. Assessee appeal allowed. Issues Involved:1. Contribution to Pension Fund2. Disallowance under Section 14A of the Income Tax Act3. Depreciation in Value of Investments4. Interest on Non-Performing Assets (NPA)5. Deferred Payment Receipt of Guarantee Commission6. Loss on Sale of Assets to Asset Reconstruction Company (ARC)7. Interest Paid on Perpetual BondsDetailed Analysis:1. Contribution to Pension Fund:The assessee argued that the Assessing Officer (AO) made a detailed inquiry regarding the pension fund during the assessment proceedings. The AO issued a show cause notice under Section 142(1) of the Income Tax Act, and the assessee responded with a detailed reply, supported by the Tax Audit Report. The report noted that the bank paid Rs. 72.15 crores to the pension fund, which was reflected in the books as per Accounting Standard-15 (AS-15). The AO accepted the assessee's contentions and made no addition. The tribunal found no infirmity in the AO’s findings.2. Disallowance under Section 14A of the Income Tax Act:The assessee had earned exempt income and made a suo-motu disallowance. The AO raised specific queries regarding the disallowance under Section 14A read with Rule 8D, to which the assessee responded with detailed replies. The AO, after considering the replies, made a disallowance of Rs. 24.59 crores. The tribunal found that the AO had indeed examined the issue, making the PCIT's observations contrary to the facts on record.3. Depreciation in Value of Investments:The PCIT mentioned this issue in the notice under Section 263 but did not adjudicate it while passing the order. Therefore, this issue was not taken up for further consideration.4. Interest on Non-Performing Assets (NPA):The AO examined this issue during the assessment proceedings, raising a query which the assessee responded to by stating that interest income is offered to tax on an accrual basis in line with Rule 6EA of the Income Tax Rules. The tribunal noted that this issue is covered by the decision of the Hon’ble Supreme Court in CIT vs. Vasisth Chay Vyapar Ltd. and the Pune Bench of the Tribunal in DCIT vs. Bank of Maharashtra. The tribunal found that the AO had made the necessary inquiries and that the PCIT erred in raising this issue in revision proceedings.5. Deferred Payment Receipt of Guarantee Commission:The assessee admitted that the AO did not make any inquiry on this issue during the assessment proceedings. However, the assessee explained that the bank’s policy recognizes payments on a realization basis. The tribunal found that the guarantee commission is recorded on realization, as per the Revenue Recognition Policy in the Annual Report. The tribunal deemed the PCIT’s query on this issue to be without merit.6. Loss on Sale of Assets to Asset Reconstruction Company (ARC):The AO examined this issue during the assessment proceedings and found that there was no loss on the sale of assets to ARC during the relevant period. Instead, the assessee had gained and offered the same to tax. The tribunal found the PCIT’s observations contrary to the facts.7. Interest Paid on Perpetual Bonds:The AO raised a specific query regarding interest expenses during the assessment proceedings. The assessee responded that the interest paid on bonds is debited to the Profit & Loss Account and that the bonds are shown under the head Borrowings in the Balance Sheet. The tribunal found the PCIT’s objection unfounded and noted that the AO had made the necessary inquiries.Conclusion:The tribunal concluded that the AO had made necessary inquiries on all issues except the deferred payment guarantee commission. However, the assessee had explained this issue during revision proceedings. The tribunal found that the PCIT had wrongly assumed jurisdiction under Section 263, as it was not a case of lack of inquiry but rather inadequate inquiry, which does not warrant revisionary powers. The tribunal quashed the impugned order, allowing the appeal by the assessee.