2022 (7) TMI 893 - AT - Income Tax

Tribunal remands case for reassessment, emphasizes fair hearing opportunity.

The Tribunal remanded the case back to the Assessing Officer for de novo verification, emphasizing the need for proper opportunity for the assessee to be ... Revision u/s 263 by CIT - claim of deduction u/s 80P(2)(a)(i) of the interest income earned by the assessee - whether the leave encashment and audit fee are ascertained liabilities and that the interest on income tax refund to be brought to tax under the head Income from Other Sources? - HELD THAT:- We notice that the coordinate bench of the Tribunal in the case of Kakkabe VSSN Bank Ltd [2022 (2) TMI 1230 - ITAT BANGALORE] has dealt with the similar issue, where the Hon’ble Tribunal has remanded the issue back to the file of the AO for de novo assessment. We remand the case back to the AO to carry out de novo verification on the issues considered by the PCIT in the impugned order in the light of the principles laid down in the case of Mavilayi Services Cooperative Bank Ltd., [2021 (1) TMI 488 - SUPREME COURT] and provide reasonable opportunity of being heard to the assessee. The assessee is directed to file the required documents before the AO and extend full cooperation to the AO. Appeal by the assessee is allowed for statistical purpose. Issues:1. Jurisdiction of the Pr. Commissioner of Income Tax under section 263 of the Income-tax Act.2. Eligibility of deductions under section 80P(2)(a)(i) of the Income Tax Act.3. Treatment of interest income, leave encashment, and audit fees for tax purposes.Issue 1: Jurisdiction of the Pr. Commissioner of Income Tax under section 263 of the Income-tax Act:The appeal challenged the order of the Pr. Commissioner of Income Tax (PCIT) passed under section 263 of the Income-tax Act for the assessment year 2015-16. The appellant contended that the PCIT's assumption of jurisdiction under section 263 was arbitrary, unjust, and illegal. The grounds raised by the assessee emphasized that the original order by the Assessing Officer (AO) was not erroneous or prejudicial to the revenue's interest, questioning the PCIT's intervention. The appellant argued that the PCIT's observations and directions were incorrect on facts and untenable in law. Moreover, it was asserted that the PCIT assumed jurisdiction on issues not part of the limited scrutiny mandate, violating CBDT guidelines. The appellant further contended that the PCIT's intervention was based on surmises and conjectures, which is impermissible under section 263. The appeal challenged the PCIT's directions on various issues, arguing that they were based on impermissible acts and should be annulled. Ultimately, the Tribunal remanded the case back to the AO for de novo verification in line with the principles laid down by the Supreme Court, emphasizing the need for proper opportunity for the assessee to be heard.Issue 2: Eligibility of deductions under section 80P(2)(a)(i) of the Income Tax Act:The PCIT proposed to revise the AO's order under section 263, contending that the AO's order was erroneous and prejudicial to the revenue's interest. The PCIT identified various aspects where deductions claimed by the assessee under section 80P(2)(a)(i) were challenged. Specifically, the PCIT held that interest income from investments, leave encashment, and audit fees were not eligible for deduction under section 80P(2)(a)(i). The PCIT proposed to add back these amounts to the net profit, arguing that there was no proof of expenditure having been incurred. In response, the assessee cited legal precedents and explanations to support the eligibility of deductions claimed under section 80P(2)(a)(i). Despite the assessee's submissions, the PCIT disagreed and directed the AO to verify these claims. The Tribunal, following the decision of a coordinate bench, remanded the case back to the AO for de novo verification, emphasizing compliance with legal principles and granting the assessee a reasonable opportunity to be heard.Issue 3: Treatment of interest income, leave encashment, and audit fees for tax purposes:The AO had disallowed certain deductions claimed by the assessee, including interest income from investments, leave encashment, and audit fees, under section 80P(2)(a)(i) of the Income Tax Act. The PCIT proposed to add back these amounts to the net profit, arguing that they were not eligible for deduction. The assessee provided explanations and supporting documents to justify these deductions, citing legal precedents. However, the PCIT maintained its stance and directed the AO to verify these claims. The Tribunal, in line with a similar case, remanded the matter back to the AO for thorough verification, adhering to legal principles and ensuring the assessee's right to present their case. The Tribunal allowed the appeal for statistical purposes, emphasizing the need for a fair and thorough assessment process.This comprehensive analysis covers the jurisdictional aspects, eligibility of deductions under section 80P(2)(a)(i), and the treatment of interest income, leave encashment, and audit fees for tax purposes as outlined in the judgment delivered by the Appellate Tribunal ITAT Bangalore.