2024 (7) TMI 1135 - AT - Income Tax

AO's inadequate examination of superannuation fund payments under section 40A(9) justified revisionary powers under section 263

ITAT Chennai held that AO's failure to properly examine superannuation fund payments to LIC under section 40A(9) justified revisionary powers under ... Revision u/s 263 - disallowance of payment made to Life insurance Corporation of India ('LIC') towards superannuation fund u/s 40A(9) - HELD THAT:- Tax Audit Report, in From 3CD, has mentioned that certain contribution made by the assessee would be disallowable u/s 40A(9). This was, in fact, one of the reasons to reopen the case of the assessee. In the queries raised by AO during re-assessment proceedings, It was objected to by AO that the bank statement furnished by the assessee do not identify the name of the holder of the bank account or bank number. The contribution receipts were in the name of M/s Invensys India Pvt. Ltd. and the same do not pertain to the assessee company. The evidences furnished by the assessee do not support the claim of the assessee. Assessee clarified that erstwhile name of the company was changed from M/s Invensys India Pvt. Ltd. to present name as evidenced by certificate of ROC showing name change of the assessee company. Assessee also furnished bank statement highlighting two payments out of four payments. AO chose not to make any addition / disallowance, in this regard. However, the proposal made by the Tax Auditor apparently has not been considered and the issue whether the funds were approved fund or not was not addressed. Therefore, it could be concluded that though a specific query was raised on the issue as flagged by revisionary authority, the same was not adjudicated by AO properly with full facts and with due application of mind as required. Firstly, AO overlooked the reporting made by Tax Auditor. Secondly, the assessee only furnished partial receipts in support of the claim. The issue whether the fund was approved fund was not examined / verified. Therefore, we would conclude that it was a case of inadequate enquiry which justifies invocation of revisionary powers u/s 263. AR, has submitted that the claim could alternatively be allowed on merits u/s 37(1). Reliance has been placed on certain decisions, in this regard allowing similar claim of the assessee. AR also submitted that fund went out of control of the assessee and therefore, the deduction thereof could be allowed to the assessee. Considering the same, we modify the directions given in the impugned order and direct Ld. AO to verify the claim of the assessee and examine deductibility of the expenditure. The assessee is directed to substantiate the same. All the issues are kept open. Our adjudication as aforesaid shall not be construed as any expression on the merits of the case. Issues:1. Invocation of revisionary jurisdiction u/s 263 by Ld. Pr. Commissioner of Income Tax2. Revisionary proceedings initiated under section 263 of the Act3. Allowability of contribution to Government-controlled LIC superannuation fund as an expenditureIssue 1: Invocation of revisionary jurisdiction u/s 263 by Ld. Pr. Commissioner of Income TaxThe appeal challenged the invocation of revisionary jurisdiction u/s 263 by the Principal Commissioner of Income Tax Chennai-3 (Pr. CIT) regarding an assessment framed by the Assessing Officer (AO) u/s. 147 r.w.s 144B of the Act. The appellant argued that the order passed by the Pr. CIT was bad in law and on facts. The appellant contended that proper inquiries were conducted by the AO during reassessment proceedings, and the issue in question was already examined. The Pr. CIT was criticized for initiating revisionary proceedings without appreciating the AO's adjudication and detailed inquiries. The appellant also argued that the revision was based on a lack of inquiry, which was refuted by highlighting the detailed inquiries conducted by the AO during reassessment proceedings.Issue 2: Revisionary proceedings initiated under section 263 of the ActThe appellant contested the revisionary proceedings initiated under section 263, arguing that the AO's order was not erroneous and prejudicial to the revenue. The appellant emphasized that the AO had verified the details related to the disallowance of payment made to LIC towards the superannuation fund and had dropped the disallowance after proper verification. It was argued that the revisionary proceedings lacked merit as the AO had applied his mind and conducted detailed inquiries during the reassessment proceedings. The appellant highlighted that the AO's actions were based on proper inquiries and that the revisionary jurisdiction was wrongly invoked without appreciating the facts and circumstances of the case.Issue 3: Allowability of contribution to Government-controlled LIC superannuation fund as an expenditureThe question of whether the contribution made to the Government-controlled LIC superannuation fund was an allowable expenditure was debated. The appellant contended that the contribution made for the benefit of employees should be allowed as a deduction under section 37 of the Act, as it was incurred towards the business. However, the Pr. CIT rejected this argument, stating that the payment was not made to an approved fund and, therefore, could not be allowed as a deduction under relevant sections. The Pr. CIT directed the AO to disallow the payment and recompute the income of the assessee. The Tribunal modified the directions given by the Pr. CIT and directed the AO to verify the claim of the assessee and examine the deductibility of the expenditure, with the appellant required to substantiate the claim. The Tribunal kept all issues open for further examination, clarifying that its adjudication should not be construed as an expression on the merits of the case.In conclusion, the Tribunal partly allowed the appeal, dismissing the stay application and issuing its order on 10th July 2024.