2024 (12) TMI 767 - AT - Income Tax

PCIT revision upheld after AO wrongly allowed section 10(10CC) and 10(10BB) exemptions without proper inquiry on annuity payments

ITAT Ahmedabad upheld PCIT's revision u/s 263 after AO erroneously allowed exemptions u/s 10(10CC) and 10(10BB) without proper inquiry. PCIT found ... Revision u/s 263 - Assessment was completed by disallowing claim of exemption u/s. 10(10CC) and interest income - PCIT found that the assessee claimed Annuity payment was made to LIC as not taxable, which is contrary facts on record and against the provisions of law - HELD THAT:- We have given our thoughtful consideration and perused the materials available on record and the order passed in the case of Mafatbhai Bhikhabhai Parmar [2024 (6) TMI 642 - ITAT AHMEDABAD] held that deduction u/s 10(10CC) of the Act is available in respect of tax paid by employer for a non-monetary perquisite derived u/s 17(2) of the Act. The employer can’t claim any deduction for such perquisite and the same is liable to be disallowed u/s 40(a)(v) - AO didn’t make any enquiry from the employer about payment of perquisite which was claimed exempt u/s 10(10CC) of the Act and had allowed the claim of the assessee. The enquiry made by the PCIT from the employer revealed that neither any perquisite was paid to the assessee nor the employer had made any disallowance u/s 40(a)(v) of the Act. Therefore, the claim of exemption u/s 10(10CC) of the Act made by the assessee was wrong and incorrect. Similarly, the claim for exemption u/s 10(10BB) of the Act was also allowed by the AO without making any enquiry from the employer. It is thus evident from the above facts, that the AO had not conducted proper inquiries in respect of the claims as made in the return of income and, therefore, the order was rightly treated as erroneous and pre-judicial to the interest of revenue by the Ld. PCIT. As pointed out by the Ld. CITDR, it was held in the case of Navnit Lal Sakar Lal [2000 (11) TMI 1 - SUPREME COURT] that the amount utilized by the employer for obtaining deferred annuity policy would form part of remuneration payable to the assessee and was chargeable under the head “salaries”. Therefore, the annuity amount paid to LIC by the employer was remuneration of the assessee and taxable as salary. As the order of the AO was not in accordance with the decision of the Apex Court the order of the AO was erroneous and pre-judicial to the interest of revenue for this reason as well. It is a trite law and a well settled position that non application of mind or wrong assumption of facts or incorrect application of law by the A.O. will make the order erroneous and pre-judicial to the interest of Revenue. Therefore, we do not find anything wrong with the assumption of jurisdiction u/s 263 of the Act by the Ld. PCIT as the order of the AO was erroneous and pre-judicial to the interest of Revenue - Appeal filed by the Assessee is hereby dismissed. Issues Involved:1. Invocation of Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT).2. Assessment of Voluntary Retirement Scheme (VRS) amount as taxable salary and related exemptions.3. Examination of the employer's role in LIC Annuity Policy payments and tax exemptions.Detailed Analysis:1. Invocation of Section 263 of the Income Tax Act:The primary issue was whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking Section 263 of the Income Tax Act, which allows for revision of an assessment order if it is deemed erroneous and prejudicial to the interest of revenue. The PCIT found that the Assessing Officer (AO) had allowed exemptions on incorrect assumptions of facts and contrary to the provisions of law, particularly concerning the Voluntary Retirement Scheme (VRS) amount and related exemptions. The PCIT determined that the AO failed to conduct necessary inquiries and verifications, rendering the assessment order erroneous and prejudicial to the revenue.2. Assessment of VRS Amount as Taxable Salary and Related Exemptions:The assessee received a VRS amount, part of which was claimed as exempt under Section 10(10C) of the Act. The PCIT noted that the AO allowed an exemption of Rs. 15,00,000/- without proper verification, despite the VRS amount being taxable as salary, with exemption restricted to Rs. 5,00,000/- under the relevant section. The PCIT's inquiry revealed that the entire VRS amount should have been taxed as salary under Section 17(1) of the Act, and the AO's failure to disallow the exemption of Rs. 15,00,000/- was erroneous and prejudicial to the revenue.3. Examination of the Employer's Role in LIC Annuity Policy Payments and Tax Exemptions:The PCIT scrutinized the employer's handling of the LIC Annuity Policy payments. The employer's response clarified that these payments were made at the request of employees and were not treated as perquisites in Form No. 16. The inquiry revealed that the employer did not treat the income-tax liability on these payments as exempt under Section 10(10CC) of the Act, nor was any disallowance made under Section 40(a)(v). The PCIT concluded that the AO failed to verify whether the LIC Annuity payments were part of the taxable salary, leading to an erroneous assessment order.Conclusion:The Tribunal upheld the PCIT's invocation of Section 263, agreeing that the AO's assessment was erroneous and prejudicial to the revenue. The Tribunal noted that the AO did not conduct necessary inquiries regarding the VRS amount and related exemptions, nor did they verify the employer's role in the LIC Annuity Policy payments. The appeal filed by the assessee was dismissed, in line with the Tribunal's previous decision in a similar case, confirming that the AO's order was not in accordance with the law and the decision of the Apex Court regarding the taxation of annuity payments as salary.