Income Tax Appellate Tribunal - Chandigarh
M/S Classic Enterprises, Chandigarh vs Assessee on 8 March, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI H.L.KARWA, VICE PRESIDENT
AND MS. RANO JAIN, ACCOUNTANT MEMBER
ITA No.386/Chd/2011
(Assessment Year : 2006-07)
M/s Classic Enterprises, Vs. The D.C.I.T.,
# 17, Sector 10-A, Ward-1(4),
Chandigarh. Chandigarh
PAN: AAEFC5510H
(Appellant) (Respondent)
Appellant by : Shri Tej Mohan Singh
Respondent by : Shri Sushil Kumar, DR
Date of hearing : 17.02.2016
Date of Pronouncement : 08.03.2016
O R D E R
PER H.L. KARWA, V.P. :
This appeal filed by the assessee is directed a g a i n s t t h e o r d e r o f l e a r n e d Commissioner of Income Tax-I, Chandigarh dated 29.3.2011, passed under section 263 of the Income Tax Act, 1961 (in short 'the Act').
2. Briefly stated, the facts of the case are that the assessee is a firm and is engaged in the construction of shops at Kalka. The assessee sold some shops during the year under consideration. The assessee submitted the 2 return of income declaring total income at Rs.8,099/-, which has been accepted by the Assessing Officer in the assessment framed under section 143(3) of the Act. The learned Commissioner of Income Tax while verifying the scrutiny assessment records, accounts and various details noted that the assessment order dated 22.12.2008 passed by the Assessing Officer under section 143(3) of the Act was not only erroneous but also prejudicial to the interests of the Revenue. In that view of the matter, the learned Commissioner of Income Tax issued a show cause notice under section 263 of the Act to the assessee. Subsequently, during the course of proceedings, many other points came to the notice of the learned Commissioner of Income Tax, which also prima-facie indicated that the assessment order was not only erroneous but also prejudicial to the interests of the Revenue. These points were confronted to the assessee. The main points raised by the learned Commissioner of Income Tax are as under :
i) The business of the assessee was that of promoters and builders and net profit/turnover declared in the return of income was only at 0.12%, which according to the learned Commissioner of Income Tax was extremely low for a person engaged in the business of promoters ad builders. 3
ii) The assessee had declared a total construction of Rs.82,63,267/-. However, in the Profit & Loss Account, the assessee had credited an amount of Rs.68 lacs only. According to the learned Commissioner of Income Tax, if the books are maintained on the mercantile system of accounting, then the entire construction of Rs.82,63,267/-
should have been reflected in the Profit & Loss Account either in sale or in closing stock. There was no closing stock in Profit & Loss Account and instead of showing closing stock in Profit & Loss Account, the assessee had taken the amount in the Balance Sheet. According to the learned Commissioner of Income Tax, the assessee had suppressed the profit to that extent and, therefore, the assessment order of the Assessing Officer was not only erroneous but also prejudicial of the interests of the Revenue. The learned Commissioner of Income Tax also noted that the Assessing Officer himself has mentioned in the assessment order that some of the shops were sold in the year in question. Therefore, the Assessing Officer has obviously himself admitted that there were some other shops which have been constructed but which have not been sold and value of these shops were required to be taken to the Profit & Loss 4 Account in closing stock. No closing stock was shown in the Profit & Loss Account.
iii) The details of sale of Rs.68 lacs credited to the Profit & Loss Account and reasonableness of sale consideration has not been examined by the Assessing Officer as a part of the sale was to persons which were related to the assessee.
3. When above points were confronted to the assessee, the assessee submitted its reply on different points vide letter dated 29.3.2011.
4. After considering the reply of the assessee, the learned Commissioner of Income Tax took the view that the same was vague and not convincing. According to him, in its reply the assessee had stated that neither the firm nor its partners were engaged in the business of promoters and builders. However, in the Tax Audit Report, the assessee itself had written that it is in the business of promoters and builders. Further, the assessee stated in its reply that eight shops were constructed on one plot of land bearing khasra No.13 and other plot bearing khasra Nos.14 and 15, where it was proposed to construct the banquet hall and this work could not be completed due to financial constraints. Accordingly, the learned Commissioner of Income Tax concluded that the assessee is engaged in the business of builders and promoters. He further pointed out that in 5 reply, the firm has itself mentioned that the main partner, Mr.Ashok Bansal was constructing a hotel in Pinjore and in fact, a hotel Classic Residency was constructed in Pinjore. The learned Commissioner of Income Tax further pointed out that in its reply, the assessee itself has admitted that the work-in-progress was not reflected in the Profit & Loss Account. At the same time, the assessee has also taken the plea that if new Profit & Loss Account is prepared according to the Standard Accounting Principles, the net profit would be the same. The learned Commissioner of Income Tax further noted that in the assessment order, the Assessing Officer has mentioned that there were some shops constructed which were not sold. However, the Assessing Officer never asked the assessee as to why these unsold shops are not in a closing stock and when the assessee itself has admitted that the Profit & Loss Account have not been prepared as per the Standard Accounting Principles. According to the learned Commissioner of Income Tax, the Assessing Officer never asked the assessee to submit the Profit & Loss Account as per Standard Accounting Principles. The learned Commissioner of Income Tax concluded that the order passed by the Assessing Officer was not only erroneous but also prejudicial to the interests to the Revenue. The learned Commissioner of Income Tax categorically stated that the entire amount of construction made in the 6 financial year 2005-06 was not reflected in the Profit & Loss Account. No closing stock of sale of shops or construction in hands was shown, which was also required to be done as per percentage of completion method and also as per mercantile system of accounting as the business of the assessee was that of builders/promoters. The learned Commissioner of Income Tax also took the view that the net profit at 0.12% shown by the assessee was extremely low in the business of builder or promoter. In view of the above, the learned Commissioner of Income Tax came to the conclusion that the order passed by the Assessing Officer under section 143(3) of the Act is not only erroneous but also prejudicial to the interests of the Revenue. He, therefore, set aside the order passed by the Assessing Officer and directed the Assessing Officer to re- frame the assessment for the year under consideration after affording the assessee reasonable opportunity of being heard.
5. Now, the assessee is in appeal against the order of the learned Commissioner of Income Tax dated 29.3.2011 before the Tribunal.
6. Shri Tej Mohan Singh, learned counsel for the assessee vehemently argued that the grounds taken by the learned Commissioner of Income Tax invoking the provisions of section 263 of the Act are wrong and 7 incorrect. According to him, the assessee has prepared Balance Sheet and Profit & Loss Account in accordance with Standard Accounting Principles as framed by the Institute of Chartered Accountants of India, a Statutory Body incorporated under the Central Act. He further submitted that the assessee has maintained its accounts on percentage of completion method as per mercantile system of accounting. He further submitted that in the instant case, the assessee has only debited a sum of Rs.40,34,407/- out of Rs.82,63,267/- to the Profit & Loss Account. According to the learned counsel for the assessee, the question of showing the rest of the construction value of closing stock in the Profit & Loss Account is not correct to arrive at the profit and loss of the sales effected during the year. The learned counsel for the assessee further pointed out that the learned Commissioner of Income Tax has wrongly alleged that the assessee has suppressed the profit to the extent of closing stock. According to him, this allegation is without any basis. The assessee has constructed eight shops only and no other shops were constructed. The learned counsel for the assessee further submitted that the assessee has submitted the re-constructed Profit & Loss Account with Commissioner of Income Tax alongwith letters dated 29.3.2011 and 10.7.2009, wherein total land and building related to (work-in-progress) jointly involved in case were submitted. The learned counsel for the assessee pointed out that the assessment order was passed by the 8 Assessing Officer after due application of mind and taking into consideration various replies, material on record and books of account. Therefore, the action of the learned Commissioner of Income Tax is unwarranted and uncalled for. Accordingly, the learned counsel for the assessee submitted that the order passed by the learned Commissioner of Income Tax under section 263 of the Act, may be quashed.
7. Shri Sushil Kumar, the learned D.R. strongly supported the order of the learned Commissioner of Income Tax, passed under section 263 of the Act. The learned D.R. pointed out that the reasons for setting aside the order passed under section 143(3) of the Act was that the Assessing Officer had failed to carry out any enquiry/proper enquiry on the issues raised by the learned Commissioner of Income Tax in his order dated 22.12.2008. Accordingly the learned Commissioner of Income Tax has held the order passed by the Assessing Officer to be not only erroneous but also prejudicial to the interests of the Revenue. The learned D.R. relied on various judgments mentioned in the order of the learned Commissioner of Income Tax. Further reliance was placed on the following decisions :
i) Bassera Realtors (P) Ltd. Vs. CIT (2015) 55 Taxmann.com 327 (Chandigarh- (Trib.)
ii) CIT Vs. Raja Industries ( 2011) 15 Ta xmann.com 40 (Punj & Har.) 9
iii) CI T Vs. Rajesh Mahajan (2011) 16 Taxmann.com 85 (Punj & Har.)
iv) Tudor Knitting Works (P.) Ltd. Vs. CI T (2014) 46 Taxmann.com 390 (Punj & Har.)
v) CI T Vs. Varanasi Khanta Rao (2015) 59 Taxmann.com 175 (Andhra Pradesh)
vi) Shubh Lakshmi Vanijya ( P) Ltd. & Others Vs. CIT (2015)( 124 D TR ( Kol)( Tri b) 249.
8. We have considered the rival submissions and have also perused the material available on record. The Hon'ble Supreme Court in the case of Shree Manjunathesware Packing Products & Camphor Works (1988) 231 ITR 53 laid down the ratio that the revisional power conferred on the CIT under section 263 of the Act is of wide amplitude. It enables the CIT to call for and examine the record of any proceeding under the Act. It empowers the CIT to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the AO is erroneous insofar as it is prejudicial to the interests of the Revenue. In the instant case, the learned Commissioner of Income Tax has categorically stated that the entire amount of construction made in the financial year 2005-06 has not been reflected in the Profit & Loss Account. No closing stock of sale of shops or construction in hand was shown, which was required to be done as per percentage of completion method and also as per mercantile system of accounting as the business of the assessee was that of 10 builders/promoters, when the Assessing Officer himself has admitted that there were some shops constructed, which were not sold interest he year under consideration. The learned Commissioner of Income Tax has correctly observed that it was incumbent upon the Assessing Officer to ask the assessee as to why these unsold shops are not shown in the closing stock, particularly when the assessee itself admitted that the Profit & Loss Account were not prepared as per Standard Accounting Principles. Further, the Assessing Officer never asked the assessee to submit Profit & Loss Account as per Standard Accounting Principles. Thus, the Assessing Officer has failed to make enquiries which are called for in the circumstances of the case. In our opinion, there is a merit in the contention of the learned D.R. that the Assessing Officer had failed to carry out any enquiry/proper enquiry on the issues raised by the learned Commissioner of Income Tax in his order and, therefore, the learned Commissioner of Income Tax has correctly held that the order passed by the Assessing Officer to be not only erroneous but also prejudicial to the interests of the Revenue. It is well settled law that the Commissioner may consider the order of the Assessing Officer to be erroneous not only if it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereotyped order which simply accepts what the assessee has stated in his return and fails to make enquiries which are called for in the circumstances of the case [see Ram Pyari Devi Saraogi Vs. 11 CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal Vs. CIT (1973) 88 ITR 323 (SC)].
9. It is apparent from the record that the Assessing Officer had accepted the returned income without verifying or referring to any material at the time of assessment proceedings. Therefore, the learned Commissioner of Income Tax was fully justified in exercising the power conferred on him under section 263 of the Act. The Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Rajesh Mahajan (supra) held that "where the Assessing Officer had mechanically accepted the returned income without scrutinizing or referring to any material examined by him, revision under section 263 of the Act would be justified". The learned D.R. referred to the decision of the Hon'ble Andhra Pradesh High Court in the case of Varanasi Khantarao (supra), wherein it has been held that "once the Commissioner has got the power to point out errors which have effect on Revenue, the Tribunal cannot sit as an appellate authority on such order of Commissioner passed under section 263 of the Act.
10. In view of the above discussion, we are of the considered view that the learned Commissioner of Income Tax has correctly invoked the provisions of section 263 of the Act in this case and, therefore, we do not see any valid ground to interfere with his order in holding that the assessment order passed under section 143(3) of the Act, 12 by the Assessing Officer was not only erroneous but also prejudicial to the interests of the Revenue. Accordingly, we uphold the order passed by the learned Commissioner of Income Tax and dismiss the appeal of the assessee.
11. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on this 8th day of March, 2016.
Sd/- Sd/-
(RANO JAIN) (H.L.KARWA)
ACCOUNTANT MEMBER VICE PRESIDENT
Dated : 8 t h March, 2016
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh