Income Tax Appellate Tribunal - Jodhpur
Miraj Products Private Limited, ... vs Principal Commissioner Of Income Tax, ... on 5 April, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR.
BEFORE: DR. S. SEETHALAKSHMI, JJUDICIAL MEMBER &
SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19
Miraj Products Pvt. Ltd., Vs. Principal Commissioner of
Rajsamand Income Tax, Udaipur
[PAN: AABCM 4952 D] (Respondent)
(Appellant)
Appellant by Sh. Prakul Khurana, Adv. &
Sh. Mukesh Soni, CA
Respondent by Sh. Lovish Kumar, CIT-DR
Date of Hearing 18.03.2024
Date of Pronouncement 05.04.2024
ORDER
PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal filed by assessee is arising out of the order of the Principal Commissioner of Income Tax, Udaipur dated 24/03/2023 [here in after 'PCIT' ] for assessment year 2018-19 which in turn arise from the order dated 24.03.2021 passed under section 143(3) r.w.s 143(3A) & 143(3B) of the Income Tax Act, by AO.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 2
2. In this appeal, the assessee has raised following grounds: -
"1. Under the facts and circumstances of the case and in law, Ld. PCIT has grossly erred in violating the principle of natural justice.
2. Under the facts and circumstances of the case and in law, the order passed under Section 263 of the Act is perverse, arbitrary, non-speaking, bad in law and without jurisdiction.
3. Under the facts and circumstances of the case and in law, Ld. PCIT has grossly erred in holding, without proper findings, that the Assessment Order is erroneous and prejudicial to the interest of revenue.
4. Under the facts and the circumstances of the case and in law, the Ld. PCIT has grossly erred in holding that the Assessment Order is erroneous and prejudicial to the interest of the revenue, without appreciating that proper enquiry was done by raising specific and relevant queries during the assessment proceeding in respect of:
a) Computation of disallowance of expenditure u/s 14A of the Act.
b) Depreciation claimed u/s 32 of the Act.
c) Computation of deduction u/s 801A of the Act.
d) Legal and consultancy charges paid to Rajesh Dhingra
e) Payment made to Madan Lal Paliwal.
f) Payment made to service providers of professional and consultancy services.
g) Calculation of capital Gain on sale of Mutual Fund and closing investment of Mutual Fund
5. Under the facts and the circumstances of the case and in law, the Ld. PCIT has grossly erred in directing the Ld. AO for fresh assessment without holding how the Assessment Order is erroneous and prejudicial to the interest of revenue, in respect of multiple issues.
6. Under the facts and the circumstances of the case and in law, the Ld. PCIT has grossly erred in directing the Ld. AO for fresh Assessment Order, without appreciating the fact that the Assessment Order is in accordance with the law in respect of all the issues raised by the Ld. PCIT.
7. The Appellant craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing."
3. Succinctly, the fact as culled out from the records is that the assessee filed return of income declaring total income of Rs.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 3
25,48,50,050/- on14/09/2018. The case of the assessee was selected for under CASS under complete scrutiny criterion with the following issues, mainly:-
i. Expenditure of personal nature
ii Deduction claimed for Industrial undertaking u/s.
80IA/80IAB/80IAC/IB/IC/80ID/80IE/10A/10AA and;
iii Expenses incurred for earning exempt income.
The assessment was completed without making any modification and the assessment was completed by the Faceless Assessment unit on 24.03.2021 u/s. 143(3) of the Act and the returned of income filed by the assessee was accepted by the Faceless Assessing Officer.
4. The ld. PCIT after completion of the assessment in this case, called for the assessment records for examination. On examination of the assessment records the ld. PCIT observed that one of the reasons for selection of the case under complete scrutiny was 'huge investment of the assessee in assets", income of which would not form part of total income and expenses related to such investment. This reason was basically for examination of the case in the light of provisions of section 14A of the Act. The assessee had non-current investments of Rs I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 4 21,75,80,000 as on 31.3.2017 as well as on 31.3.2018 in the equity shares of the domestic companies, income of which would not form part of total income. As per CBDT Circular No 5/2014 dated 11.2.2014, it has been clarified that Rule 8D read with section 14A of the Income Tax Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempted income. Provisions of section 14A are applicable where the assessee has invested its funds in such investments which may result in Exempted income. In the instant case since the investment was made in shares of companies which may result in Exempted Income in the form of Dividend, as such it was mandatory to follow the CBDT circular (supra). Further, the assessee has claimed finance/interest cost of Rs.2,31,466/-in its accounts. A part of this interest cost may directly be attributable to the investments in shares of companies as stated above. In absence of complete details of interest cost directly attributable to the investment in shares, it may be computed proportionately in the proportion which the investment in shares has with the total assets of the company and thereby it was worked at (A) Rs. 16629/- and further disallowance in terms of Rule 8D(2)(ii) computed @ 1% of annual average (B) Rs. 2175800. As such total disallowable amount under section 14A would be total of (A+B) Rs.
16629 + Rs. 2175800 = Rs. 2192429/-. However, the AO/NaFAC has I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 5 not made any addition on this issue while completing the assessment on 03.03.2021 for the A.Y. 2018- 19.
4.1 Further, perusal of records, ld. PCIT reveal that during the year under consideration, the assessee has sold some plant and machinery and has incurred a net loss of Rs.9,29,50,553/-. This loss is claimed in profit and loss account but while computing taxable income, this amount has been added back. On further scrutiny of the records, it was further noticed that this loss was incurred on sale of plant and machinery of Rs.
22,33,06,270/- which has been deducted from the block of assets of plant and machinery in the fixed assets of the audited balance sheet (Note-6, Fixed assets). However, while reporting the claim of allowable depreciation, as per Income-tax Act, in clause 18 of audit form No 3CD, the auditors have deducted an amount of Rs 20,53,511 only, details of which are given at the end of the form 3CD. Apparently, there cannot be a loss of Rs 9.29 crores on sale of P&M whose WDV was of Rs.20,53,511/- only as per clause 18 of 3CD. There is an apparent incorrect reporting in deduction of figures in clause 18 of 3CD. The correct amount deductible must be of Rs 22,33,06,270 as has been mentioned in the fixed assets schedule of the audited balance sheet.
Since correct amount has not been deducted while computing allowable I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 6 depreciation as per Income Tax Act and excess depreciation has been claimed by the assessee on the amount of Rs 22,12,52,759 (223306270-2053511) which has been allowed by the FAO. Since the deduction was from the block of plant and machinery (15%), the excess depreciation claimed and allowed would be of Rs 3,31,87,913, causing under assessment / computation of business income by this amount with under charge of tax of Rs. 1,14,85,673/-. Since no such disallowance has been made by the FAO, the ld. PCIT asked the assessee to explain as to why the assessed income should not be considered to be raised by the total disallowable allowance of Rs. 1,14,85,673/- (supra) as the computation appears to be erroneous and prejudicial to the interest of Revenue. However, the AO/NaFAC didn't make any query regarding this issue and has not made any addition on this issue while completing the assessment on 24.03.2021 for the A.Y. 2018-19.
4.2 The ld. PCIT also noted that one of the issues of selection of the case under scrutiny is huge claim of deduction u/s 80IA. The FAO had to examine as to whether the claim is correct and as to whether any expenses related to eligible business has been diverted to non-eligible business so as to enhance profit of eligible business. In the instant case it is noticed that no such allocation has been made by the assessee I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 7 company on its own or by the FAO at the time of finalizing the assessment. The accounts show that as such no common expenses have specifically been mentioned in the audited accounts or in the form 10CCB. A part of expenses of audit fees, insurance expenses, professional fees etc., have been debited to the profit and loss accounts of the eligible business by the assessee on its own. However, certain other expenses which also warranted allocation among eligible business and non-eligible business have not been considered. These expenses are Director's remuneration Rs.37,79,065/-, Tour and travelling Rs89,58,503/- and telephone and internet Rs.30,93,126/- totaling to Rs1,58,30,694/-. This fact cannot be denied that the directors have also looked after the work of the eligible business, tour and travelling was made by the directors or any other employees for eligible business also and telephone of internet expenses incurred also involved expenses for the eligible business. As per computation of income, the net business income of non-eligible business is of Rs.232121128 (254648686- 22527558) and therefore allocation of common expenditure of directors salary and their domestic travelling, use of telephone/internet etc to the income of eligible business will be as under-
Common expenditure Business income of eligible business/ Business income of non-eligible business 15830694 *22527558/232121128 Rs. 1536382/-
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 8
This amount was required to be further allocated to eligible business which will reduce the claim u/s 801A by the same amount and would result in increase in taxable amount. However, the AO/NaFAC didn't make any addition on this issue while completing the assessment on 24.03.2021 for the A.Y. 2018- 19 and as such, the total income has been under assessed/computed by Rs. 15,36,382/-
4.3 In view of the facts and law points, as categorically discussed the ld. PCIT noted that the ld. AO( FAU in this case) has failed to properly examine and also in making addition on the following issues:-
(A) the issue of disallowance u/s. 14A of the Act read with Rule 8D of the I.T. Rules [sub-para (i) of para 3 above).
(B) Issues related to Depreciation u/s 32 of the Act [sub-para (ii) of para 3 above) and (C) The issue of disallowance u/s 801A of the Act [sub-para (iii) of para 3 above), Therefore, due to lack of enquiry and also due to incorrect and incomplete appreciation of facts and law as well, the assessment order duly passed u/s 143(3) of the IT Act dated 24.03.2021 for the A.Υ. 2018-
19 was found to be erroneous insofar as it is prejudicial to the interest of revenue. Therefore, the order was proposed to be suitably I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 9 modified/enhanced/cancelled by invoking the provisions of the section 263 of the I.T. Act, 1961.
4.4 However, before doing so, a notice u/s 263 of the Act was duly issued on 30.01.2023 to the assessee, vide Document Identification No (DIN) ITBA/REV/F/REV1/2022-23/1049216226(1), for giving opportunity of being heard as well as requiring the assessee to furnish its submission on the issues of (i) disallowance as per 14A/Rule8D (ii) disallowance as per Section 32 of the Act and (iii) disallowance u/s 80IA of the Act, as categorically mentioned herein above. The notice so issued was duly served through ITBA and through the Speed Post as well.
5. During the course of revision proceedings u/s 263, some discrepancies in the case vis-à-vis the assessment order dated 24.03.2021 were also observed. In this regard, in continuation to the notice dated 30.01.2023 issued u/s 263 of the Act, another notice in the form of "Notice of Hearing" was duly issued to the assessee seeking reply to be filed by 23.03.2023, 5:00PM. The cause of concern were duly mentioned in the notice (supra) that I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 10
i) the assessee has not properly complied with the provisions of TDS.
Though in form 3CD, non-compliance has not been reported by the auditor, but on perusal of various ledgers and other details submitted during the assessment proceedings, it may be seen that there are various irregularities and in consistencies in compliance of TDS provisions warranting proper examination of the case.
(a) Page No 213 of reply is a copy of ledger account of Rajesh Dhingra who has provided professional services to the assessee. This page may be read with page No 192 and 198 where details are given that services of Rs2500000 were provided by Rajesh Dhingra to the assessee vide bill No 0007 dated 14.8.2017, which has been accounted for under the legal and consultancy charges account on 31.8.2017. Mr Dhingra was paid full amount of Rs 25 lakh on 14.8.2017 vide Bank Of Baroda CC A/c. As per copies of these accounts no TDS was made. However a copy of form 16A, issue to the deductee, was filed, which shows that an amount of Rs 250000 was paid as TDS by the assessee. This amount is, thus, over and above the bill raised by the service provider. This amount has not been credited to the account of Rajesh Dhingra. Since TDS has been paid by the assessee on behalf of the deductee, who will take credit of this amount as pre-paid taxes, it is not clear as to which expenditure account, the assessee debited this amount of TDS I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 11 of Rs 250000. Copy of bill issued by Rajesh Dhingra is not on record.
(b) Similarly, as per page 192, an amount of Rs 4.20 crore is claimed to have been paid to Madan Lai Paliwal for professional fees, on which IDS of Rs 42 lakh was made. But if these details are read with page No 804 to 806 (copy of ledger account of Madal lal Paliwal) it may be seen that Shri Madan lal Paliwal was paid Rs 45045000 besides IDS of Rs 42 lakh. As such total amount paid to Shri Paliwal is of Rs 49245000. Copies of bills provided by Madan lal Paliwal are not on record. The assessee has claimed expenses of Rs 4.20 crore only then it is not clear as to how and where the remaining amount of Rs 7245000 has been accounted for and what was its implication on the net income of the assessee. Interestingly, Shri Madan Lal Paliwal was the main person of the management of the company but this transaction of Rs 4.20 crore or 4.92 crore is not reflected in the relevant columns of form 3CD meant for payments to specified person u/s 40A(2)(b).
(c) Similar discrepancies were observed there in respect of other payments made to other service providers of professional and consultancy services.
(d) As per page No 159 (annexure 15) of reply, Rent expenses of Rs 57538975 has been shown to have been paid to Madan lal I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 12 Paliwal (Miraj) family foundation, which consisted service tax of Rs 1203975, on which no IDS was made and balance amount Rs. 56335000 was subjected to IDS. Against this amount of total payment of rent of Rs. 57538975, the details reported in form 3CD for payments to specified persons shows payment of Rs.
62026035 to Miraj Family foundation. Reasons and reconciliation of difference amount of Rs 4487060 and effect thereof on total income was required to be examined but it was not done.
(ii) The ld. PCIT also noted that the assessee is a manufacturer of processed tobacco. Quantitative details of consumption of raw material (raw tobacco and lime) and finished goods are given in form 3CD(clause 35b). As per these details total 34345771 kg of raw material (132286835 kg raw tobacco and 21258936 kg of lime) was consumed with NIL shortage in manufacturer process. The finished goods produced are 18996436 kg and no by- products. Thus, there was short production of finished goods by 15549355 kg. However, on page 66 (annexure 11) of reply, the assessee has submitted that inventory at the year-end included WIP of semi-finished tobacco of Rs.
16,36,65,662. Quantitative details of WIP is not given. However, if it is presumed that the entire quantity of shortage in production as reflected in clause 35b of 3CD is representing the WIP, then the valuation of WIP as on 31.3.2018 is of Rs. 10.52 per kg. It may be seen from details on page 65 (annexure 10) of reply that at the year-end quantity of closing stock of raw I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 13 material of raw tobacco was 1817103 kg and liquid lime was 4159518 kg.
From Balance sheet (note 18.2) figures the value of closing stock of raw tobacco is of Rs. 30276286 and others (lime) is Rs.95724950. If these amounts are considered than the rate of raw tobacco as on 31.3.2018 is Rs 16.66 per kg and lime is of Rs 23.01 per kg. As against these rates, the assessee has valued WIP (semi-finished tobacco) @ Rs 10.52 per kg only, which is highly undervalued and warranted proper examination and reconciliation by the FAO at the time of finalization of assessment but it was not done. The detailed examination of manufacturing account and valuation of stocks was further necessary in view of the fact that during the year under consideration the stock in trade to turn over ratio is decreased from 3.39% in AY 2017-18 to 0.54% in AY 2018-19 and material consumed to finished goods ratio increased from 81.32% in AY 2017-18 to 83.89% in AY 2018-19 (clause 40 of 3CD). As the business remains identical in two years, there is no apparent reason for variation of these ratios to this extent.
(iii) One more quite potential issue was huge transactions of the assessee for purchase/sale of MFs, on which STCG of Rs. 20333971 has been declared by the assessee. As per Note 10 to B/S, total investment in MFs as on 31.3.2018 is of Rs. 537727100. Note 10A further gives details of quantity and value of different MFs held on year end. The details of sale/purchase, resulting in to STCG, as furnished at page No 42(annexure 5) of reply the assessee sold total MFs of Rs 3192867768 whose purchase cost was of Rs.
3172533797. Quantitative details of total MFs purchased/sold is not given, so I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 14 as to ascertain exact result profit/loss of transactions and valuation of inventory left at the year end as per applicable ICDS. As per cash flow statement part B (cash flow for investing activities) submitted along with the audited balance sheet, there was total investment in MFs of Rs 3473499994, sale of MFs of Rs 2935727897 and gain on sale of MFs Rs. 20333971. The sale figures of MFs as reflected in cash flow statement are not tallying with the sale figures submitted at page No 42 of reply. There Is a substantial difference in the figures. If the figures mentioned in the cash flow statement (being duly audited by CA) are taken as correct figures then the purchase cost of MFs resulting in to STCG of Rs 20333971 will be of Rs. 2915393926 and closing inventory of MFs would be Rs.558106068 (3473499994-2915393926) at cost price. As against this the assessee has shown closing value of MFs at Rs. 537727100 i.e less by Rs. 20378968. If the figures of purchases are taken from page No 42 then the closing stock of MFs at cost price will be of Rs.
30.09 crore (347.34-317.25) only against the amount of Rs 53.77 crore in balance sheet i.e in excess of Rs. 23.67 crore. If it is assumed that valuation was done at NRV at year end, even then the value of three MFs as shown in Note 10 does not tally with the NAV of the respective MFs as on 31.3.2018. In any case, this issue needed a detailed reconciliation and examination, so as to ascertain correctness of the claims of STCG and correct valuation of closing stock of MFs, but it was not done.
(iii) A deduction of Rs 8703288 has been claimed in profit and loss account for loss of goods in transit. This was an abnormal claim and required to be examined properly. No evidence in the form of any FIR or any other I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 15 documentary evidence, claim of insurance etc are filed by the assessee to support its claim, The FAO has also not asked for the same.
6. In compliance to the notice so issued, the assessee filed its reply in the form of written submission through ITBA and also furnished the reply physically. The reply to the Show-cause Notice dated 30.01.2023, in the form of written submission of the assessee were reproduced and considered. The ld. PCIT noted that in compliance to the queries so raised during the revision proceeding/s. 263 of the Act and notice so issued on 20.03.2023 no reply was filed by the assessee till the passing of the order u/s. 263. Thus, the proceeding u/s. 263 were considered by the PCIT based on the reply so far filed by the assessee and after considering the reply of the assessee company the PCIT holds as under;
"6. I have carefully considered the submission of the assesseee as well as the facts of the case and my observations are as under: -
(A) the issue of disallowance u/s 14A of the Act read with Rule 8D of the I.T. Rules (sub-para (i) of para 3 above),
(a) One of the reasons for selection of the case under complete scrutiny was 'huge investment of the assessee in assets", income of which would not form part of total income and expenses related to such investment. This reason was basically for examination of the case in thelight of provisions of section 14A of the Act.
(b) Any deviation from the prescribed manner, as mentioned above and/or going for any other method is called nothing less than arbitrary and hence, not as per the law, because of the fact that"the law is not logical, it is just legal". And, what is legal, is that, which is written.
(c) The FAO has neither made any further query nor has he computed the disallowance in the manner provided under Rule 8D of the Income I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 16 Tax Rules. As per the provisions of Rule 8D, the expenses disallowable should be computed in two parts,
(i) one is direct expenses to be disallowed in full under clause of Rule 8D (2) and
(ii) second, 1% of annual average of monthly averages of the investments earning the exempted income as per clause (ii) of rule 8D(2).
(d) The facts prima facie warranted application of provisions of section 14A of the Act and rule 8D of the I.T. Rules. Further, as per the CBDT Circular No 5/2014 dated 11.2.2014, it has been clarified that Rule 8D read with section 14A of the Income Tax Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempted income.
Provisions of section 14A are applicable where the assesse has invested its funds in such investments which may result in exempted income.
In the instant case since the investment was made in agriculture land which would result in exempted income. As such it was mandatory for the AO to follow the CBDT circular and should have applied provisions of Rule 8D for computation of disallowance of expenses directly related to investment plus 1% of annual average of monthly averages of the opening and closing balances of the investment, income from which does not or shall not form Total Income of the assesse.
(e) The reply of the assessee is not found tenable on this issue in view of the fact that the assessee had non-current investments of Rs 21,75,80,000 as on 31.3.2017 as well as on 31.3.2018 in the equity shares of the domestic companies, income of which would not form part of total income. As per CBDT Circular No 5/2014 dated 11.2.2014, it has been clarified that Rule 8D read with section 14A of the Income Tax Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempted income. Provisions of section 14A are applicable where the assessee has invested its funds in such investments which may result in Exempted income.
In the instant case since the investment was made in shares of companies which may result in Exempted Income in the form of D ividend, as such it was mandatory to follow the CBDT circular (supra).
(f)Further, the assessee has claimed finance/interest cost of Rs.2,31,466/- in its accounts. A part of this interest cost may directly be attributable to the investments in shares of companies as stated above.
In absence of complete details of interest cost directly attributable to the investment in shares, it may be computed proportionately in the proportion which the investment in shares has with the total assets of the company.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 17
(g) The balance sheet furnished shows total assets of the company at Rs.3028507654, therefore interest cost directly attributable to the investment in unquoted/quoted shares of companies, totaling to Rs. 217580000, in terms of Rule 8D(2)(i) may be computed as under: -
Interest/finance cost Investment in exempted assets/ Total assets 231466^ * 217580000/3028507654 = Rs.16629 (A) Further disallowance in terms of Rule 8D(2)(ii) may be computed as under:-
Total Investment in shares and agriculture land as on 31.3.2017 Rs.217580000 Total Investment in shares and agriculture land as on 31.3.2018 Rs.217580000 Average annual investment monthly averages of the two balances Rs. 217580000 (B) INCOME TAX Disallowance u/r 8D(2)(ii) required 1% of annual average Rs. 2175800 DEPARTMEN As such total disallowable amount amount under section 14A would be total of (A + B) Rs. 16629 + Rs. 2175800 = Rs. 2192429 /-
(h) However, the AO/NaFAC has not made any addition on this issue while completing the assessment on 24.03.2021 for the A.Y. 2018-19.
(i) In view of the fact that no such addition/disallowance has been made by the AO while making the assessment vide its order dated 24.03.2021, it is observed that the AO has not appreciated the complete and correct assumption of facts and also not applied the correct position of law on the issue of disallowance of Expenses incurred in earning Exempt Income as per section 14A of the Act read with method of such disallowance as per Rule 8D of the I.T. Rules, and hence, the assessed income has been foundto be under computed/assessed by this amount of Rs. 2192429/-.
(g) The assessment order duly passed by the AO/NaFAC was, hence, found to be erroneous insofar as it is prejudicial to the interest of Revenue on above terms.
(B) Issues related to Depreciation u/s 32 of the Act [sub-para (ii) of para 3 above]
(a) Perusal of records, reveals that during the year under consideration, the assessee has sold some plant and machinery and has incurred a net loss of Rs.9,29,50,553/-.
I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 18
(b) This loss is claimed in profit and loss account but while computing taxable income, this amount has been added back.
(c) On further scrutiny of the records it was primarily noticed that this loss was incurred on sale of plant and machinery of Rs. 22,33,06,270/- which has been deducted from the block of assets of plant and machinery in the fixed assets of the audited balance sheet (Note-6, Fixed assets). However, while reporting the claim of allowable depreciation, as per Income-tax Act, in clause 18 of audit form No 3CD, the auditors have deducted an amount of Rs 20,53,511 only, details of which are given at the end of the form 3CD.
(d) Apparently there couldn't be a loss of Rs 9.29 crores on sale of P&M whose WDV was Rs. 20,53,511/- only as per clause 18 of 3CD. Therefore, primarily it was observed that there might be incorrect reporting in deduction of figures in clause 18 of 3CD. The correct amount deductible must have been of Rs.22.33,06,270 as has been mentioned in the fixed assets schedule of the audited balance sheet. Since correct amount had not been deducted while computing allowable depreciation as per Income Tax Act, it was observed that an excess depreciation has been claimed by the assessee on the amount of Rs22,12,52,759 (223306270 - 2053511) which was further allowed by the FAO, while finalizing the assessment on 24.023.2021. Since the deduction was from the block of plant and machinery (15%), the excess depreciation claimed and allowed would be of Rs 3,31,87,913, causing under assessment/computation of business income by this amount with under charge of tax of Rs. 11485673/-.
(e) Since no such disallowance has been made by the FAO, the assessee was asked to explain as to why the assessed income should not be considered to be raised by the total disallowable allowance of Rs. 1.14 * 0.85 * 0.673 /- (supra) as the computation appears to be erroneous and prejudicial to the interest of Revenue.
(f) The assessee, vide its reply and written submission dated 17.03.2023, submitted that -
(1) as per the facts of the present case, the plant and machinery was purchased at Rs.22,33,06,270/- which had accumulated depreciation of Rs. 12,82,55,384/-. Such plant and machinery was sold for Rs. 20,53,511/-.
ii) Consequently, as per accounting principles Rs. 22,33,06,270/- had to be reduced from book value of plant and machinery in the fixed asset schedule and s .12,82,55,384/- had to be reduced from the total balance of accumulated depreciation in the fixed asset schedule. Thereafter, the net of the said two amounts was compared with the sale value of Rs. 20,53,511/-, which has resulted into a net loss of Rs. 9,29,50,553/- in the P& L A/c as per accounting principles. Thus, it is humbly submitted that the amount of loss in the present case is as per accounting principles. ME comRTMEN I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 19
(iii) However, while computing the income for the purpose of income tax, the Noticee has opening WDV of Plant & Machinery block at Rs. 56,38,73,088/- on 01.04.2017. Thus, on sale of any plant & machinery, the sale value has to be reduced from the total WDV of the Plant & Machinery block. Thereafter, on balance WDV depreciation has to be claimed by the assessee. Accordingly, the the assessee reduced the sale value of Rs. 20,53,511/- from the WDV of the Plant & Machinery block. Then, since the block of asset does not cease to exist and the WDV was not zero, the assessee claimed depreciation on the remaining WDV in accordance with Section 32 of the IT Act r.w. Section 43(6). In no case, the the assessee was required to reduce Rs.22,33,06,270/- as it was not the sale value of the plant & machinery sold. Therefore, the assessee has correctly reduced the sale valueonly and claimed the depreciation on the remaining WDV. Hence, there is no excess claim of depreciation.
(iv) Furthermore, in light of the above submissions, the Noticee humbly submits that the auditor has correctly reported the realisable value of Rs. 20,53,511/- in the column 'deductions' under clause 18 of the tax audit report while computing depreciation allowable under Section 32 of the Act. The opening written down value of the plant machinery of Rs. 56,38,73,088/- already included the value of plant and machinery sold by the Noticee in the tax audit report and as per Section 43(6) during the year only sale value has to be reduced from the opening WDV.
(v) Accordingly, it is evident that the assessment proceedings have been diligently conducted based on cogent arguments and your good self has grossly erred in understanding the facts and law of the case. Thus, it is humbly submitted that as the depreciation claimed by the Noticee is in accordance with the law, your good self has no jurisdiction to initiate the revisionary proceedings based on above discussed factual and legal misunderstanding.
(g) In view of the above, the claim of the assessee is prima-facie tallied. However, the AO is directed to confirm/verify the same, while finalizing the assessment in view of the directions contained at Para No. 9 herein below.
(C) The issue of deduction u/s 801A of the Act [sub-para (iii) of para 3 above):-
(a) One of the issues of selection of the case under scrutiny is huge claim of deduction u/s 801A and Expenses of Personal nature. The FAO had to examine as to whether the claim is correct and as to whether any expenses related to eligible business has been diverted to non- eligible business so as to enhance profit of eligible business.
(b) In the instant case it is noticed that no such allocation has been made by the assessee company on its own or by the FAO at the time of finalizing the assessment on 24.03.2021.
I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 20
(c) The reply of the assessee on this issue is not found tenable because of the fact that the accounts show that as such no commonexpenses have specifically been mentioned in the audited accounts or in the form 10CCB. A part of expenses of audit fees, insurance expenses, professional fees etc., have been debited to the profit and loss accounts of the eligible business by the assessee on its own. However, certain other expenses which also warranted allocation among eligible business and non-eligible business have not been considered. These expenses Director's are remuneration Rs.37,79,065/-, Tour and travelling Rs89,58,503/- and telephone and internet Rs.30,93,126/- totaling to Rs1,58,30,694/-.
(d) This fact cannot be denied that the directors have also looked after the work of the eligible business, tour and travelling was made by the directors or any other employees for eligible business also and telephone of internet expenses incurred also involved expenses for the eligible business. Both the businesses are being managed by the same Directors and their domestic travelling and use of telephone and internet is also common for both the businesses. The expenditure of Rs. 15830694 Lakh, thus, clearly represents common expenses for two types of business and accordingly this expenditure was required to be allocated to the eligible business and non-eligible business in the ratio of the net business income earned by these two segments of the business.
(e) As per computation of income, the net business income of non- eligible business is of Rs.232121128 (254648686-22527558) and therefore allocation of common expenditure of directors salary and their domestic travelling, use of telephone/internet etc to the income of eligible business will be as under:-
(a) Common expenditure Business income of eligible business/ Business income of non-eligible business 15830694^ * 22527558/232121128= Rs * 0.1536382 /-
This amount was required to be further allocated to eligible business which will reduce the claim u/s 801A by the same amount and would result in increase in taxable amount.
(f) However, the AO/NaFAC didn't make any addition on this issue while completing the assessment on 24.03.2021 for the A.Y. 2018-19 and as such, the total income has been under assessed/computed by Rs. 15,36,382/-.
(D) Some Other Observations: [as mentioned at Para (D) of Para 4 above]-
(X) Some discrepancies in the case vis-à-vis the assessment order dated 24.03.2021, were also observed, as mentioned below:-
I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 21 (1) Perusal of assessment records revealed that the assessee has not properly complied with the provisions of TDS. Though in form 3CD, non-
compliance has not been reported by the auditor, but on perusal of various ledgers and other details submitted during the assessment proceedings, it may be seen that there are various irregularities and in consistencies in compliance of TDS provisions warranting proper examination of the case.
(a) Page No 213 of reply is a copy of ledger account of Rajesh Dhingra who has provided professional services to the assessee. This page may be read with page No 192 and 198 where details are given that services of Rs2500000 were provided by Rajesh Dhingra to the assessee vide bill No 0007 dated 14.8.2017, which has been accounted for under the legal and consultancy charges account on 31.8.2017. Mr Dhingra was paid full amount of Rs 25 lakh on 14.8.2017 vide Bank Of Baroda CC A/c. As per copies of these accounts no TDS was made. However a copy of form 16A, issue to the deductee, was filed, which shows that an amount of Rs 250000 was paid as TDS by the assessee. This amount is, thus, over and above the bill raised by the service provider. This amount has not been credited to the account of Rajesh Dhingra. Since TDS has been paid by the assessee on behalf of the deductee, who will take credit of this amount as pre-paid taxes, it is not clear as to which expenditure account, the assessee debited this amount of TDS of Rs 250000. Copy of bill issued by Rajesh Dhingra is not on record.
(b) Similarly, as per page 192, an amount of Rs 4.20 crore is claimed to have been paid to Madan Lai Paliwal for professional fees, on which IDS of Rs 42 lakh wasmade. But if these details are read with page No 804 to 806 (copy of ledger account of Madal lal Paliwal) it may be seen that Shri Madan lal Paliwal was paid Rs 45045000 besides IDS of Rs 42 lakh. As such total amount paid to Shri Paliwal is of Rs 49245000. Copies of bills provided by Madan lal Paliwal are not on record. The assessee has claimed expenses of Rs 4.20 crore only then it is not clear as to how and where the remaining amount of Rs 7245000 has been accounted for and what was its implication on the net income of the assessee. Interestingly, Shri Madan Lal Paliwal was the main person of the management of the company but this transaction of Rs 4.20 crore or 4.92 crore is not reflected in the relevant columns of form 3CD meant for payments to specified person u/s 40A(2)(b).
(c) Similar discrepancies were observed there in respect of other payments made to other service providers of professional and consultancy services.
(d) As per page No 159 (annexure 15) of reply, Rent expenses of Rs 57538975 has been shown to have been paid to Madan lal Paliwal (Miraj) family foundation, which consisted service tax of Rs 1203975, on which no IDS was made and balance amount Rs. 56335000 was subjected to IDS. Against this amount of total payment of rent of Rs. 57538975, the details reported in form 3CD for payments to specified persons shows payment of Rs. 62026035 to Miraj Family foundation. Reasons and reconciliation of I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 22 difference amount of Rs 4487060 and effect thereof on total income was required to be examined but it was not done.
(ii) The assessee is a manufacturer of processed tobacco. Quantitative details of consumption of raw material (raw tobacco and lime) and finished goods are given in form 3CD( clause 35b). As per these details total 34345771 kg of raw material (132286835 kg raw tobacco and 21258936 kg of lime) was consumed with NIL shortage in manufacturer process. The finished goods produced are 18996436 kg and no by- products. Thus there was short production of finished goods by 15549355kg. However, on page 66 (annexure
11) of reply, the assessee has submitted that inventory at the year-end included WIP of semi-finished tobacco of Rs. 16,36,65,662. Quantitative details of WIP is not given. However, if it is presumed that the entire quantity of shortage in production as reflected in clause 35b of 3CD is representing the WIP, then the valuation of WIP as on 31.3.2018 is of Rs. 10.52 per kg. It may be seen from details on page 65 (annexure 10) of reply that at the year-end quantity of closing stock of raw material of raw tobacco was 1817103 kg and liquid lime was 4159518 kg. From Balance sheet (note 18.2) figures the value of closing stock of raw tobacco is of Rs. 30276286 and others (lime) is Rs.95724950. If these amounts are considered than the rate of raw tobacco as on 31.3.2018 is Rs 16.66 per kg and lime is of Rs 23.01 per kg. As against these rates, the assessee has valued WIP (semi-finished tobacco) @ Rs 10.52 per kg only, which is highly undervalued and warranted proper examination and reconciliation by the FAO at the time of finalization of assessment but it was not done. The detailed examination of manufacturing account and valuation of stocks was further necessary in view of the fact that during the year under consideration the stock in trade to turn over ratio is decreased from 3.39% in AY 2017-18 to 0.54% in AY 2018-19 and material consumed to finished goods ratio increased from 81.32% in AY 2017-18 to 83.89% in AY 2018-19 (clause 40 of 3CD). As the business remains identical in two years, there is no apparent reason for variation of these ratios to this extent.
(iii) One more quite potential issue was huge transactions of the assessee for purchase/sale of MFs, on which STCG of Rs. 20333971 has been declared by the assessee. As per Note 10 to B/S, total investment in MFs as on 31.3.2018 is of Rs. 537727100. Note 10A further gives details of quantity and value of different MFs held on year end. The details of sale/purchase, resulting in to STCG, as furnished at page No 42(annexure 5) of reply the assessee sold total MFs of Rs 3192867768 whose purchase cost was of Rs. 3172533797. Quantitative details of total MFs purchased/sold is not given, so as to ascertain exact result profit/loss of transactions and valuation of inventory left at the year end as per applicable ICDS. As per cash flow statement part B (cash flow for investing activities) submitted along with the audited balance sheet, there was total investment in MFs of Rs3473499994, sale of MFs of Rs 2935727897 and gain on sale of MFs Rs. 20333971. The sale figures of MFs as reflected in cash flow statement are not tallying with the sale figures submitted at page No 42 of reply. There Is a substantial difference in the I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 23 figures. If the figures mentioned in the cash flow statement (being duly audited by CA) are taken as correct figures then the purchase cost of MFs resulting in to STCG of Rs 20333971 will be of Rs. 2915393926 and closing inventory of MFs would be Rs.558106068 (3473499994-2915393926) at cost price. As against this the assessee has shown closing value of MFs at Rs. 537727100 i.e less by Rs. 20378968. If the figures of purchases are taken from page No 42 then the closing stock of MFs at cost price will be of Rs. 30.09 crore (347.34-317.25) only against the amount of Rs 53.77 crore in balance sheet i.ein excess of Rs. 23.67 crore. If it is assumed that valuation was done at NRV at year end, even then the value of three MFs as shown in Note 10 does not tally with the NAV of the respective MFs as on 31.3.2018. In any case, this issue needed a detailed reconciliation and examination, so as to ascertain correctness of the claims of STCG and correct valuation of closing stock of MFs, but it was not done.
(iv) A deduction of Rs 8703288 has been claimed in profit and loss account for loss of goods in transit. This was an abnormal claim and required to be examined properly. No evidence in the form of any FIR or any other documentary evidence, claim of insurance etc are filed by the assessee to support its claim. The FAO has also not asked for the same.
(Y)As per the amended provision i.e., clause (a) of Explanation 2 of Section 263, an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of revenue, if in the opinion of Principal Commissioner or Commissioner, the order is passed without making inquiries or verification which should have been made; Further, as per clause (b) to Explanation 2 of Section 263 says about "if the order is passed allowing any relief without inquiring into the claim". It reads as under:-
(Amendment of section 263 w.e.f 01.06.2015).
67. In section 263 of the Income-tax Act, in sub-section (1), theExplanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted with effect from the 1st day of June, 2015, namely: - -
"Explanation 2. -For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, -
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing any relief without inquiring into the claim;
I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 24
(c) the order has not been made in accordance with any order.
direction or instruction issued by the Board under section 119; or
(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.".
(Z) These issues require further verification/examination. The same was not verified by the AO/NaFAC while completing the assessment. Therefore, the AO is directed to verify this issue while finalizing the assessment as per the direction(s) contained in Para No. 9 herein below.
7.In reaching such conclusion, I rely on the following judicial rulings:
(i) The Hon'ble Supreme Court in the case of Malabar Industrial Limited V/S CIT2431TR has held that "An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind".
(ii) In case of TTK LIG Ltd., v/s. ACIT (Mad) 51 DTR 228 it hasbeen held that Order would be erroneous if it is based on an incorrect assumption of facts or an incorrect application of law or non-application of mind or based on no or insufficient materials.
(iii) In the case of Arvee international v/s. Addl. CIT (ITAT, Mum) 101 ITD 495, it has been held that Unlike the Civil Court which is neutral to give a decision on the basis of evidence produced before it, an Assessing Officer is not only an adjudicator but also an investigator. He cannot remain passive on the face of a return which is apparently in order but calls for further enquiry- It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke inquiry If there is failure to make such enquiry, order is erroneous and prejudicial to revenue - CIT need not prove that it is erroneous and he can revise it u/s 263.
(iv) CIT v/s. Raisons Industries Ltd., 288 ITR 322 (SC): The Hon'ble Supreme Court held as under:" The power of revision under section 263 is exercised by a higher authority. It is a special provision. The revisional jurisdiction is vested in the Commissioner. An order there under can be passed if it is found that the order of assessment is prejudicial to the Revenue. In such a proceeding, he may not only pass an appropriate order in exercise of the said jurisdiction I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 25 but in order to enable him to do it, he may make such inquiry as he deems necessary in this behalf."
(v) Madras High Court in the case of Seshasayee Paper & Boards Ltd. [2000] 242 ITR 490 (Mad.) has held that the powers of the Commissioner are very wide in exercising the powers of revision u/s 263. It is no doubt true that for making a valid order u/s 263, it is essential for the Commissioner to record an express finding that the order sought to be revised was erroneous as well as prejudicial to the interest of the revenue. However, there is nothing in section 263 to show that the Commissioner should in all cases record his final conclusion on the points in controversy before him. The legislative intent to bring the amendment was to make clear the provisions of Explanation to section 263 and to reduce the litigations in this regard which is well supported in view of the clear words used in clause (a) of the Explanation 2 to section 263 (1) wherein it is mentioned that the order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if in the opinion of the PCIT the order is passed without making inquiries or verification which shouldhave been made. If the order is passed without application of mind, such order will fall under the category of erroneous order"
8. Considering the above facts, it is held that the order passed by the Assessing Officer (FAO) u/s 143(3) of the I.T. Act dated 24.03.2021 is suffering from specific defects, hence, order so passed by the AO is erroneous and also prejudicial to the interest of the revenue on certain points mentioned in the para No. 9 below. The order of the assessing officer is therefore, liable to revision under clause (a) &(b) ofthe Explanation (2) of section 263 of the Income Tax Act, 1961.
9. In the light of above discussion, assessment order passed by the AO in the case of the assessee is Set-aside (Fully) to the AO for De-novo assessment, keeping in view the observations marked at sub para no. (A), (B), (C) and (D) of Para 6 herein above. Thereafter, based on outcome of such enquiries and verification, as aforesaid, necessary additions, wherever required, may be made to the total income of the assessee as per law by modifying the assessment order u/s 143(3) of the Act dated 24.03.2021, accordingly. However, the AO is directed to ensure that ample opportunities of being heard are provided to the assessee before passing such order."
7. Feeling dissatisfied with the observations and thereby holding that the order of the NeFAC is erroneous and prejudicial to the interest of the I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 26 revenue the present appeal is filed by the assessee on the grounds as stated in herein above in para 2. The assessee has challenged the order of the PCIT on legal grounds as well as on merits and in support of both the aspect of the matter the ld. AR of the assessee filed a detailed written submission and the contentions so raised before us is given in a written submission which reads as under :
Written submissions "STATEMENT OF FACTS
1. The Appellant, a private limited company, was incorporated on 10.09.1996and registered in accordance with the provisions of the Companies Act, 1956. The Appellant is mainly engaged in the business of manufacturing chewing tobacco. In addition to that, the Appellant also engaged in the business of power supply and transmission charges of windmills.
2. The facts of the case are that Appellant filed its return of income for the year under consideration on14.09.2018declaring total income of Rs.25,48,50,050/-.The ITR Acknowledgement and Computation are annexed at Page No. 1of Paper Book ("PB").Thereafter, the return of income was selected for scrutiny through CASS under Complete Scrutiny Criteria. During the assessment proceedings, the Ld. Assessing Officer ("Ld. AO") asked the necessary information and conducted proper inquiries through issuance of notice u/s 143(2) of the Income-tax Act, 1961 ('theAct') dated 23.09.2019 and notice u/s 142(1) of the Act dated 09.02.2021. The copies of notice issued u/s 143(2) and 142(1) are available on page no. 125-128 and 131-136 of the PB respectively. In compliance thereof, the requisite information and documents were submitted by the Appellant vide its reply dated 24.10.2019 and 24.02.2021.(Refer page no.
129-130 and 137-142 of PB). The details of relevant queries and repliesfiled are as follows:
S.No. Query no. of Notice u/s 143(2) Notices issued Response filed u/s 142(1)
1. Issue no. 1: Expenditure of Details of expenditure Personal Nature which disallowable u/s 37(1) of the Act were submitted.
(page no. 129 of PB)
2. Issue no. 2 Deduction claimed Query No. 34 All documentary for Industrial Undertaking u/s of Notice dated evidences were I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 27 80IA/80IAB/80IAC/IB/IC/ 09.02.2021 submitted vide S.No. IBA/80ID/80IE/10A/10AA (PB No. 135) 34 of reply dated 24.02.2021 (page no.
141-142 of PB).
3. Issue no. 3 Expenses incurred Assessee submitted for earning exempt income that no exempt income has earned during the relevant year vide reply dated 24.10.2019 (Page no.
130 of PB.)
3. On the perusal and considering the submissions of Appellant, the assessment proceedings were completed by National e-Assessment Centre, Delhi under E-Assessment Scheme, 2019 where assessment procedure conducted at multiple levels i.e., National e-Assessment Centre ('NeAC'), Regional e-Assessment Centre ('ReAC'), assessment units, verification units, technical units, and review units. NeACpassedan order dated 24.03.2021 under Section 143(3)r.w.s. 143(3A) and 143(3B) of the Act at a total income of Rs. 25,48,50,050/- by accepting the declared income as per the return of income filed on 14.09.2018.
4. Thereafter, the Ld. Principal Commissioner of Income tax (Ld.PCIT), Udaipurconsidered the Assessment Order dated 24.03.2021 for revision by invoking provisions of Section 263 of the Act.The Ld. PCIT issued show cause notice dated 30.01.2023 alleging that the said assessment order passed by the Ld. AO was erroneous and prejudicial to the interest of the revenue on the grounds mentioned therein. A copy of said show cause notice dated 30.01.2023 is available on page no. 147-151 of PB. In compliance thereof, Appellant had raised objection that the impugned revision proceedings were without jurisdiction and bad in law and also submitted information/documents vide its reply dated 11.03.2023. Acopy of said reply is available at Page No.152-199 of PB.
5. Further, Ld. PCIT has also issued a notice dated 20.03.2023 wherein he alleged some additional discrepancies in the assessment order dated 24.03.2021 and seek clarification from the Appellant. A copy of said notice dated 20.03.2023 is available on page no. 368-372 of PB. In response to the that Appellant has filed its on 24.03.2023, however, Ld. PCIT has passed the order without considering the reply dated 23.03.2023 filed on 24.03.2023. A copy of reply dated 23.03.2023 is available on page no. 373-383 of PB.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 28
6. Consequently, the Ld. PCIT, exercising powers conferred bySection 263 of the Act, passed the impugned revision order dated 24.03.2023 directing the Ld. AO to initiate a fresh assessment.
7. Aggrieved by the said order of the Ld. PCIT, the Appellant has filed appeal before your honors. The Appellant is hereby submitting the submission for the grounds of the said appeal.
GROUNDS OF APPEAL
1. Under the facts and circumstances of the case and in law, Ld. PCIT has grossly erred in violating the principle of natural justice.
2. Under the facts and circumstances of the case and in law, the order passed under Section 263 of the Act is perverse, arbitrary, non-speaking, bad in law and without jurisdiction.
3. Under the facts and circumstances of the case and in law, the Ld. PCIT has grossly erred in holding, without proper findings, that the Assessment Order is erroneous and prejudicial to the interest of the revenue.
3.1. At the very outset, it is humbly submitted that the Ld. PCIT has initiated the impugned proceedings u/s 263 of the Act without establishing that how the order passed by Ld. AO is erroneous and prejudicial to the interest of the revenue which makes the impugned proceedings without jurisdiction and bad in law.
3.2. Section 263 of the Act inter alia empowers the Ld. Principal Commissioner of Income Tax (PCIT) orCommissioner to examine the record of any proceeding under the Act and in case, it is found that the order passed by the Ld. Assessing Officer (AO) is erroneous and prejudicial to the interest of revenue, then, the Ld. PCIT or Commissioner can revise such order or can direct the AO to pass a fresh Assessment Order. The relevant extract of the said section is being reproduced herein below for your ready reference:
"Section 263. Revision of orders prejudicial to revenue.
1. The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment."
3.3. From the bare perusal of the afore-mentioned provision, it is evident that before invoking the provision of this section, the below mentioned two requirements must be fulfilled:
I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 29 a. Order passed by the Ld. AOis erroneous and b. Prejudicial to the interest of the revenue.
3.4. The expression "erroneous" has not been defined in the Act. However, Black's Law Dictionary defines the word "erroneous" to mean "involving error, deviating from the law". "Erroneous Assessment" refers to an assessment that deviates from the law and is, hence, invalid. The erroneous assessment means an assessment which is not in accordance with the law.
3.5. In this regard, reliance is placed on the following landmark judgement:
Malabar Industrial Co. Ltd. v/s Commissioner of Income-tax [2000] 243 ITR 83 (SC) dated 10.02.2000.
6. A bare reading of this provision makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous in so far as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied with twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue -
recourse cannot be had to section 263(1).
7. There can be no doubt that the provision cannot be invoked to correct each, and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.
Section 263 is not invokable if detailed enquiries were carried out by Ld. AO 3.6. Explanation 2 to Section 263 of the Act provides for 4 clauses when the assessment order shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue. In light thereof, Ld. PCIT has specifically identified and highlighted clause(a) & (b) of the Explanation (2) of Section 263 of the Actto make the assessment order subject to revision (Para 8 on page no. 62 of Impugned order).
3.7. In this regard, the Appellant humbly submits that during the assessment proceedings, notices were issued u/s 143(2) and 142(1) of the Act dated 23.09.2019and 09.02.2021 by the Ld. AO asked fordetailed information/questions/enquiry/reports as a part of the assessment process.Copies of the abovementioned noticesareavailable on Page no. 125-128 and 131-136 of Paper Book for your reference.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 30
3.8. In response to these notices, detailed replies dated 24.10.2019and 24.02.2021 were submitted by the Appellant wherein each and every question stated by the Ld. AO was addressed and later on verified by the Ld. AO himself. Copies of the said repliesareavailableonPage no. 24.10.2019 and 24.02.2021 of PB.
3.9. It is pertinent to mention here that the first notice of the assessment proceedings under Section 143(2) of the Act was issued on 23.09.2019 whereas assessment was completed, and assessment order was passed on 24.03.2021 which clarifies that ample time was taken by the Ld. AO to analyze, check and verify the assessment documents/ details in all aspects.
3.10. Thus, it is humbly submitted that in the present case the Ld. AO has made detailed inquiries through multiple notices and necessary details/reply to the questionnaires was filed/produced by the Appellant and the same were examined by the Ld. AO. Therefore, it is not a case wherein the assessment is carried out without inquiries or verification, and it is evident that the Ld. AO collected necessary details, examined the same and then finalized the assessment under Section 143(3) of the Act. Hence, once the Ld. AO has made such inquiries, the Ld. PCIT has grossly erred in invoking the powers under Section 263 of the Act as it is a settled law that no revision order can be passed, where on part of the Ld. AO, detailed enquiry has already been made.
3.11. In support of the above submissions, reliance is placed on the following judicial pronouncements:
• Commissioner to Income-tax v. Gabriel India Ltd. [1993] 71 TAXMAN 585 (BOM.) • Commissioner of Income tax, Central-III v. Nirav Modi [2017] 291 CTR 245 (Bombay) • Commissioner of Income-tax v. Sunbeam Auto Ltd [2010] 189 Taxman 436 (Delhi) • Sir Dorabji Tata Trust v/s DCIT [2020] 122 taxmann.com 274 (Mumbai - Trib.) dated 28.12.2020.
3.12. In light of the above, it is humbly submitted that the Ld. AO after conducting detailed enquiry and after going through the details/information in as much as after verifying the documents produced for verification took a plausible view for making assessment after accepting the claim of the Appellant. The case of Appellant is not falling under the clause (a) and (b) of the explanation 2 to Section 263(1) of the Act. Thus, the impugned proceedings are invoked without jurisdiction and deserves to be set aside.
Assessment order is not erroneous, if it is in accordance with law. 3.13. It is a settled legal position that an order cannot be termed as erroneous unless it can be shown to be an order which is not in accordance with law. If the Ld. AO, acting in accordance with law, makes certain assessment, the same I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 31 cannot be termed as erroneous merely because the Ld. PCIT wants an assessment to be in a different manner. Reliance is placed on the following judicial pronouncement:
• Nabha Investments (P.) Ltd. V. Union Of India [2000] 112 Taxman 465 (Delhi) • J.P. Srivastava & Sons (Kanpur) Ltd. Vs. Commissioner OfIncome-
Tax [1978] 111 ITR 326 (All.) • Commissioner To Income-Tax V. Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.) Assessment Order was passed by National E-Assessment Centre. 3.14. The Appellant humbly submits that the Assessment Order dated 24.03.2021 was issued by the National e-Assessment Centre, Delhi and highlights the relevance of E-Assessment Scheme, 2019, which outlines the assessment procedure conducted at multiple levels i.e., National e-Assessment Centre ('NeAC'), Regional e-Assessment Centre ('ReAC'), assessment units, verification units, technical units, and review units.
3.15. Upon perusal of the said scheme, it is evident that the assessment proceeding havebeen conducted in a phased manner. It is humbly submitted that during the assessment proceedings, the detailed submissions, information, documents, and justifications provided by the Appellantarecarefully examined, including technical examination and verification by specialized teams. Consequently, the final order was passed once all the units of the assessment centre were satisfied with the provided information.In this context, Appellant is placing reliance on following judgement:
AGRANI BUILDESTATE VS PR. CIT-1, JAIPUR ITA NO. 205/JP/2023 It is pertinent to mention here that assessment in the present case of the assessee firm for the year under consideration was carried out in the ''faceless manner'' by NFAC. It is a fact that any faceless assessment is carried out through a teamwork of assessment unit, technical unit, review unit, verification unit etc. Since different units are headed by Principal Commissioner of Income Tax, therefore, in a faceless regime, normally there cannot be a case of prejudice of lack of enquiry for the reason that there is application of mind by multiple officers of Department and not by a single officer and thus at the end of our discussion, we are of the view that the assessee firm had furnished the requisite information and the NFAC has completed the assessment after considering all the facts, therefore, the order passed by the AO.
3.16. In light of the above, it is humbly submitted that Ld. AO has passed the assessment order after conducting proper verification of the material facts related to the case. Therefore, it is not appropriate to state that Ld. AO did not apply his mind or passed the order in a routine or casual manner.
Assessment Order is not erroneous, if two views are possible.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 32
3.17. In this regard, it is humbly submitted that in a case where two views are possible and the Ld. AO has adopted one of the view, then in such case the Ld. PCIT cannot invoke Section 263 of the Act merely because the Ld. PCIT is of the other view and wants the assessment order to be passed in other/different manner. In this regard, following judicial pronouncement can be relied upon:
• Commissioner of Income-tax v. Gokuldas Exports [2011] 333 ITR 214 (Karnataka) • Commissioner of Income-tax v. Srinivasa Hatcheries (P.) Ltd.[2015] 60 taxmann.com 207 (Andhra Pradesh and Telangana) Assessment Order is not erroneous, in case there is factual misunderstanding on part of Ld. PCIT.
3.18. It is also humbly submitted that in case where the income declared by the Appellant has been accepted by the Ld. AO, Section 263 cannot be invoked merely on the basis of conceptual misunderstanding on the part of the Ld. PCIT about the facts prevailing in a case. In the present case of Appellant, Ld. PCIT has misunderstood the facts with regard to following issues:
• Deprecation allowance u/s 32 of the Act. Ld. PCIT has misunderstood the concepts of taxation and accounting, which duly clarified by the Appellant vide its reply dated 11.03.2023.
• Payment made to Rajesh Dhingra after deducting TDS from invoice amount, however, Ld. PCIT has finding that TDS had been deducted over & above invoice value.
• Similarly, with Consultation/Professional charges paid to Madan Lal Paliwal involves component of GST charges which is misinterpreted by Ld. PCIT.
3.19. In this regard, the relevant extract of the judicial pronouncement has been reproduced hereunder:
Patel L and T Consortium [2016] 65 taxmann.com 48(Mumbai)
8. We have heard the rival contentions and perused the record. We notice that the learned Commissioner of Income-tax has considered the balance-
sheet of the assessee and has come to the conclusion that the assessee has raised a bill of Rs. 48.05 crores and has incurred the work in progress expenditure of Rs. 47.59 crores. Whereas the assessee has demonstrated before us that the amount of Rs. 48.05 crores is the bill amounts raised by its customers against the assessee. The assessee has deducted the value of work-in-progress from the abovesaid amount, instead of showing the same in the assets side of the balance-sheet. If the assessee had shown the work-in-progress amount in the asset side of the balance-sheet, then the matter would have been more clear. Thus, we notice that there is a conceptual misunderstanding on the part of the learned Commissioner of Income-tax about the facts prevailing in this case. When the learned Commissioner of Income-tax proceeds on erroneous line on misunderstood facts and accordingly passes the revision order, in our view, the same cannot be sustained.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 33
Prejudicial to the Interest of Revenue
3.20. Furthermore, the second limb to invoke Section 263 of the Act is that the order passed by the Assessing Officer should be "prejudicial to the interests of the revenue". Therefore, the said limb ought to be understood so as to understand what can be classified as 'prejudicial to the interests of revenue'. As the said phrase hasn't been defined under the law, legal precedents may be perused regarding the same. Some relevant extracts have been reproduced hereunder:
The judgement of Delhi High Court in the case of P.C. Puri v. CIT [1984] 18 Taxman 158 (Delhi) [23.02.1984] wherein it was held that:
Though not defined, the term 'prejudicial to the interests of the means that the lawful revenue due to the State has not been realised. [Para 6] Malabar Industrial Co. Ltd. v/s Commissioner of Income-tax (Supra)
8. .... In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the ITO the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue.
9. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer.
Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law.
3.21. On perusal of the above judgements, it can be observed that the order is prejudicial to the interest of revenue if it has resulted in loss of revenue. However, when the Ld. AO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Ld. AO has taken one view with which the Ld. PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue.
3.22. In view of the above discussion, the Appellant humbly submits that the Ld. PCIT has grossly erred in holding that the impugned assessment order is erroneous and prejudicial to the interest of revenue as:
a) it is evident that detailed inquiries were made by the Ld. AO;
b) the assessment order was passed in accordance with the law;
c) in case of two views, the view adopted by the Ld. AO will prevail;
d) the issues alleged by the Ld. PCIT are based on factual misunderstanding.
I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 34 3.23. Accordingly, in light of the above submissions, it is respectfully submitted that the case of the Appellant neither falls within the ambit of the "erroneous" nor in so far as "prejudicial to the interests of the revenue" as mentioned in Section 263 of the Act.
Issue which is not part of assessment order then revision proceedings cannot be invoke on such issues.
3.24. Without prejudice to above, it is humbly submitted that assessment proceedings were opened on the issues of expenditure of personal nature, deduction claimed for Industrial Undertaking u/s 80IA/80IAB/80IAC, etc., and Expenses incurred for earning exempt income (PB No. 125). Since the subject matter of payment of professional fees to Rajesh Dhingra, under valuation of WIP, payment of professional fees to Madan Lal Paliwal, gain on purchase/sale of Mutual Fund and goods lost in transit were not an issued covered under the proceedings u/s 143(2), and accordingly, not within the jurisdiction of the Ld. AO, therefore, the same cannot be subject matter of Section 263 proceedings. It is settled principle, once the Ld. AO himself has not jurisdiction upon any subject matter, then the jurisdiction of revision u/s 263 of the Act does not lie to Ld. PCIT also. In this regards, reliance is placed on ratio of following judicial precedents:
3.25. In this context, Appellant is placing reliance on following judicial precedents:
CIT v. Usha Martin Ventures Ltd. [2023] 150 taxmann.com 491 (Calcutta) The short issue involved in the instant case is whether the Commissioner of Income-tax (Appeals) [CIT(A)] could have assumed jurisdiction under section 263 of the Act on an issue which was never the subject-matter of the assessment in a proceeding initiated under section 147 of the Act. On facts, the learned Tribunal found that the issue of loss/expenditure incurred in respect of newly undertaken software product development project as capital loss/expenditure was not touched by the assessing officer in the reassessment proceedings under section 147 of the Act. Therefore, the learned Tribunal found that the CIT(A) was not justified in invoking the provisions of section 263 of the Act on an issue which was not the subject- matter of the reassessment of the proceedings. The decision rendered by the Tribunal takes note of the correct legal position and, therefore, does not call for any interference.
PCIT v. Shark Mines and Minerals Pvt. Ltd. [2023] 151 taxmann.com 71 (Orissa) What persuades this Court to reach this conclusion is the requirement in law that if the AO has to go beyond the scope of the issues for which 'limited scrutiny' has to be undertaken by him, he has to seek prior permission of the superior officer in terms of the CBDT Instruction No. 7/14 dated 26th September, 2014 and Instruction No. 20/15 dated 19th December, 2015. Consequently, it was not open to the Pr. CIT while exercising suo motu revisional power under section 263 of the Act to find fault with the assessment order of the AO on the ground of its being erroneous on an issue not covered by the 'limited scrutiny' when the AO I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 35 could not have possibly examined such issue. To reiterate, in the present case, the limited scrutiny was in respect of excess disallowance under section 40A(3) of the Act whereas the SCN under section 263 was regarding the FIFO method of valuation of closing stock adopted by the Assessee. These were, as rightly noted by the ITAT, unconnected issues and the assessment order could not have been held to be erroneous and prejudicial to the interest of Revenue" when the AO could not have travelled beyond the issues forming subject matter of the 'limited scrutiny.
BijniDooars Tea Co. Ltd. v. PCIT [2023] 155 taxmann.com 584 (Kolkata - Trib.) Thus, in conclusion, it clearly appears from the scheme of the Act that an order of assessment passed under section 143(3) is an assessment of total income of the assessee which is separate and distinct from any other order. DDT liability is distinct and separate from the liability to pay income- tax on the total income of an assessee which is created by charging section
4. Revision of an order under section 263 pre-supposes existence of an order. In view of the above discussion, levy of interest under section 115P and any liability of DDT under section 115-O does not arise out of conduct of assessment proceedings and making an assessment of total income under section 143(3), therefore, Principal Commissioner could not have invoked revisionary proceedings to direct the Assessing Officer for imposing DDT liability on the assessee in reference to assessment order passed under section 143(3).
3.26. In view of the above submission, the summarized pointers due to which the impugned revision proceeding are bad in law are:
a. Section 263 not invokable if detailed enquiries carried out by Ld. AO. b. Assessment order is not erroneous, if it is in accordance with law. c. Assessment Order is not erroneous, if two views are possible. d. Assessment Order is passed by NeAC which involves multiple authorities, hence, no scope of erroneous order.
e. Assessment Order is not erroneous, in case there is factual misunderstanding on part of Ld. PCIT.
f. Not Prejudicial to the Interest of Revenue. g. Assessment order has been passed in respect of issue on which the Ld.
AO had jurisdiction and power of revision does not lie in respect of other subject matter/issues, which were not part of original assessment proceedings and notice issued u/s 143(2) of the Act.
3.27. It is evident that the Ld. PCIT has grossly erred in holding that the impugned assessment order was erroneous and prejudicial to the interest of the revenue. Hence, the impugned order under Section 263 is without jurisdiction and not maintainable. Therefore, it is humbly prayed before your good self to kindly quash the illegal and arbitrary proceedings initiated under Section 263 of the Act.GROUND NO. 4
I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 36
4. Under the facts and circumstances of the case and in law, the Ld. PCIT has grossly erred in holding that the Assessment Order is erroneous and prejudicial to the interest of the revenue, without appreciating that proper enquiry was done by raising specific and relevant queries during the assessment proceedings in respect of:
a) Computation of disallowance of expenditure under Section 14A of the Act.
b) Depreciation claimed under Section 32 of the Act.
c) Computation of deduction under Section 80-IA of the Act.
d) Legal and Consultancy Charges paid to Rajesh Dhingra.
e) Payment made to Madan Lal Paliwal. f) Payment made to service providers of professional and consultancy services. g) Calculation of capital gains on sale of Mutual Funds and closing investment of Mutual Funds. a) Computation of disallowance of expenditure under Section 14A of the
Act (Para no. 6(A) of Impugned Order, page no. 49 to 51) 4.1. In this regard, the relevant facts of the issue are that Appellant, held non-
current investments in equity shares of various companies totalling Rs. 21,75,80,000/- as on 31.03.2017 as well as on 31.03.2018. Subsequently, during the assessment proceedings conducted under Section 143(3) of the Act, Ld. AO asked for an explanation on the same by a Notice issued under Section 143(2) of the act on 23.09.2019. The informationsought through these notices, included, among other things, the details of expenses incurred for earning exempt income by the Appellant.
S.No. Notice dated 23.09.2019 Response filed
1. Issue no. 3: Expenditure Assessee submitted that no exempt
incurred for Earning Exempt income has earned during the relevant
Income (Page no. 125 of year vide reply dated 24.10.2019.
PB) (Page no. 130 of PB.)
4.2. In response to that, the Appellant submitted vide its reply dated 24.10.2019 that no exempt income was earned by the Appellant then, accordingly, there was no expenditure incurred to earn the exempt income. The copy of the notices issued under Section 143(2) of the Act and response duly submitted by the Appellant in this regard are available on page no. 125-128 and 129-130 of PB respectively.
4.3. It is humbly submitted that the Ld. PCIT has grossly erred in alleging that the Ld. AO failed to properly comprehend the complete and correct assumption of facts and has not applied the appropriate legal position concerning the disallowance of expenses incurred in earning exempt income, as prescribed in Section 14A of the Act. It is respectfully submitted that the matter in the present case was decided by the Ld. AO by duly applying his mind and examining the information and documents placed before him and thereafter, the proceedings have been concluded by deciding that no disallowance under Section 14A of the Act has to be made.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 37
4.4. Further, it is pertinent to mention that the assessment orders ought to necessarily deal only with the claims being disallowed and not with the claims being allowed. Thus, where in case, a thorough inquiry has been conducted on the deductions claimed by the Appellant and the same has not been negated in the final order, it simply implies that the Ld. AO concurs with the claim made by the Appellant. Therefore, no disallowance has been made in this regard.The said contention can be substantiated byHon'ble High Court of Gujarat in the case of Commissioner of Income-Tax Vs. Nirma Chemicals Works P. Ltd. (2009) 222 CTR 593 (Guj) [04.02.2008], wherein it washeld that:
"The contention on behalf of the Revenue that the assessment order does not reflect any application of mind as to the eligibility or otherwise under section 80-I of the Act requires to be noted to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic tome. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and, secondly, the order is an appealable order. ...."
[Para 21 & 22] Rayon Silk Mills Versus Commissioner of Income-Tax. (1996) 221 ITR 155 [09.11.1995] The judgement of Hon'ble High Court of Bombay in the case of State Bank of India vs. Assistant Commissioner of Income tax and Ors. [2019] 411 ITR 664 (Bom) [15.06.2018] wherein it was held that:
"Moreover, the Assessment order in regular assessment proceedings in terms disallowed some of the claims made for deduction under Section 143(3) of the Act. Therefore, in the present facts, we are prima-facie of the view that, the Assessing Officer has by necessary implication allowed the claim. Moreover, the basic document for completing the assessment under Section 143(3) of the Act is the computation of income. Therefore, to the extent the claims made for deduction in the computation of come, were disallowed by the Assessing Officer, discussion on the same is found in the assessment order. It is an accepted position that the assessment orders would necessarily deal only with the claims being disallowed and not with the claims being allowed. This is for the reason as observed by the Gujarat High Court in CIT Vs. Nirma Chemicals Ltd. MANU/GJ/0136/2008 : 309 ITR 67, that if the Assessing Officer was to deal with all the claims which were to be allowed in the assessment order, the result would be an epitome. This is so, as it would cast an impossible burden upon the Assessing Officer considering his workload and the period of limitation. There was also no reason in the present facts for the Assessing Officer to ask any queries in respect of this claim of the petitioner, as the basic document viz. computation of income at note 21 (Assessment Year 2013-
14) and note 22 (Assessment Year 2014-15) thereof explained the basis of the claim being made to the satisfaction of the Assessing Officer. Thus, it must necessarily be inferred that the Assessing Officer has applied his I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 38 mind at the time of passing an assessment order to this particular claim made in the basic document viz. computation of the income by not disallowing it in proceedings under Section 143(3) of the Act as he was satisfied with the basis of the claim as indicated in that very document.
Therefore, where he accepts the claim made, the occasion to ask questions on it will not arise nor does it have to be indicated in the order passed in the regular assessment proceedings. Thus, issuing the impugned notices on the above ground would, prima-facie, amount to a change of opinion." [Para 6] The Hon'ble High Court of Delhi in the case of Commissioner of Income-tax v. Vodafone Essar South Ltd. 2012] 28 taxmann.com 273 (Delhi) [20.11.2012] held that:
"It is well settled that if there is some enquiry by the Assessing Officer in the original proceedings even if inadequate that cannot clothe the Commissioner with jurisdiction under section 263 merely because he can form another opinion." [Para 10] "In the instant case, the assessee was specifically queried regarding the nature and character of the one-time regulatory fee paid by it as well as the bank and stamp duty charges. A detailed explanation and other documents required by the Assessing Officer were produced at the stage of original assessment......Clearly this was not a case of 'no enquiry'. The lack of any discussion on this cannot lead to the assumption that the Assessing Officer did not apply his mind. The proceeding in fact shows that the Assessing Officer directed his mind specifically on this aspect and then concluded that the expenditure was in the revenue field.... The Commissioner did not specifically furnish any reasons to say why the original assessment order was unsupportable in law."[Para 11] The Hon'ble High Court of Delhi in the case of Commissioner of Income-tax v. Anil Kumar Sharma [2010] 194 Taxman 504 (Delhi) [24.02.2010] held that:
"In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the Assessing Officer, the record showed that the Assessing Officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under section 263 would fell into the area of the Commissioner having a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this Court. That being the position, the present case would not be one of 'lack of inquiry' and, even if the inquiry was termed as inadequate, following the decision in Sunbeam Auto Ltd.'s case (supra), "that would not by itself give occasion to the Commissioner to pass orders under section 263 of the said Act, merely because he has a different opinion in the matter". No substantial question of law arises for our consideration. Consequently, the appeal is dismissed."
[Para 7] I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 39 4.5. Accordingly, in light of the above submissions, it is humbly submitted that when the Ld. AO has made specific detailed enquiry regarding applicability of Section 14A, then the Ld. PCIT cannot hold the assessment order as erroneous and prejudicial to the interest of revenue for making disallowance under Section 14A of the Act. Therefore, it is humbly prayed before your honors to kindlyset aside the order passed by Ld. PCIT.
4.6. Without prejudice to the above, it also submitted that to invoke the provision of Section 14A of the Act there should be an income which is not forming part of total income for applicability of Section 14A. In such case only, disallowance of expenditure is to be done. However, in present case, Appellant submits that if no exempt income is earned during the relevant assessment year, no disallowance can be made under Section 14A of the IT Act. In this regard, following judgements can be relied upon:
• CIT v. Cheminvest Ltd. [2015] 61 taxmann.com 118 (Delhi) Dated 02.09.2015.
• PCIT v. Delhi International Airport (P.) Ltd. [2022] 144 taxmann.com 80 (Delhi) Dated 06.10.2022 • PCIT v. Amadeus India (P.) Ltd. [2022] 145 taxmann.com 311 (Delhi) CBDT Circular No. 5/2014 dated 11-02-2014 is not applicable. 4.1. It is humbly submitted that the CBDT Circular No. 5/2014 dated 11-02- 2014 relied upon by Ld. PCIT is already set aside by judiciary in catena of judgements as it cannot override the Section 14A. In this regard, following judgements can be relied upon:
• PCIT v. IL & FS Energy Development Company Ltd. [2017] 84 taxmann.com 186 (Delhi):
• PCIT v. TV Today Network Ltd. [2022] 141 taxman.com 275 (Delhi): • PCIT v. Amadeus India (P.) Ltd. [2022] 145 taxmann.com 311 (Delhi):
4.2. In light of the above discussion, Appellant humbly submits that in the present case, CBDT Circular No. 5/2014 Dated 11-02-2014 is not applicable because it is set aside by Hon'ble High Court in the above landmark judgements being contrary to Section 14A. Thus, Ld. PCIT has grossly erred in relying upon the said CBDT Circular.
The change in law is w.e.f. 01.04.2022.
4.3. It is humbly submitted that the explanation to Section 14A of the Act is inserted w.e.f. 01.04.2022 by Finance Act, 2022. As per explanation to Section 14A of the Act, any expenditure incurred in relation to an exempted income which has neither accrued nor arisen during the current year shall also be considered for disallowance under this section. The relevant extract of the Section 14A of the Act is reproduced hereinunder:
Explanation.--For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 40 accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.
4.4. On the bare perusal of the above explanation, it has been clarified that any expenditure incurred in relation to exempted income which was neither accrued nor received, shall be deemed to applied for earning such income and the said explanation is inserted w.e.f. 01.04.2022. In the present case, the year under consideration is FY 2017-18 and the explanation is not applicable to the year under consideration.
Investments are out of Huge Balance of Reserves & Surplus 4.5. The Appellant is profit making entity having huge reserves & surplus of Rs. 239.90 Cr as on 01.04.2017. Also, Appellant has Rs. 78.65 Cr. Reserves as on 01.04.2013 and Rs. 104.14Cr. as on 31.03.2014. In comparison to such huge reserves, investment in exempt assets was only Rs. 21.75 Cr as on 01.04.2017 as well as on 31.03.2018. Thus, it is humbly submitted that the Appellant has invested in shares in earlier years out of own funds in form of huge reserves and surplus and no investment is made out of borrowed funds.
Hence, it is humbly submitted that Section 14A of the Act is not applicable in the case of Appellant.
4.6. In view of the above, it is humbly submitted that the issue of disallowance u/s 14A of the Act was duly enquired by the Ld. AO during assessment proceedings, therefore, it is prayed to quash the Impugned Order.
b) Depreciation claimed under Section 32 of the Act. (Para no. 6(B) of Impugned Order, page no. 52 to 54) 4.7. In this regard, the facts on the issue are that Appellant has incurred a net loss of Rs.9,29,50,553/- as per accounting method, due to sale of scrap of plant and machinery for Rs. 20,53,511/-having book value of Rs. 22,33,06,270/- against which accumulated depreciation was of Rs. 12,82,55,384/-.In clause 18 of the tax audit report, the auditors were required to report the realised value of plant and machinery at Rs. 20,53,511/- while reporting the claim of allowable depreciation in accordance with the Act and not as per accounting methods.
4.8. Ld. AO has duly enquired about the loss on sale of plant and machinery vide Notice dated 23.09.2019 and 09.02.2021 to which a detailed reply was submitted by the Appellant vide reply dated 24.10.2019 and 24.02.2021. In this regard, we respectfully draw your attention to our reply dated 24.02.2021 (S.No. 33) in response to notice issued on 09.02.2021 that was submitted during the course of assessment proceedings. The relevant document is available on Page no. 143-146 of Paper Book for your ready reference. The document contains the details of rectification application submitted by the Appellant in respect to incorrect enhancement of income by Centralised I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 41 Processing Centre, Bengaluru and rectification order issued under Section 154 of the Act.
4.9. Accordingly, it is humbly submitted that the Ld. AO has taken into consideration the submissions made by the Appellant with respect to sale of plant and machinery and accordingly made no disallowance to the depreciation claimed by the Appellant. Therefore, it is evident that the issue was well enquired by the Ld. AO by duly applying his mind and examining the information and documents placed before him and thereafter, the assessment proceedings have been concluded by deciding that no disallowance has to be made in this regard.
4.10. It is respectfully submitted that the Ld. PCIT in its order, has acknowledged that the claim made by the Appellant is prima facie in agreement. However, Ld. PCIT has grossly erred in directing the Ld. AO to verify the claim, despite having already accepted it. If the claim made by the Appellant has been accepted as prima facie valid, it is expected that the Ld. PCIT would uphold this acceptance and refrain from directing further verification. In light of the above, the Appellant humbly requestyour honours to reconsider the direction given by the Ld. PCIT and to recognize the validity of the claim made by the Appellant, as it has already been accepted as prima facie correct in order to avoid unnecessary duplication of efforts by the Ld. AO.
c) Computation of deduction under Section 80-IA of the Act. (Para no. 6(C)of Impugned Order, page no. 54 to 55) 4.11. In this regard, the facts of the issue are that the Appellant was mainly engaged in the business of manufacturing chewing tobacco. In addition, the Appellant also generates income from power supply and transmission charges of windmills. The Appellant has incurred certain expenses in the nature of director's remuneration of Rs. 37,79,065/-, tour and travelling of Rs. 89,58,503/- and telephone and internet of Rs. 30,93,126/-, for a total of Rs. 1,58,30,694/- and claimed the same as expenditure against income from non- eligible business of tobacco.
4.12. During the assessment proceedings conducted pursuant to Section 143(3) of the Act, the Ld. AO demanded an explanation for the deduction claimed under Section 80IA of the Act by way of notices issued pursuant to Section 143(2) and 142(1) of the Act on 23.09.2019 and 09.02.2021. The relevant extract of the notices is reproduced as hereunder:
S.No. Query no. Response filed
1. Issue no. 2: Deduction claimed for Assessee submitted the form
Industrial Undertaking u/s 10CCB along with Audited
80IA/80IAB/80IAC/80IB/10A/10AA balance sheet vide reply
(Page no. 125 of PB) dated 24.10.2019. (Page no.
130 of PB.) Notice issued u/s 142(1) of the Act dated 09.02.2021:
I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 42 S.No. Query no. Response filed
1. 34. Further, on the issue of claiming All documentary evidences deduction u/s 80I of Rs. 2,25,27,557/, were submitted vide S.No. 34 you have not provided a copy of P&L of reply dated 24.02.2021 accounts(project wise) and not (page no. 141-142 of PB).
furnished any details/documents in regard to total sales declared therein.
Thus, your claim can not be verified.
In this connection, you are required to furnish the following :-
• P&L accounts (Project wise)
• Documentary evidence
regarding sale thereof with copy of
Bills/vouchers raised.
• Bank statement(s) relevant to
the sale proceeds appearing therein.
• Ledger account(s) of the
persons/concerns to whom sale was
made.
• Complete details/ledger
account(s) and documentary
evidence in regard to all the expenses
claimed.
4.13. The Appellant respectfully submits that the Ld. AO has skepticallyenquiredregarding the deduction claimed by the Appellant under Section 80IA of the Act vide Notices dated 23.09.2019 and 09.02.2021. In response to these notices, the Appellant has diligently submitteddetailed repliesdated24.10.2019 and 24.02.2021, addressing the concerns raised and later on verified by the Ld. AO himself.
4.14. It is respectfully submitted that the deduction under Section 80-IA has been claimed towards generation of electricity through the windmills, together with the necessary supporting documents.Thus, it is clear that the Ld. AO has given consideration to the Appellant's representations regarding the deduction claimed under Section 80-IA of the Act. The documents regarding deduction under Section 80-IA submitted to the Ld. AO are available on Page no.200- 367of Paper Book for your ready reference.
4.15. Further, the Appellant respectfully draws your attention to the reply dated 24.02.2021 (S.No. 34) in response to notice issued on 09.02.2021 that was submitted during the course of assessment proceedings. In said reply, Appellant submitted copy of audited Profit and Loss Account of Windmill, sale I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 43 invoices of electricity, copy of banks statements wherein sale proceeds appearing and ledger accounts of expenses claimed along with supporting invoices in respect to deduction claimed under Section 80-IA of the Act. The aforesaid documents are available on page no. 200-367 of Paper Book for your ready reference.
4.16. On perusal of the said notices and replies, it can be observed that the matter in the case has been decided by the Ld. AO by duly applying his mind and after examining the information and documents placed before him. Thus, when the proceedings have been concluded by deciding that no disallowance u/s 80IA of the Act has to be made and no expenses from the eligible business have been diverted to the non-eligible business in order to increase the profit of the eligible business, then the order of the Ld. AO cannot be treated as erroneous and prejudicial to the interest of the revenue.
4.17. It is also humbly submitted that the Appellant has entered into a separate agreement for each windmill for the operation, management and maintenance with Suzlon Global Services Limited for each year. Accordingly, the Appellant has paid Operation & Management charges to Suzlon Global Services Limited for carrying out the operation and management services. Such amount is included in repairs and maintenance expenses which has been claimed in audited profit of loss account of each windmill. Copy of agreement of operation and management services is available on page no. 280-313 of PB. Appellant has also submitted copy of invoice issued by Suzlon Global Service Limited which further substantiate the fact that directors were not involved in operation and management of windmill segment. (Refer page no. 351 to 367 of PB.) 4.18. For business of windmills, Appellant has power purchase agreement with Suzlon Energy Limited and Jodhpur Vidyut Vitran Nigam limited wherein they purchased the power generated from power plants of the Appellant and as per agreement, terms are given for 20 years from the date of commercial operation started from power plants. A copy of power purchase agreement is available on page no. 314-329 of PB. It is humbly submitted that the directors of Appellant are not involved in operation and management of the business of sale of power and there is no need to incur expenditure for tour & travelling, telephone and internet expenses as all the work relating to operation and management is done by Suzlon Global Services Limited and regarding sale of electricity agreement for sale already exists. Thus, the Windmill business segment does not require any involvement of the directors. Consequently, it is humbly submitted that the director's remuneration of Rs. 37,79,065/-, tour and travelling of Rs. 89,58,503/- and telephone and internet of Rs. 30,93,126/-, for a total of Rs. 1,58,30,694/- is not allocable to the Windmill business segment. 4.19. In support of the claim raised herein, reliance is placed on following judicial precedents:
Zandu Pharmaceuticals Works Ltd. v. CIT [2013] 31 taxmann.com 191 (Bombay) I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 44 Except on the basis of presumptions, it is not even the respondent's case that the existing activities of any of the units in fact benefited from or could benefit from the said R&D activities. It is also important to note that each of the units manufactures different items and, therefore, also carries out independent R&D work. [Para 8] While computing the profits and gains of the concerned undertaking, only expenses relating thereto can be deducted. In other words, the expenses must be incurred, for and on behalf of the concerned undertaking. The expenses attributable to any other unit or the head office expenses which have no relevance to the industrial undertaking, cannot be deducted in respect of the said undertaking while computing the profits and gains of the undertaking. [Para 10] CIT v. Hindustan Level Ltd. Chennai [2014] 42 taxmann.com 132 (Madras)
7. As far as the decision of the Madhya Pradesh High Court in Prestige Foods Ltd.'s case (supra) is concerned, the assessee did not furnish the expenses incurred by the units for the purpose of considering the deductibility. The Madhya Pradesh High Court viewed that in the absence of any details being made available by the assessee to establish that the particular expenses were incurred for its particular unit out of its two units, the expenses had to be treated as one for both the units which has to be divided based on the proportionate to the turnover. The question that arises for consideration is not the same as had been considered in the Madhya Pradesh High Court. It is not denied by the Revenue that assessee's units have separate accounts indicating their income and the expenses. The assessee does not claim any deduction on the expenses incurred by the Head Office. The only question is as to whether the common expenses incurred by the Head Office for the purpose of maintaining the units would nevertheless be subjected to the doctrine of proportionality for the purpose of deduction.
8. As already pointed out, the department had no grievance as regards the order passed by the Tribunal for preceding years 1984-85 onwards and that the expenses incurred were pure and simple administrative expenses, monitoring the requirements of finance and other action which are necessary in running of the business.
9. We do not find any justifiable ground to accept the plea of the Revenue.
Consequently, the above Tax Case (Appeals) are rejected and the order of the Tribunal shall stand. No costs.
4.20. Thus, it is evident that Ld. AO took plausible view on the issue of 80IA and accordingly justified in passing assessment order.
4.21. In view of the above, it is humbly prayed before your honours to kindly to quash the Impugned Order.
d) Legal and Consultancy Charges paid to Rajesh Dhingra (Para no. 6(D)(i)(a) of Impugned Order, Page No. 56) 4.22. In this regard, the facts of the issue are that during the relevant assessment year, the Appellant has made payments for Legal and I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 45 Consultancy Charges to Rajesh Dhingra for services amounting to Rs. 25,00,000/-. The Appellant has correctly claimed the expenditure and has complied with the provisions of tax deducted at source (TDS), along with reporting by the Auditor in Form 3CD.
4.23. At the very outset, it is humbly submitted that the said issued of Legal and Consultancy charges is not part of issues assessed under the Scrutiny assessment. The same is evident from the notice issued u/s 143(2) of the Act dated 23.09.2019 which identifies the following issues:
• Expenditure of Personal Nature • Deduction claimed for Industrial Undertaking u/s 80IA/80IAB/80IAC/80IB/10A/10AA • Expenses incurred for Earning Exempt Income
4.24. The said scrutiny assessment is not opened for verification of Legal and Consultancy Charges, therefore, Ld. PCIT has erred in exercising its power u/s 263 of the Act on the issues which were not part of original scrutiny assessment and on the issue on which Ld. AO itself lacked the jurisdiction. In this context, reliance is placed on following judicial precedents:
CIT v. Usha Martin Ventures Ltd. [2023] 150 taxmann.com 491 (Calcutta)
5. The short issue involved in the instant case is whether the Commissioner of Income-tax (Appeals) [CIT(A)] could have assumed jurisdiction under section 263 of the Act on an issue which was never the subject-matter of the assessment in a proceeding initiated under section 147 of the Act. On facts, the learned Tribunal found that the issue of loss/expenditure incurred in respect of newly undertaken software product development project as capital loss/expenditure was not touched by the assessing officer in the reassessment proceedings under section 147 of the Act. Therefore, the learned Tribunal found that the CIT(A) was not justified in invoking the provisions of section 263 of the Act on an issue which was not the subject-matter of the reassessment of the proceedings. The decision rendered by the Tribunal takes note of the correct legal position and, therefore, does not call for any interference.
PCIT v. Shark Mines and Minerals Pvt. Ltd. [2023] 151 taxmann.com 71 (Orissa) What persuades this Court to reach this conclusion is the requirement in law that if the AO has to go beyond the scope of the issues for which 'limited scrutiny' has to be undertaken by him, he has to seek prior permission of the superior officer in terms of the CBDT Instruction No. 7/14 dated 26th September, 2014 and Instruction No. 20/15 dated 19th December, 2015. Consequently, it was not open to the Pr. CIT while exercising suo motu revisional power under section 263 of the Act to find fault with the assessment order of the AO on the ground of its being erroneous on an issue not covered by the 'limited scrutiny' when the AO could not have possibly examined such issue. To reiterate, in the present case, the limited scrutiny was in respect of excess disallowance under section 40A(3) of the Act whereas the SCN under I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 46 section 263 was regarding the FIFO method of valuation of closing stock adopted by the Assessee. These were, as rightly noted by the ITAT, unconnected issues and the assessment order could not have been held to be erroneous and prejudicial to the interest of Revenue" when the AO could not have travelled beyond the issues forming subject matter of the 'limited scrutiny.
BijniDooars Tea Co. Ltd. v. PCIT [2023] 155 taxmann.com 584 (Kolkata - Trib.) Thus, in conclusion, it clearly appears from the scheme of the Act that an order of assessment passed under section 143(3) is an assessment of total income of the assessee which is separate and distinct from any other order. DDT liability is distinct and separate from the liability to pay income-tax on the total income of an assessee which is created by charging section 4. Revision of an order under section 263 pre-supposes existence of an order. In view of the above discussion, levy of interest under section 115P and any liability of DDT under section 115-O does not arise out of conduct of assessment proceedings and making an assessment of total income under section 143(3), therefore, Principal Commissioner could not have invoked revisionary proceedings to direct the Assessing Officer for imposing DDT liability on the assessee in reference to assessment order passed under section 143(3). 5.1. The Ld. AO askedfor an explanation regarding the Legal and Consultancy Charges vide Notice issued under Section 142(1) of the Act on 09.02.2021. The relevant extract is reproduced as hereunder:
Notice issued u/s 142(1) of the Act dated 09.02.2021:
S.No. Query no. Response filed
1. 20. Please furnish a copy of ledger All documentary evidences account of Professional/consultancy were submitted vide S.No. 20 charges of Rs. 4,74,57,396/- with a of reply dated 24.02.2021 copy of individual ledger of the (page no. 140 of PB).
persons/concerns relevant to the expenditure claimed.
In this connection, you are also required to furnish documentary evidence in regard to claim of relevancy and justification thereof 5.2. The Appellant respectfully submits that Ld. AO has skepticallyenquiredregarding the Legal and Consultancy Charges vide Notices dated 09.02.2021. In response to the notice, the Appellant has diligently submitted a detailed replydated 24.02.2021 (at S.No. 20), addressing the concerns raised and later on verified by the Ld. AO himself. (Refer page no.
137-142 of PB)
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 47
5.3. The Appellant respectfully brings to your attention to page no. 384-392 of PB, where copy of ledger and invoice of Rajesh Dhingrashows the gross amount of the transaction entered. It should be noted that the details of services rendered by Rajesh Dhingra to the Appellant Company, amounting to Rs. 25,00,000/- are showed on Page 385 of the PB vide bill no. 0007 dated 14.08.2017. Further, the Appellant accounted for this transaction as Legal and Consultancy charges on 31.08.2017, as stated on Page no. 384 of the PB.
5.4. It is respectfully submitted that Ld. PCIT has grossly erred in alleging that the TDS of Rs. 2,50,000/- was paid by the Appellant in addition to the payment of Rs. 25,00,000/- made to Rajesh Dhingra for Legal and Consultancy Charges. However, it is humbly submitted that the Ld. PCIT has misinterpreted the facts in this matter. Instead, it is to be noted that an advance amount of Rs. 22,50,000/- was paid to Rajesh Dhingra on 14.08.2017 through cheque no.1002, drawn on Bank of Baroda. The advance amount was paid after deduction of TDS of Rs. 2,50,000/-. The copy of bank statement wherein the payment of Rs. 22,50,000/- was duly debited is available on Page No. 389 of Paper Book for your ready reference. In addition to this, copy of invoice with respect to Legal and Consultancy Charges along with receipt for confirmation of accounts amounting to Rs. 22,50,000/- issued by Rajesh Dhingra is available on page no. 385-386 of Paper Book for your reference.
5.5. Further, it is humbly submitted that TDS of Rs. 2,50,000/- was duly deducted and deposited by the Appellant in accordance with the invoice issued by Rajesh Dhingra amounting to Rs. 25,00,000/-. To provide supporting evidence, a copy of Form 16A is available on Page No. 391-392 of Paper Book for your ready reference.
5.6. On perusal of the said notices and replies, it is evident that the matter in the case has been decided by the Ld. AO by duly applying his mind and after examining the information and documents placed before him. However, it appears that the Ld. PCIT has seemingly overlooked or disregarded the response submitted by the Appellant on 24.03.2023 which could have provided clarification on the concerned issue in hand.
5.7. Accordingly, in light of the above submissions, it is humbly submitted that when the Ld. AO has diligently examined the issue in detail regarding the Legal and Consultancy charges paid to Rajesh Dhingra and addressed the concerns raised, the revisionary powers under Section 263 cannot be invoked as the assessment order is neither erroneous nor prejudicial to the interest of revenue. Therefore, it is humbly prayed before your honours to kindly quash the Impugned Order.
e) Payment made to Madan Lal Paliwal (Para no. 6(D)(i)(b) of Impugned Order, page no. 56-57) 5.8. In this regard, the facts of the issue are that the Appellant company has paid an amount of Rs. 4,20,00,000/- to Madan Lal Paliwal for professional fee I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 48 on which TDS of Rs. 42,00,000/- was made. The Appellant has correctly claimed the expenditure and has complied with the provisions of tax deducted at source (TDS).
5.9. At the very outset, it is humbly submitted that the said issued of Professional Fees to Madan lal Paliwal was not part of issues assessed under the Scrutiny assessment. The same is evident from the notice issued u/s 143(2) of the Act dated 23.09.2019 which identifies the following issues:
• Expenditure of Personal Nature • Deduction claimed for Industrial Undertaking u/s 80IA/80IAB/80IAC/80IB/10A/10AA • Expenses incurred for Earning Exempt Income
5.10. The said scrutiny assessment is not opened for verification of Professional Fees to Madan Lal Paliwal, therefore, Ld. PCIT has erred in exercising its power u/s 263 of the Act on the issues which were not part of the original scrutiny assessment. In this context, reliance is placing on judgments of:
• PCIT v. Shark Mines and Minerals (P.) Ltd. [2023] 151 taxmann.com 71 (Orissa) • CIT v. Usha Martin Ventures Ltd. [2023] 150 taxmann.com 491 (Calcutta) • BijniDooars Tea Co. Ltd. v. PCIT [2023] 155 taxmann.com 584 (Kolkata
- Trib.) 5.11. In view of the above, Ld. PCIT lacked the jurisdiction in respect of subject matter beyond the scope of notice u/s 143(2) of the Act, more particularly, when the Ld. AO itself was not having jurisdiction in respect of those subject matter.
5.12. Without prejudice to above, it is submitted that the Ld. AO asked for an explanation regarding the professional fees vide Notice issued under Section 142(1) of the Act on 09.02.2021. The relevant extract is reproduced as hereunder:
Notice issued u/s 142(1) of the Act dated 09.02.2021:
S.No. Query no. Response filed
1. 20. Please furnish a copy of All documentary
ledger account of evidences were
Professional/consultancy submitted vide S.No.
charges of Rs. 4,74,57,396/- 20 of reply dated
with a copy of individual 24.02.2021 (page no.
ledger of the 140 of PB).
persons/concerns relevant to
the expenditure claimed.
In this connection, you are
also required to furnish
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 49
documentary evidence in
regard to claim of relevancy
and justification thereof
5.13. The Appellant respectfully submits that the Ld. AO has skeptically enquired regarding the Legal and Consultancy Charges vide Notices dated 09.02.2021. In response to the notice, the Appellant has diligently submitted a detailed reply dated 24.02.2021, addressing the concerns raised and later on verified by the Ld. AO himself. On perusal of the said notices and replies, it is evident that the matter in the case has been decided by the Ld. AO by duly applying his mind and after examining the information and documents placed before him. However, it appears that the Ld. PCIT has seemingly overlooked or disregarded the response submitted by the Appellant on 24.03.2023 which could have provided clarification on the concerned issue in hand.
5.14. Appellant respectfully submits that the Ld. PCIT has grossly erred in alleging that the total amount paid to Madan Lal Paliwal on account of professional fees is Rs. 4,92,45,000/- i.e. (Rs. 4,50,45,000+Rs. 42,00,000). In this regard, the Appellant draws your attention page no. 393 of PBwhich clearly shows that the Appellant claimed an amount of Rs. 4,20,00,000/- as professional fees paid to Madan Lal Paliwal.
5.15. It is humbly submitted that the Ld. PCIT has grossly erred in alleging that the remaining amount of Rs. 72,45,000/- was not taken into account and its impact on net income of the Appellant. In this regard, the Appellant respectfully draws your attention to the month wise detail of fee claimed along with tax paid wherein it is evident from the table that the total fee claimed was Rs. 4,20,00,000/- i.e., Rs. 35,00,000/- per month and corresponding TDs @10% i.e., Rs. 42,00,000/- has been correctly deducted by the Appellant company. In addition to this, it is also clear that the amount of Rs. 72,45,000/-
is related to indirect taxes. A copy of month wise detail of fee is available on page no. 393 of Paper Book for your ready reference.
5.16. Further, the Appellant respectfully draws attention to the copy of ledger account of Madan Lal Paliwal (Page no. 421-422 of PB) wherein the amount credited of Rs. 4,50,45,000/- included the amount of tax i.e. Rs. 72,45,000/-. Therefore, it is evident that there is no implication on Appellant's income. However, it is humbly submitted that the Ld. PCIT has misinterpreted the facts in this matter.
5.17. Accordingly, in light of the above submissions, without prejudice to contention that this issue was not subject matter of original assessment proceedings, it is humbly submitted that when the Ld. AO has diligently examined the issue in detail regarding the professional fee paid to Madan Lal Paliwal and addressed the concerns raised, the revisionary powers under Section 263 cannot be invoked as the assessment order is neither erroneous nor prejudicial to the interest of revenue. Therefore, it is humbly prayed before your honours to kindly quash the Impugned Order passed by Ld. PCIT.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 50
f) Payment made to service providers of professional and consultancy
services. (Para no. 6(D)(i)(c/d) of Impugned Order, page no. 57) 5.18. In this regard, the facts of the issue are that the Appellant Company has made payments to other service providers of professional and consultancy services.
5.19. At the very outset, it is humbly submitted that the said issued of other service providers of professional and consultancy services is not part of issues assessed under the Scrutiny assessment. The same is evident from the notice issued u/s 143(2) of the Act dated 23.09.2019 which identifies the following issues:
• Expenditure of Personal Nature
• Deduction claimed for Industrial Undertaking u/s
80IA/80IAB/80IAC/80IB/10A/10AA
• Expenses incurred for Earning Exempt Income
5.20. The said scrutiny assessment is not opened for verification of other service providers of professional and consultancy services, therefore, Ld. PCIT has erred in exercising its power u/s 263 of the Act on the issues which were not part of the original scrutiny assessment. In this context, reliance is placing on judgments of:
• PCIT v. Shark Mines and Minerals (P.) Ltd. [2023] 151 taxmann.com 71 (Orissa) • CIT v. Usha Martin Ventures Ltd. [2023] 150 taxmann.com 491 (Calcutta) • BijniDooars Tea Co. Ltd. v. PCIT [2023] 155 taxmann.com 584 (Kolkata
- Trib.) 5.21. The Ld. AO askedfor an explanation regarding the professional fees vide Notice issued under Section 142(1) of the Act on 09.02.2021. The relevant extract is reproduced as hereunder:
Notice issued u/s 142(1) of the Act dated 09.02.2021:
S.No. Query no. Response filed
1. 20. Please furnish a copy of ledger All documentary evidences account of Professional/consultancy were submitted vide S.No. 20 charges of Rs. 4,74,57,396/- with a of reply dated 24.02.2021 copy of individual ledger of the (page no. 140 of PB).
persons/concerns relevant to the expenditure claimed.
In this connection, you are also required to furnish documentary evidence in regard to claim of relevancy and justification thereof I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 51 5.22. It is humbly submitted that the Ld. AO has skeptically enquired regarding the payment made to other service providers for professional and consultancy services vide Notices dated 09.02.2021. In response to the notice, the Appellant has diligently submitted detailed reply dated 24.02.2021, addressing the concerns raised and later on verified by the Ld. AO himself. (Page no. 137-142 of PB) 5.23. The Appellant humbly submits that there is no discrepancy in TDS concerning the payment made to other service providers for professional and consultancy services. In this regard, we kindly draw attention to previously submitted reply dated 24.02.2021 (S.No. 20)before the Ld. AO, specifically pointing toAnnexure on page no. 407 of PB. This annexure provides a comprehensive breakdown of the total amount of professional and consultancy fees amounting to Rs.4,74,57,396/-. In addition to this, Appellant have already attached copies of respective ledger accounts and Form 16A, encompassing Pages 406-478 of PB.
5.24. It is also submitted that reason & reconciliations of difference amount of Rs. 44,87,060/- in relation to payment to Madan Lal Paliwal (Miraj) Family Foundation is related to GST of Rs. 43,37,730/- and Rs. 1,49,330/- was related to reimbursement of expenses of electricity etc. In this context, a copy of the reconciliation chart is available on page no. 479 of PB.
5.25. The Appellant respectfully submits that the response, which was submitted on 24.03.2023, has not been considered by the Ld. PCIT. The Appellant expresses concern that despite submitting the response to address specific matters, it has not received the necessary attention from the Ld. PCIT. Furthermore, the Appellant notes that the Ld. PCIT has proceeded to pass the impugned order without taking into account the response provided by the Appellant in lieu of the notice issued for seeking additional information or clarification.
5.26. It is respectfully submitted that there appears to be a lack of clarity on the part of the Ld. PCIT regarding the need for clarification in relation to payments made.It is important to note that these payments were made after deducting TDS, and they were duly audited by a professionally qualified CA. Additionally, these payments underwent thorough verification before the issuance of the tax audit report.The Appellant seeks clarification from the Ld. PCIT regarding the necessity of further explanation or clarification concerning these payments if any.
5.27. Accordingly, in light of the above submissions, it is humbly submitted that when the Ld. AO has diligently examined the issue in detail regarding the professional and consultancy charges paid to other service providers, the revisionary powers under Section 263 cannot be invoked as the assessment order is neither erroneous nor prejudicial to the interest of revenue. Therefore, I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 52 it is humbly prayed before your honours to kindly quashed the Impugned Order.
g) Calculation of Capital gains on sale of Mutual Fund and closing investment of Mutual Fund. (Para no. 6(D)(ii) of Impugned Order, page no. 58-
59) 5.28. In this regard, the facts of the issue are that the Appellant company has earned short term capital gains on redemption of mutual funds and the said issue is not part of scrutiny. However, Ld. AO asked for an explanation regarding the short term capital gains vide Notice issued under Section 142(1) of the Act on 09.02.2021. The relevant extract is reproduced as hereunder:
Notice issued u/s 142(1) of the Act dated 09.02.2021:
S.No. Query no. Response filed
1. 6. Please furnish complete Details of short term capital
details/documents relevant to short gain submitted vide S.No. 6 of term capital gains of Rs. reply dated 24.02.2021 (Page 2,04,05,096/- shown in computation no. 138 of PB) of total income.
5.29. It is humbly submitted that the Ld. AO has skeptically enquired regarding the short-term capital gains on mutual funds vide Notices dated 09.02.2021. In response to the notice, the Appellant has diligently submitted detailed reply dated 24.02.2021, addressing the concerns raised and later on verified by the Ld. AO himself.
5.30. The Appellant humbly submits that the Ld. PCIT has grossly erred in alleging the correctness of the claims related to short term capital gains and the valuation of closing stock of Mutual Funds.In this regard, the Appellant would like to draw your attention to the response dated 24.02.2021 that was filed before the Ld. AO. It is important to note that this response, which addressed the concerns raised, was also referred by the Ld. PCIT for due consideration.From the relevant working which is available on page no. 498 of PB, it is evident that the Appellant company has earned short term capital gains of Rs. 2,03,33,971/- on sale of Mutual Funds. These Mutual funds were acquired by the Appellant during the F.Y. 2017-18. Further, it is to be noted that the Mutual Funds purchased and held as investments at the end of F.Y. 2017-18 were not specifically mentioned on 498 of PB, as they did not result in any capital gains.
5.31. The Appellant respectfully submits that the Ld. PCIT has grossly erred in alleging substantial differences between the figures presented in the cash flow statements and the aforesaid Annexure submitted by the Appellant. In this regard, the difference is with respect to the closing amount of investments in Mutual Funds, thus, having no impact on the capital gains of the relevant year.
To further clarify the difference during the F.Y. 2017-18 and closing value of I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 53 Mutual Funds as on 31.03.2018, reconciliation statement is available on page no. 480-481 of PB.
5.32. The Appellant respectfully submits that the response, which was submitted on 24.03.2023, has not been considered by the Ld. PCIT. The Appellant expresses concern that despite submitting the response to address specific matters, it has not received the necessary attention from the Ld. PCIT. Furthermore, the Appellant notes that the Ld. PCIT has proceeded to pass the impugned order without taking into account the response provided by the Appellant in lieu of the notice issued for seeking additional information or clarification.
5.33. Accordingly, in light of the above submissions, it is humbly submitted that when the Ld. AO has diligently examined the issue in detail with respect to short term capital gains on sale of Mutual Funds and closing value of Mutual funds, the revisionary powers under Section 263 cannot be invoked as the assessment order is neither erroneous nor prejudicial to the interest of revenue. Therefore, it is humbly prayed before your honours to kindly set aside the Impugned Order.
6. Under the facts and circumstances of the case and in law, the Ld. PCIT has grossly erred in directing the Ld. AO for fresh Assessment Order, without appreciating the fact that the Assessment Order is in accordance with the law in respect of issues raised by the Ld. PCIT. (Ground No. 6) Goods lost in Transit (Para no. 6(D)(iv) of Impugned Order, page no. 59) 6.1. At the very outset, it is humbly submitted that the said issued of goods lost in transit is not part of issues assessed under the Scrutiny assessment. The same is evident from the notice issued u/s 143(2) of the Act dated 23.09.2019 which identifies the following issues:
• Expenditure of Personal Nature • Deduction claimed for Industrial Undertaking u/s 80IA/80IAB/80IAC/80IB/10A/10AA • Expenses incurred for Earning Exempt Income
6.2. The Appellant Company has claimed the deduction of Rs.87,03,288/- in profit and loss account for loss of goods in transit. The facts of the issue are that goods were going from Rajasthan to Karnataka via the State of Maharashtra and the officials at the state of Maharashtra had seized the goods which had been expired and same has been claimed as deduction in profit & Copies of relevant invoice & E-way bill and relevant documents FIR Goods seized order are available on page no. 482-489 of PB.
6.3. The Appellant respectfully submits that the response, which was submitted on 24.03.2023, has not been considered by the Ld. PCIT. The Appellant expresses concern that despite submitting the response to address specific matters, it has not received the necessary attention from the Ld. PCIT.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 54
Furthermore, the Appellant notes that the Ld. PCIT has proceeded to pass the impugned order without taking into account the response provided by the Appellant in lieu of the notice issued for seeking additional information or clarification.
Alleged undervaluation of WIP (Para no. 6(D)(ii) of Impugned Order, page no.
57) 6.4. In this regard, the facts of the issue are that the Ld. PCIT has recorded its wrong finding that Appellant Company has undervalued its WIP and there is high variance in stock in trade to turnover ratio.
6.5. At the very outset, it is humbly submitted that the said issue verification or assessing the WIP and variance in stock in trade to turnover ratio is not part of issues on which Ld. AO had jurisdiction under the Scrutiny assessment. The same is evident from the notice issued u/s 143(2) of the Act dated 23.09.2019 which identifies the following issues:
• Expenditure of Personal Nature • Deduction claimed for Industrial Undertaking u/s 80IA/80IAB/80IAC/80IB/10A/10AA • Expenses incurred for Earning Exempt Income
6.6. The said scrutiny assessment is not opened for verification of valuation of stock, therefore, Ld. PCIT has erred in exercising its power u/s 263 of the Act on the issues which were not part of the original scrutiny assessment. In other words, the Ld. PCIT is not justified in exercising the jurisdiction beyond the scope of issue u/s 143(2) of the Act on which the Ld. AO itself had no jurisdiction. In this context, reliance is placing on judgments of:
• PCIT v. Shark Mines and Minerals (P.) Ltd. [2023] 151 taxmann.com 71 (Orissa) • CIT v. Usha Martin Ventures Ltd. [2023] 150 taxmann.com 491 (Calcutta) • BijniDooars Tea Co. Ltd. v. PCIT [2023] 155 taxmann.com 584 (Kolkata
- Trib.) 6.7. Thus, the Ld. AO was justified in not going beyond the scope of notice issued u/s 143(2) of the Act as it took legally permissible view during the assessment proceeding by not acting beyond the scope of notice u/s 143(2) of the Act.
6.8. Without prejudice to the above submission, it submitted that Ld. PCIT has wrongly derived the value of WIP (Semi-finished Tabacco) @ Rs. 10.52 per KG only which is completely based on assumption and presumption and baseless. The value of WIP as per records of Assessee is Rs. 32.72 per KG, therefore, the finding of Ld. PCIT is inappropriate and incorrect.
6.9. Further, as far as reasons for variance in the stock in trade to turnover ratio is concerned, it is submitted that that goods of Appellant are excisable I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 55 goods and as evident from the audited profit and loss account of Appellant (Page no. 104 of PB) that Rs. 257.27 crores excise duty paid in FY 2016-17 and similarly in FY 2017-18, Rs. 63.78 crores of excise duty paid by the Appellant Company which was due to introduction of GST Act in July 2017.
Earlier, the excise duty paid by the Appellant was forming part of cost of Finished Goods/WIP/Raw material however, in year under consideration, due to introduction of GST Act, the excise duty paid reduced to Rs. 63.78 crores from Rs. 257.27 crores.Thus, there is reasonable basis and justification for change in stock in trade to turnover ratio, which aspect has not been appreciated by Ld. PCIT.
7. In view of the foregoing detailed grounds and submission as explained herein above, it is humbly submitted that Impugned Order passed by Ld. PCIT is without jurisdiction, arbitrary, without authority of law, bad in law and thus deserves to be quashed."
8. For the sake of convenience, the ld. AR of the assessee also filed a detailed convenience chart and the same is also reads as under
Issue Ld. PCIT Summary of Grounds Judgements Paper Book Reference a. Twin conditions not a. Landmark (Twin Cond. + Enquiry:
satisfied by Ld. Prejudicial + Two Views):Malabar PCIT.Remanded back Industrial Co. Ltd. v. CIT [2000] 150-153, for mere verification 243 ITR 83 (SC) without proclaiming as b. Enquiry by Ld. AO, thus, No 163-166 erroneous or 263:Gabriel India Ltd. [1993] 71 prejudicial, hence, no Taxman 585 (Bom.)[15.04.1993] finding by Ld. PCIT.
a. Facts are
CIT, Central III v. Nirav Modi
not b. Sufficient enquiry by
verified Ld. AO + detailed Replies:
General [2017] 291 CTR 245 (Bombay)
by the AO submissions made.
during the
c. Information regarding 154-162,
assessm c. PCIT should check submissions
deductions is available
ent placed on
on record i.e. Financial
proceedin record:ShriManjunatheshwar 167-171
[Ground 1 Statements and
g. Packing Products & Camphor
Computation. Hence,
Works [1998] 96 taxman 1 (SC)
and 2 of verified by Ld. AO.
d. Faceless Assessment:AGRANI
d. Assessment is under
Form 36] BUILDESTATE VS PR. CIT-1,
Faceless Assessment
JAIPUR ITA NO. 205/JP/2023
Scheme having
multiple teams, thus, e. Finding Compulsory by PCIT: D.G.
proper verification Housing Projects Ltd. [2012] 343
done at assessment ITR 329 (Delhi) [01.03.2012]
level.
J.P. Srivastava & Sons
e. Assessment order is
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 56
Issue Ld. PCIT Summary of Grounds Judgements Paper
Book
Reference
not erroneous, if it is in (Kanpur) Ltd. Vs.
accordance with law.
Commissioner Of Income-Tax
f. Assessment order is
not erroneous, in case
[1978] 111 ITR 326 (ALL.)
there is factual
misunderstanding by
[26.04.1972]
Ld. PCIT.
g. Issues which are not
f. Prejudicial:P.C. Puri v. CIT [1984]
part of assessment
18 Taxman 158 (Delhi
order then revision is
not possible. g. Factual misunderstanding: Patel L
and T Consortium [2016] 65
taxmann.com 48 (Mumbai)
h. Scrutiny Assessment:CIT v. Usha
Martin Ventures Ltd. [2023] 150
taxmann.com 491 (Calcutta)
PCIT v. Shark Mines and
Minerals Pvt. Ltd. [2023] 151
taxmann.com 71 (Orissa)
BijniDooars Tea Co. Ltd. v.
PCIT [2023] 155
taxmann.com 584 (Kolkata
- Trib.)
a. Since a. Issue duly verified a. Issue duly verified by the Ld. Enquiry:
investme under Assessment by AO):CIT v. Nirma Chemicals Works
nt was Ld. AO. (Point no. 9 & P. Ltd. [2009] 222 CTR 593 (Guj.) 150-153,
Computati made in 10 on page no. 158
CIT v. Vodafone Essar South Ltd.
shares of and point no. 2 & 3 on
on of 163-166
companie page no. 167-168)
[2012] 28 taxmann.com 273 (Delhi)
s and
disallowan b. No exempt income
agricultur
earned by the
al land b. No exempt income, then no section
ce of Appellant, therefore,
which 14A:CIT v. Cheminvest Ltd. [2015]
no disallowance to be Replies:
may 61 taxmann.com 118 (Delhi)
expenditur made u/s 14A of the
result in
Act.(page no. 167) PCIT v. Delhi International Airport
exempted Point no. 9
e u/s 14A Pvt. Ltd. [2022] 144 taxmann.com
income. c. Circular no. 5/2014 is
80 (Delhi)
[para 6(A) not appliable. and 10 on
and Rule and page
no. 44] c. Circular no. 5/2014 is set pg. no.
8D. aside:PCIT v. TV today network
b. It is
Ltd. [2022] 141 taxmann.com 275 158,
mandator
[Ground 3, (Delhi)
y for AO
to follow PCIT v. Amadeus India Pvt. Ltd.
4 and 5 of CBDT [2022] 145 taxmann.com 311
circular (Delhi)
Form 36] and Point no. 2
should
have and 3 on
applied
provision
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 57
Issue Ld. PCIT Summary of Grounds Judgements Paper
Book
Reference
s of Rule page no.
8D for
computati 167-168
on of
disallowa
nce which
is not
appreciat
ed.[para
6(A) and
page no.
44]
a. Remaining a. Issue duly verified a. Issue duly verified by the Ld.
amount of under Assessment AO):CIT v. Nirma Chemicals
Interest Rs. by Ld. AO. (page Works P. Ltd. [2009] 222 CTR
Details of
10,57,076/ no. 170 and page 593 (Guj.)
paid on - was not no. 461-462)
CIT v. Vodafone Essar South Ltd. unsecured
paid till
unsecured date and
[2012] 28 taxmann.com 273 loan on
thus, b. Miraj Tradecom
loans disallowabl Pvt. Ltd. is
(Delhi) Page 461-
e u/s 43B company who
along with of the Act deducted on
462,
but not interest payment b. Factual Misunderstanding:Patel L
applicable reported of Rs. 10,10,514/- and T Consortium [2016] 65
by auditor. which merged with taxmann.com 48 (Mumbai) TDS
TDS with b. Non- Assessee
deposition Company. returns on
respect to of TDS is Reconciliation is
interlinked available on page page no.
alleged with the no. 537-538.
issue of 367-390
disallowan difference
in amount c. Factual
ce u/s Reconciliati
of Interest misunderstanding
paid on by Ld. PCIT.
40(a)(ia) Unsecured on on page
loan.
and 43B no. 537-
c. Amount of d. It is evident from
interest the TDS statement
of the Act. 538
payment of all quarters that
paid on TDS deducted as
unsecured well as deposited
[Ground 3,
loan was of Rs.
not 1,33,02,639/-.
4 and 5 of
verifiable (page no. 367-
from the 390).
Form 36]
TDS
statement,
obviously, e. TDS is not an
because expense, thus,
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 58
Issue Ld. PCIT Summary of Grounds Judgements Paper
Book
Reference
the TDS section 43B is not
statements applicable.
were found
in
conformity
with
figures as
mentioned
in Tax
Audit
report.[par
a 6(C) pg
48]
a. Payment a. Issue duly verified a. Issue duly verified by the Ld. Page. No.
of total under Assessment AO):CIT v. Nirma Chemicals Works
rent to by Ld. AO. (point P. Ltd. [2009] 222 CTR 593 (Guj.) 170 and
Madan lal no. 15 on page no.
CIT v. Vodafone Essar South Ltd.
Paliwal 153 and point no. 212-217
and His 8 on page no.
[2012] 28 taxmann.com 273 (Delhi)
family 165)
Foundatio
Rent n of Rs.
11,23,309 b. Payment made to
payment /-, Madan lal Paliwal
whereas of Rs. 7,46,509/-
with the is divided into two
details of parts i.e., Rs.
respect clause 1,68,840/- for rent
34(a) and Rs. 5,77,669/-
alleged indicates for stamp duty
that TDS reimbursement.
disallowan was (page no. 497)
made on
ce u/s rent
payment
40(a)(ia) of Rs. c. Rent amount is
6,04,720/ below threshold
of the Act. -. limit u/s 194I and
on Rs. 5,77,669/-
b. A was paid towards
[Ground 3, reconcilia reimbursement of
tion sheet stamp duty on
4 and 5 of was which no TDS was
submitted applicable.
Form 36] , and the
claim of
Assessee
is prima- d. Issue of stamp
facie duty paid in cash
tallied, duly examined by
however, invoking
directed proceedings u/s
AO to 271D (page no.
confirm 498).
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 59
Issue Ld. PCIT Summary of Grounds Judgements Paper
Book
Reference
the same.
[para
6(C) pg
48]
a. Assessee a. Issue duly verified Not part of Scrutiny Assessment:CIT v. Page no.
has not during the assessment
disclosed proceedings. Usha Martin Ventures Ltd. [2023] 150 507-512 for
purchase/ Assessee submitted
profit on ledger of Asia Pack Ltd taxmann.com 491 (Calcutta) breakup of
sale of in response to query
share on transaction with shares.
PCIT v. Shark Mines and Minerals Pvt.
from Asia specified persons
Pack in referred u/s 40A(2)(b)
Ltd. [2023] 151 taxmann.com 71 Page no.
the of the Act vide letter
details of dated 25.01.2021 in
Alleged (Orissa) 421-423 for
purchase point no. 15 (refer
above page no. 421)
undisclose vendor's
Rs. 1 lacs BijniDooars Tea Co. Ltd. v. PCIT
b. This transaction duly
submitted
d disclosed in reply ledger
during the [2023] 155 taxmann.com 584 (Kolkata
dated 18.02.2021 point
assessm
investmen no. 8 (page no. 169)
ent - Trib.)
proceedin c. In point no. 7 of notice
t in the gs. dated 11.02.2021, AO
asked for details of
shares of b. Assessee purchase of products
submitted
like, raw material,
Miraj that
packing material, etc.
Shares
which were submitted.
Entertain purchase
AO not asked for
of Miraj
details of purchase of
ment Ltd. Entertain
shares. It is factually
ment Ltd.
incorrect to held that
from Asia
Appellant has not
Pack Ltd.
disclosed the
is duly
transaction during the
[Ground 3, reflected
assessment
in stock in
proceedings.
4 and 5 of trade in
Note 11 d. Also, the shares of
Form 36] forming MEL duly reflected in
part of stock in trade note 11
Audited of audited financial.
financial Duly recorded in books
statement of account and cannot
s. be undisclosed.
c. Reply of
Assessee
requires
further
verificatio
n/examin
ation.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 60
Issue Ld. PCIT Summary of Grounds Judgements Paper
Book
Reference
[para no.
6(D) on
page no.
49]
a. Interest a. Increasein balance of CIT v. Shreekant Phumbhra [2017] 79 Page no.
cost of the loan is attributed to
Rs. the Assessee's taxmann.com 40 (Calcutta) 391
62,25,000 withdrawal of funds
/- on from the CC limit. To
Iceberg Foods Ltd. v. ACIT, Special 513-536
secured support, Assessee
loans of submitted copy of
Range04, New Delhi [2021] 133
Specified confirmation from SBI
Banks bank for payment of
taxmann.com 190 (Delhi-Trib) dated
Deduction which is Interest of Rs.
covered 62,25,002/-. (page no.
08.09.2021
of Rs. u/s 391)
43B(e)
62,25,000/ and the
same is
- with disallowa
ble.
respect to b. The
auditor
payment has not
reported
of interest this issue
in his
on report.
Secured
secured loan
increased
loans from from 9.27
cr. To
Bank. 12.25 cr.
From
[Ground 3, SBI.
c. Claim of
4 and 5 of Assessee
is Prima
Form 36] Facie
tallied,
however,
AO
directed
to confirm
the
same.[par
a no. 6(B)
on page
no. 47]
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 61
9. In support of the contentions and to support the arguments on merits the ld. AR of the assessee submitted a detailed paper book and indexed of the documents submitted for perusal of the bench reads as under:
S.No. Particulars Page No.
1. Copy of Income tax return form and computation of Income 1-84
2. Copy of Tax Audit Report 85-102
3. Copy of Audited Financial statements 103-124
4. Copy of Notice issued u/s 143(2) of the Act dated 23.09.2019 125-128
5. Copy of reply dated 24.10.2019 filed against the notice issued 129-130
u/s 143(2) of the Act.
6. Copy of notice issued u/s 142(1) of the Act dated 09.02.2021 131-136
7. Copy of reply dated 24.02.2021 filed against the notice issued 137-142
u/s 142(1) of the Act.
8. Copy of rectification application made by the Appellant u/s 143-144
154 of the Act in relation to Order passed u/s 143(1) of the Act
9. Copy of the rectification order passed u/s 154 r.w.s. 143(1) 145-146 dated 02.03.2020.
10. Copy of notice for hearing dated 30.01.2023 issued u/s 263 of 147-151 the Act.
11. Copy of acknowledgments along with reply dated 11.03.2023 152-199 filed by the Appellant in response to the notice dated
12. Copy of Form No. 10CCB filed by the Appellant 200-207
13. Copy of Audited Financial statements for Wind Division 208-210
14. Copy of details of sale of electricity during the A.Y. 2018-19 211-266 and supporting invoices issued by the Appellant against the
15. Copy of bank statement reflecting receipt of sales in wind 267-270 division
16. Copy of ledger of Rajasthan Power Procurement Center and 271-279 Gujarat Urja Vikas Nigam Ltd. Baroda in books of Appellant for
17. Copy of Operation & Management Agreement for Services 280-313 dated 11.04.2017 between the Appellant and Suzlon Global I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 62
18. Copy of Power Purchase Agreement dated 25.02.2009 entered 314-329 between the Appellant and Suzlon Energy Limited and
19. Copy of ledgers and supporting documents of various business 330-367 expense in Wind Division.
20. Copy of notice for hearing dated 20.03.2023 in respect of 368-372 Revision Proceedings u/s 263 of the Act.
21. Copy of acknowledgments of reply submitted on 24.03.2023 373-383 along with reply dated 23.03.2023 filed by the Appellant in
22. Copy of Ledger account of Rajesh Dhingra, Copy of Invoice of 384-390 LegalServices along with receipt for confirmation of amount of
23. Copy of Form 16A issued to Rajesh Dhingra. 391-392
24. Copy of Month wise table for Formulation fee paid to Sh. 393 Madan Lal Paliwal.
25. Copy of Invoices provided by Madan Lal Paliwal. 394-405
26. Copy of Relevant ledger accounts along with Form 16A in 406-478 relation toprofessional& Other Consultancy Services.
27. Copy of Reason & reconciliations of Difference amount of 479 Rs.44,87,060/-.
28. Copy of Reconciliation of purchase and sale of mutual fund 480-481 duringthe F.Y. 2017-2018 and Closing value of MutualFund as
29. Copies of relevant invoice & E-way bill and relevantdocuments 482-489 in relation loss of goods in transit.
30. Copy of assessment order passed for AY 2017-18 490-497
31. Copy of Details of short-term Capital Gain declared in ITR 498
32. Copy of monthly detail of stock and details of WIP of semi- 499-513 finished Tabacco in last 3 years
33. Copy of details of rent expenses along with relevant Form no. 514-545 16A
10. The ld. AR of the assessee filed a case law compilation for the judicial precedent so relied and index of the decision so relied reads as under :
CASE COMPILATION S.N. Case Title Gist of case law Page No. Twin Conditions
1. Malabar 6. A bare reading of this provision makes it clear that the pre- 1-6 Industrial Co. requisite to exercise of jurisdiction by the Commissioner suo I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 63 Ltd. v. CIT motu under it, is that the order of the ITO is erroneous insofar [2000] 243 ITR as it is prejudicial to the interests of the revenue. The 83 Commissioner has to be satisfied with twin conditions, (SC)[10.02.2000] namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1).
7. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. [Para No.6,7] No revisional order if the AO has made a detailed inquiry
2. Commissioner We may now examine the facts of the present case in the 7-15 to Income-tax light of the powers of the Commissioner set out above. The v. Gabriel India ITO in this case had made enquiries in regard to the nature of Ltd. [1993] 71 the expenditure incurred by the assessee. The assessee had Taxman 585 given detailed explanation in that regard by a letter in writing. (Bom.)[15.04.1 All these are part of the record of the case. Evidently, the 993] claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard................................................................. [Para No.14]
3. Commissioner Once the Assessing Officer was satisfied with regard to the 16-24 of Income-tax, same, there was no further requirement on the part of the Central-III v. Assessing Officer to disclose his satisfaction in the Nirav Modi Assessment Order passed thereon. Thus, this objection on [2017] 291 the part of the Revenue, cannot be accepted.
CTR 245 [Para No.7]
(Bombay)
[16.06.2016]
4. Commissioner 12.......................................................There are 25-39
of Income-tax judgments galore laying down the principle that the Assessing
v. Sunbeam Officer in the assessment order is not required to give
Auto Ltd [2010] detailed reasons in respect of each and every item of
189 Taxman deduction, etc. Therefore, one has to see from the record as
436 (Delhi) to whether there was application of mind before allowing the
expenditure in question as revenue expenditure. One has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate, that would not, by itself, give occasion to the Commissioner to pass orders under section 263 merely because he has different opinion in the matter."
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 64
[Para No. 12]
5. Sir Dorabji 20. Undoubtedly, the expression used in Explanation 2 to 40-109
Tata Trust v/s Section 263 is "when Commissioner is of the view," but that DCIT [2020] does not mean that the view so formed by the Commissioner 122 is not subject to any judicial scrutiny or that such a view being taxmann.com formed is at the unfettered discretion of the Commissioner. 274 (Mumbai - The formation of his view has to be in a reasonable manner, it Trib.) must stand the test of judicial scrutiny, and it must have, at its foundation, the inquiries, and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be. If we are to proceed on the basis, as is being urged by the learned Departmental Representative and as is canvassed in the impugned order, that once Commissioner records his view that the order is passed without making inquiries or verifications which should have been made, we cannot question such a view and we must uphold the validity of revision order, for the recording of that view alone, it would result in a situation that the Commissioner can de facto exercise unfettered powers to subject any order to revision proceedings. To exercise such a revision power, if that proposition is to be upheld, will mean that virtually any order can be subjected to revision proceedings; all that will be necessary is the recording of the Commissioner's view that "the order is passed without making inquiries or verification which should have been made". Such an approach will be clearly incongruous. [Para No. 20] Assessment order is not erroneous, if it is in accordance with law.
6. Nabha It is not necessary that every order passed by the Assessing 110-117 Investments Officer, which may result in loss of revenue, is to be treated (P.) Ltd. V. as an erroneous order in as much as it is prejudicial to the Union of India interests of the revenue. An order is erroneous if the view [2000] 112 taken by the Assessing Officer is not in accordance with law. Taxman 465 If an order is in accordance with law, the decision of the ITO (Delhi) cannot be regarded as erroneous merely because in the [24.07.2000] opinion of the Commissioner it should have been made or written in a different manner.
[Para No.16] Assessment Order is not erroneous, if two views are possible I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 65
7. Commissioner "By a long catena of judgments of various High Courts and 118-129 of Income-tax the Supreme Court, it is too well settled that if in the given v. Gokuldas facts and circumstances of the case, two views are possible Exports [2012] and one view has been adopted by the Assessing Officer, 20 then that alone would not be sufficient to exercise the powers taxmann.com under section 263 of the Act by the Commissioner of Income- 491 tax."
(Karnataka) [Para No. 15]
8. Commissioner "The principle governing the exercise of power in a revision 130-132
of Income-tax was taken note of. The principle is to the effect that where
v. Srinivasa two views of a particular aspect are possible, for an Income-
Hatcheries (P.) tax Officer, and he has chosen one, the Commissioner Ltd. [2015] 60 cannot reopen the matter on the ground that another view is taxmann.com possible."
207 (Andhra [Para No.4]
Pradesh and
Telangana)
Assessment Order was passed by National E-Assessment Centre which involves multiple team and authorities
9. AGRANI It is pertinent to mention here that assessment in the present 133-152 BUILDESTATE case of the assessee firm for the year under consideration VS PR. CIT-1, was carried out in the ''faceless manner'' by NFAC. It is a fact JAIPUR ITA that any faceless assessment is carried out through a NO. teamwork of assessment unit, technical unit, review unit, 205/JP/2023 verification unit etc. Since different units are headed by Principal Commissioner of Income Tax, therefore, in a faceless regime, normally there cannot be a case of prejudice of lack of enquiry for the reason that there is application of mind by multiple officers of Department and not by a single officer and thus at the end of our discussion, we are of the view that the assessee firm had furnished the requisite information and the NFAC has completed the assessment after considering all the facts, therefore, the order passed by the AO. [Para 2.4] Assessment Order is not erroneous, in case there is factual misunderstanding by Ld.AO
10. Patel L and T 8. We have heard the rival contentions and perused the 153-155 Consortium record. We notice that the learned Commissioner of Income- [2016] 65 tax has considered the balance-sheet of the assessee and taxmann.com has come to the conclusion that the assessee has raised a 48(Mumbai) bill of Rs. 48.05 crores and has incurred the work in progress expenditure of Rs. 47.59 crores. Whereas the assessee has demonstrated before us that the amount of Rs. 48.05 crores is the bill amounts raised by its customers against the assessee. The assessee has deducted the value of work-in- progress from the abovesaid amount, instead of showing the I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 66 same in the assets side of the balance-sheet. If the assessee had shown the work-in-progress amount in the asset side of the balance-sheet, then the matter would have been more clear. Thus, we notice that there is a conceptual misunderstanding on the part of the learned Commissioner of Income-tax about the facts prevailing in this case. When the learned Commissioner of Income-tax proceeds on erroneous line on misunderstood facts and accordingly passes the revision order, in our view, the same cannot be sustained. [Para No.8] Issue which is not part of assessment order then revision proceedings cannot be invoke on such issues
11. CIT v. Usha The short issue involved in the instant case is whether the 156-157 Martin Commissioner of Income-tax (Appeals) [CIT(A)] could have Ventures Ltd. assumed jurisdiction under section 263 of the Act on an issue [2023] 150 which was never the subject-matter of the assessment in a taxmann.com proceeding initiated under section 147 of the Act. On facts, 491 (Calcutta) the learned Tribunal found that the issue of loss/expenditure incurred in respect of newly undertaken software product development project as capital loss/expenditure was not touched by the assessing officer in the reassessment proceedings under section 147 of the Act. Therefore, the learned Tribunal found that the CIT(A) was not justified in invoking the provisions of section 263 of the Act on an issue which was not the subject-matter of the reassessment of the proceedings. The decision rendered by the Tribunal takes note of the correct legal position and, therefore, does not call for any interference. [Para 4]
12. PCIT v. Shark What persuades this Court to reach this conclusion is the 158-161 Mines and requirement in law that if the AO has to go beyond the scope Minerals Pvt. of the issues for which 'limited scrutiny' has to be undertaken Ltd. [2023] by him, he has to seek prior permission of the superior officer 151 in terms of the CBDT Instruction No. 7/14 dated 26th taxmann.com September, 2014 and Instruction No. 20/15 dated 19th 71 (Orissa) December, 2015. Consequently, it was not open to the Pr.
CIT while exercising suo motu revisional power under section 263 of the Act to find fault with the assessment order of the AO on the ground of its being erroneous on an issue not covered by the 'limited scrutiny' when the AO could not have possibly examined such issue. To reiterate, in the present case, the limited scrutiny was in respect of excess disallowance under section 40A(3) of the Act whereas the SCN under section 263 was regarding the FIFO method of valuation of closing stock adopted by the Assessee. These were, as rightly noted by the ITAT, unconnected issues and the assessment order could not have been held to be erroneous and prejudicial to the interest of Revenue" when the AO could not have travelled beyond the issues forming subject matter of the 'limited scrutiny. [Para 10]
13. Bijni Dooars Thus, in conclusion, it clearly appears from the scheme of the 162-182 Tea Co. Ltd. Act that an order of assessment passed under section 143(3) v. PCIT is an assessment of total income of the assessee which is [2023] 155 separate and distinct from any other order. DDT liability is I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 67 taxmann.com distinct and separate from the liability to pay income-tax on 584 (Kolkata the total income of an assessee which is created by charging
- Trib.) section 4. Revision of an order under section 263 pre-
supposes existence of an order. In view of the above discussion, levy of interest under section 115P and any liability of DDT under section 115-O does not arise out of conduct of assessment proceedings and making an assessment of total income under section 143(3), therefore, Principal Commissioner could not have invoked revisionary proceedings to direct the Assessing Officer for imposing DDT liability on the assessee in reference to assessment order passed under section 143(3). [Para 15.6] Prejudicial To the Interest Of The Revenue
14. P.C. Puri v. Though not defined, the term 'prejudicial to the interests of 183-199 CIT [1984] 18 the means that the lawful revenue due to the State has not Taxman 158 been realised.
(Delhi) [Para No.6]
[23.02.1984]
15. Commissioner The contention on behalf of the Revenue that the assessment 200-212
of Income-tax order does not reflect any application of mind as to the
eligibility or otherwise under section 80-I of the Act requires to v. be noted to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. Nirma If it does so, an assessment order would cease to be an order Chemicals and become an epic tome. The reasons are not far to seek. Works (P.) Ltd Firstly, it would cast an almost impossible burden on the [2009] 182 Assessing Officer, considering the workload that he carries Taxman 183 and the period of limitation within which an order is required (Gujarat) to be made; and, secondly, the order is an appealable order.
[Para No.21 & 22]
16. State Bank of "Moreover, the Assessment order in regular assessment 213-218 India proceedings in terms disallowed some of the claims made for deduction under Section 143(3) of the Act. Therefore, in the v. present facts, we are primafacie of the view that, the Assessing Officer has by necessary implication allowed the Assistant claim. Moreover, the basic document for completing the Commissioner assessment under Section 143(3) of the Act is the of Income-tax, computation of income. Therefore, to the extent the claims Circle-2(2)(1), made for deduction in the computation of come, were Mumbai*[2018] disallowed by the Assessing Officer, discussion on the same 96 is found in the assessment order. It is an accepted position taxmann.com that the assessment orders would necessarily deal only with 77 (Bombay) the claims being disallowed and not with the claims being allowed. This is for the reason as observed by the Gujarat High Court in CIT Vs. Nirma Chemicals Ltd.
MANU/GJ/0136/2008 : 309 ITR 67, that if the Assessing Officer was to deal with all the claims which were to be allowed in the assessment order, the result would be an epitome. This is so, as it would cast an impossible burden upon the Assessing Officer considering his workload and the period of limitation. There was also no reason in the present facts for the Assessing Officer to ask any queries in respect I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 68 of this claim of the petitioner, as the basic document viz. computation of income at note 21 (Assessment Year 2013-
14) and note 22 (Assessment Year 201415) thereof explained the basis of the claim being made to the satisfaction of the Assessing Officer. Thus, it must necessarily be inferred that the Assessing Officer has applied his mind at the time of passing an assessment order to this particular claim made in the basic document viz. computation of the income by not disallowing it in proceedings under Section 143(3) of the Act as he was satisfied with the basis of the claim as indicated in that very document. Therefore, where he accepts the claim made, the occasion to ask questions on it will not arise nor does it have to be indicated in the order passed in the regular assessment proceedings. Thus, issuing the impugned notices on the above ground would, prima-facie, amount to a change of opinion."
[Para No. 6]
17. Commissioner It is well settled that if there is some enquiry by the Assessing 219-224 of Income-tax Officer in the original proceedings even if inadequate that v. Vodafone cannot clothe the Commissioner with jurisdiction under Essar South section 263 merely because he can form another opinion."
Ltd. [2012] 28 [Para 10]
taxmann.com In the instant case, the assessee was specifically queried
273 (Delhi) regarding the nature and character of the one-time regulatory
[20.11.2012] fee paid by it as well as the bank and stamp duty charges. A
detailed explanation and other documents required by the Assessing Officer were produced at the stage of original assessment......Clearly this was not a case of 'no enquiry'. The lack of any discussion on this cannot lead to the assumption that the Assessing Officer did not apply his mind. The proceeding in fact shows that the Assessing Officer directed his mind specifically on this aspect and then concluded that the expenditure was in the revenue field.... The Commissioner did not specifically furnish any reasons to say why the original assessment order was unsupportable in law."
[Para No.11]
18. Commissioner "In view of the above discussion, it is apparent that the 225-228 of Income-tax Tribunal arrived at a conclusive finding that, though the v. Anil Kumar assessment order does not patently indicate that the issue in Sharma [2010] question had been considered by the Assessing Officer, the 194 Taxman record showed that the Assessing Officer had applied his 504 mind. Once such application of mind is discernible from the record, the proceedings under section 263 would fell into the (Delhi) area of the Commissioner having a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this Court. That being the position, the present case would not be one of 'lack of inquiry' and, even if the inquiry was termed as inadequate, following the decision in Sunbeam Auto Ltd.'s case (supra), "that would not by itself give occasion to the Commissioner to pass orders under section 263 of the said Act, merely because he has a different opinion in the matter". No substantial question I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 69 of law arises for our consideration. Consequently, the appeal is dismissed."
[Para No.7] If no exempt income is earned during the relevant assessment year, no disallowance can be made under Section 14A of the IT Act
19. CIT v. 23. In the context of the facts enumerated hereinbefore the 229-236 Cheminvest Ltd. Court answers the question framed by holding that the [2015] 61 expression 'does not form part of the total income' in Section taxmann.com 14A of the envisages that there should be an actual receipt of 118 (Delhi) income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. [Para No.23]
20. PCIT v. Delhi 8. In the opinion of this Court, the present case is covered by 237-239 International the Division Bench judgment in Cheminvest Ltd. v. CIT [2015] Airport (P.) Ltd. 61 taxmann.com 118/234 Taxman 761/378 ITR 33 (Delhi), [2022] 144 wherein this Court has held that the expression 'does not taxmann.com form part of the total income' in section 14A of the Act means 80 that there should be an actual receipt of income which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.
[Para No. 8]
21. PCIT v. 10. We are of the considered view that the deletion of the 240-244 Amadeus India said disallowance under section 14A of the Act, by the ITAT (P.) Ltd. [2022] is correct in the facts of this case. The contention of the 145 Revenue that ITAT failed to consider the CBDT Circular taxmann.com 5/2014 dated 11th February, 2014, is also untenable in as 311 much as, another division bench of this Court in Pr. CIT v. IL & FS Energy Development Co. Ltd. [2017] 84 taxmann.com 186/250 Taxman 174/399 ITR 483/297 CTR 452, has held as under: - 18. The CBDT Circular upon which extensive reliance is placed by Mr. Hossain does not refer to rule 8D(1) of the Rules at all but only refers to the word "includible" occurring in the title to rule 8D as well as the title to section 14A. The Circular concludes that it is not necessary that exempt income should necessarily be included in a particular year's income for the disallowance to be triggered.
19. In the considered view of the Court, this will be a truncated reading of section 14A and rule 8D particularly when Rule 8D(1) uses the expression 'such previous year'. Further, it does not account for the concept of 'real income'. It does not note that under section 5 of the Act, the question of taxation of 'notional income' does not arise. As explained in Commissioner of Income-
tax v. Walfort Share and Stock Brokers Pvt. Ltd. [2010] 326 ITR 1 (SC), the mandate of section 14A of the Act is to curb t'e practice of claiming deduction of expenses incurred in I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 70 relation to exempt income being taxable income and at the same time avail of the tax incentives by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income.
Consequently, the Court is not persuaded that in view of the Circular of the CBDT dated 11 May 2014, the decision of this Court in Cheminvest Ltd. (supra) requires reconsideration.
24. For all of the aforementioned reasons, this Court is of the view that the CBDT Circular dated 11 May 2014 cannot override the expressed provisions of section 14A read with rule 8D.
12. With respect to the deletion of the disallowance made under section 14A of the Act, the said issue is also covered against the Revenue by the decision of this Court in Cheminvest Ltd. (supra) and therefore, the same does not give any rise to any substantial questions of law.
[Para No.10,12]
22. ACIT V. 16. In conclusion, we are of the view that the provisions of s. 245-251 Redington 14A read with Rule 8D of the Rules cannot be made (India) Ltd. applicable in a vacuum i.e. in the absence of exempt income. [2017] 77 The questions of law are answered in favour of the assessee taxmann.com and against the department and the appeal allowed. No 257 (Madras) costs.
[Para No.16]
23. PCIT V. IL & FS 23. The decisions of the ITAT in Ratan Housing Development 252-259 Energy Ltd. (supra) and Relaxo Footwears Ltd. (supra), to the extent Development that they are inconsistent with what has been held Company Ltd. hereinbefore do not merit acceptance. Further, the mere fact [2017] 84 that in the audit report for the AY in question, the auditors taxmann.com may have suggested that there should be a disallowance 186 (Delhi) cannot be determinative of the legal position. That would not preclude the Assessee from taking a stand that no disallowance under Section 14A of the Act was called for in the AY in question because no exempt income was earned.
25. No substantial question of law arises from the impugned order of the ITAT. The appeal is accordingly dismissed. [Para No. 23,25]
24. CIT v. GVK The Revenue's appeal is with respect to the disallowance 260-261 Project & made by the Assessing Officer ('AO') under Section 14A of Technical the Incometax Act, 1961 (hereafter 'the Act'). The AO had Service Ltd. proceeded to calculate the disallowance based upon the [2019] 106 investments made by the assessee. The CIT(A) and the taxmann.com Income Tax Appellate Tribunal (ITAT) allowed the assessee's 181 (SC) appeals by following the ruling in 'Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 (Delhi); the Court had then held that in the absence of any exempt income disallowance was impermissible. For the relevant Assessment Year (201314), concededly, the assessee did not report any exempt income. Consequently, no substantial question of law arises; the appeal is therefore dismissed along with the pending application.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 71
[Para No.1]
25. CIT v. Chettinad 8. According to us, this exercise, in the given facts which 262-268
Logistics (P.) emerge from the record, was clearly unnecessary, as the
Ltd [2017] 80 CIT(A) had returned the finding of fact that no dividend had
taxmann.com been earned in the relevant assessment year, with which, we
221 (Madras): are concerned, in the present appeal.
9. In our opinion Section 14 A of the Act, can only be triggered, if, the Assessee seeks to square off expenditure against income which does not form part of the total income under the Act.
10. In the instant case, there is no dispute that no income i.e., dividend, which did not form part of total income of the Assessee was earned in the relevant assessment year. 10.1 Therefore, to our minds, the addition made by the Assessing Officer by relying upon Section 14 A of the Act, was completely contrary to the provisions of the said Section. [Para No. 8,9,10, 10.1] The above case is also affirmed by the SUPREME COURT [CIT v. Chettinad Logistics (P.) Ltd [2018] 95 taxmann.com 250 (SC)]
26. PCIT v Oil The ITAT relied upon the ruling of this Court in Cheminvest 269-270 Industries Ltd. V. CIT [2015] 378 ITR 33 which ruled in the absence of Development any exempt income, disallowance under Section 14-A of the Board Act of any amount was not permissible. Since the decision in [2019] 103 Cheminvest Ltd. (supra) was followed, there is no substantial taxmann.com question of law that requires consideration. 325 (Delhi): The appeal is therefore dismissed.
[Para No. 3,4] The above case is also affirmed by the SUPREME COURT [PCIT v. Oil Industries Development Board [2019] 103 taxmann.com 326 (SC)]
27. PCIT v. TV 28. As per the law settled by this court in the case of 271-284 Today Network Cheminvest Ltd. V. CIT [2015] 61 taxmann.com 118/234 Ltd. [2022] 141 Taxman 761/378 ITR 33 (Delhi); and Pr. CIT v. IL & FS taxman.com Energy Development Co. Ltd. [2017] 84 taxmann.com 275 186/250 Taxman 174/399 ITR 483 (Delhi)/2017 SCC Online (Delhi): Del 9893, the disallowance to be made under section 14A cannot be in excess of the exempt income earned by the assessee. The counsel for the revenue has placed reliance on the CBDT circular 5/2014 to contend that disallowance under section 14A would be attracted even if corresponding exempt income is not earned during the financial year.
The said circular cannot be relied upon since its contrary to the law laid down by this Court.
[Para No. 28] Section 263 of the Act cannot be invoked on the basis of conceptual misunderstanding about the facts prevailing in a case
28. Commissioner 4. The learned Commissioner of Income-tax (Appeals) 285-289 of Income-tax reversed that order on the basis of the following reasonings:
I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 72 v/s Shreekant "As discussed above, in an overdraft account, as and when Phumbhra interest is debited, the debit balance increases signifying [2017] 79 increase in the amount of loan. But this is an automatic taxmann.com process and it does not require any authorization or volition 40 (Calcutta) from the constituent. Even if there is no consent in writing, the interest will continue to be debited in an overdraft account. It is correct that the appellant paid more than the interest charged. As such the question is not merely whether the interest of an overdraft account remained outstanding as on March 31, 2004 or not but whether such interest was converted into loan or advance. Still, more important issue for consideration is to examine whether the entire deposits or part thereof made into the overdraft account was towards the payment of interest and repayment of principal or not or whether such deposits were towards the day to day investments and trading activities only ? It was submitted and was also accepted by the Assessing Officer that there was no payment schedule. In a payment schedule, normally a institution works out the number of equated monthly installments (EMI) which includes some interest and a portion of principal. As such, EMI is comprised of interest and principal, while interest is recovered on monthly basis the principal loan is also repaid on such basis. Thus, in such cases interest and the principal recovered are quantifiable.
However, where there is no schedule of payment, the exact amount of interest not being known, it creates problem in finding out as to what amount of interest and what amount of principal are comprised in a deposit made into the overdraft account. Since, there is no material which proves that there was outstanding interest as on March 31, 2004 in the overdraft account under consideration, I am of the view that the interest accrued on month to month basis had been paid on month to month basis as the deposit of each month was much more than the corresponding interest debited in respective month and as such no part of such interest remained which could be said to have been converted into any loan or advance as on the close of the previous year so as to be deemed not actually paid. Under the facts and the circumstances, the disallowance of interest of Rs. 22,39,581 is deleted. This ground is allowed."
5. The learned Tribunal did not interfere. Since the observation of learned Commissioner of Income-tax (Appeals) while deleting the above addition remains uncontroverted before us, we do not see any reason to interfere with the order of learned Commissioner of Income- tax (Appeals) and reject the contention. The first question raised by the Revenue is answered in the negative and against the Revenue.
[Para No. 4,5]
29. Iceberg Foods We have heard the rival submissions and perused the 290-294 Ltd. v/s ACIT, material on record. The issue in the present ground is with Special Range- respect to the disallowance made by the AO u/s 43B of the 04, New Delhi Act. Before us, it is the submission of the Ld AR that bank I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 73 [2021] 133 has charged interest on term loan on month to month basis taxmann.com and the same has been recovered by debiting it to the cash 190 (Delhi - credit (CC) account of the assessee. The Ld. AR has also Trib.) contended that the amounts of credits (deposits) in the cash credit account are much more than the amount of interest debited by bank. The aforesaid contentions of the Ld AR have not been controverted by Revenue nor has it been found to be untrue.
[Para No.9] Issue of apportionment of expenditure under eligible business as referred u/s 80IA of the Act. [For Miraj Products Pvt. Ltd.]
30. Zandu Except on the basis of presumptions, it is not even the 295-302 Pharmaceuticals respondent's case that the existing activities of any of the Works Ltd. v. units in fact benefited from or could benefit from the said R&D CIT [2013] 31 activities. It is also important to note that each of the units taxmann.com manufactures different items and, therefore, also carries out 191 (Bombay) independent R&D work. [Para 8] While computing the profits and gains of the concerned undertaking, only expenses relating thereto can be deducted. In other words, the expenses must be incurred, for and on behalf of the concerned undertaking. The expenses attributable to any other unit or the head office expenses which have no relevance to the industrial undertaking, cannot be deducted in respect of the said undertaking while computing the profits and gains of the undertaking. [Para 10]
31. CIT v. Hindustan 7. As far as the decision of the Madhya Pradesh High Court 303-306 Level Ltd. in Prestige Foods Ltd.'s case (supra) is concerned, the Chennai [2014] assessee did not furnish the expenses incurred by the units 42 taxmann.com for the purpose of considering the deductibility. The Madhya 132 (Madras) Pradesh High Court viewed that in the absence of any details being made available by the assessee to establish that the particular expenses were incurred for its particular unit out of its two units, the expenses had to be treated as one for both the units which has to be divided based on the proportionate to the turnover. The question that arises for consideration is not the same as had been considered in the Madhya Pradesh High Court. It is not denied by the Revenue that assessee's units have separate accounts indicating their income and the expenses. The assessee does not claim any deduction on the expenses incurred by the Head Office. The only question is as to whether the common expenses incurred by the Head Office for the purpose of maintaining the units would nevertheless be subjected to the doctrine of proportionality for the purpose of deduction. [Para 7]
8. As already pointed out, the department had no grievance as regards the order passed by the Tribunal for preceding years 1984-85 onwards and that the expenses incurred were pure and simple administrative expenses, monitoring the requirements of finance and other action which are necessary in running of the business. [Para 8]
9. We do not find any justifiable ground to accept the plea of the Revenue. Consequently, the above Tax Case (Appeals) I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 74 are rejected and the order of the Tribunal shall stand. No costs. [Para 9]
11. The ld. AR of the assessee based on the detailed paper book placed on records before us vehemently argued that the case of the assessee has been examined under the government scheme of faceless assessment, which was introduced by the revenue wherein after taking all the possible loopholes the scheme is operative and running so as to enhance transparency, efficiency and accountability in the assessment.
In these Faceless assessment scheme various units are established to test the quality of the assessment order and the Faceless assessment process eliminates direct interaction between the taxpayer and the assessing officer, promoting efficiency and reducing the subjectivity. It involves separate units within the tax department, such as assessment units, verification units, technical units and review units, all working closely with the National e-assessment Centre (NeAC) and Regional e-
assessment Centre (ReAC). Therefore, the ld. AR of the assessee under these back ground submitted that whatever issue that has been pointed out by the PCIT and flagged and tried to demonstrate that the order passed by the ld. FAO is erroneous or prejudicial to the interest of the revenue in fact fails the twin condition prescribed under the provision of section 263 of the Act. The issue flagged by the ld. PCIT fails on the twin I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 75 condition laid down under the Act and thus the order of the FAO is neither prejudicial to the interest of revenue nor erroneous on any of the aspect of the matter. To drive home this contention the ld. AR of the assessee relied on the decision of the apex court in the case of Malabar Industrial co. Ltd Vs. CIT 243 ITR 83(SC) wherein the court held that the provision of section 263 cannot be invoked to correct each and every type of mistake or error committed by the assessing officer. Before adverting to the facts of the case the ld. AR of the assessee submitted that the order is also violative of principles of natural justice the ld. PCIT issued a letter dated 20.03.2023 seeking the reply within 3 days. The assessee has filed the reply but has not been considered by the ld.
PCIT.
11.1 As regards the issue no. 1 flagged by the ld. PCIT the ld. AR of the assessee demonstrated that issue which the ld. PCIT is raising and is raised as regards criteria of selection to verify the expenses incurred for earning exempt income ( APB-125), the assessee filed the reply 24.10.2019(APB-130). The fact that the assessee has no exempt income earned and therefore, no disallowance to be made u/s. 14A is one of the view considering the fact that the investment made by the assessee is out of the own fund and in that aspect of the matter circular I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 76 is not applicable to the present facts of the case. As regards the claim of depreciation after considering the reply of the assessee herself for appreciating the detailed reply noted that "In view of the above, the claim of the assessee is primafacie tallied. However, the AO is directed to confirm / verify the same, while finalising the assessment". This observation itself suggests that there is no merit in the ground of the ld.
PCIT to invoke the provision of section 263 of the Act. As regards the expenses related to eligible business has been diverted to non eligible business so as to enhance profit of eligible business. The ld. AR of the assessee drawn our attention to page 135 of the paper book wherein question no. 34 of the notice issued u/s. 142(1) dated 09.02.2021 is appearing and the reply is appearing at page 141-142 of the paper book filed, wherein the issue that the ld. PCIT is raising has already been examined by the ld. FAO and raising the same is directing the ld. AO examine the issue again in the mode she wanted to go examine is not permitted under the law unless the view taken by the FAO is totally illegal once he has raised the issue verified the facts and do not propose any disallowance the same cannot be raised again merely the FAO has not verified the issue the way ld. PCIT intend. Once the ld. AO has taken a plausible view not to disallow any further expenditure then the assessee has already disallowed, which PCIT cannot change the view of I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 77 the ld. FAO without establishing that the view of the ld. FAO tenable at all. The other issue which were outside the scope of selection criteria, the issue was raised the assessee submitted the reply for issue of TDS, payments to specified person u/s. 40A(2)(b), rent expenses and the difference there upon, variation on quantitative records, purchase and sale of mutual funds, claim of loss on goods transit after considering the reply of the assessee the ld. PCIT merely stated that "these issues require further verification / examination." These general observation without clarifying that whether on these issue the order is prejudicial to the interest or erroneous she simply stated this issue needs verification.
The review of the assessment order is not permitted even under the proceeding u/s. 263 of the Act.
12. The ld DR is heard who relied on the detailed finding recorded in the order of the PCIT and has also filed a detailed written submission in support of the order of the ld. PCIT. The written submission so filed by the ld. DR reads as under :
"The following written submissions (law points) are submitted for kind consideration in support of the order u/s 263 of the Act
1. "OPINION" OF THE COMMISSIONER - PRIMA-FACIE FINDING REASONS TO INTERFERE WITH THE ORDER OF THE COMMISSIONER (PCIT/CIT) I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 78 WHETHER THE COMMISSIONER (PCIT/CIT) IN ORDER UNDER SECTION 263 IS CORRECT OR NOT SHALL HAVE TO BE FOUND OUT AFTER ENQUIRY BY THE A.O. 1.1. The commissioner was perfectly competent to exercise his powers under Section 263 whenever he found, prima facie, that there was need to enquire if the interest of the Revenue had suffered by an order of assessment. He has given certain reasons. The basis for the order of the Commissioner is a question of fact and whether it is correct or not shall have to be found out after enquiry by the Income-tax Officer. The Commissioner has found that the Income-tax Officer has omitted to enquire into this question found by the Commissioner implicit in the manner in which the amounts were borrowed and advanced by the assessee-company (Duggal & Co. v. CIT [1996] 220 ITR 456 / [1994] 77 Taxman 331 (Del.)) 1.2. There can be no doubt that merely on the basis of presumption or surmise or suspicion, an order under section263 cannot be passed. The Tribunal failed to appreciate that in this case the inference drawn by the Commissioner was not based either on presumptions or surmises or suspicion. Therefore, the Tribunal was not justified in setting aside the order of the Commissioner. (PCIT v. India Finance Ltd. (2016) 389 ITR 242: (2017) 81 taxmann.com 135 (Cal.)) 1.3. It is the order of the PCIT/CIT which is in challenge before the Hon'ble Tribunal The appellant is required to show and prove the "reasons to interfere with the order of the PCIT/CIT. It is not proven by the assesse that the opinion of the PCIT is based on either presumptions or surmises or suspicion. It is not proven by the assesse that the opinion of the PCIT is malafide or without jurisdiction. The law has granted "judicial discretion to the PCIT/CIT in exercise of his powers and the same cannot be substituted in appeal proceedings on merits if there is mere disagreement with such opinion of the PCIT. PCIT is to form a "prima-facie" finding and he is mere required to come to an "opinion" and he is not required to "prove" what he has opined in his order Order u/s 263 of the Act setting aside the assessment order merely leads to initiation of proceedings of enquiry by the A. O and does not in itself results into levy of tax
2. NO LEVY OF TAX BY THE COMMISSIONER IN ORDER U/S 263 MATTER HAS BEEN SET ASIDE SUBSEQUENTLY ASSESSEE CAN PRESENT HIS ISSUES BEFORE THE A.O. 2.1. In the order under section 263 of the Act, the PCIT/CIT has not levied any tax and the matter has set aside to the file of the AO for passing a fresh order on the issue after affording proper opportunity of being heard to the assesse. The degree and extent of evidence required by the PCIT/CIT in I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 79 arriving at his "opinion" would be much lower than the evidence which would have been required to fasten a tax liability on the assesse. In the present case the issue will be examined by the A.O. in the set-aside proceedings.
2.2. In the case of Vedanta Ltd. v. CIT (2021) 279 Taxman 358 124 taxmann.com 435 (Bom.) it was observed in the judgement that the Tribunal held that since only direction was issued for passing fresh assessment, issues raised by assessee could always be gone into by Assessing Officer after granting full opportunity to assessee. Since assessment was completed without proper inquiries, it was competent for Commissioner to invoke revisional jurisdiction and direct fresh assessment.
3. NECESSARY / FURTHER INQUIRIES REQUIRED TO BE DONE BY THE ASSESSING OFFICER IF NOT DONE THAT ITSELF RENDERS ORDER AS ERROENOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE SCOPE OF SECTION 263 IS NOT LIMITED TO AND IS MUCH BROADER THAN APPARENT ERROR OF FACT OR LAW ASSESSING OFFICER IS ALSO AN INVESTIGATOR INCUMBENT UPON HIM TO INVESTIGATE THE FACTS STATED COURT HE IS NOT LIKE A CIVIL 3.1. The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo- typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. Supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR
84. Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC), and Malabar Industrial Co Ltd.'s ([2000] 243 ITR 83 (SC)) 3.2. The Apex Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) laid down a four-way test for orders being erroneous in-so-far as they are prejudicial to the interest of the revenue, liable for revision, viz incorrect application of law: wrong assumption of facts; non-observance of the principles of natural justice, and lack of inquiry. The Hon'ble Supreme Court in the instant case held that if the AO has accepted the entry in the statement of account filed by the taxpayer without making enquiry, the said order of the AO shall be deemed to be erroneous and prejudicial to the interest of the Revenue.
I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 80 3.3. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context It is because it is incumbent on the Income Tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct (M/s Gee Vee Enterprises 99 ITR 375 (Delhi High Court) [1995]) 3.4. Mere failure on the part of the Assessing Officer to make the necessary inquiries or to examine the claim made by the assessee in accordance with law, renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing more is required to be established in such a case. If the Assessing Officer passes an order mechanically without making the requisite inquiries or examining the claim of the assessee in accordance with law, such an order will clearly be erroneous in law as it would not be based on objective consideration of the relevant materials (MahalakshmiLiquor Promoters (P) Ltd vs. Commissioner of Income Tax [2013] 29 taxmann.com 70) 3.5. Where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous and prejudicial to the interest of the revenue. (Dr. Rabindra Kumar Singh vs. CIT (Central), Patna [2011] 131 ITD 39 (Ranchi)) 3.6. Where assessee explained source of cash deposit in its savings account as received from closure of previous loans given by him but same was not substantiated with any record or evidence, Principal Commissioner was justified in making revision of assessment order under section 263. (Avathan MarimuthuVs. Assistant Commissioner of Income tax, Circle-III, Trichy, the Ho'ble ITAT Chennai Bench 'C'. [2017] 84 taxmann.com 104 (Chennai - Trib.)) 3.7. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word "erroneous" includes failure to make the I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 81 enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. (ITO versus DG Housing Projects Limited. (2012) 343 ITR 329 (Delhi)) 3.8. The assessee claimed provision made for standard assets also as a provision for bad and doubtful debts under section 36(1) (viia). Assessing Officer allowed the deduction under section 36(1) (viia). CIT initiated proceedings under section 263 of the Act. As per CIT, the provision for standard assets could not be considered as provision for bad and doubtful debts which could be allowed under section 36(1) (viia) of the Act. Before the Tribunal the assessee submitted that Assessing Officer has taken a lawful view and therefore, CIT could not substitute his view with that of Assessing Officer. The Tribunal upheld the revisional order passed by the CIT and observed that there was no enquiry made during the course of assessment proceeding. Therefore, the order which was silent on the claim made by assessee, and allowing such claim, without any discussion will definitely render it erroneous and prejudicial to the interest of revenue. Tribunal dismissing the appeal followed the decision of Apex Court in case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC). (Bharat Overseas Bank Ltd. v. CIT (2013) 152 TTJ 546: 82 DTR 373 (ITAT Chennai))
4. WHAT CAN BE CONSIDERED A VIEW/OPINION OF THE ASSESSING OFFICER WHEN IT CAN BE SAID THAT AO HAS FORMED AN OPINION/TAKEN A VIEW VIEW IS DIFFERENT THAN CHANCE RESULT 4.1. Mere taking of a view by the Assessing Officer without having subjected the claim to examination would not make it a view of the Assessing Officer. A view has necessarily to be preceded by examination of the claim and opting to choose one of the possible results. In the absence of view being taken, merely because the issue itself was debatable, would not absolve the Assessing Officer of applying his mind to the claim made by the assessee and allowing the claim only on satisfaction after verification/enquiry on his part. A view in the absence of examination is no view but only a chance result. Therefore, the Assessing Officer cannot abdicate his responsibility of examining the claim for deduction before allowing it. Absence of examination of the claim made by the assessee while passing an assessment order and allowing the claim made, would render the order of the Assessing Officer erroneous and coupled with the fact that in this case it is admitting prejudicial to the interest of the revenue, exercise of the revisional jurisdiction under section 263 by the Commissioner proper and valid. (CIT, Nagpur v. Ballarpur Industries Ltd. (2017) 85 taxmann.com 10 (Bombay High Court)] 4.2. Non-application of mind is a ground for interference under Section 263 in the case of CIT v. Shri Bhagwan Das, (2005) 272 ITR 367 (All.) the Division Bench opined that exercise of power under Section 263 was proper when I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 82 there was no discussion regarding the question as to whether the amount of income shown by the assessee which was claimed to be exempted had actually been earned by him and whether the entire amount of income from agriculture and Poultry Farming was exempted from tax (Gauhati High Court in the case of CIT v. JawaharBhattacharjee [2012] 24 taxmann.com 215/209 Taxman 174) 4.3. The assessee claimed depreciation on goodwill and operational expenses The Principal Commissioner invoked the provisions of section 263 of the Act on the ground that the Assessing Officer had not discussed and veified the claim of the assessee. On appeal, the assessee contended that the Assessing Officer had raised specific enquiries during the course of assessment proceedings and accepted its claim and it was not necessary to discuss about the enquiries made by the Assessing Officer in the assessment order. Held that the Assessing Officer had not discussed the issues that arose for consideration in the assessment order. The proceedings before the Assessing Officer being judicial proceedings, he was expected to record his own reasons for the conclusion reached. Whether it was an administrative order or judicial order, the reasons for the conclusion or decision taken had to be recorded in the order itself. There was no infirmity in the order of the Principal Commissioner. The Assessing Officer was directed to conduct an independent enquiry and pass a speaking order recording his own reasons without being influenced by any of the observations made by the Principal Commissioner. (Health Care (P) Ltd.v. CIT (2016) 46 ITR 36 (ITAT Chennai)])
5. MERE FILING OF DETAILS BY THE ASSESSEE IS NOT SUFFICIENT AND DOES NOT ITSELF CONSTITUTES APPLICATION OF MIND BY THE ASSESSING OFFICER PROPER VERIFICATION AND SPECIFIC ENQUIRIES REQUIRED TO BE DONE BY THE ASSESSING OFFICER - IF NOT DONE MEANS NON APPLICATION OF MIND BY THE AO CALLING OF INFOMRATION BY THE AO DURING ASSESSMENT PROCEEDINGS IS PER SE NOT A BAR ON THE REVISION UNDER SECTION 263 5.1. Mere filing of an explanation was not sufficient and at the same time, it could not be inferred that the Assessing Officer had applied his mind. There was also no proper verification in respect of creditors from whom the assessee had accepted unsecured loans. No specific enquiries to prove the genuineness of these loans had been conducted by the Assessing Officer. The Assessing Officer had simply obtained account extracts of these parties as appearing in the books of the assessee and accepted the loan as genuine No confirmation letters were filed from these parties (Ambika Agro Suppliers vs. ITO, Jalgaon [2005] 95 ITD 326 (Pune)) I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 83 5.2. The observation that full facts were brought to the notice of the Inspecting Assistant Commissioner (Assessment) is also not correct in as much as after giving statement with regard to the actual cost of the assets and depreciation claimed thereon, the assessing authority was bound to consider the Explanation. Simply because the facts have been disclosed by the assessee, it does not give immunity from revisional jurisdiction which the Commissioner can exercise under section 263 and as such even in a case where the facts have been disclosed by the assessee to the assessing authority and the correct provisions of law have not been examined by the assessing authority, the power under section 263 can be invoked. (CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843/83 Taxman 643 (Raj.)) 5.3. Merely asking a question which goes to the root ofthe matter and not carrying it further IS a case of non-enquiry. if the query nototherwisesatisfiedwhilerespondingtoanotherquery. Intheinstantcase, the Assessing Officer raised query regarding valuation of shares in question to whichresponse was only that the unquoted shares were valued at costs. No method ofvaluationoftheshares was submitted to the Assessing Officer during the proceedings, leading to the assessment order. It, therefore, appeared that the Assessing Officer after having asked a pertinent question of the method of valuing unlisted shares did not pursue that line of enquiry. Thus, this was a case of non- enquiry and not inadequate enquiry. Therefore, the order of the Assessing Officer was certainly erroneous and prejudicial to the revenue. (Jeevan Investment & Finance (P.) Ltd. Vs. Commissioner of Income Tax, City- 1, Mumbai, [2017] 88 taxmann.com 552 (Bombay)) 5.4. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Assessing Officer should have made further inquiries before accepting the statements made by the assessee in his return. (Rajalakshmi Mill Ltd vs ITO, Coimbatore [2009] 31 SOT 353 (Chennai) (SB)) 5.5. The principle that a mere change of opinion could not be a basis for reopening completed assessments would be applicable only to situations where the Assessing Officer had applied his mind and taken a conscious decision on a particular matter in issue. It would have no application where the order of assessment did not address itself to the aspect which was the basis for reopening of the assessment Therefore, it was inconsequential whether or not the material necessary for taking a decision was available to the Assessing officer either generally or in the form of a reply to the questionnaire served upon the assessee. (Consolidated Photo & Finvest Ltd. v. Asstt. CIT (2006) 281 ITR 394/151 Taxman 41 (Delhi)) 5.6. Records were filed before Assessing Officer. A detailed questionnaire was also issued by Assessing Officer a reply was filed by assessee, but Assessing I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 84 Officer did neither apply his mind nor did he conduct an enquiry into matter although he recorded in note-sheet that reply filed by assessee was not satisfactory and did not explain all facts Tribunal recorded a finding that Assessing Officer had simply accepted claim of assessee without examining records. Lack of enquiry by Assessing Officer led to rendering his order erroneous and prejudicial to interest of revenue. Commissioner was justified in passing an order invoking power under section 263 and remitting matter back to Assessing Officer for conducting a proper assessment (Nagal Garment Industries (P) Ltd. v. CIT (2019) 415 ITR 134 (MP)) 5.7. It was observed that Assessing Officer, did seek an explanation from assessee in 'general terms' for adoption of sale consideration as against stamp duty valuation, but, there was neither any specific reference to facts of case nor application of section 50C - Whether thus, view adopted by Assessing Officer being clearly unsustainable in law, even if matter was examined by Assessing Officer and it was conscious call of Assessing Officer to accept plea of assessee, such a situation would not take matter outside ambit of section 263. Therefore, revision proceedings under section 263 were justified and there was no infirmity in order of Commissioner directing re- examination of claims on merits. (Babulal S. Solanki v. ITO (2019) 176 ITD 642 104 taxmann.com 155 (ITAT Ahmedabad)) 5.8. The assessee had made payments to small labourers and machine repairers for which it did not have any valid vouchers. During the assessment proceedings it was stated before the Assessing Officer that the payments were made under emergent conditions and that the expenses were actually incurred. The Assessing Officer disallowed a sum of Rs. 2 lakhs, which disallowance was accepted by the assessee The CIT exercised revisionary powers under section 263 and directed the Assessing Officer to modify the assessment order since according to the CIT the 4 aspects mentioned in his notice were not considered by the Assessing Officer. Tribunal set- aside the order of the CIT. On appeal by the department, the High Court observed that there was no application of mind on the part of the Assessing Officer and that the 4 points mentioned by the CIT have not been considered by the Assessing Officer Accordingly, the High Court allowing the appeal held that the CIT was justified in directing the Assessing Officer to redo the matter afresh. (CIT v. Alloy Steels (2013) 359 ITR 355: 217 Taxman 262:
36taxmann.com514(Karn.))
6. APPLICATION OF MIND BUT INCORRECT ASSUMPTION OF FACTS / INCORRECT APPLICATION OF LAW BY THE ASSESSING OFFICER APPLICATION OF MIND BUT BASIS OF ESTMATION BY THE A.O. IS EITHER NOT HAVING REASONABLE NEXUS WITH MATERIAL ON RECORD OR THE SAME IS NOT UNBIASED OR THE SAME IS NOT RATIONALLY MADE I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 85 6.1. Pr. CIT while exercising his revisionary jurisdiction u/s 263 can examine the basis for estimation, whether such basis for estimation has reasonable nexus with the material on record, whether the estimates made and conclusion drawn by the Assessing officer are unbiased and rationally made and the authority so exercised by the Assessing officer is vindictive or capricious or not (Hon'ble ITAT, Jaipur A Bench in ITA No. 449/JP/2019 dated 25.10.2019 in the case of Rameshwar Prasad Sharma, A.Y 2014-15) 6.2. Not application of mind to relevant material or an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of order being erroneous and prejudicial to the interest of the revenue. (CIT Vs JawaharBhattacharjee 342 ITR 0074 (Gauhab High Court) [2012]) 6.3. Where the Assessing Officer takes a wrong decision without considering the materials available on record the Commissioner will be well within his powers to regard an order as erroneous and prejudicial to the interest of the revenue (Dr. Rabindra Kumar Singh vs. CIT (Central), Patna [2011] 131 ITD 39 (Ranchi))
7. EXPLANATION 2(a) IN SECTION 263 OF THE ACT ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN DONE 7.1. It is also worthwhile to note that Explanation 2(a) below section 263 of the Act specifies has further clarified and strengthened and enlarged the scope of section 263 that the that the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the revenue if in the opinion of the Pr. Commissioner, the order was passed without making any inquiries or verification which should have been made by the Assessing Officer. The aforesaid explanation was inserted with effect from 01.06.2015 7.2. It is important to mention that in number of judgements it has been held even without considering the above explanation that order would be erroneous in so far as it is prejudicial to the revenue if it was passed without making any inquiries or venfication which should have been made by the Assessing Officer 7.3. The amendment to section 263 of the Act by insertion of Explanation 2 to Section 263 is declaratory in nature and is inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interest of Revenue whereby it is provided, inter-alia, that if the order is passed without making inquiries or verification by the AO which, should have been made or the order is passed allowing any relief without inquiring into the claim, the order shall be deemed to be erroneous and prejudicial to the interest of Revenue. (Anuj Jayaendra Shah vs PCIT-35.
Mumbai [2016] Reported in 67 taxmann.com 38)
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 86
The ratio of above noted judgments is clearly attracted on the facts of the present case at hand. Also, it is apparent that the relevant issues, as discussed above were not properly examined during the course of assessment proceeding by the Assessing Officer. The assessment order was passed by the Assessing Officer without making proper inquiries and relevant verifications, which he was statutorily required to do so The assessment order was passed by the AO without making the necessary enquiries and verification of these issues, which he was bound to make for ascertaining the relevant facts for the purpose of deciding the issues at hand The assessment order, suffers from infirmities and the same is erroneous in so far as it is prejudicial to the interest of the revenue in terms of the provisions of section 263 of the Act."
12.1 The ld. DR in addition to the written submission vehemently argued that as regards the issue of 14A in spite of the board circular the ld. AO has not worked the disallowance which will render the order erroneous and prejudicial to the interest of the revenue. As regards the allocation of the expenses the director salary is not allotted and the internet and telephone expenses is directly related to the income of the expected unit equally and the same is also not allotted and the ld.AO has not considered the overall aspect of the matter. The director sign all the bill and reading of the electricity generated and the same is communicated the related expenses is required to be allocated while computing the deduction u/s.80IA. As regards the other issue the PCIT clearly demonstrated the ld. AO when though the primafacie error reflected not called for any explanation from the assessee. Since the I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 87 case of the assessee under complete scrutiny not examining them renders the order erroneous and prejudicial to the interest of the revenue and therefore, within the jurisdiction of 263 the PCIT rightly held the order errenous. As regards the further issue raised the assessee remained silent and has not filed any reply.
13. In the rejoinder the ld. AR of the assessee submitted that the reply has been filed but the order has been passed on the same day.
Even though the issue of loss is allowable and all the related material placed before the PCIT but has not been considered and the same is placed on record and demonstrated that the claim is allowable and therefore, merely for verication of these details the assessment order passed cannot be reviewed again merely for verification. As regards the director salary he is discharging the overall functions of the company.
The expenditure on the exempted unit which are directly attributable has already been considered and considering the overall contract being given there is no further expenditure on a day to day affairs the director involves their time based on the contractual activity directly executed based on the contract expenses already debited.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 88
14. We have heard the rival contentions and perused the material placed on record. The bench noted that the ground no. 7 raised by the assessee being general in nature and there is no grievance further raised by the assessee the same is not required to be adjudicated. The other ground no. 1 to 6 raised by the assessee are mainly challenges the proceeding under section 263 of the Act on merits as well as on technical grounds. The assessee company filed the return of income declaring total income of Rs. 25,48,50,050/- on 14/09/2018. The case of the assessee was selected under CASS for complete scrutiny criterion, on the issue of i. Expenditure of personal nature, ii Deduction claimed for Industrial undertaking u/s. 80IA / 80IAB /80IAC /IB /IC /80ID /80IE /10A /10AA and; iii Expenses incurred for earning exempt income. The assessment was completed without making any modification and the assessment was completed by the Faceless Assessment unit on 24.03.2021 u/s. 143(3) of the Act and the returned of income filed by the assessee was accepted by the Faceless Assessing Officer. After the completion of the assessment the case records were called for examination and upon the examination of the assessment record the ld.
PCIT observed that one of the reasons for selection of the case under complete scrutiny was 'huge investment of the assessee in assets", income of which would not form part of total income and expenses I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 89 related to such investment. This reason was basically for examination of the case in the light of provisions of section 14A of the Act. The assessee had non-current investments of Rs 21,75,80,000 as on 31.3.2017 as well as on 31.3.2018 in the equity shares of the domestic companies, income of which would not form part of total income. As per CBDT Circular No 5/2014 dated 11.2.2014, it has been clarified that Rule 8D read with section 14A of the Income Tax Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempted income. Provisions of section 14A are applicable where the assessee has invested its funds in such investments which may result in Exempted income. In the instant case since the investment was made in shares of companies which may result in Exempted Income in the form of Dividend, as such it was mandatory to follow the CBDT circular (supra). Further, the assessee has claimed finance/interest cost of Rs.2,31,466/-in its accounts. A part of this interest cost may directly be attributable to the investments in shares of companies as stated above. In absence of complete details of interest cost directly attributable to the investment in shares, it may be computed proportionately in the proportion which the investment in shares has with the total assets of the company and thereby it was worked at (A) Rs. 16,629/- and further disallowance in terms of Rule I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 90 8D(2)(ii) computed @ 1% of annual average (B) Rs. 21,75,800. As such total disallowable amount under section 14A would be total of (A+B) Rs.
16629 + Rs. 2175800 = Rs. 2192429/-. However, the AO/NaFAC has not made any addition on this issue while completing the assessment on 03.03.2021 for the A.Y. 2018- 19. The ld. PCIT further noted that during the year under consideration, the assessee has sold some plant and machinery and has incurred a net loss of Rs.9,29,50,553/-. This loss is claimed in profit and loss account but while computing taxable income, this amount has not been added back. On further scrutiny of the records, it was further noticed that this loss was incurred on sale of plant and machinery of Rs. 22,33,06,270/- which has been deducted from the block of assets of plant and machinery in the fixed assets of the audited balance sheet (Note-6, Fixed assets). However, while reporting the claim of allowable depreciation, as per Income-tax Act, in clause 18 of audit form No 3CD, the auditors have deducted an amount of Rs 20,53,511 only, details of which are given at the end of the form 3CD. Apparently, there cannot be a loss of Rs 9.29 crores on sale of P&M whose WDV was of Rs.20,53,511/- only as per clause 18 of 3CD. There is an apparent incorrect reporting in deduction of figures in clause 18 of 3CD.
The correct amount deductible must be of Rs 22,33,06,270 as has been mentioned in the fixed assets schedule of the audited balance sheet.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 91
Since correct amount has not been deducted while computing allowable depreciation as per Income Tax Act and excess depreciation has been claimed by the assessee on the amount of Rs 22,12,52,759 (223306270-2053511) which has been allowed by the FAO. Since the deduction was from the block of plant and machinery (15%), the excess depreciation claimed and allowed would be of Rs 3,31,87,913, causing under assessment / computation of business income by this amount with under charge of tax of Rs. 1,14,85,673/- and on this issue the AO/NaFAC didn't make any query and has not made any addition on this issue. The ld. PCIT also noted that one of the issues of selection of the case under scrutiny is huge claim of deduction u/s 80IA. The FAO had to examine as to whether the claim is correct and as to whether any expenses related to eligible business has been diverted to non-eligible business to enhance profit of eligible business. In the instant case the ld.
PCIT noticed that no such allocation has been made by the assessee company on its own or by the FAO at the time of finalizing the assessment. The accounts of the assessee shows that as such no common expenses have specifically mentioned in the audited accounts or in the form 10CCB. A part of expenses of audit fees, insurance expenses, professional fees etc., have been debited to the profit and loss accounts of the eligible business by the assessee on its own.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 92
However, certain other expenses which also warranted allocation among eligible business and non-eligible business have not been considered.
These expenses are Director's remuneration Rs.37,79,065/-, Tour and travelling Rs89,58,503/- and telephone and internet Rs.30,93,126/-
totaling to Rs1,58,30,694/-. The fact cannot be denied that the directors have also looked after the work of the eligible business, tour and travelling was made by the directors or any other employees for eligible business also and telephone of internet expenses incurred also involved expenses for the eligible business. As per computation of income, the net business income of non-eligible business is of Rs.232121128 (254648686-22527558) and therefore allocation of common expenditure of directors salary and their domestic travelling, use of telephone/internet etc to the income of eligible business was calculated by the PCIT and the same is extracted herein below:
Common expenditure Business income of eligible business/ Business income of non-eligible business 15830694 *22527558/232121128 Rs. 1536382/-
15. The ld. PCIT noted that this amount was required to be further allocated to eligible business which will reduce the claim u/s 80IA by the same amount and would result in increase in taxable amount. However, the AO/NaFAC didn't make any addition on this issue while completing the assessment on 24.03.2021 for the A.Y. 2018- 19 and as such, the I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 93 total income has been under assessed/computed by Rs. 15,36,382/-.
Based on these observations the ld. PCIT noted that the ld. AO ( FAU in this case) has failed to properly examine and also in making addition on the following issues:-
(A) the issue of disallowance u/s. 14A of the Act read with Rule 8D of the I.T. Rules [sub-para (i) of para 3 above).
(B) Issues related to Depreciation u/s 32 of the Act [sub-para (ii) of para 3 above) and (C) The issue of disallowance u/s 80IA of the Act [sub-para (iii) of para 3 above),
16. Therefore, due to lack of enquiry and due to incorrect and incomplete appreciation of facts and law as well, the assessment order duly passed u/s 143(3) of the IT Act dated 24.03.2021 for the A.Υ. 2018-
19 was found to be erroneous insofar as it is prejudicial to the interest of revenue. Therefore, the order was proposed to be suitably modified/enhanced/cancelled by invoking the provisions of the section 263 of the I.T. Act, 1961. Before doing so, a notice u/s 263 of the Act was duly issued on 30.01.2023 to the assessee for giving opportunity of being heard as well as requiring the assessee to furnish its submission on the issues of (i) disallowance as per 14A/Rule8D (ii) disallowance as per Section 32 of the Act and (iii) disallowance u/s 80IA of the Act, as categorically mentioned herein above. The notice so issued was duly served through ITBA and through the Speed Post as well.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 94
17. During revision proceedings u/s 263, some discrepancies in the case vis-à-vis the assessment order dated 24.03.2021 were also observed by the ld. PCIT. In this regard, in continuation to the notice dated 30.01.2023 issued u/s 263 of the Act, another notice in the form of "Notice of Hearing" was duly issued to the assessee seeking reply to be filed by 23.03.2023, 5:00PM. The cause of concern were duly mentioned in the notice (supra) that
i) the assessee has not properly complied with the provisions of TDS. Though in form 3CD, non-compliance has not been reported by the auditor, but on perusal of various ledgers and other details submitted during the assessment proceedings, it may be seen that there are various irregularities and in consistencies in compliance of TDS provisions warranting proper examination of the case.
(a) Page No 213 of reply is a copy of ledger account of Rajesh Dhingra who has provided professional services to the assessee. This page may be read with page No 192 and 198 where details are given that services of Rs2500000 were provided by Rajesh Dhingra to the assessee vide bill No 0007 dated 14.8.2017, which has been accounted for under the legal and consultancy charges account on 31.8.2017. Mr Dhingra was paid full amount of Rs 25 lakh on 14.8.2017 vide Bank Of Baroda CC A/c. As per copies of these accounts no TDS was made. However a copy of form 16A, issue to the deductee, was filed, which shows that an amount of Rs 250000 was paid as TDS by the assessee. This amount is, thus, over and above the bill raised by the service provider. This amount has not been credited to the account of Rajesh Dhingra. Since TDS has been paid by the assessee on behalf of the deductee, who will take credit of this amount as pre-paid taxes, it is not clear as to which expenditure account, the assessee debited this amount of TDS of Rs 250000. Copy of bill issued by Rajesh Dhingra is not on record.
(b) Similarly, as per page 192, an amount of Rs 4.20 crore is claimed to have been paid to Madan Lai Paliwal for professional fees, on which IDS of Rs 42 lakh was made. But if these details are read with page No 804 to 806 (copy of ledger account of Madal lal Paliwal) it may be seen that Shri Madan lal Paliwal was paid Rs 45045000 besides IDS of Rs 42 lakh. As such total amount paid to Shri Paliwal is of Rs 49245000. Copies of bills I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 95 provided by Madan lal Paliwal are not on record. The assessee has claimed expenses of Rs 4.20 crore only then it is not clear as to how and where the remaining amount of Rs 7245000 has been accounted for and what was its implication on the net income of the assessee. Interestingly, Shri Madan Lal Paliwal was the main person of the management of the company but this transaction of Rs 4.20 crore or 4.92 crore is not reflected in the relevant columns of form 3CD meant for payments to specified person u/s 40A(2)(b).
(c) Similar discrepancies were observed there in respect of other payments made to other service providers of professional and consultancy services.
(d) As per page No 159 (annexure 15) of reply, Rent expenses of Rs 57538975 has been shown to have been paid to Madan lal Paliwal (Miraj) family foundation, which consisted service tax of Rs 1203975, on which no IDS was made and balance amount Rs. 56335000 was subjected to IDS. Against this amount of total payment of rent of Rs. 57538975, the details reported in form 3CD for payments to specified persons shows payment of Rs. 62026035 to Miraj Family foundation. Reasons and reconciliation of difference amount of Rs 4487060 and effect thereof on total income was required to be examined but it was not done.
(ii) The ld. PCIT also noted that the assessee is a manufacturer of processed tobacco. Quantitative details of consumption of raw material (raw tobacco and lime) and finished goods are given in form 3CD(clause 35b). As per these details total 34345771 kg of raw material (132286835 kg raw tobacco and 21258936 kg of lime) was consumed with NIL shortage in manufacturer process. The finished goods produced are 18996436 kg and no by- products. Thus, there was short production of finished goods by 15549355 kg. However, on page 66 (annexure 11) of reply, the assessee has submitted that inventory at the year-end included WIP of semi-finished tobacco of Rs. 16,36,65,662. Quantitative details of WIP is not given. However, if it is presumed that the entire quantity of shortage in production as reflected in clause 35b of 3CD is representing the WIP, then the valuation of WIP as on 31.3.2018 is of Rs. 10.52 per kg. It may be seen from details on page 65 (annexure 10) of reply that at the year-end quantity of closing stock of raw material of raw tobacco was 1817103 kg and liquid lime was 4159518 kg. From Balance sheet (note 18.2) figures the value of closing stock of raw tobacco is of Rs. 30276286 and others (lime) is Rs.95724950. If these amounts are considered than the rate of raw tobacco as on 31.3.2018 is Rs 16.66 per kg and lime is of Rs 23.01 per kg. As against these rates, the assessee has valued WIP (semi-finished tobacco) @ Rs 10.52 per kg only, which is highly undervalued and warranted proper examination and reconciliation by the FAO at the time of finalization of assessment but it was not done. The detailed examination of manufacturing account and valuation of I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 96 stocks was further necessary in view of the fact that during the year under consideration the stock in trade to turn over ratio is decreased from 3.39% in AY 2017-18 to 0.54% in AY 2018-19 and material consumed to finished goods ratio increased from 81.32% in AY 2017-18 to 83.89% in AY 2018-19 (clause 40 of 3CD). As the business remains identical in two years, there is no apparent reason for variation of these ratios to this extent.
(iii) One more quite potential issue was huge transactions of the assessee for purchase/sale of MFs, on which STCG of Rs. 20333971 has been declared by the assessee. As per Note 10 to B/S, total investment in MFs as on 31.3.2018 is of Rs. 537727100. Note 10A further gives details of quantity and value of different MFs held on year end. The details of sale/purchase, resulting in to STCG, as furnished at page No 42(annexure 5) of reply the assessee sold total MFs of Rs 3192867768 whose purchase cost was of Rs. 3172533797. Quantitative details of total MFs purchased/sold is not given, so as to ascertain exact result profit/loss of transactions and valuation of inventory left at the year end as per applicable ICDS. As per cash flow statement part B (cash flow for investing activities) submitted along with the audited balance sheet, there was total investment in MFs of Rs 3473499994, sale of MFs of Rs 2935727897 and gain on sale of MFs Rs. 20333971. The sale figures of MFs as reflected in cash flow statement are not tallying with the sale figures submitted at page No 42 of reply. There Is a substantial difference in the figures. If the figures mentioned in the cash flow statement (being duly audited by CA) are taken as correct figures then the purchase cost of MFs resulting in to STCG of Rs 20333971 will be of Rs. 2915393926 and closing inventory of MFs would be Rs.558106068 (3473499994-2915393926) at cost price. As against this the assessee has shown closing value of MFs at Rs. 537727100 i.e less by Rs. 20378968. If the figures of purchases are taken from page No 42 then the closing stock of MFs at cost price will be of Rs. 30.09 crore (347.34-317.25) only against the amount of Rs 53.77 crore in balance sheet i.e in excess of Rs. 23.67 crore. If it is assumed that valuation was done at NRV at year end, even then the value of three MFs as shown in Note 10 does not tally with the NAV of the respective MFs as on 31.3.2018. In any case, this issue needed a detailed reconciliation and examination, so as to ascertain correctness of the claims of STCG and correct valuation of closing stock of MFs, but it was not done.
(iii) A deduction of Rs 8703288 has been claimed in profit and loss account for loss of goods in transit. This was an abnormal claim and required to be examined properly. No evidence in the form of any FIR or any other documentary evidence, claim of insurance etc are filed by the assessee to support its claim, The FAO has also not asked for the same.
18. Thus, the sum and substance of the finding of the ld. PCIT is on four points (A) the issue of disallowance u/s. 14A of the Act read with I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 97 Rule 8D of the IT Rules, (B) Issue related to the depreciation (C) Issue of allocation of expenditure and consequent claim of deduction u/s. 80IA of the Act (D) Various alleged discrepancies noticed from the audited account of the assessee company.
19. The first issue thus raised by the ld. PCIT that the disallowance u/s. 14A r.w.r. 8D read with the CBDT circular, the ld. AO has not made disallowance. The ld. PCIT has worked in her order at Rs. 21,92,429/-.
On this issue the bench noted that this issue of disallowance of interest has duly been raised by the ld. AO vide notice dated 23.09.2019 (APB-
125) and reply was also filed stating that "assessee has not earned exempt income during the relevant assessment year. Accordingly there was no any expenditure incurred to earn the exempt income. The ld. AO based on the reply of the assessee taken a plausible view of the matter.
Therefore, when the issue is verified by the ld. AO, he on being satisfied with the reply of the assessee considered the same. The ld. PCIT again try to demonstrate the view taken by the ld. AO is incorrect and the ld.
AO should have disallowed the interest considering the CBDT circular.
The ld. PCIT further emphasised that the issue even though assessee has no exempt income and the ld. AO even though based on the circular no. 5/2014 dated 11.02.2014 is duty bound to compute the disallowance I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 98 as per that circular. To counter this contention of the ld. PCIT the ld. AR of the assessee vehemently argued that the ld. AO has taken a view that when there is no exempt income no further disallowance u/s. 14A be made is one of the plausible view in the matter based on the various case law cited in the cash law compilation of the assessee and the decision cited are CIT v. Cheminvest Ltd. [2015] 61 taxmann.com 118 (Delhi), PCIT v. Delhi International Airport (P.) Ltd. [2022] 144 taxmann.com 80, PCIT v. Amadeus India (P.) Ltd. [2022] 145 taxmann.com 311, ACIT V. Redington (India) Ltd. [2017] 77 taxmann.com 257 (Madras), PCIT V. IL & FS Energy Development Company Ltd. [2017] 84 taxmann.com 186 (Delhi), CIT v. GVK Project & Technical Service Ltd. [2019] 106 taxmann.com 181 (SC), CIT v.
Chettinad Logistics (P.) Ltd [2017] 80 taxmann.com 221 (Madras), PCIT v Oil Industries Development Board [2019] 103 taxmann.com 325 (Delhi), PCIT v. TV Today Network Ltd. [2022] 141 taxman.com 275 (Delhi). Thus, based on the wisdom of judicial precedence ld. AO has considered the submission of the assessee has not considered to disallow the amount of interest u/s. 14A of the Act. The bench also noted that the ld. PCIT is heavily relying on the CBDT circular for computation of disallowance u/s. 14A the said circular but the Delhi High Court in the case of PCIT Vs. TV Today Network Ltd., [ 141 taxmann.com 275(Delhi) I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 99 ] categorically held that circular contrary to the law laid down the hon'ble Delhi High the court the relevant para is reiterated herein below :
28. As per the law settled by this court in the case of Cheminvest Ltd. v. CIT[2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 (Delhi); and Pr. CIT v. IL & FS Energy Development Co. Ltd. [2017] 84 taxmann.com 186/250 Taxman 174/399 ITR 483 (Delhi)/2017 SCC Online Del 9893, the disallowance to be made under section 14A cannot be in excess of the exempt income earned by the assessee. The counsel for the revenue has placed reliance on the CBDT circular 5/2014 to contend that disallowance under section 14A would be attracted even if corresponding exempt income is not earned during the financial year. The said circular cannot be relied upon since its contrary to the law laid down by this Court.
20. Thus, the bench noted that on the issue of 14A disallowance the ld. AO raised the issue and plausible view has already been taken by the ld. AO after considering the reply of the assessee and the view taken by the ld. PCIT is not considered a valid reason based on the judgement cited herein above to invoke the provision of the section 263 of the Act.
The law provide that the Twin conditions needs to be satisfied before exercising revisional jurisdiction under section 263 by the Commissioner.
The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the revenue. In the following circumstances, the order of the Assessing Officer can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 100 without application of mind; (v) if the Assessing Officer has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the Assessing Officer can be termed as prejudicial to the interest of the revenue. This phrase, i.e., prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. It has to be remembered that every loss of the revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.
21. As regards the issue for claim of depreciation u/s. 32 of the Act the assessee filed a detailed reply submitting that the auditor has correctly reported the realisable value of Rs. 20,53,511/- in the column `deductions' under clause 18 of the tax audit report while computing I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 101 depreciation allowable under section 32 of the Act. The opening written down value of the plant and machinery of Rs. 56,38,73,088/- already included the value of plant and machinery sold by the assessee in the tax audit report and as per section 43(6) during the year only sale value has to be reduced from the opening WDV. After perusing the reply of the assessee even the ld. PCIT noted that ;
In view of the above, the claim of the assessee is prima facie tallied. However, the AO is directed to confirm / verify the same, while finalising the assessment.
Thus, it is very much clear that based on the submission of the assessee the ld. PCIT could not pin point any error on and establish that the order of the ld. AO is prejudicial to the interest of the revenue and therefore, the issue raised and marked as (B) has no merit and even for verification of allowance / disallowance the provision of section 263 cannot be invoked.
22. The next point raised and marked as (C) is the issue of claim of deduction u/s. 80IA of the Act. On this issue we note from the submission along with the evidence in paper book filed, it is evident that during the assessment proceeding conducted the ld. AO demanded an explanation for the deduction claimed u/s. 80IA of the Act vide notice I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 102 dated 23.09.2019 and 09.02.2021. The query made by the ld. AO and reply filed by the assessee on this issue is tabulated herein below :
S.No. Query no. Response filed
2. Issue no. 2: Deduction claimed for Assessee submitted the form
Industrial Undertaking u/s 10CCB along with Audited
80IA/80IAB/80IAC/80IB/10A/10AA balance sheet vide reply
(Page no. 125 of PB) dated 24.10.2019. (Page no.
130 of PB.) Notice issued u/s 142(1) of the Act dated 09.02.2021:
S.No. Query no. Response filed
2. 34. Further, on the issue of claiming All documentary evidences deduction u/s 80I of Rs. 2,25,27,557/, were submitted vide S.No. 34 you have not provided a copy of P&L of reply dated 24.02.2021 accounts(project wise) and not (page no. 141-142 of PB). furnished any details/documents in regard to total sales declared therein.
Thus, your claim can not be verified.
In this connection, you are required to furnish the following :-
i)P&L accounts (Project wise)
ii)Documentary evidence regarding sale thereof with copy of Bills/vouchers raised.
iii) Bank statement(s) relevant to the sale proceeds appearing therein.
iv) Ledger account(s) of the persons/concerns to whom sale was made.
v)Complete details/ledger account(s) and documentary evidence in regard to all the expenses claimed.
Thus, it is evident from the above, correspondence exchanged during the course of assessment proceeding, which establish that the issue has been taken up, examined and thereafter, the ld. NeFAC taken a I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 103 plausible view on the matter. The ld. PCIT on this issue trying that the issue would have been examined in way he wanted to examine. The deduction under section 80IA has been claimed towards generation of electricity though the windmills, together with the necessary supporting documents. This evidence make it clear that the ld. AO has given consideration to the assessee's submission and that too he raised queries on the issue in the assessment proceedings. In the assessment proceedings the assessee submitted copy of audited profit and loss account of windmill, sale invoices of electricity, copy of bank statements wherein the sale proceeds appearing and ledger accounts of expenses claimed along with supporting invoices in respect to deduction claimed u/s 80IA of the Act, all these evidences were also placed on record in the paper book page 200-367. The ld. AO asked for the details and applied his mind on the issue and decided not to make any disallowance u/s. 80IA of the Act. Without prejudice the bench also noted from the submission of the assessee that the assessee has entered into separate agreement for each windmill for the operation, management and maintenance with Suzlon Global Services Limited and the assessee has paid the said amount and the same is included in repairs and maintenance expenses which has been claimed in audited profit & loss account of each windmill. Copy of agreement of operation and I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 104 management services is available on page 280-313 of the paper book of the assessee. All these evidences suggest that the directors are not involved in operation and management of windmill segement. Based on these arrangement it is argued that windmill business segment does not require any involvement of the directors. Consequently the director's remuneration of Rs. 37,70,065/-, tour and travelling of Rs. 89,58,503/-
and telephone and internet of Rs. 30,93,126/- for a total of Rs.
1,58,30,694/- is not allocable to the windmill business segment. Thus, based on the evidences placed on record the ld. AO took a plausible view on the issue. The ld. CIT(A) without dealing with the contention simply calculated the common expenditure to be disallowed and hold a view that the addition on this is required to be made for an amount of Rs.
15,36,382/-. Thus, here also the twin conditions is not satisfied and ld.
PCIT did not bring on record that the order of the Assessing Officer is erroneous so far as prejudicial to the interest of the revenue. In the following circumstances, the order of the Assessing Officer can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the Assessing Officer has not I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 105 investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the Assessing Officer can be termed as prejudicial to the interest of the revenue. This phrase, i.e., prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. It has to be remembered that every loss of the revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. Based on these observations we are of the considered view that on this issue of disallowance of expenditure of 80IA the ld. AO already raised the issue called for the submission and had taken a view based on the record produced that action of the ld.
cannot be subjected to proceeding u/s. 263 of the Act.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 106
23. As regards the observation based on the tax audit report raised in para (D) under the head other observations on all the issue the ld. AR of the assessee submitted that the issue for payments of legal and consultancy charges to Rajesh Dhingra for services amounting to Rs.
25,00,000/-. The assessee based on the submission placed on record vehemently submitted that there is no adverse inference can be drawn and the claim of the assessee is neither prejudicial to the interest of the revenue nor it is found to be erroneous. Moreover, the issue which the ld. PCIT raised is not part of issues assessed under the scrutiny assessment. Similarly the other issue of legal and consultancy charges the ld. AR of the assessee drawn our attention to Notice issued under Section 142(1) of the Act on 09.02.2021. The relevant extract is reproduced as hereunder:
Notice issued u/s 142(1) of the Act dated 09.02.2021:
S.No. Query no. Response filed
2. 20. Please furnish a copy of All documentary
ledger account of evidences were submitted
Professional/consultancy vide S.No. 20 of reply
charges of Rs. 4,74,57,396/- dated 24.02.2021 (page with a copy of individual ledger no. 140 of PB).
of the persons/concerns relevant to the expenditure claimed.
In this connection, you are also
required to furnish documentary
evidence in regard to claim of
relevancy and justification
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 107
thereof
Thus, the issue which is raised has been verified by the ld. AO vide Notices dated 09.02.2021. In response to the notice, the assessee submitted a detailed reply dated 24.02.2021 (at S.No. 20), addressing the concerns raised and later on verified by the Ld. AO himself. (Refer page no. 137-142 of PB). The ld. AR of the assessee invited out attention to page no. 384-392 of APB, where copy of ledger and invoice of Rajesh Dhingrashows the gross amount of the transaction entered. It is noticed that the details of services rendered by Rajesh Dhingra to the assessee Company, amounting to Rs. 25,00,000/- are showed on Page 385 of the PB vide bill no. 0007 dated 14.08.2017. Further, the assessee accounted for this transaction as Legal and Consultancy charges on 31.08.2017, as stated on Page no. 384 of the PB. The contention of the ld. PCIT that the TDS of Rs. 2,50,000/- was paid by the Appellant in addition to the payment of Rs. 25,00,000/- made to Rajesh Dhingra for Legal and Consultancy Charges. However, the ld. AR demonstrated that the ld. PCIT has misinterpreted the facts instated it is an advance amount of Rs. 22,50,000/- was paid to Rajesh Dhingra on 14.08.2017 through cheque no.1002, drawn on Bank of Baroda. The advance amount was paid after deduction of TDS of Rs. 2,50,000/-. The copy of I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 108 bank statement wherein the payment of Rs. 22,50,000/- was duly debited is available on Page No. 389 of Paper Book. In addition to this, copy of invoice with respect to Legal and Consultancy Charges along with receipt for confirmation of accounts amounting to Rs. 22,50,000/- issued by Rajesh Dhingra is available on page no. 385-386 of Paper Book.
Further, it is submitted that TDS of Rs. 2,50,000/- was duly deducted and deposited by the assessee in accordance with the invoice issued by Rajesh Dhingra amounting to Rs. 25,00,000/-. To provide further support evidence, in the form of copy of Form 16A is available on Page No. 391- 392 of Paper Book. Thus, considering the afore said facts and on perusal of the said notices and replies, it is evident that the matter in the case has been decided by the Ld. AO by duly applying his mind and after examining the information and documents placed before him. However, it appears that the Ld. PCIT has apparently overlooked the response submitted by the assessee on 24.03.2023 which could have provided clarification on the concerned issue in hand. Accordingly, in light of the above discussion when the Ld. AO has examined the issue in detail regarding the Legal and Consultancy charges paid to Rajesh Dhingra and addressed the concerns raised, the revisionary powers under Section 263 cannot be invoked as the assessment order is neither erroneous nor prejudicial to the interest of revenue.
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 109
24. As regards the issue for which the assessee paid an amount of Rs.
4,20,00,000/- to Madan Lal Paliwal for professional fee on which TDS of Rs.
42,00,000/- was made. The Appellant has correctly claimed the expenditure and has complied with the provisions of tax deducted at source (TDS). The issue of payment of Professional Fees to Madan lal Paliwal was not part of issues assessed under the Scrutiny assessment as it is clear from the notice issued u/s 143(2) of the Act dated 23.09.2019. The ld. AR of the assessee on this issue even though the ld. AR of the assessee submitted that the Ld. AO asked for an explanation regarding the professional fees vide Notice issued under Section 142(1) of the Act on 09.02.2021. The relevant extract is reproduced as hereunder:
Notice issued u/s 142(1) of the Act dated 09.02.2021:
S.No. Query no. Response filed
2. 20. Please furnish a copy All documentary
of ledger account of evidences were
Professional/consultancy submitted vide
charges of Rs. S.No. 20 of reply
4,74,57,396/- with a copy dated
of individual ledger of the 24.02.2021
persons/concerns relevant (page no. 140 of
to the expenditure PB).
claimed.
In this connection, you are
also required to furnish
documentary evidence in
regard to claim of
relevancy and justification
thereof
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 110
The assessee thus submitted that the issue has been verified vide Notices dated 09.02.2021. In response to the notice, the assessee has submitted a detailed reply dated 24.02.2021, addressing the concerns raised and later on verified by the Ld. AO himself. On perusal of the said notices and replies, it is evident that the matter in the case has been decided by the Ld. AO by duly applying his mind and after examining the information and documents placed before him. Even before the PCIT response submitted by the assessee on 24.03.2023 which could have provided clarification on the concerned issue in hand. As regards the contention of the PCIT that the total amount paid to Madan Lal Paliwal on account of professional fees is Rs. 4,92,45,000/- i.e. (Rs.
4,50,45,000+Rs. 42,00,000). In this regard, the assessee draws our attention page no. 393 of APBwhich which shows that the assessee claimed an amount of Rs. 4,20,00,000/- as professional fees paid to Madan Lal Paliwal. The ld. PCIT has misconceived that the remaining amount of Rs. 72,45,000/- was not taken into account and its impact on net income of the assessee. In this regard, the assessee invited out attention to the month wise detail of fee claimed along with tax paid wherein it is evident from the table that the total fee claimed was Rs.
4,20,00,000/- i.e., Rs. 35,00,000/- per month and corresponding TDS @10% i.e., Rs. 42,00,000/- has been correctly deducted by the I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 111 assessee. In addition to this, it is also clear that the amount of Rs.
72,45,000/- is related to indirect taxes which is neither required to be considered for TDS nor debited in the profit and loss account. Copy of month wise detail of fee is placed on page no. 393 of Paper Book.
Further, the assessee invited out attention to the copy of ledger account of Madan Lal Paliwal (Page no. 421-422 of PB) wherein the amount credited of Rs. 4,50,45,000/- included the amount of indirect tax i.e. Rs.
72,45,000/-. Therefore, it is evident that there is no implication on assessee's income. In the light of the these discussion we noted that the issue has been verified and therefore, the same is lacking the twin condition prescribed to invoke the provision of section 263 of the Act.
22. As regards the payments to other service providers of professional and consultancy services. The assessee submitted that the said issue of other service providers of professional and consultancy services is not part of issues assessed under the Scrutiny assessment. The same is evident from the notice issued u/s 143(2) of the Act dated 23.09.2019.
Even though the ld. AR of the assessee invited our attention to the fact the ld. AO asked for an explanation regarding the professional fees vide Notice issued under Section 142(1) of the Act on 09.02.2021. The relevant extract is reproduced as hereunder:
I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 112 Notice issued u/s 142(1) of the Act dated 09.02.2021:
S.No. Query no. Response filed
2. 20. Please furnish a copy of All documentary
ledger account of evidences were submitted
Professional/consultancy vide S.No. 20 of reply
charges of Rs. 4,74,57,396/- dated 24.02.2021 (page with a copy of individual ledger no. 140 of PB).
of the persons/concerns relevant to the expenditure claimed.
In this connection, you are also required to furnish documentary evidence in regard to claim of relevancy and justification thereof The ld. AR of the assessee submitted that the Ld. AO has enquired regarding the payment made to other service providers for professional and consultancy services vide Notices dated 09.02.2021. In response to the notice, the assessee submitted detailed reply dated 24.02.2021, addressing the concerns raised and later on verified by the Ld. AO himself. (Page no. 137-142 of PB). The assessee submitted before us that in fact there is no discrepancy in TDS concerning the payment made to other service providers for professional and consultancy services. The ld. AR of the assessee invited out attention to reply dated 24.02.2021 (S.No. 20)before the Ld. AO, specifically pointing to Annexure on page no. 407 of PB. This annexure provides a comprehensive breakup of the total amount of professional and consultancy fees amounting to I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 113 Rs.4,74,57,396/-. In addition to this, Appellant have already attached copies of respective ledger accounts and Form 16A, encompassing Pages 406-478 of PB. The ld. AR of the assessee submitted that reason & reconciliations of difference amount of Rs. 44,87,060/- in relation to payment to Madan Lal Paliwal (Miraj) Family Foundation is related to GST of Rs. 43,37,730/- and Rs. 1,49,330/- was related to reimbursement of expenses of electricity etc. In this context, a copy of the reconciliation chart is placed on page no. 479 of PB. The assessee further submitted that the response, which was submitted on 24.03.2023, has not been considered by the Ld. PCIT. The assessee raised concern that despite submitting the response to address specific matters, it has not received the necessary attention of the ld. PCIT. The assessee also submit that the Ld. PCIT has proceeded to pass the impugned order without waiting for the response, even though the same is provided by the assessee in lieu of the notice issued for seeking additional information or clarification.
Thus, it seems that there appears to be a lack of clarity on the part of the Ld. PCIT regarding the need for clarification in relation to payments made.It is important to note that these payments were made after deducting TDS, and they were duly audited by a professionally qualified CA. Additionally, these payments underwent thorough verification before the issuance of the tax audit report. Thus, even on this issue there is no I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 114 satisfaction that the order is prejudicial and erroneous and after considering the submission we note that the twin condition to invoke the provision of section 263 of the Act is not satisfied. The explanation provided by the assessee is not warrant a second inning and therefore, no one review the order which has been passed without any error or omission on the part of the AO.
25. As regards the issue of short term capital gains on redemption of mutual funds, the ld. AR of the assessee submitted that the said issue was not part of scrutiny. But the ld. AO asked for an explanation regarding the short term capital gains vide Notice issued under Section 142(1) of the Act on 09.02.2021. The relevant extract is reproduced as hereunder:
Notice issued u/s 142(1) of the Act dated 09.02.2021:
S.No. Query no. Response filed
2. 6. Please furnish complete Details of short term details/documents relevant to capital gain submitted vide short term capital gains of Rs. S.No. 6 of reply dated 2,04,05,096/- shown in 24.02.2021 (Page no. 138 computation of total income. of PB) Thus, it is evident that the issue which the PCIT is raising has been looked into by the ld. AO for verification of the short-term capital gains on mutual funds vide Notices dated 09.02.2021. In response to the notice, the assessee has diligently submitted detailed reply dated 24.02.2021, I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 115 addressing the concerns raised and later on verified by the Ld. AO himself. The ld. PCIT merely alleging the correctness of the claims related to short term capital gains and the valuation of closing stock of Mutual Funds. In this regard, the assessee invited out attention to the response dated 24.02.2021 that was filed before the Ld. AO. In that response, the concerns raised, was also referred by the Ld. PCIT for due consideration. From the relevant working which is available on page no.
498 of PB, it is evident that the assessee has earned short term capital gains of Rs. 2,03,33,971/- on sale of Mutual Funds. These Mutual funds were acquired by the assessee during the F.Y. 2017-18. Further, it is to be noted that the Mutual Funds purchased and held as investments at the end of F.Y. 2017-18 were not specifically mentioned on 498 of PB, as they did not result in any capital gains. The ld. PCIT alleged that substantial differences between the figures presented in the cash flow statements and the aforesaid Annexure submitted by the assessee. In this regard, the difference is with respect to the closing amount of investments in Mutual Funds, thus, it has no impact on the capital gains of the relevant year offered by the assessee. To further clarify the difference during the F.Y. 2017-18 and closing value of Mutual Funds as on 31.03.2018, reconciliation statement is available on page no. 480-481 of PB. The assessee in the proceeding before PCIT submitted reply on I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 116 24.03.2023, which has not been considered by the Ld. PCIT. In the light of the above discussion we note that the issue in detail with respect to short term capital gains on sale of Mutual Funds and closing value of Mutual funds has been verified and even though the ld. AR of the assessee demonstrated that the issue which the ld. PCIT is raising is not erroneous or prejudicial to the interest of the revenue and thus the same is lacking the twin condition the revisionary powers under Section 263.
24. As regards the issue of goods lost in transit the ld. AR of the assessee submitted that the issue was not part of the Scrutiny assessment. The same is evident from the notice issued u/s 143(2) of the Act dated 23.09.2019. However, the related fact to the issue is that the assessee claimed the deduction of Rs.87,03,288/- in profit and loss account for loss of goods in transit. The goods were underway from Rajasthan to Karnataka via the State of Maharashtra and the officials at the state of Maharashtra had seized the goods. Before the same is released the same got expired and therefore, since the goods were recorded in the books as sales the assessee company has claimed the deduction in profit and loss account. In support of the claim the assessee submitted that copy of relevant invoice & E-way bill and relevant documents FIR Goods seized order are available on page no. 482-489 of PB. This information was submitted before the ld. PCIT on 24.03.2023, I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 117 but has not been considered by the Ld. PCIT which passing the order.
Since, the issue based on the document submitted it is very much clear that on that aspect of the matter the order of the ld. AO is neither erroneous or prejudicial to the interest of the revenue as the same is evident from the evidence placed on record demonstrated that the issue which the ld. PCIT is raising is not erroneous or prejudicial to the interest of the revenue and thus the same is lacking the twin condition for the revisionary powers under Section 263.
26. As regards the allegation that the assessee has undervalued its WIP and there is high variance in stock in trade to turnover ratio. The ld.
AR of the assessee submitted that issue which the PCIT is raising was not part of the reasons of the scrutiny under CASS as per notice issued u/s 143(2) of the Act dated 23.09.2019. Even the show cause notice issued by the ld. PCIT is not for verification of valuation of stock, therefore, Ld. PCIT has erred in exercising its power u/s 263 of the Act on the issues which were not part of the original scrutiny assessment.
The ld. AR of the assessee submitted that the Ld. PCIT was not justified in exercising the jurisdiction beyond the scope of issue u/s 143(2) of the Act on which the Ld. AO itself had no jurisdiction. In this context, ld. AR relied upon the judgment in the case of PCIT v. Shark Mines and Minerals (P.) Ltd. [2023] 151 taxmann.com 71 (Orissa), CIT v. Usha I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 118 Martin Ventures Ltd. [2023] 150 taxmann.com 491 (Calcutta) and BijniDooars Tea Co. Ltd. v. PCIT [2023] 155 taxmann.com 584 (Kolkata
- Trib.). Even on merits the ld. AR of the assessee submitted that Ld. PCIT has wrongly derived the value of WIP (Semi-finished Tabacco) @ Rs. 10.52 per KG only which is completely based on assumption and presumption and baseless. The value of WIP as per records of Assessee is Rs. 32.72 per KG, therefore, the finding of Ld. PCIT is inappropriate and incorrect. Moreover, the reasons for variance in the stock in trade to turnover ratio is concerned, it is submitted that that goods of assessee are excisable goods and as evident from the audited profit and loss account of assessee (Page no. 104 of PB) that Rs. 257.27 crores excise duty paid in FY 2016-17 and similarly in FY 2017-18, Rs. 63.78 crores of excise duty paid by the assessee which was due to introduction of GST Act in July 2017. Earlier, the excise duty paid by the assessee was forming part of cost of Finished Goods/WIP/Raw material however, in year under consideration, due to Introduction new indirect taxation regime by introducing the Goods and Service Tax Act, the excise duty paid reduced to Rs. 63.78 crores from Rs. 257.27 crores. Thus, there is reasonable basis and justification for change in stock in trade to turnover ratio, which aspect has not been appreciated by Ld. PCIT. On this issue before the ld. DR did not demonstrate as to how the explanation I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 119 furnished by the assessee by way of written submission is not acceptable and how if affect the order of the ld. AO as to the same be called as erroneous or prejudicial to the interest of the revenue. Since, there is no contrary arguments we find that the explanation granted by the assessee has force and on this issue the order of the ld. AO is neither erroneous nor prejudicial to the interest of the revenue and therefore, in the absence of any error and considering the judicial precedent cited by the ld. AR of the assessee where in the Orissa High court held that "It is not open to Commissioner while exercising power under section 263 to find fault with assessment order on ground of its being erronesous on an issue not covered by 'limited scrutiny' when Assessing Officer could not have possibly examined such issue". Respectfully following that finding of the High Court we are of the considered view that the issue which the PCIT raised was not part of the proceeding before the ld. AO and even though the ld. AR of the assessee demonstrated the explanation as to why on this issue order is not erroneous has not been challenged by the ld. DR by pointing out any defect in the explanation furnished by the assessee.
27. Based on the discussion so recorded on the issue of fact the bench noted that every inadequacy of the enquiry conducted by an AO as against the no enquiry cannot form a basis for setting a side an I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 120 assessment order which has been passed by the NeFAC after raising the detailed enquiry on the issue flagged for scrutiny. In the instance case as discussed herein above on all of the issue either the ld. AO has raised the issue and taken a plausible view or the ld. AR of the assessee placed on record relevant material so as to establish that on that issue the order is not erroneous and that of the matter has not been challenged by the ld. DR. The bench also noted that in some of the issue even on the ld. PCIT noted that the issue is primafacie tallied but requires the verification by the ld. AO. Thus, when based on the submission and discussion so recorded at is evident that on all of the aspect of the matter either the inquiry has been made or considering the submission of the assessee the same is not prejudicial to the interest of the revenue the order passed by the ld. AO cannot be held prejudicial to the interest of the revenue as the twin condition laid down under the Act fails as order of the ld. AO is neither erroneous on facts nor prejudicial to the interest of the revenue. As it is clear that the assessee has offered explanation with regard to all the issue that has been raised in the order of the ld. PCIT, even the ld. AO where the issue raised has accepted the explanation of the assessee. The PCIT on the other hand, without making verifying the contention chose to cancel the assessment order with a direction to pass a fresh assessment order for verification. In our I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 121 opinion, the PCIT had to reach a conclusion that in the fact situation obtaining in the instant case, that the assessment order was erroneous by conducting an enquiry before passing an order under Section 263 of the Act. Therefore, the order passed by the ld. PCIT dated 24.03.2023 cannot be sustained in law merely because the original assessment order does not exactly advert to the issue which the ld. PCIT is seeing.
Moreover, we note that all the issue that has been discussed on which the ld. AO took a possible view in the matter or the issue raised were not part of the subject matter and even though the ld. AR of the assessee demonstrated the same are not prejudicial to the interest of the revenue.
Hence, the PCIT could not have exercised the powers conferred upon her u/s. 263 of the Act only on the reasons that she had a different view or perspective in the matter. The principle of law enunciated by the Supreme Court in Malabar Industrial Co. Ltd. has set up a standard concerning the width and amplitude of power vested for exercising revisionary jurisdiction under Section 263 of the Act. While exercising power under the said provision, the concerned officer must be satisfied that the twin conditions provided therein stand fulfilled, i.e., the order passed by the AO, which is sought to be revised, is erroneous and is also prejudicial to the interest of the revenue. In other words, if one of the two conditions is not satisfied, the revisionary power under the said I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 122 provision cannot be invoked. One cannot quibble with the principle of law in the said case. We have also gone through the written submission filed by the ld. DR which discussed the various case laws supporting the action of the PCIT and on facts of the case there is no counter submission and thus, the decision cited has no similar facts the same are not applicable to the facts of the case.
28. Based on the discussion so recorded we are of the considered view that the proceeding-initiated u/s. 263 fails on the twin condition and even the ld. PCIT in some of the issue noted that the issue need only verification / examination and there is no independent view of the ld.
PCIT even on merits and on the other issue the ld. AR of the assessee demonstrated the issue was raised the ld. AO taken a plausible view and the issue which were not part of the proceeding before the ld. AO, though raised by the PCIT has been portrayed that the same is not prejudicial to the interest of the revenue and on that aspect even the ld.
DR did not counter the explanation furnished by the assessee. As regards the issue of disallowance of interest as per section 14A of the Act main thrust given on the CBDT circular which was considered as not binding and therefore, the bench is of the considered view that there must be some finality to the issue which has already been considered or I.T.A. No. 188/Jodh/2023 Assessment Year: 2018-19 123 decided and we get strength of this view from the decision of the Hon'ble apex court in case of Parashuram Pottery Works Co. Ltd Vs ITO [ 1977] 106 ITR 1 at page 10 "At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity".
29. Ergo, we quash the order passed by the PCIT, Udaipur.
30. In the result, the appeal of the assessee is allowed.
Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board.
Sd/- Sd/-
(Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai)
Judicial Member Accountant Member
Ganesh Kumar, PS
Copy of the order forwarded to:
(1)The Appellant
(2) The Respondent
(3) The CIT
(4) The CIT (Appeals)
I.T.A. No. 188/Jodh/2023
Assessment Year: 2018-19 124
(5) The DR, I.T.A.T.
True Copy
By order
Date Initial
1. Draft dictated on Sr.PS/PS
2. Draft placed before author Sr.PS/PS
3. Draft proposed & placed JM/AM
before the Second Member
4. Draft discussed/approved by JM/AM
Second Member
5. Approved Draft comes to Sr.PS/PS
the Sr. P.S./P.S.
6. Kept for pronouncement on Sr.PS/PS
7. File sent to the Bench Clerk Sr.PS/PS
8. Date on which file goes to
the Head Clerk
9. Date on which file goes to
the AR
10. Date of dispatch of Order