VISYHNU DUTT GRG,SHIKOHABAD vs. PR. CIT., AGRA

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ITA 22/AGR/2021Status: DisposedITAT Agra11 November 2021AY 2015-1610 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the PCIT had failed to establish that the AO's order was erroneous and prejudicial to the interest of the revenue. The Tribunal found that the AO had made verifications regarding sundry creditors and made an ad-hoc addition based on unverifiable addresses, which was a valid exercise of his discretion. The Tribunal also noted that the PCIT's revision order was passed beyond the period of limitation.

What were the facts?

The assessee filed an appeal against an order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act. The PCIT had revised an assessment order passed by the Assessing Officer (AO) which had made an ad-hoc addition of Rs. 5,00,000/-. The assessee contended that the AO had duly examined the books of account and made necessary inquiries before passing the original assessment order.

What were the issues?

Whether the PCIT's order under Section 263 was justified as the AO's assessment order was erroneous and prejudicial to the revenue's interest, and whether the revision order was passed within the prescribed limitation period.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(3),Section 142(1),Section 145(3)

AI-generated summary — verify with the full judgment below

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH: AGRA BEFORE SHRI LALIET KUMAR,JUDICIAL MEMBER AND DR: MITHA LAL MEENA, ACCOUNTANT MEMBER LLANo 22/ACR/2O21 (ASSESSMENT YEAR: 2045-162 Sh. Vishnu Dutt Garg Mehra Colony, Shikohabad, Firozabad U.P. 283135 PAN: AJQPG9OOZN (Assessee) Vs. PCIT Sanjay Place Agra U.P. (Revenue) Assessee by Sh. Rajendra Sharma, Adv. Revenue by Smt: Vandana Verma, CIT DR Date 0f Hearing Date of Pronouncement 25.11.2021 00.1.2021 ORDER Per_Benchi The was filed by the assessee feeling aggrieved by the order present appeal passed by the prineipal Commissioner of Income Tax under section 263 of the Act for the assessment year 2015 2016,on the following grounds: by PCIT Agra Dated 21.03.202 / passed U/s 263 is passed without 13 That order passed appreciating the provision of sec 263 read with section 14368) of Income Tax Act; The order not erroneous neither prejudieial to the interest of passed by AO dated 08.05.2017 is revenue. Order passed by PCIT U/s 263 is liable to be set a side: That while invoking the provisions of sec 263 of Income Tax Act PCIT has not 2 _ AO while passing the order Uls 14303) has examine the books of appreciated that the balance sheet with other relative account; vouchers and also required details of the 2 LLT.A No. 22/AGR/2021 (ASSESSMENT YEAR: 2015-16) documents, After that has pointed out the discrepancies therein; taking into consideration all the order U/s 143(3) by making the adhoc addition for Rs. 5,00,000/- these has passed application of his mind has passed the order Uls 14303) which shows that the AO, after which is not erroneous within the meaning of sec 263 of Income Tax Act order passed Uls 263 is bad in law liable to be set a side: 3 That prior to passing of the order Uls 14303). the AO has issued the notice Uls 142(1) and 143(2) of Income Tax Act; details, explanations required were duly furnished along with books of account with other details; duly examine: taking into consideration all U/s 143(3) making the adhoc addition for Rs_ the details produced and Filed, order which proved the AO_ after application of his mine, 5,00,000/ - has been passed examination of documents and records as asked and duly filed has passed the order Uls 14303) which can not be said to be erroneous as per definition of erroneous explanation 2 of sec 263, The order passed by PCIT is bad in law liable to be cancelled: That while passing the order Uls 263 of Income Tax Act The PCIT has not pointed 4 _ by AO U/s 143(3) is erroneous either in law or in facts the out that how the order passed not erroneous neither prejudicial the interest of order passed by the AO Uls 143(3) is revenue order passed by PCIT without acquiring of proper jurisdiction is bad in law liable t0 be quashed. 5 _ That while passing the order Uls 263 The PCIT he has not pointed out that whether without making required enquiries or verification, In the the order passed by AO is passed the AO has allowed any relief without making any enquiry; The order is passed order passed which is not in accordance with the order direction issued by the board Uls 119 or order has been passed not in accordance with the decisions of jurisdictional High Court or of Honble specific finding in the order Uls 263, The order passed Supreme Court, In absence of such Uls 14303) Dated 08.05.2017 is nor erroneous as per explanation 2 of the Sec by the AO Uls 263 is bad in law, against the 263 of Income Tax Act. The order passed by PCIT provisions of sec 263, liable to be cancelled: the AO Uls 143(3) dated 08.05.2017 is passed 6 _ That the order passed by due verification and making enquiries and passed as per provisions of sec 143(3) after vested with him in accordance with law same can not be said to be erroneous hivin Pbe detication exp. 2 tO the sec 263 of Income Tax Act order passed by PCIT Uls with in the 263 dated 21.03.202/ ignoring the various decisions are being referred by appellant is bad in law liable to be cancelled. 1 At the outset the Ld.AR for the assessee had submitted that the order passed by the lower authority was required to be cancelled as the 3 ET.A No. 22/AGR/2021 (ASSESSMENT YEAR: 2015-16) the original assessment order had assessing officer while passing under limited scrutiny and for that examined the issue referred to him attention to the following paragraph of the purposes he had drawn our assessment order the order passed by the Ld. AR had submitted that 2. That the after due deliberation and considering the assessing officer was passed also submitted that before passing the totality of circumstances Here Ofc had considered whether the trade creditors order, the Ld. assessing had also considered that in case the entire were verifiable or not and he verifiable then the corresponding profit percentage can creditors are not be attributed to the amount: submitted that the gross profit percentage of the 3 _ The Ld.AR had also assessment years and for that is matching with the previous assessee that out of the total turnover; the deductible purposes he had submitted profit is calibrated, the same is required to be reduced gross amounts are of the assessee for the previous years. in the line of the gross profit submitted that for the purposes of invoking the 4 _ The Ld.AR had are required to be the twin conditions jurisdiction under section 263 namely that the order passed by the fulfilled by the lower authorities and it should be prejudicial to the interest assessing officer Was erroneous LT.A No: 22/AGR/2021 (ASSESSMENT YEAR: 2015-16) in the absence of one of the It was submitted that of the revenue: under section 263 cannot be invoked by the conditions, the jurisdiction lower authorities. DR for the revenue had vehemently relied upon the order 5 _ Per contra Ld. DR for the revenue had drawn our passed by the lower authority . 8 of the order passed by the lower authority, it was attention to paragraph mentioned in the order as under the assessee have been carefully The earlier replies submitted by considered vis-a-vis the material available on record It is seen that the case in selected under scrutiny for the reasons including "large increase was "mismatch in sales turnover reported in audit report and sundry creditors' had observed in para 2 of the assessment order ITR" It is seen that the AO that "most of the purchases were made from unregistered vendors and that mostly without TINNAT number: Books of account the purchase bills were with produced were computer generated and could not be fully supported like those of labour expenses, the vouchers in respect of expenses miscellaneous expenses and construction conveyance , staff welfare , It had also been observed material such as gitti, dust, mitti, stone blast etc. number of payments have in para 3 of the assessment order that "large The assessee has not been able to produce site-wise been made in cash: "However; no independent verification of sundry details of purchases made. 2,97,09,506/- was made by the AO. It is also seen creditors shown at Rs. 27.03.2017 , has asked the AO vide order sheet entry dated that the of accounts should not be to show cause as to why books assessee U/s145(3) of IT Act but executive portion of the assessment orde rejected provisiosn of section 145(3). Thus the assesse AO has not invoked the 19.03.2020 that "When AO has invoked the assertion of his reply dated LT. Act and books of accounts are provisions of section 145(3) of the AO cannot go to check the entries of balance rejected, in that case the no addition could be made sheet particularly of sundry creditors; therefore , in the balance sheet even if they found in respect of the creditors appearing to be unexplained" has no force. 5 LT.A No. 22/AGR/2021 (ASSESSMENT YEAR: 2015-16) 6 _ The assessing Officer has failed to make any enquiry for the verification of the creditors and therefore the order passed by the assessing officer is erroneous. She had also submitted that there was increase of amount in respect t0 sundry creditor in comparison to the previous years and therefore the verilication Of the sundry creditors by the AO was essential In the absence of no verification by the assessing officer; the order passed by the assessing officer had became erroneous in view of the Explanation 2 to Section 263 of the Act: 7 The Ld. DR, had further submitted that the order was passed within the period of limitation as provided by the Act: 8_ We have considered the rival contention of the parties and perused the material available 0n record, including the judgments cited at bar during hearing by both the parties. 9_ Before we deal with the legal submissions made before US, we should record the date and event in the present case which will show whether the order passed by the lower authorities was within the period of limitation or not 6 LT.A No. 22/AGR/2021 (ASSESSMENT YEAR: 2015-16) 8.5.2017 The assessment order was passed by the Assessing Officer i.e. Assistant Commissioner 0f' Income Tax; Cirele-2(2)(1), Firozabad u/s 143(3). 04.05.2018 First notice under section 263 was issued by the PCIT 7.9.2018 Another notice dated 07.09.2018 was issued to the assessee fixing the date of hearing on 24.09.2018. 31.10.2019 Another notice dated 31.10.2019 was issued by the then PCIT-2, Agra on account of change of officer and the case was fixed for hearing on 12.11.2019 17.3.2020 Thereafter, another notice dated 17.03.2020 was issued to the. assessee fixing the date of hearing on 19.03.2020 4.3.2021 Due to change of jurisdiction; a notice dated 04.03.2021 was issued to the assessee by the officer of the revenue affording final opportunity of being heard and the case was fixed for 12.03.2021 . 21.3.2021 Impugned order was passed by the PCIT.

10.

From the reading of the above chart; it is abundantly clear that the order was passed by the assessing officer on &th May 2017 whereas the L.T.A No. 22/AGR/2021 (ASSESSMENT YEAR: 2015-16) impugned order under section 263 was passed by the PCIT on 21st March 2021 . A dmittedly the limitation provided by subsection 2 of section 263 for passing the order under section 263 is two years from the date of passing of the order by the assessing oflicer: No order extended the. Of limitation was brought to our notice issued by CBDT; prior to 31 March 2020, was brought to our notice by the revenue; however the Ld. AR had fairly submitted that the limitation for passing of the order has been extended by the board. In our view this issue is required to be examined in the appropriate case by the bench; as in our understanding the the extension of limitation period, by the board should be made when the limitation was available t0 the board to pass the order and the extension of limitation cannot take place after the lapse of the limitation. Having said $0 now we shall examine the merits of the case.

11.

In the present case the assessing officer in the assessment order recorded under: "3_ The reply given by the assessee was duly considered. Various case laws quoted by assessee were also perused. During AY 2015-16 assessee has shown a net profit rate of 6%. However; a large number of purchases are made by the assessee from unregistered vendors. Large number 0f payments have been made in case with amounts of value below 20.000/-. Assessee_has_not been_able_to_produce site_wise_details of purchases_made There 8 LT.A No. 22/AGR/2021 (ASSESSMENT YEAR: 2015-16) are number_of_creditors_where address_is_inverifiable_In the light of facts and circumstances involved in the case, an addition of Rs. 5,00,000/- is being made to the total returned income in order to cover all possible leakage of revenue: 12. From the perusal of the finding recorded by the assessing officer it is abundantly clear that the assessing officer had made verification of the sundry creditors and thereafter had recorded the finding that There_are number of_creditors_where address is_unverifiable" This clearly shows that verification of facts were made by the assessing officer during the assessment proceedings and thereafter the assessing officer came to the conclusion that the addresses of the creditors are unverifiable.

13.

In considered opinion once the verifications were made by the assessing officer; then the contention of" the Ld. DR of the revenue; cannot be accepted that no verification were made by the during the assessment proceedings. In our considered opinion once the assessing officer came to the conclusion that the addresses of the creditors are unverifiable then the assessing officer was required to estimate the income of the assessee based on past history or Other cogent basis.

14.

In the present case on the facts of the unverifiable addresses, the assessing officer had made the ad hoe addition of ? 5 lakhs to the income of the assessee.

15.

The Ld. PCIT in the order in para 3 had mentioned as under 9 ET.A No. 22/AGR/2021 (ASSESSMENT YEAR: 2015-16) was made in the "3 Adhoc addition of Rs.5,00,000/ - possible leakage of revenue on assessment order to cover unregistered vendors and cash account of 'purchases from addhoc addition brings net profit_percent_to expenses. The but keeping in view the last year net 6.52% of the gross sales receipts, addition should profit percentage_of Z % on gross to bring the net profit margin to 7 % and thus have made so as profit in line with the past history . bringing the current year the gross contract receipt of the assessee during the 16. In the present case Out of the said total deduction from the F.Y. 2014-15 is Rs. 12,32,86,575/- of the assessee company is Rs. 59,47,173/-out of which above contract receipts of vat tax; Rs. 8,48,054/-on account of additional tax 49,25,917/- is on account Rs.1,73,204/- is on account of royalty is required to be reduced, thus (cess) and ,402/-. The income calculated by the AO making the net receipt as Rsl1,73,39, was Rs. 80,49,390/- Thus, the GP of the assessee comes to 6.859%. the Principal Commissioner of income tax has 17. In the first show case notice, Officer should have taken 7% a5 net issued the notice alleging that assessing therefore the notice under profit of the assessee in should of 6.52% and section 263 was issued by the officer. once the due verification was made by the 18. In our considered opinion, is clear from the paragraph 3 of the assessment order, then assessing officer as required to be estimated by the assessing officer. We do not the income was 10 No. 22/AGR/2021 LT.A YEAR: 2015-16) (ASSESSMENT whereby the gross assessing officer made by the in the estimation net profit as find any error 6.859% whereas the calculation came to assessee on of the once two views are profit In our view have been 7%. PCIT should by the by the claimed then the view taken assessee, the income of the estimate opinion that possible tO are also of the faulted with: Further we officer cannot be .859% as against assessing GP rate at 6 while computing the is no loss to the revenue essential there with one of the neither complied Thus, the PCIT has of 7%. to the interest NP rate was prejudicial Order passed Assessment conditions that how the was without any by the PCIT the order passed In our view, We quash the of the revenue? to be quashed. same iS required and accordingly the direction is allowed. of the assessee appeal same; Accordinglv; the &d _ (LALIELKUMAR) Rd _ MEMBER JJUDICIAL AL MEENA) (Dr. MTTA VEMBSER ACCOUNT (VT Cop /o Appellant 2 Respondent 3 CIT CHT(Appeals) 5 Dk: VA/Bv Order

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