POLYGEL INDUSTRIES PRIVATE LIMITED ,MUMBAI vs. PRINCIPLE COMMISSIONER OF INCOME TAX, MUMBAI

This appeal is filed by the assessee against the order of Learned Principal Commissioner of Income Tax, Mumbai -2 [hereinafter in short “Ld. Pr.CIT)”] dated 29.03.2023 for the A.Y.2018-19 passed u/s. 263 of the Income-tax Act, 1961 (in short “Act”). (A.Y. 2018-19) Polygel Industries Pvt. Ltd., 2. Brief facts of the case are, assessee is engaged in the business of manufacturing of adhesive, sealant and construction chemical etc. The Return of Income for the A.Y. 2018-19 was filed declaring total income of ₹.Nil. The return was processed u/s.143(1) of the Act and income was assessed at ₹.Nil. Subsequently, the case was selected for scrutiny under Faceless E-Assessment Scheme, 2019 for the reasons discussed in Assessment Order. Accordingly, notices u/s. 143(2) and 142(1) of the Act were issued and in response Ld. AR of the assessee submitted relevant information as called for. The assessment u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act was passed on 11.02.2021 assessing total income at ₹.50,67,670/- by making addition of ₹.55,301/- on account of disallowance u/s 14A of the Act, disallowance of ₹.4,37,499/- u/s 43B of the Act and disallowance of ₹.45,74,868/- u/s 36(1)(vii) of the Act.

Ld. Pr.CIT, Mumbai – 2 while verifying the assessment records observed certain errors in Assessment Order rendering the same as erroneous in so far as it is prejudicial to the interest of the Revenue. Accordingly, he issued notice u/s. 263 of the Act dated 21.03.2023. the contents of the notice are as under: -

On perusal of the case records, it is noticed that in the computation sheet the book profit was shown at Rs.68,53,323/-, however the correct book profit after incorporating the addition/disallowance of the assessment order is Rs. 1,80,91,596/- 3. It is prima facie noticed that the above issue has not been inquired/verified during the course of assessment proceedings and the consequent assessment order is erroneous in so far as it is prejudicial to the interest of the revenue."

In response, assessee vide letter dated 24.03.2023 submitted its submissions. After considering the submissions of the assessee, Ld.Pr.CIT observed that assessee has contended that computation u/s 115JB is correctly made and there is no error in it. The assessee also expressed surprise on the figure of Book Profits at ₹.1,80,91,596/- mentioned for the above said notice as the same is not appearing in the profit and loss account of the assessee company.

In contradiction to the above view of the assessee, Ld. Pr.CIT vide letter dated 28.03.2023 explained that the figure of ₹.1,80,91,596/- is, in fact, the figure of book profits of the Consolidated Financial Statements of Polygel Industries Pvt. Ltd., and the amount which the assessee was speaking of, pertains to the Standalone Financial Statements of Polygel Industries Pvt. Ltd. Thus, the assessee has contradicted themselves on Page No. 3 (A.Y. 2018-19) Polygel Industries Pvt. Ltd., the impugned issue. He observed that there is no clarity and explicit statement on the issue.

Ld. Pr.CIT observed that the assessee has submitted two different versions as appearing in their submissions that the assessee is not categorical on its submission. The figure of Book Profits has been taken by the department from the copy of the Profit and Loss Account uploaded in the system by the assessee. Therefore, the contention of the assessee is not found acceptable. Accordingly, he held that assessment order dated 11.02.2021 is erroneous in so far as it is prejudicial to the interest of the revenue. Accordingly, he observed that Assessing Officer has failed in examining the impugned issue by way of enquiries/verification that were required in this case, has rendered the assessment order erroneous in so far as, it is a prejudicial to the interests of the revenue. Accordingly, he directed the Assessing Officer to conduct the requisite enquiries along the lines discussed above and frame the Assessment Order denovo.

Aggrieved with the above order assessee is in appeal before us raising following grounds in its appeal: -

At the time of hearing, Ld. AR brought to our notice relevant facts on record and findings of the Ld. Pr.CIT. In this regard, he submitted that the book profit adopted by the Assessing Officer is proper book profit adopted from the Profit and Loss Account of the company declared as per the financial statements prepared under Companies Act. He submitted that Ld. Pr.CIT has taken balance sheet and Profit and Loss Account from the consolidated Profit and Loss Account, in this regard, he brought to our notice Page No. 70 of the Paper Book wherein assessee has submitted standalone balance sheet of the company wherein assessee has declared profit of ₹.68,53,323/- for the year under consideration.

Ld. AR submitted that Ld. Pr.CIT has considered the consolidated profit declared by the assessee which is not proper and he has to adopt the profit declared by the assessee in its standalone Profit and Loss Account as per the provisions of section 115JB of the Act. He prayed that the profit declared by the assessee in its standalone balance sheet which is adopted by the Assessing Officer is just and proper. Therefore, there is no mistake apparent on record and also there is no prejudicial to the interest of the Revenue.

On the other hand, Ld. DR relied on the order passed by the Ld.Pr.CIT u/s. 263 of the Act.

On careful perusal of the submissions made by both the parties, we observe that the assessee has declared its book profit in its standalone Profit and Loss Account which was offered for taxation under Income-tax Act for the purpose of computation of income under normal provisions as well as to determine the book profits u/s. 115JB of the Act. As per the requirement under Companies Act, assessee has to submit the consolidated financial statements of the assessee company where assessee has stepdown subsidiaries and associate companies. Accordingly, assessee has submitted along with its financial statements, a consolidated financial statements of the group company being a holding company of its subsidiaries and its associates.

In the result, appeal filed by the assessee is allowed.