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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SMT. BEENA PILLAI & MS. PADMAVATHY S
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against order dated 15.07.2022 passed by Ld.CIT(A)-11, Bangalore for A.Y. 2018-19 on following grounds of appeal: “1. The order passed by the learned Commissioner of Income Tax (Appeals) — 11, Bengaluru ("CIT(A)") under section 250 of the Income Tax Act, 1961 ("the Act") insofar as it is against the Appellant, is opposed to law, weight of evidence, natural justice and probabilities on the facts and circumstances of the Appellant's case.
2. The Appellant denies himself liable to be assessed at Rs. 34,50,31,775/- as against the returned income of Rs. 5,01,44,290/- on the facts and circumstances of the case.
3. Legal Grounds: a. The learned CIT(A) erred in law in passing the impugned order ex parte without affording sufficient opportunity of hearing and in violation of principles of natural justice on the facts and circumstances of the case. b. The Authorities below failed to appreciate that the additions made in the assessment order passed under section 143(3) of the Act are the mistakes apparent on record in terms of section 154 of the Act on the facts and circumstances of the case. c. The learned CIT(A) erred in law in holding that the additions made in the original assessment order passed under section 143(3) of the Act cannot be contested in the appeal filed against the order passed under section 154 of the Act wherein the earlier additions were reiterated and consequently, passed a perverse order on the facts and circumstances of the case. d. The learned CIT(A) failed to appreciate that since the issues in both the orders passed under section 143(3) and 154 of the Act are same, the former order merges with the latter and accordingly, the learned CIT(A) ought to have adjudicated the appeal on merits under the facts and circumstances of the case.
4. Grounds on Merits: a. The learned Assessing Officer erred in law in making an addition of Rs. 29,39,56,585/- being uncertified bills on account of deficiency in works/return of goods and the learned CIT(A) erred in law in upholding the same on the facts and circumstances of the case. b. The authorities below failed to appreciate the fact that the said uncertified bills on account of deficiency in works/return of goods are included in work-in-progress and treated as income once the work is certified by the authorities and consequently, the said accounting treatment is tax neutral and warranted no addition on the facts and circumstances of the case. c. Without prejudice, the authorities below erred in law in not allowing the corresponding expenditure incurred in respect of the uncertified bills which is contrary to the matching principles and consequently the addition made is bad in law on the facts and circumstances of the case. d. The authorities below erred in law in mechanically adopting the adjusted income determined under section Page 3 of 143(1) of the Act as the starting point for arriving at the assessed income under section 143(3) of the Act on the facts and circumstances of the case. e. The authorities below ought to have adopted the returned income as the starting point for arriving at the assessed income under section 143(3) of the Act on the facts and circumstances of the case. f. The authorities below failed to appreciate that the adjustments made in intimation under section 143(1) of the Act cannot be directly adopted to make an indirect addition without giving a finding in the order passed under section 143(3) of the Act on the facts and circumstances of the case. g. The authorities below failed to appreciate that the adjustment of Rs. 9,30,900/- being delayed remittance of employees' contribution towards ESI and PF made under section 143(1) of the Act was unsustainable and could not have been adopted as such adjustment was beyond the scope of section 143(1) of the Act on the facts and circumstances of the case. h. The authorities below erred in law in not allowing deduction of Rs.9,30,900/- being delayed remittance of employees' contribution towards ESI and PF under section 37 of the Act on the facts and circumstances of the case.
5. The Appellant denies the liability to pay interest under section 234A and 234B of the Act, in view of the fact that there is no liability to additional tax as determined by the learned Assessing Officer on the facts and circumstances of the case.
6. The Appellant craves to add, alter, modify, substitute, change and delete any or all of the grounds and to file a paper book at the time of hearing the appeal.
7. In the view of the above and other grounds that may be urged at the time of the hearing of appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.”
The Ld.AR at the outset submitted that the present appeal has been filed by assessee with a delay of 142 days. Assessee has filed an application for condonation of delay dated 21.03.2023 along with an affidavit of the Managing Director. It is stated Page 4 of 15.07.2022 which was not perused by the staff of the assessee and subsequently when it came to the notice of the present counsel while verifying the status of other matters in the month of February, that the necessary steps were taken to file the present appeal. The Ld.AR submitted that the notices issued by the Ld.CIT(A) also went unnoticed by the assessee thereby resulting into non-appearance before the first appellate authority. He submitted that due opportunity may be granted to the assessee to furnish all relevant details before the Ld.CIT(A) in respect of the issues contested. He accordingly prayed for the delay to be condoned. 2.1 On the contrary, the Ld.DR vehemently opposed the condonation petition filed by the assessee. 2.2 We have perused the submissions advanced and note that substantial justice has not been rendered to the assessee in the present facts of the case. 2.3 He referred to the decision of Hon’ble Supreme Court in case of Collector Land Acquisition Vs. Mst. Katiji & Ors., reported in (1987) 167 ITR 471. 2.4 When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right for injustice being done because of non deliberate delay. We have to prefer substantial justice rather than technicality in deciding the issue. As observed by Hon’ble Supreme Court in case of Collector Land Acquisition Vs. Mst. Katiji & Ors.(supra), if the application of the assessee for condoning the Page 5 of Tribunal is capable of removing injustice and to do justice. 2.5 In the interest of justice and respectfully following the principle laid down in Latin Maxim Audi Alteram partem, whereby every person has to be granted an opportunity of being heard. 2.6 Respectfully following the above view, we condone the delay in filing the present appeal. Accordingly, we condone the delay of 142 days in filing the present appeal before this Tribunal.
Brief facts of the case are as under: 3.1 The assessee is a Private Limited Company engaged in the business of works contracts in housing projects and other infrastructure development rendered mainly to Bangalore Development Authority and Slum Development Board etc., The assessee has been following mercantile system of accounting and gets its accounts audited under section 44AB. It had filed its return of income for the assessment year 2018-19 on 11.10.2018 declaring an income of Rs. 5,01,44,290/-.The return of income was initially processed u/s 143(1) on 13.11.2019. Later, the Assistant Commissioner of Income tax, Central Circle 2(4), Bengaluru (hereinafter referred to as the Assessing Officer, for short) took up the case for scrutiny. The Assessing Officer issued the notice u/s 143(2) and Notices u/s 142(1) on various dates, which have all been complied with. 3.2 The Ld.AO completed the assessment u/s 143(3) on 17.5.2021 determining the income at Rs.34,50,31,775/-.
Page 6 of The variation in the returned income and the assessed income is on account of the following: Sl.No. Particulars Amount Addition on account of uncertified bills to be treated A 29,39,56,585=00 as turnover on account of the alleged revenue recognition Addition on account of Employees’ contribution to Provident Fund and B 9,30,900=00 Employees State Insurance, paid within the due date for filing the return of income C TOTAL ADDITIONS MADE 29,48,87,485=00 3.3 Being aggrieved by order of assessment, the assessee moved an application under Section 154 of the Act on 2.9.2021, wherein it was brought to the notice of the Ld.AO that both the additions made in the assessment order are apparently unsustainable. The assessee was also aggrieved that credit for TDS & TCS was granted to the extent of Rs.1,98,29,039/-, as against the claimed credit amounting to Rs.3,32,60,165/-, appearing in Form 26AS. 3.4 With regard to the first addition, it was pointed out that the uncertified bills deducted from the turnover in the statement of Profit and Loss relates to Credit notes issued by the- assessee on account of Contractees not allowing the measurements/quantification and value in the running bills submitted to them by the assessee as per the terms of the contract. It was brought to the notice of the assessing officer that the deductions made in the bills were in fact included in the subsequent bills issued to them in the same year or in the subsequent year. Further it was brought to the notice of the Assessing Officer of the fact that wherever uncertified bills amounts have not been included in the bills of the Page 7 of Contractees have not certified the correctness of the claim as at the end of the year and the same will be included in the turnover in the next financial year, subject to the acceptance by the Contractees as to the correctness of claim. Bills to bills and credit notes have been reconciled and presented to the Assessing officer. Ld.AR submitted that Ld.AO did not consider this fact and made additions amounting to Rs.29,39,56,585/- in the turnover. 3.5 With regard to the second addition, the Ld.AR submitted that Hon’ble Karnataka High Court has held that the contribution to the welfare funds is allowable as deduction, if the same is paid within the date for furnishing the return of income. These additions were mistakes apparent from records and needed to be deleted. 3.6 The Ld.AO vide his order 23.11.2021, has rejected both the claims, however gave credit for TDS & TCS to the extent of Rs.3,32,60,165/- in the order passed u/s 154.
Aggrieved by the order of Ld.AO passed u/s. 154 of the act, assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) decided the issue by observing as under: “4.0. The ground of appeal 4 relates to the action of the AO in rejecting the rectification application filed by the appellant. In brief, during assessment proceedings the AO made following addition/disallowance while computing the income of the appellant. a) Addition of Rs 23,39,56,585/- on account of certain revenue not recognized. b) Disallowance of Rs 9,30,900/- as employee's contribution to EPF/ESI not deposited on or before the specified date as made by the AO during processing under Page 8 of Section 143(1)(a) of the Act, was taken up by AO as such while computing the taxable income. 4.1 The appellant filed a rectification application before AO by contending that the addition/disallowance had wrongly been made and as such unsustainable. The appellant gave detailed reasoning for the same. However, the AO did not accept this argument of the appellant and rejected the said rectification application by holding that there wasn't any mistake apparent from record. 4.2 During appellate proceedings the appellant has made detailed submissions, which are available in the grounds of appeal
5 to 13 to this appeal. The same have duly been considered. In rectification the most important aspect which needs to be looked into is whether the rectification sought would fall within the scope of Section 154 or not. Scope of rectification is limited to correcting error of fact or error of law on the basis of material available on records. 4.4 Now on the issue of addition of Rs 23,39,56,585/- to the income of the appellant, it is noted that the AO has given a detailed reasoning for making such an addition. If the appellant considers that the AO is incorrect in doing so, the remedy lies in filing an appeal against the said assessment order. The provisions of Section 154 cannot be used to review an order already passed. Since there isn't any mistake apparent from record, the same could not have been rectified by the AO. 4.5 As regards the issue of disallowance of Rs 9,30,900/- relating to employee's contribution to EPF/ESI not deposited on or before the specified date, the adjustment was made by the AO during processing under Section 143(1)(a) of the Act. If the appellant was aggrieved by the same, it should have contested the said order passed by the AO. While passing order under Section 143(3) of the Act the AO has just adopted the income computed as per Section 143(1)(a) of the Act and there isn't any mistake in doing so. Since there isn't any mistake apparent from record, the same could not have been rectified by the AO. 4.6 Considering above the ground of appeal 4 is dismissed.”
5. Aggrieved by the order of Ld.CIT(A), assessee is in appeal before this Tribunal.
Page 9 of 5.1 We have perused the submissions advanced by the Ld.AR. We note that, the assessee filed appeal u/s. 154 of the act against the issues on merits, in respect of addition of Rs.23,39,56,585/- made by the Ld.AO under the assessment order passed u/s. 143(3) of the act. Assessee also raised the issue of disallowance of Rs.9,30,900/- , towards the employee contribution to EPF/ESI, that was not deposited on or before the specified date as made by the Ld.AO during the returns being processed u/s. 143(1)(a) of the act. 5.2 We note that the intimation u/s. 143(1)(a) was issued by the Ld.AO on 13.11.2019 and the assessment proceedings had already commenced by issuance of notice u/s. 143(2) on 22.09.2019. The Ld.AO while passing the assessment order u/s. 143(3) of the act, incorporated the disallowance, that was made in the intimation dated 13.11.2019. On a query being raised by the bench regarding status of appeal being preferred by the assessee against the assessment order passed u/s. 143(3) of the act dated 17.05.2021, the Ld.AR submitted that the appeal is pending before the Ld.CIT(A). 5.3 In our view, in the present appeal, the Ld.AR cannot argue on merits of the addition made in respect of the alleged revenue being added by the Ld.AO, as not recognised by the assessee. Since the same is not emanating from the order of CIT(A) against which the assessee is in appeal. The CIT(A) has not gone into merits and has held there is no mistake apparent on record u/s. 154 with respect to the impugned issue. From the perusal of facts in our considered view, the addition made cannot be considered as a mistake apparent on record and therefore we see no reason to interfere with the decision of the CIT(A) to this extent. 5.3.1 In sofar as the disallowance in respect of the alleged employees contribution to the EPF/ESI is concerned, it is a mistake Page 10 of Ld.AO incorporated the addition while passing the assessment order without considering or calling for the details during the assessment proceedings. Even otherwise when the assessee’s case was picked up for complete scrutiny, there was no need to issue an intimation u/s. 143(1)(a) of the act separately, disallowing the employees contribution towards ESI/PF deposited beyond the due date by the assessee. We therefore allow the present appeal only in respect of Ground no. 4(d). The assessee is granted liberty to raise the disallowance before the Ld.CIT(A) in the appeal that is pending for disposal before the first appellate authority against the assessment order dated 17.05.2021. In the result, the appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 30th March, 2023.