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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI N.K.CHOUDHRY, HON’BLE & SHRI D.S. SUNDER SINGH, HON’BLE
O R D E R
Per D.S.Sunder Singh, Accountant Member :
This appeal is filed by the assessee against the order of the Principal Commissioner of Income Tax (Pr.CIT), Guntur dated 22.03.2018 for the Assessment Year (A.Y.) 2013-14.
M/s Kallam Textiles Ltd., Guntur
All the grounds of appeal are against the order passed by the Pr.CIT, Guntur u/s 263 of the Income Tax Act, 1961 (in short ‘Act’). In this case, the assessee filed the return of income admitting total income of Rs.4,10,18,260/- after claiming deduction u/s 80IA of the Act for a sum of Rs.31,56,722/- and the assessment was completed on total income of Rs.4,16,08,350/-. In the case of assessment u/s 115JB as per MAT provisions, the book profit declared by the assessee at Rs.11,84,92,012/- was accepted by the Assessing Officer (AO) and the assessment was completed by an order dated 21.03.2016. The Pr.CIT has taken up the case for revision and found that during the Financial Year 2012-13, relevant to the A.Y.2013-14, the assessee had reduced the sum of Rs.3,18,81,955/- from the profits before the taxes related to the provision for fuel surcharge adjustment shown under ‘unascertained liabilities’ and accordingly admitted the book profit of Rs.11,84,92,012/- u/s 115JB against the profit before tax arrived at by the assessee at Rs.15,03,73,967/-. The assessee has taken the sum of Rs.3,18,81,955/- directly into balance sheet without routing the same through the profit and loss account, therefore, the Pr.CIT viewed that the sum of Rs.3,18,81,955/- ought to have been brought to tax under the MAT provisions had escaped the assessment, hence, issued the M/s Kallam Textiles Ltd., Guntur show cause notice calling for the explanation of the assessee as to why the same should not be brought to tax under MAT provisions. In response to which the assessee filed reply, objecting to tax the same under MAT, stating that the company has prepared its financial statements in the Form specified in Schedule-III which requires the company to show transactions which are in the nature of exceptional items separately in P&L account. Thus, argued that the sum of Rs.3,18,81,955/- constitutes exceptional item as specified in Schedule III of the Companies Act, hence, the same was directly taken to Balance Sheet without routing through P&L account. Therefore, argued that there was no mistake in the Profit & Loss account and the assessee has rightly reduced the fuel surcharge adjustments, since, the expenditure was accrued and payable at later date as per the agreements reached between the assessee and APSPDCL. The assessee further argued that since, the expenditure was crystalised in the year under consideration, though it is payable in the subsequent date, the expenditure cannot be postponed as per the system of accounting followed by the assessee. Therefore, argued that the expenditure is allowable as per the normal provisions and also does not fall under the MAT provisions, hence, requested to drop the 263 proceedings. However, the Ld.Pr.CIT was not M/s Kallam Textiles Ltd., Guntur satisfied with the reply and found that as per the information available on record, the fuel surcharge adjustments were demanded by APSPDCL basing on Andhra Pradesh Electricity Regulatory Commission (APERC) order dated 20.09.2012, which are paid from the F.Y.2013-14, relevant to the A.Y.2014-15, which was not examined by the AO, therefore, the Pr.CIT held that the order passed by the AO was erroneous and prejudicial to the interest of the revenue, accordingly cancelled the assessment made u/s 143(3) and directed the AO to bring the entire amount of Rs.3,18,81,995/- to tax net for the A.Y.2013-14.
Against the order of the Ld.Pr.CIT, the assessee filed appeal before this Tribunal. During the appeal hearing, the Ld.AR submitted that the assessee has filed balance sheet, computation of income and all financial statements before the AO, thus viewed that the AO has verified the issue of fuel surcharge and completed the assessment, hence, argued that there is no error in the order of the AO which requires revision u/s 263 of the Act. The assessee further submitted that the fuel surcharge adjustment is ascertained liability, which the APSPDCL permitted the assessee to make payments in instalments in the subsequent year as approved by the APERC order dated 20.09.2012. He emphasized that the liability is related to the M/s Kallam Textiles Ltd., Guntur financial year under consideration which was allowed to repay in the subsequent year, hence, the liability is ascertained and the expenditure relatable to the assessment year under consideration, therefore, argued that the AO has rightly allowed the deduction and there is no case for revision u/s 263. The Ld.AR further submitted that in subsequent years, the assessee directly paid to the APSPDCL from the outstanding liabilities account, thus, there is no double deduction also. The assessee has taken our attention to page No.24 of the paper book, to the letter addressed to the Principal Commissioner of Income Tax in 263 proceedings, wherein, he submitted that the Profit and Loss account and Balance Sheet was compiled as required under Schedule-III of the Companies Act. Therefore, submitted that there is no error in the order of the AO, hence requested to quash the 263 order and restore the assessment order. The assessee relied on the decisions of Hon’ble Supreme Court in the case of Bharat Earth Movers Ltd. Vs. CIT (2000) 245 ITR 428 (SC) and the decision of Hon’ble Delhi High Court in the case of Oriental Bank of Commerce Vs.Addl.Commissioner of Income Tax (2018) 254 Taxman 0197 (Delhi).
Per contra, the Ld.DR argued that the amount reduced from the P& L account from the profit before tax is a provision and as per explanation I to M/s Kallam Textiles Ltd., Guntur sub clause (c) of section 115JB, the amount set aside to meet the provisions for meeting the liabilities other than the ascertained liability, required to be increased by such amount and thus argued that the AO has neither verified this aspect nor conducted the enquiry, therefore, argued that the assessment is erroneous and prejudicial to the interest of the revenue and the Ld.Pr.CIT rightly invoked the provisions of 263, hence, requested to sustain the order u/s 263 and dismiss the appeal of the assessee.
We have heard both the parties and perused the material placed on record. In the instant case, assessment was completed u/s 143(3), but on perusal of the assessment order and the information filed by the assessee, we find that the AO has not caused any enquiries with regard to financial adjustment charges though the same was reduced from the profit in the P&L account. As per explanation (1 )of Clause (c) of the provisions of 115JB, the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities required to be increased by such amount for MAT purpose. In the instant case, the AO has neither verified the liability nor the expenditure under MAT provisions u/s 115JB of the Act. Merely because the balance sheet and P&L account are placed before the AO
M/s Kallam Textiles Ltd., Guntur at the time of assessment, it cannot be construed that the AO had verified the entire issues unless specific information is called by the AO. Therefore, there was an error which is prejudicial to the interest of revenue with regard to non-verification of financial surcharge adjustment in the assessment made u/s 143(3). Hon’ble Bombay High court in Sesa Starlite Ltd.v .Commissioner of Income Tax, Panaji, Goa, [2021] 123 taxmann.com 217 (Bombay ) flowing the order of Apex court in Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC) held that Where Assessing Officer sought information from assessee regarding its claim of deduction under section 10B, however, without considering such information produced by assessee and without application of mind to same, allowed such claim for deduction, it was a case of inadequate inquiries and, therefore, exercise of revision jurisdiction by Commissioner under section 263 was justified. This view is supported by the decision of Hon’ble Supreme court in Malabar Industrial Co. Ltd(Supra). Therefore we are inclined to hold that the Ld.CIT(A) has rightly invoked the provisions of section 263 of the Act.
5.1. During the appeal hearing assessee has argued that the expenditure is allowable as held by the Hon’ble Supreme Court in Bharat Earth Movers
M/s Kallam Textiles Ltd., Guntur Ltd. (supra) and Hon’ble Delhi High Court in Oriental Bank of Commerce (supra). He also submitted that the expenditure was accrued as per the system of accounting and the payment was postponed. We have considered the submissions of the Ld.A.R carefully and are of the view that the expenditure debited to P&L account or reduced from the profit before tax as exceptional item needs to be verified on the facts and merits and also in view of the judicial precedents relied upon by the assessee. Therefore, we set aside the order of the Ld.Pr.CIT and remit the matter back to the file of the AO to examine the issue in the light of the submissions made by the Ld.AR and the case laws relied upon by the Ld.AR during the appeal proceedings and decide the issue afresh on merits. The order of the Ld.Pr.CIT passed u/s 263 is modified accordingly. The assessee is free to make all submissions before the AO on merits of the allowability of expenditure. The AO must give reasonable opportunity before giving effect to this order. The appeal of the assessee is allowed for statistical purpose.
In the result, appeal of the assessee is allowed for statistical purpose.
M/s Kallam Textiles Ltd., Guntur
Order pronounced in the open court on 10th March, 2021.
Sd/- Sd/- (एन के चौिरी) (धड.एस .सुन्दरधसंह) (N.K.CHOUDHRY) (D.S.SUNDER SINGH) न्याधयक सदस्य/ JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER Dated : 10 .03.2021 L.Rama, SPS आदेश की प्रतितिति अग्रेतषि/Copy of the order forwarded to:- 1. तिर्धाररिी/ The Assessee–M/s Kallam Textiles Ltd., (earlier known as M/s Kallam Spinning Ltd.), Chowdavaram, Guntur 2. रधजस्व/The Revenue –Asst.Commissioner of Income Tax, Circle-(1), Guntur 3. The Pr.Commissioner of Income Tax , Guntur 4. तवभधगीयप्रतितितर्, आयकरअिीिीयअतर्करण, तवशधखधिटणम/DR, ITAT, Visakhapatnam 5.गधर्ाफ़धईि / Guard file आदेशधिुसधर / BY ORDER // True Copy //
Sr. Private Secretary ITAT, Visakhapatnam