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Income Tax Appellate Tribunal, “RAIPUR” BENCH, RAIPUR
Before: SHRI PRADIP KUMAR KEDIA & SHRI N. K. CHOUDHRY
The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax, Raipur (‘CIT’ in short), dated 28.03.2014 arising in the assessment order dated 19.12.2011 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2009-10.
Aggrieved by the revisional order of CIT passed under s.263 of the Act dated 28.03.2014, the assessee is in appeal before the tribunal.
Briefly stated, the assessee is engaged in the business of development of land and sale of developed plots. A scrutiny assessment was carried out under s.143(3) of the Act for A.Y. 2009-10 in question determining the total income at Rs.48,23,110/- as against returned income of Rs.44,35,710/-. The assessment so carried out by the AO was sought to be revised by the Commissioner of Income Tax, for which, a show cause notice dated 11.10.2013 was issued by the CIT.
The show cause notice is extracted hereunder for ready reference:
“On examination of your income-tax records for the above assessment year, I find that the order passed u/s 143(3) of the Income-Tax Act, 1961 on 19.12.2011 is erroneous in so far as it is prejudicial to the interest of revenue in the following manner:- 2(a) Scrutiny of records revealed that as per trading and P&L account of the assesse as on 31.03.2009, purchases of land was shown at Rs.6,03,38,681/- whereas in the “land purchase a/c” available in the record, the total debit balance of the land purchase was at Rs.9,03,74,000/- for the year under consideration which resulted to an undervaluation of the closing stock by Rs.3.0035 Crores and the same was not verified by the AO at the time of assessment proceedings. 2(b) Further, it is seen that the value of the closing stock is not increased by the proportionate other direct expenses amounting to Rs. 9.1718 crores shown in the trading a/c. The value of clawing stock includes purchase price of land, registry expenses and stamp duty value and hence the proportionate value amounting to Rs. 3.17.crores is to be allocated to the closing stock which was also not verified by the AO during the assessment proceedings. Similarly, in the absence of any evidence produced by the assessee to show that a particular indirect cost amounting to Rs. 84 lakhs pertains to its running business and not to its development project and hence the value of closing stock will be increased by the proportionate indirect cost also i.e. Rs. 0.50 crores. This issue was also not verified by the AO during the assessment proceedings. 2(C) It is also found from assessment records that you have purchased land of Rs. 30 lakhs from Shri Panchkhod Sahu in your wife’s name and debited the same in your land purchase a/c. The above purchase of land was made in cash, which is contravention of provisions of section 40A(3) of the I T Act and hence need to be disallowed and added to the total income. The A O did not verify the same during the course of assessment proceedings.
3. In view of the above facts, the assessment order u/s 143(3) dated 19.12.2011 for A.Y. 2009-10 passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. In these circumstances, it is proposed to take remedial action under section 263 of the IT Act, 1961.
[Smt. Sarita Bajpai vs. DCIT] A.Y. 2009-10 - 3 - You are therefore requested to show cause as to why action u/s 263 should not be taken. Your case is fixed for hearing on 31.10.2013 at 3:00 PM. at Office of the Commissioner of Income-Tax, central Revenue Building, Civil Lines, Raipur. Please note that in case of non-appearance or non-receipt of any written submission, it will be presumed that you have no objection to the proposed action u/s 263 and the proceedings will be finalized as per law.”
When the matter was called for hearing, the learned counsel for the assessee adverted to the show cause notice and submitted that the show cause notice broadly alleges failure of AO to verify on 3 points; (a) valuation of closing stock; (b) non increasing of closing stock by proportionate other direct expenses; & (c) contravention of provisions of Section 40A(3) of the Act by purchasing land and cash.
5.1 In this regard, the learned counsel for the assessee submitted that the initial show cause notice issued alleged that the AO ‘did not verify’ the points noted above, whereas, the final revisional order has departed from original stand and has taken a different stand altogether. It is not alleged in the revisional order that the AO did not verify these points. The stand in the show cause notice was modified. What is alleged is that AO has ‘not applied his mind’ to these points which has led to the erroneous order hostile to the interest of the Revenue. It was contended that once the relevant facts are placed on record on the issue, a presumption would ordinarily arise that AO has looked into such evidences and facts in discharge of its quasi judicial functions.
5.2 Coming to the specifics, the learned counsel first adverted to the alleged non-verification of closing stock. To defend the action of AO on this point, the learned counsel adverted to notice issued by the AO dated 7th July, 2011 under s.142(1) of the Act (page no.42 of the paper book), wherein as per point no.10 of a detailed questionnaire, specific query was raised towards the difference in the quantitative closing stock and its value. The valuation details were duly placed before the AO as reflected in page no.73 of the paper book. The ledger copy of land purchased showing narration of all land purchases etc. were also placed on [Smt. Sarita Bajpai vs. DCIT] A.Y. 2009-10 - 4 - record of the AO as enquired vide another notice dated 14.11.2011. It was pointed out that the queries of the AO were duly answered vide replies filed on different dates as placed in the paper book. It was contended that the assessee has been following the same method and manner of valuation of closing stock regularly and assessment for immediate A.Y. 2008-09 was duly completed under s.143(3) of the Act without any reservations on the manner of valuation of closing stock and the issue has attained finality. It was submitted that as per established legal position, both opening and closing stock need to be valued alike and in the same manner and the closing stock cannot be treated differently in exclusion to the method applied for determination of opening stock. It was stated that books of accounts are duly audited wherein the valuation carried out was found to be consistent with method of accounting. A year-wise tabulated statement of opening stock and calculations showing closing stock spanning over several years from F.Y. 2007-08 to 2012-13 was referred and it was submitted in the alternative that variation in valuation of closing stock is, in effect, a tax neutral exercise and thus not prejudicial to the interest of Revenue when seen holistically.
5.3 As regards second query of the show cause notice, viz., non-increasing of closing stock value by proportionate direct expenses, it was submitted that in the assessment carried out under s.143(3) r.w.s. 263 of the Act, no addition has been made on this score. Hence, no prejudice has occasioned to the assessee on this score and the issue stands eventually resolved. He, thus, submitted that this issue is now infructuous and does not require determination.
5.4 Adverting to the Ground No.3 of the show cause notice, the learned counsel for the assessee submitted that admittedly the cash payment was made for purchase of land and such payment was also recorded in the sale deed. The sale deed is registered before the Registrar. It was submitted that these facts were made available to the AO and requisite details were provided to the AO vide letter dated 11.11.2011 and 24.11.2011 in response to specific queries in this [Smt. Sarita Bajpai vs. DCIT] A.Y. 2009-10 - 5 - regard. It was further emphasized that the parties from whom purchase of land parcels were carried out are identifiable as the sale agreements are registered and documented. It was thus submitted that in the light of judgment rendered by the Jurisdictional High Court of Chhattisgarh in the case of ACIT vs. R. P. Real Estate Pvt. Ltd. Tax Case (Income Tax Appeal) No. 13 of 2016 dated 1st March, 2016, where actual recipient of cash is identifiable and the genuineness of payment is confirmed by registered sale deed, the provisions of Section 40A(3) of the Act would not apply in the factual matrix. The occurrence of purchase of land is duly proved by clinching evidence. It was thus contended that the view taken by the AO towards non-applicability of Section 40A(3) of the Act is a plausible view consistent with the interpretation rendered by the Jurisdictional High Court. It was thus submitted that the action of the AO cannot be attacked as erroneous and prejudicial to the interest of the Revenue.
The learned DR relied upon the order of the CIT.
We have carefully considered the rival submissions and perused the revisional order passed by the CIT under s.263 of the Act as well as other materials referred to and relied upon by the respective parties and case laws cited.
7.1 Supervisory jurisdiction vested under Section 263 of the Act enables the concerned Pr.CIT/CIT to review the records of any proceedings and order passed therein by the AO. It empowers the Revisional Commissioner concerned to call for and examine the records of another proceeding under the Act and if he considers that any order passed therein by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue, then 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 the order enhancing or modifying the assessment or cancelling the assessment and directing afresh assessment. Thus, the revisional powers conferred on the Pr.CIT/CIT under s.263 of the Act are of wide [Smt. Sarita Bajpai vs. DCIT] A.Y. 2009-10 - 6 - amplitude with a view to address the revenue risks which are objectively justifiable.
7.2 In the facts and circumstances of the case, the substantive issue that emerges for adjudication is whether the CIT under the umbrella of revisonary powers is entitled to upset the finality of assessment proceedings before the AO where the AO has allegedly committed error in passing assessment order without proper verification of valuation of closing stock and disallowance under s.40A(3) of the Act. Implicit in the question is the scope of powers of Revisional Commissioner in the event of alleged inadequacy of enquiry into various aspects of an issue.
7.3 On perusal of the show cause notice (SCN) issued by the Revisional Commissioner proposing to set aside the assessment order dated 19.12.2011 passed by AO under s.143(3) of the Act, we notice that the CIT is essentially dissatisfied with the degree of enquiry made in respect of valuation of closing stock. Owing to difference between the closing value of the land qua the opening value of the land the SCN alleges that under valuation of closing stock to the extent of Rs.3.0035 Crores have resulted which has not been verified by the AO at the time of assessment proceedings. In this context, we notice that specific queries were raised towards the difference in the closing stock valuation and the AO did not disturb the closing stock after making several rounds of enquiry. Pertinently, the law does not require to stretch enquiries and verification to an extent which may tantamount to oppression and harassment of a taxpayer. The assessee has offered explanation for difference in the valuation on account of apportionment towards internal road and garden etc. which represented cost of project and thus represented as an outgo which could not have been included in the closing stock. The explanation appears plausible. It is further case of the assessee that similar method of valuation have been adopted in the earlier years as well as in the subsequent assessment years and there is no departure in the valuation of closing stock as certified by the statutory auditors of [Smt. Sarita Bajpai vs. DCIT] A.Y. 2009-10 - 7 - the company year after year as mandated in law. The tabulated statement showing comparison of closing stock year after year vouches the claim of the assessee on consistency of method of valuation and tax neutrality. In these circumstances, the action of the AO in accepting the closing stock cannot be blamed as erroneous by a two line show cause notice on the issue.
7.4 We further notice that the alleged under valuation of closing stock is a tax neutral exercise when seen over a longer horizon and thus, in effect, not prejudicial to the interest of the Revenue per se. Section 263 of the Act calls for existence of both the pre-requisites, namely; (i) order under revision should be erroneous as well as (ii) prejudicial to the interest of the Revenue. Both the conditions must coexist simultaneously. Also every loss of the Revenue as a consequence of an order of the AO cannot necessarily be treated as pre-judicial to the interest of the Revenue. In the instant case, the AO after examining the issue has taken a view which is plausible. This apart, the Revenue cannot be said to be prejudiced in a Revenue neutral exercise. Thus, none of the conditions required for invocation of Section 263 of the Act are fulfilled. Thus, the exercise of jurisdiction in respect of first point of the issue is not justified when tested on the touchstone of Section 263 of the Act. The findings of the CIT on this score is thus set aside and cancelled.
7.5 The second limb of the show cause notice is rendered infructuous as fairly submitted on behalf of the assessee and therefore not determined.
7.6 As regards the purchase of land in cash and alleged contravention of provisions of Section 40A(3) of the Act, we find merit in the case made out on behalf of the assessee. The land parcels purchased are stated to have been registered and documented. Therefore, the parties are identifiable and genuineness of transaction is established. The provisions of Section 40A(3) of the Act have been read down by the Hon’ble Jurisdictional High Court in R. P. Real Estate Pvt. Ltd. (supra) in such a situation. Hence, the action of the AO in [Smt. Sarita Bajpai vs. DCIT] A.Y. 2009-10 - 8 - not applying Section 40A(3) of the Act being consistent with the observations of the Hon’ble Jurisdictional High Court cannot be termed as ‘erroneous’ per se. Consequently, the directions of the CIT on the third limb of the show cause notice is also set aside and quashed.
Thus, while the first and third issues are allowed in favour of the assessee, the second issue is dismissed as infructuous.
In the result, appeal filed by the assessee is partly allowed.
This Order pronounced in Open Court on 02/08/2021
Sd/- Sd/- (N. K. CHOUDHRY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Raipur: Dated 02/08/2021 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर / DR, ITAT, RAIPUR 6. गाड� फाइल / Guard file. By order,
Sr. Private Secretary ITAT, Raipur (on Tour)