M/S. GOVARDHAN OVERSEAS PVT. LTD., ,KOLKATA vs. PCIT-2, KOLKATA

Appearances by: Shri P. K. Himmatsinghka, AR appeared for Appellant. Shri Sunil Kr. Agarwala, CIT, DR appeared for Respondent. Date of concluding the hearing : 08.08.2023 Date of pronouncing the order : 09.08.2023 ORDER

Per Manish Borad, Accountant Member:

3. The assessee has raised following grounds of appeal :

“1. That on facts and in the circumstances of the case and in law, Ld. PCIT grossly erred in initiating the revision proceeding u/ s 263 even though the Assessment Order u/s 143(3) dated 11-12-2018 passed by the AO was neither erroneous non prejudicial to the interest of the revenue.

2. That the order dated 16-03-2021 u/s. 263 of the Act by the Ld. PCIT, Kolkata-2 has been made without satisfying preconditions contained in the Act and is therefore without jurisdiction and thus deserves to be quashed as such.

5. That the finding of Ld. PCIT that order of AO is erroneous and prejudicial to the interest of revenue on the following basis is factually incorrect, legally misconceived, contrary to evidence on record and in any way initiation of revision proceedings is vague, arbitrary and based on surmiseful consideration and therefore unsustainable. (a) Donation of Rs 8,50,000 already debited in Profit & Loss a/c, being claimed Rs. 4,25,000 u/s 35AC and assessee's further claim of deduction of Rs 2,12,500 u/s 80G is erroneous, the whole amount of Rs. 4,25,000 is required to be added back despite assessee itself already added back of Rs 4,25,000 to the total income and eligible to get deduction Rs. 2,25,000 u/s 80G. (b) Rs. 30,91,683 is required to be added u/s.40(a)(ia) being 30% of Rs 1,03,51,809 job work charges paid to M/s. Mandhana Industries Ltd. on Page 2 of 6 Govardhan Overseas (P) Ltd. AY: 2016-17 which TDS Rs. 924 u/ s 194C was only deducted instead of Rs 2,06,863, despite correct amount of TDS Rs. 2,06,863 were deducted and paid to Govt. of India within stipulated time and uploaded the TDS return 26Q. (c) The assessee has claimed the repayment of loan Rs.85,00,061 to the 3 creditors companies but no measure as per PCIT was made for alleged repayment, the said repaid amount of Rs.85,00,000 was required to be added u/s 69C as an unexplained expenditure, despite the fact that the assessee neither claimed as expenditure nor claimed as deduction during the Financial Year. (d) The Audited Balance Sheet as at 31.03.2015 reflects the TDS liabilities of Rs. 29,03,643/- being TDS deducted by the assessee under various provisions of the Act and said TDS were not paid. The disallowance of expenditure ought to have been made pertaining to the unpaid TDS amount, despite TDS so deducted were paid to the treasury of Govt. of India within the stipulated time. (e) The assessee earned Rs. 31,973 interest on security deposit as appearing in 26AS, not accounted for in computing the total income, although the assessee vide letter dated 05-11-2018 offered the said amount for taxation to AO during the assessment proceeding conducted u/s 143(3).”

4. At the time of hearing Ld. Counsel for the assessee submitted that the reply filed by the assessee against the show cause notice issued by Ld. PCIT has not been considered before framing the order u/s. 263 of the Act. Ld. Counsel for the assessee took us through the written submission filed before the Ld. PCIT on 08.02.2021 placed at page 86 to 90 of the paper book but this fact remained uncontroverted that Ld. PCIT has not considered the said reply of the assessee failing which the finding of Ld. PCIT cannot be held to be justified. Thus, prayer was made to afford one more opportunity so that the reply given by the assessee can be considered and opportunity may be granted to explain the issues raised in the show cause notice. It is further submitted that assessee has replied to each of the issues raised in the show cause notice and the order of the Ld. AO is neither erroneous nor prejudicial to the interest of the revenue and all the details as called for by Ld. PCIT has already been considered by the Ld. AO and reply to the same has been given.

Govardhan Overseas (P) Ltd. AY: 2016-17 6. We have heard rival submissions and gone through the material available on record and placed before us. We notice that the assessee is a Private Limited Company and income of Rs.2,41,46,940/- declared in the e-return filed on 17.10.2016 for AY 2016-17. The case was selected for scrutiny and assessment u/s. 143(3) of the Act was completed on 11.12.2018. Ld. AO made various additions/disallowances to Rs.33,10,635/- and assessed the income at Rs.2,74,57,575/-. Subsequently, Ld. PCIT called for the assessment records and observed that certain issues have not been considered by the Ld. AO and a show cause notice dated 28.01.2021 was issued and the relevant contents of the same are as follows:

“In the instant case following observations have been made. (i) it is seen that the assessee had debited an amount of Rs. 8,50,000/- in the P&L a/c as donation and the net profit has since been arrived at taking into account this amount of Rs. 8,50,000/- (donation). However, the assessee has produced papers worth Rs. 4,25,000/- only in respect of the donation claimed u/s 35AC. Further, the assessee has also claimed donation of Rs. 4,25,000/- and deducted an amount of Rs. 2,12,500/- u/s. 80G in the computation. As the donation amount of Rs. 8,50,000/- has already been debited in the P&L a/c the assessee's further claim of deduction of Rs. 2,12,500/- is erroneous as there is no documents in support of the claim, therefore, the whole amount of Rs. 4,25,000/- is required to be added back to the total income of the assessee. (ii) The assessee has claimed an amount of Rs.3,28,11,335/- as expenses under the head "job work charges" out of which an amount of Rs. 1,03,43,081/- has been claimed to be paid to Mandhana Industries Ltd. with TDS of Rs. 2,06,863/-. However, from the confirmation sent by the contractor in response to notice u/s 133(6) it has provided process charges worth Rs.1,03,51,809/- with TDS of Rs. 924/- only. Thus the claim of the assessee is incorrect both in terms of amount claimed to be paid and TDS made thereon. Thus, the payment made by the assessee to the tune of Rs.1,03,05,609/- [10351809-46200 (924 being the TDS made @2% and therefore 100% = 462500, being the amount corresponding to the payment made with TDS)] without deduction of tax is liable to attract the provisions of sec. 40(a)(ia) and an amount of Rs. 30,91,683/- (being 30% of Rs. 1,03,51,809/-) is required to be added to the total income. iii) From the 26AS it is noted that the assessee has earned Rs. 31,973/- on account of interest on security deposit [TDS of which has been duly claimed during the year] which has not been accounted for during the year for the purpose of computation of total income. (iv) On perusal of the assessment records it was noted that the assessee company was routing money through shell companies and an amount of Rs.30,96,735/- has also been disallowed during the year as Govardhan Overseas (P) Ltd. AY: 2016-17 unexplained interest expenditure for the claim of the assessee towards loan paid to the three shell companies during the year. The assessee also claimed to have repaid an amount of Rs. 85,00,061/- during the year to those three shell companies. However, no measure on the matter of the alleged repayment has been made. (v) On perusal of the Balance Sheet it is noted that there is a liability of Rs.29,03,643/ (as TDS payable) as at 31.03.2016. However, there is nothing on record to suggest that action on the matter of disallowance of the expenditure pertaining to this unpaid TDS has been made. Therefore, the assessment completed appears to' be erroneous in so far as it is prejudicial to the interest of revenue.”