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Income Tax Appellate Tribunal, PUNE BENCHES “B” :: PUNE
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal filed by the Assessee is directed against the order of ld.Principal Commissioner of Income Tax-5, Pune dated 27.03.2020 under section 263 of the Income Tax Act, emanating from assessment order under section 143(3) of the Act dated 12.12.2017 for A.Y.2015-16. The Assessee has raised the following grounds of appeal:
1. On the facts and in the circumstances of the case and in law
Rajkumar Premchand Tulsani [A] the Ld .Pr.CIT-5, Pune was not justified assuming jurisdiction under S. 263 of the Act to brand the order of the A.O. as order erroneous and prejudicial interest of Revenue. The assessee was legally entitled to claim the expenditure of Rs.51,22,390/- paid to Government which was statutory liability thrusted on the appellant by law. In such circumstances discharge of legal liability is an allowable expenditure u/s 37 of the Act. The Ld. Pr. CIT was wrong in holding such liability as not that of the assessee. The order passed by Pr. CIT assuming jurisdiction u/s 263 is not according to law.
On the facts and in the circumstances of the case and in law and such circumstances and payment made towards the discharge of legal liability (Govt, liability) cannot be termed as order of the A.O. as erroneous and prejudicial to the interest of revenue to apply provisions of S. 263 of the Act. The Revision order passed under S. 263 be cancelled.
On the facts and in the circumstances of the case and in law the Ld. Pr. CIT was also not justified in invoking the provision of S. 43B of the Act as legally and presentally the provisions of S. 43B are not attracted. The revision order passed under S.263 be cancelled.
4. On the facts and in the circumstances of the case and in law the assessee was responsible for discharge of such legal fiction which has support of the law. The Ld. Pr. CIT cannot disallow the discharge of this legal fiction which contrary to provision of law. The expenditure which assessee is entitled to pay by the provisions of law be allowed to the assessee by cancelling the Revision order passed under s. 263 of the Act.
The appellant craves to leave, add/amend or alter any of the above grounds of appeal.”
Rajkumar Premchand Tulsani [A] Brief facts of the case : 2. The assessee is an individual and is proprietor of M/s.Rajkumar Enterprises which is engaged in the business of reselling of steel. During the year, assessee filed Return of Income on 30.09.2015 declaring Rs.6,23,910/- under the -head “Capital Gain” and business loss of Rs.41,11,249/-. The assessee’s case was selected for scrutiny. The assessment order was passed on 12.12.2017 accepting the returned income. The AO has not discussed any issue in the assessment order. The ld.Pr.CIT invoked the provisions of section 263. The ld.Pr.CIT has observed that the assessee has debited an amount of Rs.51,22,390/- towards Sales Tax and Interest pertaining to Financial Year 2008-09 and 2009-10, which was made on behalf of the seller of the material as the seller did not pay Sales Tax to the Sales Tax Department. The ld.Pr.CIT after giving opportunity to the assessee, discussed this issue at length in the order under section 263 and held that the assessment order is erroneous and prejudicial to the interest of the Revenue. The ld.Pr.CIT directed the AO to pass afresh assessment order after conducting necessary enquiries. Aggrieved by the order of the ld.Pr.CIT, the assessee filed Appeal before this Tribunal.
Rajkumar Premchand Tulsani [A] Submission of ld.AR : 3. The assessee is proprietor of M/s.Rajkumar Enterprises engaged in the business of reselling of steel. The ld.Authorised Representative of the assessee submitted that ld.Pr.CIT has erred in invoking provisions of section 263. The assessee’s case for A.Y.2015-16 was selected for complete scrutiny. The Assessing Officer(AO) called for details and after verification of all the details passed the assessment order dated 12.12.2017 accepting the Returned income. Ld.AR read out the Para 3 of the assessment order to demonstrate that ld.AO had called for copy of Sales Tax Department’s order with reference to the expenses claimed in the Profit and Loss Account on account of Sales Tax Payment.
The ld.AR submitted that assessee had paid VAT of Rs.51,22,390/- to Sales Tax Department which was not paid by the original seller i.e. the Dealer. It was assessee’s legal liability to discharge the same if it is not discharged by the seller. The assessee could not avoid this legal obligation. The ld.AR further submitted his written submissions as under :
Rajkumar Premchand Tulsani [A] Rajkumar Premchand Tulsani [A] Rajkumar Premchand Tulsani [A] Rajkumar Premchand Tulsani [A] Rajkumar Premchand Tulsani [A]
Rajkumar Premchand Tulsani [A] Submission of ld.DR : 5. The ld.Departmental Representative for the Revenue relied on the order of the ld.Pr.CIT. The ld.DR explained that the amount paid by assessee was not an allowable expenditure and hence the AO has erred in allowing it. The ld.DR relied on the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Company Limited.
Ld.DR explained that the liability claimed to have been paid was not assessee’s Liability. It was the VAT dues of the Dealer from whom the assessee claimed to have purchased the goods. Therefore, it was the liability of the Dealer and this is an admitted fact by the assessee. Under section 43B only the liability of the assessee are allowable.
Ld.DR submitted even without prejudice, it is for argument’s sake considered that the VAT liability was actually paid by the assessee, then also, as per Section 145A of the Act the impugned amount needs to be added to the Purchase amount
Rajkumar Premchand Tulsani [A] debited by the assessee in the Profit and Loss Account, therefore, accordingly, the value of the Closing Stock needs to be reworked. All these facts have been mentioned by the ld.Pr.CIT in the order.
7.1 The AO has not verified any of these facts.
7.2 Ld.DR further submitted that in this case the Assessee has not filed copy of any notice u/s.142 or any submission made by the Assessee during the Assessment Proceedings to demonstrate that the issue was verified by the AO. Rather, no paper book has been filed by the assessee, Ld.AR has made only oral averments.
7.3 Therefore, the ld.DR submitted that assessment order was erroneous and prejudicial to the interest of the Revenue.
Findings and Analysis : 8. We have heard both the parties and perused the records.
8.1 On perusal of the assessment order it is observed that it is a cryptic assessment order. The AO has not discussed why and under which section he has allowed the impugned claim of the Rajkumar Premchand Tulsani [A] assessee. The relevant paragraph of the assessment order is reproduced here as under : “[3] The assessee is the Proprietor of M/s Rajkumar Enterprises which is engaged in the business of Steel business i.e re-selling of steel. During the year under consideration, the assessee has shown total receipt of Rs.2,33,18,708/- and after claiming various direct and indirect expenses the gross loss declared at Rs.(-) 46,08,059/-. During the course of the assessment proceedings, the AR submitted computation of income, Audit report, bank account Statement, Ledger & confirmation of sundry creditors, copy of Immovable property agreements and Sales Tax Department order in respect of expenses claimed in P & L. The documents furnished by the assessee are placed on records. [4] Subject to the above, the total income of the assessee for A.Y. 2010-11 is computed as follows :- Sr.No. Particulars Amount 1. Total Income as per return Rs.6,23,910/- Addition: Total taxable income Rs.6,23,910/- Rounded off to Rs.6,23,910/- Assessed Total Income - Rs.6,23,910/- Carry Forward Business Losses- Rs. (-41,12,249/-)” 8.2 Thus, it can be seen from the above paragraph of the assessment order that the AO has allowed the amount of Sales Tax Liability, though, it is mentioned as Sales Tax Liability in the assessment order, but it was VAT Liability, without making any discussion. In paragraph 4, the AO has even mentioned incorrect assessment year. The figure of the business Loss mentioned in paragraph four of the assessment order does not match with the figure of the Business Loss mentioned in the Rajkumar Premchand Tulsani [A] introductory Paragraph 1 of the assessment order. The assessment order effectively has only one paragraph i.e. Paragraph No.3, which is reproduced above.
8.3 It is also an admitted position by the assessee that the impugned MVAT liability was not the assessee’s liability but it was the liability of the Dealer from whom the assessee claimed to have purchased the goods. In these facts and circumstances, it was definitely not an allowable expenditure u/s.43B of the Act.
The ld.AR relied on the letter of the Joint Commissioner, Maharashtra Value Added Tax dated 30.05.2014, which is reproduced by the ld.Pr.CIT in the order under section 263 of the Act. It is aptly clear from the said letter of Joint Commissioner, Maharashtra Value Added Tax that the impugned amount was liability of the Dealer, from whom assessee has claimed to have purchased the goods. As per section 32(5) of the Maharashtra Value Added Tax Act, 2002, the Government can recover the tax as arrears of land revenue. The relevant section is reproduced here as under : “(5) Any tax, penalty, interest, fine or sum forfeited, which remains unpaid after the service of notice under sub-section
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(4), or any instalment not duly paid or any amount due or payable under this Act, shall be recoverable as an arrears of land revenue.” 9.1 Similarly, section 33 of the Maharashtra Value Added Tax Act, 2002 is reproduced here as under : “33. Special mode of recovery. - (1) Notwithstanding anything contained inany law or contract to the contrary, the Commissioner may, on noticing thatthere is an outstanding liability of tax, interest or penalty against a dealer or person, or on whom a notice under sub-section (4) of section 32 has already been served, at any time, by notice in writing, require, - (a) any person from whom any amount of money is due, or may become due, to the said dealer or person, or (b) any person who holds or may subsequently hold money for or on account of such dealer or person,to pay to the Commissioner, either forthwith upon the money becoming due or being held or within the time specified in the notice (but not before the money becomes due or is held as aforesaid), an amount equal to the amount due and outstanding from such dealer as aforesaid:………………… Explanation……………………… (2) …………………. (3) Any person making any payment in compliance with a notice under this section shall be deemed to have made the payment under the authority of the dealer or a person, and the receipt of the Commissioner shall constitute a good and sufficient discharge of the liability of such person to the extent of the amount referred to in the receipt.”
The section 33of MVAT Act mentions special mode of recovery. As per section 33 of MVAT Act the Commissioner may issue a notice to any person from whom any amount of money is due to the defaulter Dealer. In this case, it seems that Rajkumar Premchand Tulsani [A] recovery letter has been issued to the assessee presuming that there is any amount due to the defaulter Dealer. In this case, as per section 33 of MVAT Act the assessee had to pay only if any amount was due to the defaulter dealer. It indirectly means whatever was due to the Dealer, it was to be paid towards the VAT liability instead of paying to the dealer. Therefore, in this case, the assessee has to prove that there was some amount outstanding which was payable to the defaulter Dealer. However, no enquiry has been made by the AO on this issue. We have already mentioned that the assessment order is absolutely cryptic. The ld.AR has also not brought on record any document to demonstrate that during the assessment proceedings, assessee had submitted all these details and AO had verified all these details. This itself explains that neither the AO had asked any questions nor the assessee had submitted these details during the assessment proceedings.
Be it as it may be, as mentioned by the ld.Pr.CIT in the order u/s.263 and as vehemently pleaded by the ld.DR, even if the liability was paid by the assessee as claimed by the assessee, since the VAT was paid for the purchases it needs to be added to Rajkumar Premchand Tulsani [A] the cost of purchases as per section 145A of the Act. This aspect has not been verified by the AO at all. We agree with ld.DR that this would have changed the valuation of the closing stock and thus Profit would have also changed. We also agree with the ld.DR that this aspect has not been verified by the AO.
The Ld.AR has pleaded that it was the Liability of the assessee being purchaser as the Dealer had defaulted, however, the Ld.AR could not bring to our notice any provision of MVAT Act which makes it mandatory for the purchaser to pay the VAT if there is default by the Dealer. Hence, we reject the said pleading. However, the AO has not verified this aspect also. The ld.AR has not brought on any record to demonstrate that this aspect was verified by ld.AO during assessment proceedings.
Section 263 is reproduced here as under for ready reference Revision of orders prejudicial to revenue. “263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, 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 an Rajkumar Premchand Tulsani [A]
order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— …………………………. Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 9a[Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 13.1 Thus, as per Explanation 2 to Section 263, the Assessment order passed without making inquiries which should have been made is erroneous and prejudicial to the interest of the revenue.
We have already demonstrated in earlier paragraphs that the Assessing Officer had failed to carry out the necessary inquiries. The AO has allowed the claim of the assessee without carrying any inquiries.
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The Hon’ble Bombay High Court has held in the case of Vedanta Ltd Vs. CIT 279 Taxman 358 (Bombay) [27-11- 2020] as under : Quote, “24. In Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 86 (SC) the Hon'ble Supreme Court has held that the CIT can pass an order under section 263 of the IT Act even on debatable issues. Similarly, it is clear where the assessment was completed without proper inquiries which circumstances necessitated, it is competent for the CIT to invoke the revisional jurisdiction and direct fresh assessment, after verifying and examining all relevant facts, as well as legal position as may be involved.” Unquote.
Therefore, in these facts and circumstances of the case, since AO failed to carry out necessary enquiries as discussed in earlier paragraphs, respectfully following the law laid down by the Hon’ble Supreme Court and the Hon’ble Jurisdictional High Court(supra), we agree with the ld.Pr.CIT that the assessment order is erroneous and prejudicial to the interest of the Revenue. In this case, the ld.Pr.CIT in the order under section 263 has set- aside the assessment order and asked the AO to complete the assessment afresh after due verification. Thus, the assessee will be having sufficient opportunity to explain his case before the AO. Accordingly, we uphold the order u/s.263 of the Act. Accordingly, the grounds of appeal of the assessee are dismissed.
Rajkumar Premchand Tulsani [A]
In the result, appeal of the assessee is dismissed. Order pronounced in the open Court on 6th July, 2023.