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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the assessee against the order of the Principal Commissioner of Income Tax - 4, Ahmedabad (‘CIT’ in short), dated 06.03.2019 arising in the assessment order dated 16.11.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2014-15.
The assessee, in the present case, has challenged the revisional jurisdiction of the Pr.CIT invoked under s.263 of the Act whereby the order of the AO under s.143(3) of the Act dated 16.11.2016 is sought to be set aside by the Pr.CIT for fresh assessment on the grounds of lack of enquiry into certain vital aspects.
3. Briefly stated, the assessee, a private Company, is engaged in the business of construction and selling of residential flats. The return of income of assessee for AY 2014-15 was subjected to scrutiny assessment and consequently, assessment order was framed under s.143(3) of the Act. The AO simply accepted the income returned at Rs.3,73,08,493/- as assessed income without any adjustment whatsoever by a brief and a non-descript order. On verification of assessment records, the Pr.CIT found that the assessment order passed by the AO is erroneous and prejudicial to the interest of the Revenue. The Pr.CIT accordingly invoked revisional jurisdiction conferred under s.263 of the Act to show cause the assessee on the alleged infirmity in the assessment order which is broadly narrated hereunder for ready reference:
“Sub: Show cause notice u/s. 263 of the I.T. Act, 1961 for A.Y. 2014- 15-regarding- Please refer to the above.
2. In this case, the return of income for A.Y. 2014-15 was filed on 30/09/2014 showing total income of Rs.3,73,08,493/- and the assessment was completed vide order u/s.143(3) of the I.T. Act, 1961 dated 16/11/2016 by the DCIT, Circle-4(1)(1), Ahmedabad, accepting the returned income.
From perusal of the P&L Account, Schedule-22 thereof, the assessee has shown pending expenses of Rs.4,94,83,747/- as on 31/03/2014. No such pending expenses was shown outstanding as on 31/03/2013. It is noticed that the assessee has completed the project during the year and sold the inventories and finished goods i.e. flat yet to be sold at the end of the year, is only Rs.2.41 Crores, whereas the sale accounted during the year Rs.30.16 crores. Therefore, the inventories outstanding, is less than 10% of the sales. The A.O. while completing the assessment had not at all examined that when the project has been completed, the pending expenses cannot exist. 3.1 Secondly, the assessee has not considered the expenses pending as part of value of WIP/finished goods. This has made the assessment erroneous and the assessment order passed by the A.O. is erroneous and prejudicial to the interest of Revenue.
In view of the above, it is evident that the assessment order in the assessee company’s case for the year under reference has been passed by the assessing officer without proper inquiry, application of mind or cross-verification of correct facts of the case as pointed out in para-3 above. Therefore, the assessment order is erroneous and prejudicial to the interest of the revenue.
You are, therefore, required to explain as to why the assessment order passed by the DCIT, Circle-4(1)(1), Ahmedabad for A.Y. 2014-15 u/s. 143(3) of the Income Tax Act, 1961 dated 30/09/2016 in the case of the assessee company should not be held to be erroneous and prejudicial to the interest of the revenue.
6. You are hereby given an opportunity of being heard in person alongwith documents and evidence justifying your submission. You may, if you so desire, submit your contentions in writing or through an Authorized Representative also. The hearing for this purpose is fixed on 28/02/2019 at 12.30 PM.”
4. The Pr.CIT, in essence, alleged that staggering amount of pending expenses of Rs.4,94,83,747/- as at the end of FY 2013-14 in the context of the case ought not to exist where the project has been completed and nearly sold with outstanding inventories held by the developer assessee is less than 10% of the sales. It was simultaneously noticed by the Pr.CIT that no such pending expenses were shown to be outstanding at the end of the immediately preceding FY 2012-13. It was thus alleged that AO ought to have verified and ascertain bonafides and proper enquiry ought to have been made for such whopping amount claimed as revenue expenses and remaining outstanding for payment. For assumption of revisional jurisdiction, it was thus essentially the case of the Pr.CIT that the AO has inappropriately accepted the bonafides of such large and disproportionate pending expenses summarily without making any requisite enquiry in this regard. In the revisional order, the Pr.CIT observed that out of 42 flats in the project, 40 flats were already sold till 31.03.2014 while massive expenditure of Rs.4.94 Crores remains outstanding without payment out of total construction expenses of Rs.13.62 Crores. The pending expenses thus nearly work out to 36% of the total direct expenses which is shown to be outstanding vis-à-vis sale of flats exceeding 90% of the total inventory. Contextually, the Pr.CIT also observed that BU permission was granted w.e.f. 05.10.2013 and therefore two of the three projects were completed six months prior to the end of the year and 3rd wing of the project stood completed within next three months. In the circumstances, 36% of the expenses remaining outstanding in such a completed project status is not manifestly justified and provides cause of action for proper enquiry to ascertain the nature and bonafides of claims made. The Pr.CIT also observed that out of details ofRs.4.94 Crores submitted by the assessee, the pending amount towards services and labour cost charge itself stands at Rs.2.55 Crore. The verification towards genuineness and business connection of such expenses was imperative. The AO has also not verified whether the TDS has been deducted on such expenses as per the provisions of law. Having observed these infirmities, the Pr.CIT set aside the assessment passed under s.143(3) of the Act with a direction to the AO to make requisite enquiries and verifications in this regard.
5. Aggrieved by the revisional action of the Pr.CIT setting aside the original assessment made under s.143(3) of the Act, the assessee preferred appeal before the Tribunal and challenged the usurpation of the revisional jurisdiction by the Pr.CIT.
The learned senior counsel for the assessee submitted at the outset that the necessary background for exercise of revisional power of Pr.CIT does not exist. The learned senior counsel pointed out that all the issues raised in the revisional order were properly explained during assessment proceedings. The AO had asked for all the details which were submitted by the assessee. The AO has passed the assessment order after due verification as he considered expedient. The assessment order thus so passed was a well studied and well informed order which ought not to have been interfered with by the Pr.CIT. It was further asserted that it is not necessarily incumbent upon the AO to frame elaborate order and discuss all claims made by the assessee so long as the assessment order was passed with application of mind. For this proposition, the learned senior counsel referred to and relied upon the decision rendered by the Hon’ble Gujarat High Court in Raylon Silk Mills vs. CIT [1996] 221 ITR 155 (Guj) and CIT vs. Nirma Chemicals Works Pvt. Ltd. [2009] 309 ITR (Guj). It was thus contended that discussion not provided in the body of order would not necessarily affect the sanctity of the assessment order once framed after application of mind and where a plausible view exists on such issue as outcome of enquiry. The learned senior counsel referred to reply dated 07.07.2016 wherein the details of expenses, ledger copies and details of pending expenses were annexed before the AO. The learned senior counsel submitted that the issue involved towards pendency of so called large expenses is a pure fact related issue where the AO has taken a view based on appreciation of material placed before him. It was thus contended that the Pr.CIT was not entitled to substitute his opinion in place of the AO and allege inadequate enquiry and consequent revisionary action. In relation to scope of Section 263 of the Act, the learned AR referred to the decision of the co-ordinate bench of Tribunal rendered in the case of Smt. Minal Nayan Shah vs. Pr.CIT [2019] 111 taxmann.com 516 (Ahmedabad-Trib.) for the proposition that the revisional jurisdiction cannot be invoked to correct each and every type of mistake or error committed by the AO. A view which is legally plausible and adopted by the AO cannot be disturbed merely on the ground of existence of other possible view. It was contended that a plausible view admitted at assessment stage in exercise of quasi-judicial function cannot be dislodged in a light hearted manner in the name of inadequacy in enquiries or verification as perceived in the opinion of the revisional authority.
The learned senior counsel accordingly concluded that the exercise of supervisory jurisdiction of review by the Pr.CIT is not compatible with the scope and ambit of Section 263 of the Act. It was thus submitted that Pr.CIT was not justified in invoking its power under s.263 of the Act to set aside the assessment framed in the absence of any perceptible cause of action.
The learned CIT.DR, on the other hand, relied upon the order of the Pr.CIT. In furtherance, the learned DR submitted that the revisional order has pointed out visible abnormality in the outstanding and pending expenses of revenue nature claimed to be relatable to the residential project qua the attendant facts and circumstances. The learned CIT.DR submitted that such huge amount of outstanding expenses in relation to project as compared to Nil outstanding in the earlier year ought to have evoked a minimum appetite for enquiry on behest of the AO more particularly when the entire project stood completed and nearly sold off. The AO ought to have taken cognizance of the fact that the Municipal permission was given long back in two out of three projects and therefore, such large outstanding expenses which include substantial amount of outstanding labour expenses as well as service charges ought to have evoked caution in the mind of the AO for verification towards bonafide of such expenses.
8.1 At the direction of the bench, the learned CIT.DR also presented the assessment records for inspection of the bench and added that a bare glance of the assessment records and the order sheet would show that the assessment was framed without any relevant enquiry on the issue of disproportionately large pending expenses whatsoever. Making reference to the order sheet prepared by then AO for closure of assessment proceedings, it was submitted that it is not known from the assessment records as to whether any query was raised by the AO at the time of original assessment in respect of pending expenses at all. The details filed by the assessee appear suo motto and does not show nexus with any pertinent question raised on the point. Notwithstanding, the assessee has only filed some basic details towards incurring of pending expenses which has been summarily accepted by the AO and kept on record without going into its bonafides and relevancy or business connection. No independent enquiry is discernible to have been carried out at all and details whatever, has been filed by the assessee has been simply kept in file as a formality.
8.2 The order sheet recorded by the AO was thus claimed to be totally incoherent and inadequate and does not give any indication about the nature of enquiry carried out on the details filed by the assessee. The assessment order also remains silent on the material aspects of the assessment.
8.3 It was next contended that the department has no right to file any appeal on such arbitrary expeditions of AO on material aspects seriously affecting the resultant taxable income. The Pr.CIT thus had no choice except to the exercise of power under s.263 of the Act. It was contended that the instant case is not merely a case of lesser degree of enquiry on pertinent point but a case where no objective application of mind has been applied by the AO at all. Such assessment order without putting any efforts and application of mind cannot be said to have been passed in discharge of quasi-judicial function and is unworthy of reliance. The learned CIT.DR made reference to the decision of the co-ordinate bench of Tribunal in Gayatri Enterprises vs. ITO order dated 28.02.2019 and Babulal S. Solanki vs. ITO 104 taxmann.com 155 (Ahmedabad-Trib.) and submitted that there overtly exists non- application of mind on a core issue and the claim of the assessee towards asymmetric outstanding expenses accepted without any tangible enquiry is self-evident from the assessment records. The Pr.CIT has rightly dislodged such assessment order passed by the AO in a routine and perfunctory manner. The learned DR submitted that mere filing of certain ledger accounts in support of such abnormal outstanding expenses without any corresponding enquiry in the given set of facts warranted some positive enquiry as to how such large pending expenses has cropped up and continued to remain outstanding in the current year against the Nil pending expenses in the preceding year. The existence of abnormal outstanding in the context of total expenses booked would inevitably trigger enquiry in the mind of any rational person. It was further contended that the AO in the instant case has also not made any enquiry on aspects of deduction of TDS on labour expenses etc. as well as the reasons for nonpayment of such expenses for such long time which cast aspersions on bonafides. It was finally submitted that the Pr.CIT has not merely evoked the provisions of Section 263 of the Act towards lack of enquiry but has painstakingly explained the context in which some enquiries were definitely warranted as pointed out above. It was printed out that the Pr.CIT has merely set aside the assessment order and a fresh opportunity has been given to the assessee to explain the bonafides of pending expenses on merits and therefore, no serious prejudice has been caused to the assessee whereas the revisional order if cancelled, would cause an irreparable prejudice to the Revenue for the palpable negligence of the AO. The learned DR accordingly submitted that no interference with the order of the Pr.CIT is called for.
We have carefully considered the rival submissions and perused the revisional order passed by the Pr.CIT under s.263 of the Act as well as original assessment records presented on behalf of the Revenue in the course of the hearing. Relevant materials referred to and relied upon by the respective parties and case laws cited have also been perused.
9.1 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 any 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 very wide amplitude with a view to address the revenue risks which are objectively justifiable.
9.2 In the facts and circumstances of the case, the substantive issue that emerges for adjudication is whether the Pr.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 expenses claimed.
9.3 On perusal of the show cause notice and consequent revisional order passed by the Pr.CIT under s.263 of the Act, we notice that the declaration made by the assessee towards outstanding / pending expenses of revenue nature was abnormally high in the context of the facts and circumstances of the case as noted in para 4 (supra). The Pr.CIT on facts has observed that such unusually large and disproportionate expenses claimed to remain outstanding at the end of the year would warrant some enquiry to peep into the bonafides of the claim. The outstanding expenses were shown to be nearly 36% of the total direct expenses which is apparently very high more particularly when the development project stood completed and the 90% of the total inventory were also sold before the end of the FY 2013-14 in question. To satisfy the anxiety of the bench on the allegations labeled against the AO, the assessment records were also produced by the Revenue. A perusal of the assessment records, squarely clinches the conclusion made by the Revisional Commissioner. The order sheet prepared by the AO which is meant to note day-to-day events and occurrences in respect of ongoing proceeding and what transpired in the course of hearing was prepared in an incredulous and cavalier manner. The order sheet does not reflect any pattern of inquiry made on any aspect of the assessment. The assessment records however contains a reply from assessee (without any reference to any questionnaire) wherein details of pending expenses together with ledger account is claimed to have been annexed. A perusal of the so- called details show no marking whatsoever at the end of the AO. The details of appeals to have been simply kept in file without even a glance at it. It is also not known as to what compelled the assessee to file such details. No data analytics have been performed on such disproportionate large outstanding expenses introduced in the books. No inquiry of any type is seen to be carried out either. The assessment records clearly show that the assessment has been completed in a most perfunctory manner without looking into any crucial aspect of the assessment. The assessment order finally passed is cryptic and non-descript. The issue red flagged, when looked by attaching weight to all facts cumulatively, it is glaring that the action of the AO does not accord with normal conduct of a responsible statutory functionary. Pertinent here to say, the proceedings before the AO are quasi judicial proceedings and all the incidents of such proceedings are expected to be observed without laxity before the result of the proceedings are determined. The Pr.CIT has demonstrated the existence of definite cause of action for enquiry in unequivocal terms when seen contextually. The Pr.CIT in discharge of its solemn duty under s.263 of the Act could not remain oblivious of the fact objectively drawn.
9.4 Having regard to the sweeping conduct of the AO in finalizing the assessment without making requisite enquiry on the abnormal character of outstanding expenses having direct bearing on the assessed income, there appears to be an apparent plausibility in the action of the Pr.CIT by resorting to powers under s.263 of the Act which are of wide amplitude. As narrated, the circumstances clearly existed which demanded enquiry which was not done by the AO while discharging its statutory function. Thus, armed with fairly extensive powers, the Pr.CIT, in our view, has taken action compatible with circumstances. While holding so, we alive to the plea on behalf of the assessee that reasonable details were placed with regard to the pending expenses. We are not impressed by such line of argument when tested on the touchstone of Section 263 of the Act. The record clearly speaks of indifferent conduct by the AO accepting the book results. Therefore, the cause of action did exist for invocation of Section 263 of the Act. Hence, the Pr.CIT was fully justified in invoking its power under s.263 of the Act to set aside the assessment framed without any application of mind on the crucial aspect which is self-revealing in the context of the case.
9.5 We also would like to take note of objection on behalf of the assessee that the Pr.CIT has objected to the action of the AO inter alia on the ground of deduction of TDS on pending expenses claimed apart from their genuineness and business connection. It was contended on behalf of assessee that the Pr.CIT could not have added this facet in the revisional order without giving opportunity to the assessee. While it is true that granting an opportunity on this facet would have conduced to more effective administration of revisional power, We simultaneously observe such aspect is integrally connected to the bonafides of the claim of pending expenses and is only subservient to the core issue of enquiry on eligibility of expenses claimed. We therefore decline to entertain the aforesaid objection as well.
9.6 The judicial precedents relied upon on behalf of the assessee are not found to be of any assistance. The decisions referred too are broadly based on the circumstances where either relevant material was not found or where it was found is a matter of fact that there was no failure on the part of the AO is to make inquiries. Needless to say, the scope of Section 263 of the Act is quite different. In order to invoke Section 263 of the Act, the competent authority is required to find that order sought to be revised is erroneous and caused prejudice to the Revenue. A lack of inquiry on a pertinent point which demonstrates possible revenue leakage of staggering amount would definitely tantamount to the order being both erroneous as well as prejudicial to the interest of the Revenue. Consequent upon the action of Pr.CIT, the assessment order is merely cancelled and set aside to the file of the AO for making relevant inquiries as specified for which objective material is available at the threshold. The assessee has not estopped in any manner from dealing with the inquiry as specified to the AO and to rebut the perception on error in the original order. The assessee is not prevented from supporting its case in any manner before the AO in the proceedings pursuant to Section 263 of the Act. We thus do not see any justifiable reason to interfere with the revisional action of the Pr.CIT.
In the result, appeal filed by the assessee is dismissed.
This Order pronounced in Open Court on 20/02/2020
Sd/- Sd/- (MADHUMITA ROY) (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 20/02/2020 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, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।