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Income Tax Appellate Tribunal, ‘’ B ’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Principal Commissioner of Income Tax, Vadodara [Ld.Pr.CIT in short] dated 24/03/2015 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in- after referred to as "the Act") dated 30/07/2012 relevant to Assessment Year (A.Y) 2010-11.
The assessee has raised the following grounds of appeal: Page 1 of 9 1.1 The order passed u/s.263 on 24/03/2015 for A.Y. 2010-11 by Pr. CIT Vadodara-2 revising u/s.263 of the Act the order of assessment passed u/s.143(3) on 30/07/2012 by AO is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld.CIT has grievously erred in law and on facts considering fully and properly the submission made and evidence produced by the appellant. 1.3 The ld.Pr.CIT has erred in law and on facts in exercising the powers of Revision u/s.263 of the Act because the conditions precedents for the same were not fulfilled. The said order of assessment was neither erroneous not prejudicial to the interest of the Revenue. 2.2 That in the facts and circumstances of the case as well as in law, the Ld.Pr.CIT ought not to have held the order of assessment passed by AO as erroneous and prejudicial to the interest of the Revenue. 3.1 The Ld.Pr.CIT has erred in holding that the AO had failed to examine the genuineness of the unsecured loans of Rs.85,08,498/- in absence of PAN, address, bank statement etc. though the appellant had fully discharged the burden cast upon it by producing necessary evidence. 3.2 The Ld.Pr.CIT has erred in holding that the AO had failed to verify the sundry creditors by issuing letter u/s.133(6) in absence of address. It is therefore, prayed that the order of Revision passed u/s.263 by the Pr.CIT may kindly be quashed.
The assessee in this appeal has challenged the order passed by the Ld. PCIT under section 263 of the Act, on the ground, that there was no error causing any prejudice to the interest of Revenue in the order of the AO passed under section 143(3) of the Act.
2. The facts, in brief, are that the assessee in the present case is a private limited company and engaged in the business of extraction of mines & quarries. The assessee for the year under consideration filed its return of income u/s 139(1) of the Act, on 29-09-2010 declaring total income at Rs. 20,78,440/- only. Subsequently, the case of the assessee was selected under scrutiny, and accordingly, the assessment was framed after making the disallowance of Rs. 2,85,835/- on account of Royalty expenses under section 143(3) of the Act vide order dated 30-07-2012.
2.1 The Ld. PCIT on examination of the assessment records found that the assessment order passed by the AO is erroneous insofar prejudicial to the interest of Revenue for the following reasons: 1. The assessee in his balance-sheet has shown unsecured loan amounting to Rs. 85,08,498/-only. But the AO has not verified the identity, creditworthiness of the loan creditors, and genuineness of the transactions.
The assessee in its balance sheet has shown creditors for expenses amounting to Rs. 2,37,34,645/-only. But the AO has not verified the genuineness of the creditors by issuing a notice under section 133(6) of the Act. Similarly, the assessee in support of such creditors has filed unsigned and unverified ledgers of the parties. In view of the above, the Ld. PCIT under section 263 of the Act issued a notice dated 30th March 2013 proposing the order of the AO as erroneous insofar prejudicial to the interest of Revenue.
2.2 The assessee in response to the notice submitted that there was no unsecured loan taken in the year under consideration except an amount of Rs. 2,24,000/- from the managing director of the company. All the supporting evidence with respect to such loans such as a copy of income tax return, statement of income, copy of the account, and confirmation were furnished before the AO. Similarly, the copies of the ledgers of all the depositors, PANs, and confirmation were furnished before the AO during the assessment proceedings.
2.3 The assessee also claimed to have furnished the copies of the ledger accounts of creditors above Rs. 50,000.00, along with the addresses, confirmations during the assessment proceedings.
In the light of the above, the assessee before the Ld. PCIT pleaded that the AO had passed the assessment order under section 143(3) of the Act, after verifying all the supporting evidence with respect to the loan and sundry creditors as discussed above. Therefore the order of the AO cannot be held as erroneous insofar prejudicial to the interest of Revenue on account of non- verification of the facts as stated above.
2.4 However, the Ld. PCIT being dissatisfied with the contention of the assessee held that the order passed by the AO is erroneous and prejudicial to the interest of Revenue on account of non-verification of the loan and the sundry creditors in the absence of supporting documents.
Being aggrieved by the order of the Ld.CIT (A), the assessee is in appeal before us.
The Ld. AR before us filed a paper book running from pages 1 to 66 and submitted that the AO had passed the order after due verification of the facts with respect to the loan creditors and sundry creditors for expenses.
4.1 The Ld. AR in support of his contention drew attention on the notice issued by the AO under section 142(1) of the Act dated 14-10-2011 which is Page 4 of 9 placed on pages 9 and 10 of the paper book. Similarly, the Ld. AR drew attention on the reply furnished by the assessee in response to the notice issued by the AO, which is placed on pages 5 to 8 of the paper book.
4.2 The Ld. AR also drew our attention to the details where the complete addresses of the sundry creditors were mentioned, which are placed on page 6 of the paper book.
4.3 The Ld. AR also submitted that the AO in the consequential order of the Ld. PCIT direction under section 263 of the Act has not made any addition qua the loan creditors. Similarly, the AO also reduced the addition on account of sundry creditors to Rs. 33,29,722/- only out of the total disallowance of Rs. 2,37,34,645/-.
4.4 The Ld. AR in view of the above submitted that the order passed by the AO cannot be held erroneous insofar prejudicial to the interest of Revenue on account of non-verification of the facts stated above.
On the other hand, the Ld. DR vehemently supported the order of the Ld. PCIT passed under section 263 of the Act.
We have heard the rival contentions of both the parties and perused the materials available on record. In the instant case, the Ld. PCIT has held the order of the AO as erroneous insofar prejudicial to the interest of Revenue on account of non-verification of loan creditors and sundry creditors as detailed above.
6.1 However, we note that the AO during the assessment proceedings has required the assessee to furnish the details of the addition in the unsecured loan account and the details of the sundry creditors having an outstanding balance of Rs. 50,000/- in the notice issued under section 142(1) of the Act. The relevant extract of the notice issued under section 142(1) of the Act is reproduced as under:
NOTICE UNDER SUB-SECTION (1) OF SECTION 142 OF THE INCOME-TAX ACT,1961 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 9. Plaese furnish the details of unseciiredjpan taken/paidjjuring the year under account along with copy of account. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 11. Please furnish details of all sundry creditors having balance exceeding Rs.50000/- during the year under account.
6.2 We also find that the assessee in response to the above notice has made the submissions as detailed under:
There is only one addition in unsecured loan account, from Managing Director Mr.Bharatbhai C. Patel of Rs.224000. Copy of his return of income and his confirmation are Attached herewith foTyour kind Reference. Also copies of accounts of all unsecured loan accounts with their PAN and confirmation are attached herewith. There are no squared up deposit accounts.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 11. Copies of account of all the sundry creditors in excess of Rs.50000/- are attached herewith with complete address. 6.3 Besides the above, we also note that the assessee has furnished the PAN of the creditors as evident from the reply of the assessee dated 18-7- 2012, which reads as under: With reference to the points raised in personal hearing, we will like to reply point wise in the following manner. 1. Income Tax Permanent Account Numbers (PAN) of almost all debtors, creditors and transport operators are attached herewith.
6.4 We also note that a list of the creditors containing the addresses, PAN, and the amount outstanding was also furnished, which is placed on page 6 of the paper book. The list of such creditors is also attached along with this order as per Annexure ‘A.’ In view of the above, we hold that the assessment order was framed under section 143(3) of the Act after due verification by the AO. Accordingly, we are of the view that the order of the AO cannot be held as erroneous insofar prejudicial to the interest of Revenue on account of non-verification of the facts as stated above.
6.5 In holding so, we draw support and guidance from the judgment of the Hon’ble Supreme court in the case of Malabar Industrial Co Ltd Vs. CIT reported in 109 Taxman 66 wherein it was held as under: In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appeared that the resolution passed by the board of the appellant-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the ITO was erroneous was irresistible. Therefore, the High Court had rightly held that the exercise of the jurisdiction by the Commissioner under section 263(1) was justified.
6.6 We also note that the AO in the consequential order of the Ld. PCIT direction under section 263 of the Act has not made any addition qua to the loan creditors, therefore the order passed by the Ld. PCIT cannot be said as erroneous insofar prejudicial to the interest of Revenue on this count.
6.7 Similarly, we also note that AO in most of the cases of outstanding sundry creditors has not made any addition in the consequential order. As such, the AO in the consequential order has made the addition in respect of the few of the parties amounting to Rs. 33,29,722/-only out of total sundry creditors amounting to Rs. 2,37,34,645/-. Thus there was no prejudice to the interest of Revenue for the amount of sundry creditors amounting to Rs. 2,04,04,923/-( Rs. 2,37,34,645.00 - 33,29,722.00 ).
6.8 After considering the facts in totality as discussed above, we quash the order passed by the Ld. PCIT under section 263 of the Act. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 25/07/2019 at Ahmedabad.