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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI SANDEEP GOSAIN & SHRI O.P.MEENA
Page 1 of 15 KKB Projects Pvt. Ltd., Vs. PCIT-1, Surat /ITA No.222/SRT/2019 for A.Y. 2014-15
आयकरअपील�यअ�धकरण,सुरत�यायपीठ,सुरत IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER आ.अ.सं./I.T.A No.222/SRT/2019 �नधा�रण वष�/Assessment Year: 2014-15 M/s.KKB Projects Pvt. Ltd., V The Principal Commissioner 408-409, City Centre, s of Income Tax -1, Surat. Lal Darwaja Road, Near Resham . Bhavan, Surat. [PAN: AADCK 0811 H] अपीलाथ� / Appellant ��यथ�/Respondent �नधा�रतीक�ओरसे /Assessee by Shri Rasesh Shah – CA राज�वक�ओरसे /Revenue by Shri O.P.Singh – CIT-DR
सुनवाईकीतारीख/ Date of hearing: 04.12.2019 उ�घोषणाक�तार�ख/Pronouncement on: 13.12.2019 आदेश /O R D E R PER SANDEEP GOSAIN, JM: 1. This appeal by the Assessee is directed against the order of Ld.Principal Commissioner of Income Tax-1, Surat dated 22.03.2019 for the assessment year 2014-15.
Grounds raised by the assessee read as under: “1. On the facts and in circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in passing the order u/s.263 by invoking Explanation 2 although the assessment order passed u/s. 143(3) of the I. T. Act, 1961 was neither erroneous nor prejudicial to the interest of the revenue. 2. On the facts and circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in setting aside the assessment with the direction to frame the assessment denovo for examining the issue of
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payments made to related parties u/s. 40A(2)(b) and issue of allowability of expenses debited in P&L A/c in the from of bank guarantee commission and bank guarantee renewal. 3. It is therefore prayed that above order passed by Pr. CIT u/s. 263 may please be quashed or modified as your honour deem it proper.” 3. Brief facts of the case are that the assessee is engaged in the business as a government contractor for construction works during the year and consideration. The assessee company filed its Return of Income on 17.11.2014 for the A.Y. 2014-15 by declaring total income of Rs.7,45,67,950/-. The Scrutiny assessment was finalized u/s.143(3) on 28.12.2016 by determining the total income at Rs.7,46,90,940/- by way of making addition of Rs.1,22,994/- on account of disallowance of various expenses.
Subsequently, ld.Pr.CIT on scrutiny record had observed that there were various payments made by the assessee company to the persons covered u/s.40A(2)(b) of the Act in the form of director remuneration, rent expenses and purchase payments. However, no proper verification has been made by the AO in respect of these payments.
Ground No.1: The Authorised Representative (AR) reiterated the same arguments as raised before the ld.Pr.CIT. It was submitted that ld.PCIT has erred in passing the order u/s.263 of the Act by invoking Explanation-2 although, the assessment order passed u/s.143(3) of the I.T.Act was neither erroneous nor prejudicial to the interest of Revenue.
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It was also submitted that ld.Pr.CIT has erred in setting aside in the assessment with a direction to frame the assessment denovo for examining the issue of payments made to related parties u/s.40A(2)(b) of the I.T.Act and issue of allowability of expenses debited in the Profit and Loss Account in the form of bank guarantee commission and bank guarantee renewal. The ld.AR further submitted that as far as the issue of payment made to related parties u/s.40A(2)(b) of the Act is concern, it was submitted that there are various payments made by the assessee to the persons covered u/s.40A(2)(b) of the Act in the form of Director Remuneration, Rent, Expenses and Purchase Payments. It was further submitted that proper verification had been made by the Assessing Officer(AO) in respect of these payments. Therefore, ld.Pr.CIT has wrongly held that no proper verification has been made by the AO in respect of various payments made by the assessee to the person covered u/s.40A(2)(b) of the I.T.Act. It was submitted that the assessee had filed the tax audit report vide letter dated 03.05.2016 wherein all the details regarding related parties u/s.40A(2) were disclosed appropriately along with the name, PAN, Relation, Nature of transaction and payment made. It was also submitted that AO vide letter dated 03.11.2016 has asked for details in respect of purchases made from sister concern and rent paid to related parties which were duly complied with. The assessee also produced the books of accounts along with purchase register which also contained the details of purchase made from sister concern vide letter
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dated 25.11.2016. Further the assessee vide letter dated 28.11.2016 also furnished details regarding rent paid to related parties. Apart from purchases and rent, the assessee had also made payment for remuneration to directors which are also in the line with earlier years as under : A.Y. 2014-15 2013-14 2012-13 Director’s Name Remuneration Remuneration Remuneration (Rs./-) (Rs./-) (Rs./-) Kantilal Bhalala 9600000 9600000 9600000 Pradipbhai Gajera 4800000 4800000 4800000 Beenaben Bhalala 3600000 3600000 3600000 6. It was further submitted that the ld.Pr.CIT had stated that the AO has failed to invoke the provisions of Section 40(A)(2) of the Act, however it is wrong to state the same as the assessee had filed all the documents and books of accounts and there was nothing on record to suggest that assessee had made any excessive payment to related. It was further submitted that in fact in this case, the provision of domestic transfer pricing were applicable for the year under consideration. In this regard, The assessee had also duly furnished the report from expert in Form 3CEB as required by law wherein all the details of payment made to related party were mentioned viz. Name of person with whom specific domestic transaction has been entered into, Description of transaction along with quantitative details if any, Total amount paid or payable in the transaction as per books and as computed by assessee having regard to arm’s length price, Method used for determining the arm’s length
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price. Further, the AO was satisfied with the report and hence, the assessment order cannot be termed as erroneous on this issue. Also, the assessment order cannot be considered as prejudicial to the interest of Revenue, because the assessee had filed all the documents and books of accounts and there was nothing on record to suggest that assessee had made any excessive payment to related parties and hence there is no loss to the Revenue.
Further, with regard to issue of making payment of bank guarantee commission and renewal fees is concern in this regard, it was submitted that assessee had claimed payment of bank guarantee commissions of Rs.74.01 lakhs and bank guarantee renewal fee of Rs.5 lakhs on payment basis irrespective of the period to which it pertains. It was submitted that in this respect, the ld.Pr.CIT has observed that out of the same is substantial pertains to the succeeding year but has been allowed during the year under consideration. The ld.AR submitted that a specific query was raised by the Assessing Officer and the assessee has submitted ledger account vide letter dated 25.11.2016 and also duly replied to the query vide letter dated 26.12.2016 as under: "Bank guarantee commission charge by the bank is in the nature of fixed charge and once the bank guarantee commission paid is not refundable irrespective of the utility of bank guarantee facility and hence it cannot be determined time period for which and to in what proportion the charges can be appropriated. Further there Is no parameter by which the bank guarantee commission can be appropriated and hence it is debited to profit and loss account in the year of payment considering the
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unique nature if expenses and we have followed this method consistently from year to year." 8. It was further submitted that the Assessing Officer has applied his mind and after considering the same has passed the assessment order u/s 143(3) and hence this is not the case of no inquiry. It is well settled that both the conditions viz order of the assessing officer should be erroneous and assessment order should be prejudicial to the interest of Revenue should be cumulatively satisfied by the ld.Pr.CIT. The reliance is placed on the decision of Hon'ble Gujarat High Court in case of CIT v/s. Minaiben S. Parikh - 215 ITR 0081 (Guj.) and the decision of Honourable Bombay High Court in case of CIT v/s. Gabriel India Ltd. - 203 ITR 108 (Bom.) and decision of Honourable Supreme Court in the case of Malabar Industrial Co. Ltd. V/s. CIT – 243 ITR 83. Even if it is assumed that two views are possible and assessing officer has adopted one of the views in favour of the assessee, the assessment order cannot be revised u/s. 263 as held by Honourable Supreme Court In case of Malabar industrial Co. v/s. CIT - 243 ITR 0083 (SC). The decision of the Supreme court was followed in the case of CIT vs. Max India Ltd. - 295 ITR 0282 (SC) and by the Gujarat High Court in the case of CIT vs. Arvind Jewellers - 259 ITR 0502. It was submitted that in view of the above submission it is clear that the order passed by Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue and requested to drop proceedings initiated u/s. 263.
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On the other hand, the ld.Departmental Representative(DR) relied upon the orders of the ld.Pr.CIT.
We have heard the Counsels of both the parties and we also perused the material placed on record and orders passed by the Revenue Authority as well as the judgments cited by the party. As per the facts of the present case, the assessee company is engaged in the business of government contractor for construction works during the year under consideration. The original assessment was completed u/s.143(3) by the AO thereby assessing the total income at Rs.7,46,90,944/- as against return income of Rs.7,45,67,950/-. In the course of assessment proceedings, assessee also furnished copy of Tax Audit Report, P&L Account, Balance Sheet and Capital Account along with copy of income, return of income and computation of income. Assessee had also produced the books of accounts before the AO which was duly verified by the AO. The assessee had furnished the details from time to time in response to various noticed issued by the AO and those details were furnished by the assessee vide letter dated 03.05.2016, 25.11.2016, 28.11.2016 and 26.12.2016.
The ld.Pr.CIT raised two issues while invoking the powers for revision u/s.263 of the Income Tax Act. As according, the ld.Pr.CIT the two issues i.e. 1) payment u/s.40A(2)(b) of the Act and 2) payment of
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bank guarantee commission and renewal fees was not enquired by the AO and thus, the ld.Pr.CIT invoked the provision u/s.263 of the I.T.Act.
After having heard the Counsels of both parties at length and after perusal of the documents placed on record before us, as well as the judgments cited by both the parties of higher courts, we find that as far as the issue of payment made u/s.40A(2)(b) of the Act is concern, in this respect, we observe that various payments were made by the assessee to the person covered u/s.40A(2)(b) of the Act in the form of Director Remuneration, Rent, Expenses and Purchase Payments.
The ld.AR has drawn our attention to paper book, page no.43 to 75 which is Tax Audit Report along with audited financial statements and at page no.50, at column no.22, 23 the details/particulars of payments made to the persons specified u/s.40A(2) has already been mentioned. The assessee has also drawn our attention to page no. 55 which contains the details regarding turnover, Gross Profit of the previous years and the preceding previous years and at page no.40 of the paper book, Form 3CEB is contained in page no.34 to 42 of the paper book, more particularly at page no.40 the particulars in respect of transactions in the nature of any expenditure u/s.40A(2)(b) of the Act have specifically been mentioned. All those documents were examined by the auditors which are part and parcel and tax audit report along with audited financial statements. The AO had cited details in respect
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of these transaction in his notice issued u/s.142(1) of the Income Tax Act which is at page 29 to 30 of the paper book. The assessee had furnished a letter dated 30.05.2016 thereby explaining the details and also placing on record all the documents in the form of Annexures it is Annex at page no 27 to 28 of the paper book. The AO had again issued notice u/s.142(1) of the Income Tax Act dated 03.11.2016 which is at page 24 to 26 and in this respect the reply was also filed by the assessee before the AO which is at page no.20 to 23 and had filed all the replies along with documents and participated into the enquiry proceedings being carried out by the AO. We, further noticed that since the assessee has filed the audited reports containing all the details regarding related parties u/s.40A(2)(b) along with name, PAN, Relations, nature of transactions and payments made. Even otherwise, the assessee has also duly furnished the report from expert in Form 3CEB as required by Law, wherein all the details of payment made related to party were mentioned i.e. name of persons with whom specifically domestic transactions as entered into, description of transaction along with quantitative details if any. Total amounts paid or payable in the transaction as per the books and as computed by the assessee having regard to arm’s length price. The method used for determining the arm’s length price which also goes to show that there is nothing on the record to suggest that assessee had made any excessive payments to the related parties which has caused loss to the Revenue.
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Ground No.2: As far as the second issue with regard to payment of bank guarantee commission and renewal fees is concern, in this regard, we have seen from the record that specific query was raised by the AO and the assessee had submitted ledger account vide letter dated 25.11.2016 and also duly replied to the query vide letter dated 26.12.2016.
All those facts goes to show that the AO has applied his mind and after considering the same and has passed the assessment order u/s.143(2) of the Act and hence it cannot be said that this is a case of no enquiry. It is well settled that both the conditions vis-à-vis before of AO should be erroneous and assessment was prejudicial to the interest of Revenue and both those conditions should be cumulatively specified by the ld.Pr.CIT. The ld.AR has placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT Vs. Gabriel India Ltd., 203 ITR 108 (Bom) and the decision of Hon'ble Supreme Court in the case of The Malabar Industrial Co. Vs. CIT 243 ITR 83. The ld.AR has further drawn our attention to the decision of CIT Vs. Max India Ltd. 295 ITR 0282 (SC) wherein it was held that when two vies are possible and where the ITO is taken one view with which the CIT does not agree, it cannot be termed as an erroneous order decision to the prejudicial to the interest of Revenue, unless the view taken by the ITO is unsustainable in law. In the case of CIT Vs. Amit Corporation 81 CCH
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0069 (Guj HC) wherein it has been held that the Commissioner was of opinion that AO did not carry out proper inquiries during assessment proceedings. Commissioner set aside order of AO and placed matter back before AO to frame assessment de novo after making proper inquiry and verifying books of account of assessee-Tribunal allowed assessee’s appeal- Held, when, during course of framing of assessment, AO had access to all records of assessee and after pursuing such record AO framed assessment, such assessment could not have been re-opened in exercise of revision power u/s 263 for making further inquiries-In facts of case, Tribunal rightly interfered with such order-Appeal dismissed. In the case of CIT Vs. Arvind Jewellers 259 ITR 0502 (Guj HC) wherein it has been held that Enquiry by ITO-Finding of fact given by the tribunal that the assessee had produced relevant material and offered explanation in pursuance of the notices issued under s. 142(1) as well as s. 143(2)- ITO has come to a definite conclusion after considering those material and explanation-Mere fact that a different view could be taken cannot be a basis for an action under s. 263-Tribunal was justified in setting aside the order passed by the CIT under s. 263 and in the case of CIT Vs. Nirav Modi 390 ITR 0292 (Bom. HC) wherein it has been held that Commissioner in his order of revision, did not indicate any doubt in respect of genuineness of evidence produced by assessee – Moreover, satisfaction of Assessing Officer on basis of documents produced was not shown to be erroneous –Whether on facts, it was a case where a view had
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been taken by Assessing Officer after making proper enquiry and, thus, Tribunal was justified in setting aside impugned revisional order – Held, yes” in the case of CIT Vs. DG Housing Projects Limited 343 ITR 329 (Del. HC) wherein it has been held that the Commissioner cannot remit the matter for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order of Assessing Officer is erroneous –Such finding that the order is erroneous is a condition precedent for exercise of jurisdiction under s. 263.” and in the case of CIT Vs. Sunbeam Auto Ltd., 189 Taxman 0436 (Del) wherein it was held that There is distinction between "lack of enquiry" and "inadequate enquiry"—If there is enquiry, even inadequate, that would not by itself give occasion to the CIT to pi order under s. 263, merely because he has a different opinion in the matter—Such a course of action is open only in cases of "lack of enquiry"—Contention of the Revenue that the AO did not consider as to whether the expenditure in question was capital or revenue expenditure cannot be accepted—Although apparently the assess does not give any reasons for allowing the entire expenditure as revenue expenditure, that by itself would not be indicative of the fact that the AO has not applied his mind to the issue—AO is not required to give detailed reason in respect of each and every item of deduction in the assessment order—AO had called for explanation regarding this very item and the assessee had furnished explanation—This fact has been noticed by the CIT himself in his order— Thus, cannot be said that it is a case of 'lack of enquiry'—Further, even
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the CIT was not clear as to whether the said expenditure is to be treated as capital or revenue expenditure—Dyes used by the assessee, a manufacturer of car parts, are t components of the machines and need constant replacement as their life span is more than a year—With the replacement of such tools and dyes, no new asset com into existence, nor there is benefit of enduring nature—It does not enhance the 1 of the existing machine or increase its production capacity—Therefore, the view taken by the AO was one of the possible views and the assessment order passed the AO could not be held to be prejudicial to the Revenue”.
The above judgment of Hon'ble Delhi High Court in the case of Sunbeam Auto Ltd. clearly made distinction between “ lack of enquiry” and “inadequate enquiry”. It was held that if there is an enquiry even inadequate, that would not by itself give vocation to the CIT to pass order u/s.263 of the Act, merely because he has a different opinion in the matter. Further, in the case of Narayan Tatu Rane Vs. ITO [2016] 70 taxmann.com 227 (Mum Trib) AND Shanti Krupa Estate Pvt. Ltd., Vs. ACIT in ITA No.1252/Ahd/2015, Ahmedabad Tribunal has held as under : “7. Shri Anil Kumar, learned C.I.T. (D.R.) at this stage relies upon section 263 Explanation 2 inserted in the Act by the Finance Act 2015 w.e.f. 01.06.2015 envisaging exercise of revision jurisdiction even when an assessment is framed without any enquires and verification which should have been, in the opinion of revisional authority, deemed to be erroneous in so far as prejudicial to the interest of the revenue. He cites a co-ordinate bench decision of Crompton Greaves Limited vs. CIT - ITA No.1994/Mum/2013 and 2836/Mum/2014 decided on 01.02.2016 holding the above explanation to section 263 of the Act as retrospective in nature. The assessee at this stage informs us that another
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coordinate bench in ITA nos.870 & 1234/Ahd/2014 decided on 20.05.2016 in the case of Jayanth Murthy vs. DCIT holds the above stated former decision as per incuriam and section 263 Explanation 2 to be only having prospective operation. The Revenue’s argument on inadequate enquiry aspect is accordingly rejected. We rely on hon’ble jurisdictional high court’s decision in CIT vs. Amit Corporation (2013) 213 Taxman 19 (Gujarat) holding that section 263 is not to be invoked for making further enquiries in case the Assessing Officer had access to all records and he framed assessment after making the relevant enquiries. We accept assessee’s argument challenging the CIT’s view that the Assessing Officer ought to have made further enquiries as narrated hereinabove accordingly.” 17. The above proposition as decided by the Co-ordinate Bench of ITAT clearly held that in ITA No.870 & 1234/Ahd/2014 decided on 20.05.2016 in the case of Shri Jayant Murthy Vs. DCIT wherein it was held that section 263 Explanation 2 to be only having prospective operations as in the present case the matter belongs to A.Y. 2014-15 and the Explanation 2 was inserted in the Act u/s.263 by Finance Act 2015 w.e.f 01.06.2015. Even otherwise, taking into consideration the cumulative facts observed by us in the present case as well as the legal proposition laid down by the higher courts we are of the view that in the present case the AO had made enquiry and assessee has also placed on record all the documents as were required by the AO in respect of both the issues as now raised by the ld.Pr.CIT. Thus, the order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue. Merely just because the view taken by the AO was not found acceptable does not mean that the AO has failed to make requisite enquiries. Thus, the view taken by the AO was plausible view, which cannot be disturbed by the Ld. Pr.CIT. Therefore, the ld. Pr.CIT was not correct in exercise the jurisdiction under section 263 of the Act. In view of these facts and
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circumstances, we quash the proceedings initiated in the impugned order passed under section 263 of the Act and allow the appeal of the assessee.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 13-12-2019.
Sd/- Sd/- (O.P.MEENA) (SANDEEP GOSAIN) (लेखा सद�यतथा/ACCOUNTANT MEMBER) (�याियक सद�यकेसम� /JUDICIAL MEMBER) सुरत/ Surat, �दनांक Dated: 13th December, 2019/S.Gangadhara Rao, Sr.PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat