JAYACHANDRA BEARINGS INDIA PVT LTD,COIMBATORE vs. VRAJAN,ITO, COIMBATORE

The Registry has noted delay of 677 days in the appeal, the condonation of which has been sought by Ld. AR. Considering the fact that the impugned order was passed during lockdown arising out of Covid-19 and the period as available before assessee to prefer appeal fall within lockdown situation arising out of Covid-19 Pandemic, we condone the delay and admit the appeal for adjudication on merits. Having heard rival submissions, the appeal is disposed-off as under.

The assessee being resident corporate assessee was assessed u/s. 143(3) on 21-12-2017. The case was selected for limited scrutiny, inter-alia, for the reason of large increase in sundry creditors and reduction in business income as compared to preceding year. The Ld.

Subsequently, upon perusal of case records, Ld. Pr.CIT sought revision of the order u/s 263 on the ground that the profits were arrived after reducing exceptional item of Rs.27.04 Lacs and extraordinary items of Rs.41.89 Lacs. However, no details were available on record to substantiate the above claims of the assessee. Accordingly, the assessee was put to show-cause notice. The assessee submitted that the expenses were in conformity with the provisions of the Companies Act, 2013. The exceptional items were nothing but amount arising out of change in method of depreciation and loss of stock / receivables. The same were disclosed as such as per Accounting Standard-5 issued by ICAI. However, Ld. Pr. CIT rejected the plea of the assessee by observing as under: - 5. The submissions of the assesses, the issue on hand, the facts of the case and the assessment records have been carefully perused. For the assessment year 2015-16, the Profit & loss Account showed exceptional item of Rs.27,04,506 and extraordinary items of Rs.41,89,765. Upon perusal of the miscellaneous records, it was noticed that there were no details available. The assessment order passed supra, though was for a limited purpose, the AO could have raised this issue and examined after obtaining necessary prior sanction from the prescribed authorities to probe further. This was also not done. In the present proceedings, it was stated that as per AS-5 and the change in method of depreciation as per Companies Act, 2013, separate disclosure have to be made in the profit and loss account. It was also claimed by the AR that the exceptional item claimed was only additional depreciation charged due to change in Companies Act method of charging depreciation. And for extraordinary item, it was claimed that there was loss of stock of material value due to theft in its Chennai Branch. The AR had submitted some details in support of this claim too. Since these are the clarifications made by the assessee now in response to the show cause notice u/s 263 of the Act issued, the same requires further examination and verification of the details by the AO afresh.

In view of the discussions above the order of assessment passed by the AO u/s.143(3) dated 21-12-2017 is made without verification of the facts and proper examination of the issue on hand. The order so made, suffers in as much as it is erroneous and prejudicial to the interest of revenue, requiring an intervention to cure the order made erroneous and prejudicial to the interest of revenue. In order 4 - to remedy the said error in the order of assessment in the instant case made on 21-12-2017 for the assessment year 2015-16, the recourse would be to resort to provisions of sec.263 of the Act. Accordingly, the order of the AO dated 21-12- 2017 for the assessment year 2015-16 in the case of the captioned assessee is, set aside, in exercise of the powers vested in me u/s.263 of the Act.

The assessing officer, is hereby directed to re-do the assessment afresh after verification of the facts discussed above in accordance with law. The assessing officer shall give adequate opportunity of being heard to the assessee in this regard before passing the fresh assessment order. Aggrieved as aforesaid, the assessee is in further appeal before us.

From the facts, it emerges that one of reason to scrutinize the return of income was large increase in sundry creditors and reduction in business income as compared to preceding years. It is undisputed fact that the assessee has debited exceptional items in the Profit & Loss Account which has reduced the business income of the assessee. Another fact is that both the items as flagged by Ld. Pr. CIT was never examined by Ld. AO during the course of regular assessment proceedings and no query was raised, in this regard. No details were furnished by the assessee. Therefore, it was a case of no enquiry by Ld. AO and therefore, Ld. Pr. CIT was perfectly justified in revising the order. Therefore, finding no reason to interfere in the same, we dismiss the appeal.