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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: Shri Rama Kanta Panda & Shri Laliet Kumar
Per Shri Rama Kanta Panda, A.M. This appeal filed by the assessee is directed against the order dated 22.03.2019 passed u/s. 263 by the Learned Principal Commissioner of Income Tax -6, Hyderabad relating to AY 2014-15.
Facts of the case, in brief, are that the assessee is a partnership firm engaged in the business of trading and processing of human hair. It filed its return of income on 07.11.2014 declaring total income of Rs.58,64,820/-. The AO completed the assessment u/s. 143(3) on 13.12.2016 determining the total income at Rs.62,14,820/- wherein he made adhoc addition of Rs.3,50,000/- in absence of proper bills and vouchers in respect of various expenses claimed.
2 ITA 743/Hyd/2019 3. Subsequently, the ld.PCIT examined the assessment records and noted that during the relevant year, the assessee firm has debited purchases of Rs.52,33,65,669/- to the P&L account, whereas the purchases as per the VAT returns is at Rs.51,80,57,530/-. He further noted from Form 26AS that during the impugned assessment year the assessee firm received interest of Rs.43,320/-, but it has accounted for the same at Rs.39,311/- in the P&L account. He observed that the AO during the assessment proceedings has not verified these issues and completed the assessment without causing any enquiries regarding these apparent mistakes. Since the AO has completed the assessment without proper verification and application of mind, he was of the considered opinion that the order passed by the AO is erroneous and prejudicial to the interest of the revenue. He, therefore, issued a show cause notice to the assessee asking him to explain as to why the order passed by the AO should not be revised u/s. 263 of the I.T.Act, 1961.
The assessee relying on various decisions submitted that since the AO has verified all the information and taken one of the possible views, therefore, merely because the ld.PCIT does not agree with the view taken by the AO cannot be a ground from revision u/s. 263.
4.1 However, the ld.PCIT was not satisfied with the arguments advanced by the assessee. He noted that the issues on which the proceedings are sought to be revised are on account of excess purchases debited to the P&L account and short admission of interest income, which are not verified by the AO. Further, the questionnaire called for by the AO for examination does not show that AO has raised any issue on which the proceedings are taken up now. Since, the assessee firm had not furnished any proper explanation regarding the discrepancies in the purchases as
3 ITA 743/Hyd/2019 disclosed in the P&L account and purchases as disclosed in the VAT return, therefore, the purchases are over cast by Rs.53,08,139/- which the AO should have disallowed. Similarly, since the assessee has admitted interest income of Rs.39,311/- as against Rs.43,320/- as per the Form 26AS, therefore, the balance amount of Rs.4,009/- also should have been brought to tax by the AO. Relying on the decision of Hon’ble Supreme Court in the case of Malabar Industrial Company Ltd. vs CIT reported in 243 ITR 83, the ld.PCIT held that the order passed by the AO is erroneous and prejudicial to the interest of the revenue. He, therefore directed the AO to recompute the total income of the assessee by disallowing excess purchases debited to the P&L account at Rs.53,08,139/- and adding interest income of Rs.4,009/-.
Aggrieved with such order of the Ld.PCIT, the assessee is in appeal before the Tribunal by raising the following grounds.
The order u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') passed by the Ld.Pr. Commissioner of Income Tax-6, Hyderabad (hereinafter referred to as 'the Ld. Pr.CIT') is erroneous both on facts and in law.
The Ld. PI. CIT ought to have well appreciated that the assessment order passed is not erroneous as the assessing officer has correctly examined the issue of the difference in the purchases recorded in the books as per VAT records.
The Ld. Pr. CIT ought to have appreciated that there is in fact no difference in the purchases recorded and therefore the order is not prejudicial to the interest of revenue. 4.The Ld. Pr. CIT ought to have appreciated the fact that the A.O has already issued questionnaire on the issue in question and examined all the issues thoroughly before completing the original assessment u/s 143(3) of the Act. 5.The Ld. Pr. CIT has erred in passing the revisionary order by taking a different stand on an issue from that of a stand taken by AO in the course of original assessment.
6.The Ld. Pr. CIT has erred in adding the interest of Rs. 4009/- to the income without considering the explanations as clarification on the issue.
4 ITA 743/Hyd/2019 7.The Ld. Pr. CIT ought to have appreciated the fact that the assessee has submitted all the details in respect of the alleged difference of Rs.3,50,000/- in purchases as per P&L account and VAT returns.
8.The Ld. Pr. CIT ought to have appreciated the fact that the difference in purchases as per P&L account and as per VAT return is because of the fact that VAT return did not contain the details of exempted goods.
The Ld. Pr. CIT ought to have properly appreciated the factual position that all the purchases have been accounted in the P&L account.
'The Ld. Pr.CIT ought to have appreciated the fact that the difference in the amount of purchases as per P&L account and as per VAT returns has arisen on account of exempt purchases and Form H has been submitted in support of the above exempted purchases.
The Ld. Pro CIT ought to have well appreciated that the issue was already examined by the AO thoroughly in the course of assessment proceedings u/s 143(3) and has not meddled with the above issue as he was fully satisfied with the details furnished as available with him.
The Ld. Pr.CIT has grossly erred in passing the revisionary order without satisfying the twin conditions that the order should be both erroneous and prejudicial to the interest of the revenue.
The appellant may add or alter or amend or modify or substitute or delete and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.
The ld.counsel for the assessee strongly objected to the order passed by the ld.PCIT by invoking the provisions of section 263 of the I.T.Act. Referring to the order passed u/s. 143(3) r.w.s. 263 of the I.T.Act on 20.11.2019, the ld.counsel for the assessee drew the attention of the Bench to para 6.2 of the order, where the AO has reproduced the details furnished by the assessee during the original assessment proceedings according to which the total month wise purchases for all twelve months is Rs.51,80,57,530/-. Referring to paper book page 59&60, the ld.counsel for the assessee drew the attention of the Bench to the ledger account of the purchase register according to which the purchases are shown at Rs.52,33,65,668/- for the FY 2013-14.
5 ITA 743/Hyd/2019 7. Referring to the copy of VAT returns for the AY 2014-15 placed at paper book page 30-49, he submitted that there were certain non taxable items. Referring to page 57 of the paper book, the ld.counsel for the assessee drew the attention of the Bench to the reconciliation of purchase as per P&L account and VAT returns, which reads as under:-
Sl.No. Particulars Amount in Rs. A Purchases as per VAT returns 51,80,57,530 B Amount of Exempt Purchases 52,31,428 C Other Purchases 76,709 D=A+B+C Total Purchases 52,33,65,668 E Total Purchases debited in the P&L 52,33,65,668 Account
He submitted that when the VAT returns filed by the assessee was available at the time of original assessment proceedings and the AO after applying his mind to the fact that the VAT returns did not contain the details of exempted goods purchased and other purchases has passed the order u/s. 143(3), therefore, the ld.PCIT is not justified in invoking the provisions of section 263 of the I.T.Act. So far as the difference in the interest income as per Form 26AS and the P&L account is concerned, he submitted that difference, if any, will be accounted for in subsequent year and the amount being very negligible, the ld.PCIT should not have invoked jurisdiction u/s. 263 of the I.T.Act.
Referring to the following decisions, he submitted that revisionary order u/s. 263 is not valid, where the order is neither erroneous nor prejudicial to the interest of the revenue. i.Malabar Industrial Co.Ltd. vs. CIT reported in 109 taxman 66 (SC) ii.Pricewaterhouse Coopers LLP USA vs CIT reported in 91 taxmann.com 444(ITAT.Kol) iii.Spectra Shares &Scrips(P) Ltd. vs CIT reported in 36 taxmann.com 348(ITAT.Hyd) iv.Sanspareils Greenlands(P.) Ltd. vs CIT reported in 99 taxmann.com 222 ((ITAT Delhi) v.CIT vs. Mehrotra Brothers reported in 270 ITR 157 (MP.HC)
6 ITA 743/Hyd/2019 vi.Srinivasa Hatcheries(P) Ltd. reported in [200] 81 ITR 36(Hyd) (ITAT.Hyd) vii.Development Credit Bank Ltd. reported in [2011] 196 taxmann 329 (Bom.HC) viii.CIT vs. D.S.Gopta Gowda reported in 34 tamxan 154 (Kol.HC) ix. Pravardhan Seeds Pvt.Ltd. vide ITA No.667/Hyd/2017 (ITAT.Hyd) x. Visu International Ltd. vide ITA No.394/Hyd/2017 (ITAT.Hyd)
Referring to the following decisions, he submitted that if the AO has taken one of the possible view for the issue under consideration, then the assessment order cannot be said to be erroneous or prejudicial to the interest of the revenue.
i. Manisha Agro Biotech Pvt.Ltd. vide ITA No.223/Hyd/2014 (ITAT.Hyd) ii.Zelan Project Pvt.Ltd. vide ITA No.1361/Hyd/2016 (ITAT.Hyd)
Referring to the following decisions, he submitted that Explanation 2 of the proviso to section 263 introduced by the Finance Act, 2014 w.e.f. 01.06.2015 does not have retrospective effect. i. Brahma Centre Development Pvt.Ltd. vs. PCIT vide ITA No.4341 & 4342/Del/2018 (ITAT.Del) ii.M/s.Arun Kumar Garg HUF vs. PCIT vide ITA No.3391/Del/2018(ITAT.Del) iii.Smt.Surinder Kaur Brar vs. ITO vide ITA Nos.204 to 205/Asr/2017 (ITAT.Amrt) iv.M/s.Indust Best Hospitality & Realtors Pvt.Ltd. vs. PCIT vide ITA No.3125/Mum/2017 (ITAT.Mum)
He accordingly submitted that the order passed by the ld.PCIT invoking jurisdiction u/s. 263 is not in accordance with law and therefore, the same should be quashed. Referring to the directions given by the ld.PCIT at para 8 of the order, he submitted that the ld.PCIT instead of verifying himself or restoring the matter to the AO for verification has directed the AO to recompute the total income by disallowing the excess purchase debited to the P&L account and adding the interest income which is contrary to law and therefore, on this count also, the order passed by the ld.PCIT has to be set aside.
7 ITA 743/Hyd/2019 13. The ld.DR on the other hand heavily relied on the order of the ld.PCIT. He submitted that the assessee during the proceedings u/s. 263 was non cooperative and did not appear in response to the notices issued by ld.PCIT to explain his case. He submitted that the assessee failed to file the necessary details called for including reconciliation of purchases before the ld.PCIT. He submitted that if the assessee had revised/rectified the purchases with regard to exempted purchases, if any, in the month of January, 2014, the total purchases as per final VAT returns should have matched with the purchases shown in P&L account. He submitted that the assessee did not file any such revised VAT returns either before the AO or the ld.PCIT or before the Tribunal now to prove the veracity of the explanation. Since the discrepancy was not examined by the AO, therefore, while passing the assessment order, there was a failure on the part of the AO. Since, there was no application of mind by the AO, therefore, the ld.PCIT was fully justified in invoking the jurisdiction under section 263 of the I.T.Act
We have heard the rival arguments made by both the sides, perused the orders of the AO and ld.PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case passed the order u/s. 143(3) on 13.12.2016 determining the total income of the assessee at Rs.62,14,820/- as against the returned income of Rs.58,64,820/- wherein he made addition of Rs.3,50,000/- on adhoc basis due to absence of proper bills and vouchers for various expenses claimed. We find the ld.PCIT invoked the provisions of section 263 of the I.T.Act on the ground that the AO failed to make proper enquiries to verify the difference in the purchases debited at Rs.52,33,65,669/- and the purchases as per VAT returns at Rs.51,80,57,530/- duo to which the difference in the purchases to the tune of Rs.53,08,139/-,
8 ITA 743/Hyd/2019 remained to be added to the total income of the assessee. Similarly, the assessee has debited interest income of Rs.39,311/- as against Rs.43,320/- shown as per Form 26AS and there is under assessment of interest income to the tune of Rs.4,009/-. It is the submission of the ld. counsel for the assessee that the assessee had filed the VAT returns at the time of original assessment, wherein total purchases reflected was Rs.51,80,57,530/- and the total purchases as per purchase register was Rs.52,33,65,669/- and the difference is due to exempt purchases and other purchases. So far as the difference in the interest income is concerned, it is the submission of the ld.counsel for the assessee that whatever interest was received after TDS, the same has been accounted for and therefore, the ld.PCIT was not justified in invoking the provisions of section 263 of the I.T.Act.
We do not find any merit in the above argument of the ld.counsel for the assessee. A perusal of the assessment order clearly shows that the AO has not at all examined the difference in purchases as per P&L account and as per VAT returns and has also not discussed anything regarding the discrepancy in the interest income offered for taxation and the interest income as per From 26AS . Since, there is complete non application of mind by the AO and the assessee has not filed any reconciliation statement at the time of original assessment proceedings, therefore, there is complete non application of mind by the AO to this vital issue. Non application of mind by the AO and non examination of this vital issue in our opinion makes the order erroneous as well as prejudicial to the interest of the revenue and therefore, the ld.PCIT in our opinion is fully justified in invoking the provisions of section 263 of the I.T.Act. Similarly, as against the interest income Rs.43,320/- as per Form 26AS, the assessee has accounted for the same at Rs.39,311/- in the P&L account
9 ITA 743/Hyd/2019 and there is under assessment of interest income which the AO failed to enquire. Therefore, the order passed by the AO in our opinion has become erroneous and prejudicial to the interest of the revenue for which the ld.PCIT is justified in invoking the provisions of section 263 of the I.T.Act. Accordingly, the same is upheld.
15.1 However, the directions given by the ld.PCIT at para 8 of the order to recompute the total income of the assessee by disallowing excess purchases debited to the P& L account at Rs.53,08,139/- and directing the AO to add the interest income of Rs.4,009/-, in our opinion is not in accordance with law. In our opinion, the ld.PCIT should have either examined himself or should have given direction to the AO to recompute the income after verifying the details and decide the issue by giving an opportunity of being heard to the assessee. We, therefore, modify the order of the ld.PCIT to this extent and direct the AO to examine the details and pass appropriate order as per law after giving due opportunity of being heard to the assessee and without being influenced by the direction given by the ld.PCIT at para 8 of this order. Thus, the appeal filed by the assessee is decided in the terms indicated above.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the Open Court on 16th November, 2022.
Sd/- Sd/- (LALIET KUMAR) (RAMA KANTA PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 16th November, 2022. Thirumalesh/sps
10 ITA 743/Hyd/2019 Copy to: S.No Addresses 1 Hritik Exim C/o P.Murali & Co. Chartered Accountants 6-3-655/2/3 Somajiguda Hyderabad-500 082 2 DCIT, Circle-10(1) 5th Floor, IT Towers AC Guards Hyderabad-500 004 3 PCIT-6, Hyderabad 4 Addl.CIT, Range-10, Hyderabad 5 DR, ITAT Hyderabad Benches 6 Guard File
By Order