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Facts
The assessee appealed against the Principal CIT's order under Section 263 for AY 2019-20, which set aside the Assessing Officer's assessment order under Section 143(3). The Pr. CIT found the AO's order erroneous and prejudicial to the revenue due to the AO's failure to verify cash payments for purchases exceeding Section 40A(3) limits and discrepancies in the Written Down Value of assets. The assessee contended that the Pr. CIT invoked jurisdiction without an independent application of mind and without granting a proper opportunity of being heard.
Held
The Tribunal found that the Pr. CIT did apply her mind independently, reviewing the assessment records and the return of income. It confirmed the two main issues identified by the Pr. CIT: unverified cash purchases exceeding the limit under Section 40A(3) and a significant discrepancy in the opening and closing Written Down Value of assets that the AO failed to investigate. Citing judicial precedents, the Tribunal upheld the Pr. CIT's revisionary jurisdiction and her decision to set aside the assessment for a de novo assessment on these two specific issues, dismissing all grounds of appeal by the assessee.
Key Issues
1. Whether the Principal CIT applied an independent mind while invoking Section 263 jurisdiction based on the AO's proposal. 2. Failure of the Assessing Officer to disallow cash payments for purchases exceeding the Section 40A(3) limit. 3. Discrepancy in the Written Down Value of assets not examined by the Assessing Officer. 4. Whether the assessee was granted a reasonable opportunity of being heard under Section 263.
Sections Cited
263, 40A(3), 143(3), 142(1)
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Income Tax Appellate Tribunal, PUNE BENCHES “B” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER
PER DR.DIPAK P.RIPOTE, AM :
This is an appeal filed by the assessee against the order of ld.Principal Commissioner of Income Tax(Central)-Nagpur, passed under section 263 of the Income Tax Act, 1961; dated 08.03.2024 for A.Y.2019-20. The Assessee has raised the following grounds of appeal :
1. A) On the facts and circumstance prevailing in the case and in law, honorable Pr. CIT (Central), Nagpur has erred in not considering the submission made by the appellant in fair and [A] judicious manner in as much as the claim made u/s 40A(3) is proper of Rs.67,65,000/- being URD Purchases which are necessary to incurred in executing the civil construction work. Since, the expenditure is expediant to run the business of the appellant and in view of the decision in the case of Attar Singh Gurumukhsing v/s ITO 191 ITR 667. (B) Further, the civil construction work relets to execution of the schemes of the Government of Maharashtra like drinking water proggram and construction of road the work was to be complted within time bound limit given by the government in the tender. (C) In view of the above narrated reasons, the honorable Pr. CIT (Central), Nagpur has erred in reopening the issue u/s 263, even though the issue of addition u/s 40A(3) is already in appeal before honorable CIT Apepal -12, Pune. (D) It is requested to kindly set aside the order passed u/s 263 dated 08.03.2024 passed by Pr. CIT (Central), Nagpur.
2. A) On the facts and circumstance previeling in the case and in law, honorable Pr. CIT (Central), Nagpur has erred in not considering the submission made by the appellant in fair and judicious manner in as much as the details of tangible assets, the opening and closing balances were properly recorded in the books of accounts, as well as reflected to the return of income file for the A.Y 2019-20, after claiming the depreciation on such assets. The reconciliation of the openig and closing balances of the tangible assets was reconciled by submitting the statement even though the honorable Pr. CIT (Central) Nagpur has considered the case against the appellant. In view of the ground taken above, the honorable Pr. CIT (Central), Nagpur has erred in treating the order passed by the assessing officer u/s 143(3) for the A.Y 2019-20 dated 30.03.2021 as erroneous in so for as it is prejudicial to the interest of revenue. It is [A] requested, the order passed u/s 263 dated 08.03.2024 for the A.Y 2019-20 may kindly be set aside.”
1.1 Modified Grounds of Appeal filed by the Assessee are as under :
1. The Ld Principal Commissioner erred in passing his order u/s 263 of the IT Act without granting the assessee reasonable opportunity of being heard which has rendered the impugned order bad in law.
2. The Ld Principal Commissioner erred in initiating revisionary proceedings and passing order u/s 263 solely on the basis of proposal of the Ld Assessing Officer and without applying his own mind and recording his findings rendering the Revision Order is bad in law
3. The Ld Principal Commissioner erred in passing order u/s 263 setting aside the Assessment Order passed u/s 143(3) without giving clear finding that the Assessment Order was erroneous in so far as it was prejudicial to the interest of the revenue
4. The Id Principal Commissioner erred in passing order u/s 263 without taking into considerations the submissions made by the assessee.
5. The Ld Principal Commissioner erred in passing order u/s 263 holding that there was discrepancy relating to the value of assets solely relying on proposal of the Ld Assessing Officer without taking into consideration the facts that there was no such discrepancy in the assessee's books of accounts.
6. The Ld Principal Commissioner erred in passing order u's 263 holding that the Ld Assessing Officer did not carry out inquiries with respect to purchases to the tune Rs. 65,68,600 of raw materials like sand, khadi and dabber exceeding Rs.10,000/-without appreciating that the Ld Assessing Officer had carried out specific inquires on this issue before passing the Assessment Order
7. The Ld Principal Commissioner erred in passing order u/s 263 setting aside the Assessment Order by imposing/substituting his opinion on the legally tenable view taken by the Ld Assessing Officer rendering the Revision Order bad in law
8. The above grounds of appeal are without prejudice to one another
9. The appellant craves leave to amend or alter any of the above Grounds of Appeal or to add new Grounds of Appeal during the course of appeal proceedings.”
Submission of ld.AR : 2. Ld.Authorised Representative(ld.AR) for the Assessee filed a paper book. Ld.AR submitted that the ld.Pr.CIT has invoked jurisdiction under section 263 of the Act, only on the basis of proposal submitted by the Assessing Officer. Ld.AR relied on the decision of Alfa Laval Lund AB, Span Overseas Ltd., PCIT vs. M/s.Sinhotia Metals and Minerals Pvt. Ltd., of IA No.GA/1/2019. 2.1 Ld.AR submitted that there is no independent application of mind by the ld.Pr.CIT, hence, 263 is bad in law.
2.1.1 Ld.AR took us through the issues involved in the order under section 263 of the Act.
2.2 On a specific query by the Bench, ld.AR accepted that there were cash payments for purchases. Ld.AR also accepted that AO has not called-for details and no party-wise ledger was submitted during assessment proceedings. Ld.AR also accepted that there is discrepancy in the Opening and Closing WDV.
Submission of ld.DR: 3. Mr.Ajay Kumar Keshari, ld.CIT(DR) submitted that ld.Pr.CIT had studied the assessment records, which is evidenced from the order under section 263 of the Act. He read out the paragraph 4.1, 4.2 and 4.3 of the order under section 263 of the Act, and vehemently submitted that these paragraphs explains that ld.Pr.CIT had applied her mind. Ld.DR relied on the order of Hon’ble Supreme Court in the case of Malabar Industries, Hon’ble Bombay High Court in the case of Vedanta Limited, ITAT in Stewards & Lloyds of India Ltd. Vs. CIT (ITAT Kolkata) [67 taxmann.com 41] and JP morgan Chase Bank NA. Vs. CIT.
3.1 Ld.Departmental Representative(ld.DR) for the Revenue submitted written submission as under :
Findings and Analysis : 4. We have heard both the parties and perused the records. It is observed thatAssessee had filed its original Return of Income on 09/03/2020 declaring total income of Rs.1,87,96,960/-.Assessment Order u/sec.143(3) of the Act was passed on 30/09/2021. In the Assessment Order, the Assessing Officer (AO) made an addition of Rs.45,20,183/- on account of difference in Labour Payments.
4.1 Ld.Principal Commissioner of Income Tax invoked jurisdiction u/s.263 of the Act and issued notice u/s 263. The Assessee filed its reply. After considering the reply filed by Assessee, ld.Principal Commissioner of Income Tax held that Assessment Order for A.Y.2019-20 was erroneous and prejudicial to the interest of the Revenue, hence, the ld.Pr.CIT set-aside the assessment order to the Assessing Officer for de-novo assessment on the specific issues mentioned in the order under section 263 of the Act. Aggrieved by the order under section 263 of the Act, Assessee has filed appeal before this Tribunal.
4.2 The main contention of the ld.AR against the order under section 263 is that ld.Pr.CIT has invoked jurisdiction under section [A] 263 of the Act on the basis of proposal submitted by Assessing Officer. Ld.AR submitted that Ld.Pr.CIT had not applied her mind and merely relied on the proposal submitted by the Assessing Officer. Ld.AR relied on the various case laws, mainly ITAT Pune’s decision in Alfa Laval Lund AB, Span Overseas Ltd., PCIT vs. M/s.Sinhotia Metals and Minerals Pvt. Ltd., of IA No.GA/1/2019. 4.3 We have perused the Order under section 263. The para 4.1 and 4.2 of the Order under section 263 is reproduced here under : “4.1 On verification of the record, it is seen that the assessee had furnished the list of major purchases of material during the assessment. It is noticed from the details that the assessee has made cash payment for purchase of Dabber, Metal and Soiling during the year. Further scrutiny of total purchase details, revealed a total 27 number of purchase transactions were made for a total amount of Rs.65,68,600/- in which payments were made in cash for more than Rs.10,000/- in each transaction. Thus an amount of Rs.65,68,600/- paid in cash for the purchase of material was required to be disallowed u/s 40A(A)(3) of the IT Act. However, the same was not done by the AO. As the AO has failed to disallow the above amount in view of the provisions of section 40A(3) of the I.T Act, the order dated 30.09.2021 passed by the AO is erroneous and prejudicial to the interest of revenue.
4.2 On verification of the Assessment order, it was noticed that there is a discrepancy in the figures of opening WDV, closing WDV as per the return (ITR 6) and the audit report.
It is seen from the return of income (ITR-6), that the assessee has shown tangible assets amounting to Rs.6,85,63,513/- in the opening WDV and further no addition of fixed assets has been shown during the year. The assessee has claimed depreciation of Rs.1,02,84,527/- at the rate of 15% and the same was also qualified by the Tax Auditor in 3CD report of the assessee for the AY 2019-20. When such details of tangible assets were compared with the return of income (ITR-6) and Tax Audit report (3CE) of the assessee for the earlier AY 2018-19, it is found that the assessee has shown total assets amounting to Rs.2,81,55,716/- only in the Closing WDV in the ITR and 3CD.
As such there is increase of Rs.4,04,07,797/- [Rs.6,85,63,513/- (-) Rs.2,81,55,716/-] in the opening WDV of the AY under consideration from the closing WDV of the earlier AY year, which should have been added by the AO in the income returned by the assessee. As the AO has failed to take this aspect into consideration while passing the assessment order, the order dated 30.09.2021 passed by the AO is erroneous and prejudicial to the interest of the revenue.”
4.3 On reading the above referred paragraphs, one thing is clear that the ld.Pr.CIT had verified the Return of Income of the Assessee and Assessment Record. Thus, the ld.Pr.CIT studied the record and then arrived at a decision that the Assessment order is erroneous and prejudicial to the Interest of the revenue. The [A] ld.Pr.CIT has specifically observed after studying the record that there were total 27 purchase transactions amounting to Rs.65,68,600/- in which payments were made in cash more than Rs.10,000/- in each transaction. Similarly, ld.Pr.CIT studied the Return of Income for A.Y.2019-20 and A.Y.2018-19 and then arrived at a prima-facie opinion that WDV of the Asset was incorrectly mentioned.
4.3.1 Therefore, the pleading of the ld.AR that the Pr.CIT has merely relied on the Proposal submitted by the AO is factually incorrect. Once after receipt of the proposal from the AO the Pr.CIT has studied the Return of Incomes and entire assessment record, applied her mind independently, then one cannot say that Pr.CIT has merely relied on the proposal submitted by the Assessing Officer. We have studied the case laws relied by the ld.AR. In the case of Alfa Laval Lund AB in there is no mention that Pr.CIT has studied the entire assessment record and then arrived at a conclusion. Therefore, the said case law is distinguishable on facts. Similarly, other case laws relied are distinguishable on facts.
4.4 In this case, the ld.Pr.CIT has raised two issues in the order under section 263 of the Act. The first issue is cash paid for material purchase exceeding the limit mentioned under section 40A(3) of the Act. The second issue is difference in the Written Down Value(WDV) of the Asset. As far as the first issue is concerned, it is an admitted position by the ld.AR that during assessment proceedings, ledger accounts of the parties from whom materials purchased were not submitted. We have perused the submission of the Assessee filed during assessment proceedings, and it is observed that AO has not raised the question of cash payments exceeding the limit mentioned in Section 40A(3) of the Act. The AO has not carried out any verification with reference to Section 40A(3) of the Act. During the assessment proceedings, the Assessee has filed only the following documents as under :
1. 1. Ledger Account extract of Labour Charges - page 113 to 123 of the paper book.
2. Sale Register – page 124 to 133 of the paper book. 3. GST-Purchase Register - page 134 to 144 of the paper book. 4. Cash Book – page 145 to 218 of the paper book.
4.4.1 Thus, no details pertaining to Section 40A(3) were filed during assessment proceedings.
4.5 On perusal of the Cash Book, it is observed that Assessee had made cash payments more than 10,000/- in one single day for purchase of Murum, Dubber, Solling. Such kind of entries are appearing in the cash book on every day or almost every second day. Thus, prima-facie Assessee has made purchases exceeding Rs.10,000/- in cash.
4.6 Section 40A(3) is reproduced as under : Expenses or payments not deductible in certain circumstances.
40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession". ………………………
(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, 45[or use of electronic clearing system through a bank account, exceeds ten thousand rupees,] no deduction shall be allowed in respect of such expenditure.
4.7 Thus, apparently it is observed that Assessee has made purchases exceeding Rs.10,000/- in a day. The Assessing Officer has not verified this issue. Assessing Officer allowed the [A] deductions for impugned purchases. In these facts and circumstances of the case, we are convinced that Assessment Order was erroneous and prejudicial to the interest of the Revenue. Therefore, ld.Pr.CIT has rightly invoked provisions of Section 263 of the Act.
4.8 Ld.AR also pleaded that the issue was pending before ld.CTI(A), hence, ld.Pr.CIT cannot invoke jurisdiction under section 263 of the Act. We have verified the assessment order and observed that in the assessment order, only one addition of Rs.45,20,183/- which is on account of difference in the labour payment. Thus, the issue which is pending before ld.CIT(A) regarding labour payment which is different from 40A(3) discussed above. Therefore, there is not merit in the contention of the ld.AR.
4.9 The second issue discussed by ld.Pr.CIT in the order under section 263 of the Act is regarding difference in the Written Down Value(WDV) of the assets. We have perused Copy of the Return of Income filed by assessee. The depreciation on plant and [A] machine schedule of the Return of Income for A.Y.2019-20 reproduced as under : 1 Block of asset Plant and machinery 2 Rate % 15 30 40 (i) (ii) (iii) 3 Written down value on the first 68563513 day of previous year 4.10 Thus, the Opening Written Down Value for A.Y.2019-20 which is the year under consideration as per the above chart is Rs.6,85,63,513/-. However, the Closing WDV of the earlier year i.e.A.Y.2018-19 was Rs.2,81,55,716/-. Thus, there is an apparent difference in the Opening WDV of A.Y.2019-20 and Closing WDV of A.Y.2018-19. Whereas, the Closing WDV for A.Y.2018- 19 and Opening WDV for A.Y.2019-20 will always be same. This aspect has not been verified by the Assessing Officer. We have verified the notices issued by the Assessing Officer under section 142(1) of the Act and noted that no question on this particular issue has been asked. Thus, Assessing Officer has failed to carry out enquiry on this issue. In these facts and circumstances of the case, ld.Pr.CIT has rightly invoked provisions of Section 263 of the Act.
4.10.1 Ld.Pr.CIT has discussed at length both these issues in the order under section 263 of the Act and then held that Assessment Order is erroneous and prejudicial to the interest of the Revenue. Ld.Pr.CIT has set-aside the Assessment Order to the Assessee Officer for denovo assessment with reference to these specific two issues.
4.11 The Hon’ble Bombay High Court in the case of Vedanta Ltd VS. CIT 124 taxmann.com 435 (Bombay)/[2021] has held as under : Quote,“ 23. The CIT, in exercising its revisional jurisdiction, has satisfied the twin requirements as prescribed in Section 263 of the IT Act. There was material before the ITAT to at least prima facie infer that there was under-invoicing and that this aspect of under-invoicing was not considered by the AO in making his assessment order. The CIT, in exercising its revisional jurisdiction, has not shut out any of the defences open to the Assessee, but has directed the AO to pass a fresh assessment order after verifying and examining all the relevant facts of the case, legal position and giving adequate opportunity of being heard to the Assessee.
In Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 86 (SC) the Hon'ble Supreme Court has held that the CIT can pass an order under section 263 of the IT Act even on debatable issues. Similarly, it is clear where the assessment was completed without proper inquiries which circumstances necessitated, it is competent for the CIT to invoke the revisional jurisdiction and direct fresh assessment, after verifying and examining all relevant facts, as well as legal position as may be involved.” Unquote.
4.12 The facts of the present case and that of Vedanta Limited(supra) are identical. Therefore, respectfully Hon’ble Jurisdictional High Court, we uphold the order under section 263 of the Act passed by the ld.Pr.CIT.
4.13 In Ground Nos.4 and 1, Assessee has pleaded that no opportunity was granted by the ld.Pr.CIT. However, on perusal of the order under section 263, it is observed that Assessee was granted opportunity of hearing. Ld.Pr.CIT has reproduced the Assessee’s submission in the order under section 263 of the Act, therefore, Assessee’s Ground No.4 and Ground No.1 is baseless, and hence dismissed accordingly.
Ground No.2 has been discussed in earlier paragraphs at length and we have given specific finding that ld.Pr.CIT had applied his mind to the issue involved. Therefore, there is no merit in Ground No.2, accordingly, Ground No.2 is dismissed.
Ground No.3 - Ld.Pr.CIT had specifically observed that assessment order is erroneous and prejudicial to the interest of the Revenue. We have in earlier paragraphs discussed both the issues at length and arrived at the conclusion that assessment order was erroneous and prejudicial to the interest of the Revenue. Accordingly, Ground No.3 is dismissed.
Ground No.5 – We have reproduced the Depreciation Chart appearing in the Return of Income and compared with WDV of A.Y.2018-19. We have already given a finding after this comparison that there is apparent difference in the closing of WDV of A.Y.2018-19 and Opening WDV of A.Y.2019-20. Ld.AR has accepted this fact during the hearing. Therefore, for the elaborate reasons discussed by us in earlier paragraphs i.e.Para 4.8 & 4.9, Ground No.5 is dismissed.
Ground No.6 - We have perused the notices issued under section 142(1) and submission made by Assessee.Ld.AR has also accepted during the hearing that no enquiry was conducted by the Assessing Officer regarding cash purchases of Murum, Dubber, Solling. It is observed that Assessing Officer has not carried out any enquiry regarding the cash purchases of Murum, Dubber, Solling. This issue we have discussed at length in Paragraph 4.3 to 4.8, of this order. Accordingly, Ground No.6 is dismissed.
Ground No.7 – Ld.AR has never pleaded this ground. The issue involved are cash purchases above statutory limit and difference in Opening and Closing WDV. Both these issues are factual issues. Therefore, there cannot be any two opinion on these issues. Accordingly, Ground No.7 is dismissed
Ground No.8 and 9 are general in nature, hence, dismissed.
10.1 Ld.AR had pleaded that modified grounds of appeal shall be adjudicated, accordingly, we have adjudicated the Modified Grounds of Appeal raised by the Assessee.
10.2 To sum up, all the Modified Grounds of appeal raised by the Assessee are dismissed.