OM SHIV SHAKTI IRON INDUSTRIES PRIVATE LIMITED,HYDERABAD vs. DEPUTY COMMISSIOONER OF INCOME TAX ,CIRCLE-5(1), HYDERABAD

Although a number of grounds have been raised by the assessee however, these all relate to the order of the ld.CIT(A) in dismissing the appeal filed by the assessee against the dismissal of rectification application u/s. 154 passed by the AO.

Facts of the case, in brief, are that the assessee is a private limited company and is engaged in the business of manufacturing of Ingots, billets, blooms and slabs etc. It filed its original return of income on 03.11.2020 declaring nil income after adjusting carry forward loss of Rs.72,49,256/-. Subsequently, the assessee filed the revision return u/s. 139(5) on 21.11.2020 returning nil

2 ITA 327/Hyd/2022 income. The return was processed u/s. 143(1) by CPC on 23.12.2021 by adding contingent liability of Rs.2,05,01,600/-, which was not claimed by the assessee as expenditure in the P&L account. The assessee filed a rectification petition u/s. 154 of the I.T.Act on 03.01.2022 requesting for reprocessing of the return submitted in response to intimation u/s. 143(1). However, the rectification application was also dismissed by the CPC.

The assessee preferred an appeal before the ld.CIT(A) wherein it was stated that due to a typographical mistake committed by the staff of the auditor while filling in Form No.3CD an amount of Rs.2,04,97,276/- was shown under column 21(d)(B)(g) as “Amount of any liability of a contingent nature”. However, this amount should be nil, since it was an inadvertent mistake committed by the staff member of the auditor while filing the Tax Audit Report and the hard copy signed by the auditor does not contain the sum of Rs.2,04,97,276/-. Therefore, it is not an item of adjustment stipulated in section 143(1)(a). It was submitted that while processing the I.T return, the same amount has been added to the taxable income by the CPC which is a mistake which should have been rectified.

However, the ld.CIT(A), NFAC was not satisfied with the arguments advanced by the assessee. According to him, the mere fact that the assessee has not displayed the said amount of Rs.2,04,97,276/- on the debit side of the P&L account under any of the head of expenses expressly provided in the P&L account does not automatically mean that assessee has not clubbed it with some other head of expenses which has been debited to P&L account. According to him, accounting is a complex process. Any kind of expenses can always be made part of some head of expenses and subsequently on a superficial/face value study of such a P&L account, it can always be claimed that such expense was never debited to the P&L account. According to the CIT(A),

Aggrieved with such order of the ld.CIT(A), the assessee is in appeal before the Tribunal.

The ld.counsel for the assessee, at the outset, reiterated the submissions as made before the ld.CIT(A) stating that it is an inadvertent error committed by the staff of the auditor. He submitted that the assessee has never debited any amount of Rs.2,04,97,276/- on the debit side of the P&L account as contingent liability. The hard copy of the auditors report also does not show any such expenditure. Referring to page no.17 of the written submissions, he drew the attention of the Bench to the 4 ITA 327/Hyd/2022 communication received from the CPC proposing adjustment u/s. 143(1)(a) of the I.T.Act dated 20.12.2021 wherein the reasons proposing adjustment u/s. 143(1)(a) was given as under:-

Referring to page 18 of the written submissions, he drew the attention of the Bench to the date of receipt of such communication which is on 21.12.2021 at 5.00 pm. Referring to page no.161 of the paper book, he submitted that the CPC, Bengaluru passed the intimation u/s. 143(1) raising the demand on 23.12.2021. Referring to the provisions of section 143(1)(a), he drew the attention of the Bench to the second proviso according to which the response received from the assessee, if any, shall be considered before making any adjustment, and in a case no response is received within 30 days of the issue of such intimation, such adjustment shall be made. In other words, an addition, if any, can be made only after 30 days from the date of intimation communicated to the assessee proposing the adjustment. He submitted that in the instant case the adjustment has been made within two days from the date of receipt of such intimation and therefore, such adjustment being not in accordance with law, the order passed by the CPC making the adjustment should be held as void ab intio. In his alternate contention, he submitted that he has no objection, if the matter is restored to the file of the AO with a direction to verify the record and pass appropriate order as per law.

The ld. DR on the other hand while strongly supporting the order of the CPC rejecting the order passed under section 154 and the order of the CIT(A) dismissing the appeal filed by the 5 ITA 327/Hyd/2022 assessee. He, however, submitted that he has no objection if the matter is restored to the file of the AO for verification of details.

We have considered the rival arguments made by both the sides, perused the orders of the CPC & ld.CIT(A), NFAC and perused paper book filed on behalf of the assessee. We have also considered the various decisions relied on by both the sides. We find the CPC, Bengaluru in the instant case made adjustment of Rs.2,05,01,600/-, which consists of an amount of Rs.2,04,97,276/- being liability of a contingent nature and the balance amount is on account of PF & ESI. We find after receiving the demand notice along with intimation, the assessee filed a rectification application, which was dismissed by the CPC and on appeal by the assessee, the ld.CIT(A), NFAC dismissed the appeal of the assessee. While doing so, he held that merely because the assessee has not displayed the said amount of Rs.2,04,97,276/- on the debit side of the P&L account under any of the head of expenses expressively provided in the P&L account, however it cannot be ruled out that such expenses has not been debited under some other head. It is the submission of the ld. counsel for the assessee that when the hard copy of the auditors report was filed showing that no such expenditure has been debited, the ld.CIT(A) should have allowed the appeal filed by the assessee on the ground that such entry in the Form 3CD was an inadvertent typographical error and therefore, the AO should have allowed the rectification application. It is also his submission that when the statute provides for a minimum period of 30 days from the date of receipt of any reply to the proposed adjustment, the CPC should not have passed the order on the very next day without considering the reply of the assessee. It is also his submission that given an opportunity, the assessee is in a position to substantiate his case by explaining each and every item of expenditure debited to the P&L account and show that no such 6 ITA 327/Hyd/2022 contingent expenditure has bene claimed under any of the head of expenses provided under the P&L account. Considering the totality of the facts of the case and in the interest of the justice, we deem it proper to restore the issue to the file of the AO with the direction to grant an opportunity to the assessee to substantiate his case by showing that no such contingent liability has been claimed by the assessee in the P&L account under any head and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purpose.

In the result, the appeal filed by the assessee is allowed for statistical purpose.