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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश /O R D E R PER MAHAVIR SINGH, VP: This appeal by the assessee is arising out of the revision order passed by Principal Commissioner of Income Tax-2, Coimbatore u/s.263 of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide C.No.220/PCIT-2/CBE/2019-20 dated 19.12.2019. The assessment, under revision, is passed by ACIT, Cirlce-1, Erode for the
2015-16 u/s.143(3) of the Act vide order dated 25.09.2017.
At the outset, it is noticed that this appeal is barred by 588 days and the revision order dated 19.12.2019 passed by PCIT was received by assessee, as per Form No.36 on 19.12.2019. The assessee has also filed condonation petition along with affidavit stating the reason that majority period i.e., 95% period of delay is on account of Covid-19 pandemic and only 5% i.e., the due date of filing of appeal was 18.02.2020 and pandemic started in March, 2020 and the Hon’ble Supreme Court has waived off limitation period w.e.f. 15.03.2020. According to ld.counsel and as per the affidavit the delay is only of some 25 days. The ld.counsel stated that this came to the notice of assessee only when demand was raised by passing impugned order u/s.143(3) r.w.s. 263 of the Act vide dated 18.09.2021 i.e., exorbitant demand of Rs.58,52,080/-. When these facts were confronted to ld. CIT-DR, he could not controvert the above fact situation. After hearing rival contentions, for the first 25 days of delay, we seem there is a reasonable cause and further, the Hon’ble Supreme Court in Miscellaneous Application No.665 of 2021 vide order dated 23.03.2020 has condoned the during this period 15.03.2020 to 14.03.2021 and they have 28.02.2022 in Miscellaneous Application No.21 of 2022 vide order dated 10.01.2022. In term of the directions of Hon’ble Supreme Court, we condone the delay in filing of this appeal by assessee and admit the appeal for adjudication.
The only issue in this appeal of assessee against the revision order passed u/s.263 of the Act by the PCIT is on account of change of opinion which has been formed by AO u/s.143(3) of the Act, while allowing expenses claimed. For this, assessee has raised following five grounds:-
1. 1. The Principal Commissioner of Income-tax is not justified in setting aside the assessment order passed under section 143(3) on 25-09-2017 in the circumstances of the case.
2. The assessment order confirms that records were examined on 22-09- 2017 and 25-9-2017 on the issues, for which the return of income was selected for scrutiny.
3. While an addition of Rs. 20 lakhs was made in the original assessment after expressedly verifying expenses claimed, the Principal Commissioner is not correct in interfering with a possible view taken after necessary application of mind by the Assessing Officer, on the very same issue.
4. Quantum of disallowance made by A.O. on same issue ought not to have been opined as less by PCIT.
5. The revision order ought to have dealt with objections raised by Page 2 of reply dated 17-12-2019 fled to the show cause notice dated 05-11-2019 issued under section 263.
Brief facts are that the original assessment was completed by the AO u/s.143(3)of the Act, for the present assessment year 2015- 16 vide order dated 25.09.2017. Subsequently, the PCIT while
examining the records on the proposal of revision u/s.263 of the Act issued show-cause notice dated 05.11.2019 and noted that the expenses relating to dyeing charges, sizing & wrapping charges, employees benefit expenses were not verified thoroughly as these expenses increased by 57%, 49% and 49% respectively, whereas turnover has increased by 18% and consumption of raw material increased by 9% only. According to PCIT, in view of the above reasons, the assessment order is erroneous and prejudicial to the interest of Revenue insisting invoking the provisions of section 263 of the Act.
4.1 The assessee replied this show-cause notice and filed the details of expenses, sale of fabric and comparative chart of expenses vide reply dated 17.12.2019 as under:- A notice under section 263 dated 05-11-2019 is issued observing that following expenses incurred during year ended 31-03-2015 were excess compared to preceding year. Dyeing Charges 57% Sizing, Warping Charges 49% Employees' benefit expenses 49%
There was increase in sales of fabrics during the relevant year ended 31-03- 2015 as compared to those in the preceding year as follows: Year Ended Fabric Sales 31-03-2014 Rs. 28,01,44,220 31-03-2015 Rs. 32,92,14,267
To convert yarn into fabrics, processes of dyeing, sizing, warping etc. were to be carried out. Amounts incurred on them had therefore to increase. Value of yarn content in fabrics is more than the element of cost of these processes. Percentage of increase in cost of processing was therefore more than percentage of increase in fabric sales.
No instance of inflation in any of these items of expenses incurred is found.
Year Ended 31-03-2014 31-03-2015 Taxable income 77,33,620 96,24,340 Fabric Sales 27,48,44,635 32,42,13,229 4.2 The assessee also stated that these expenses and turnover was examined by the AO while framing assessment and these particulars were required by the AO vide notice dated 18.04.2016 issued u/s.143(3) of the Act and assessee furnished the reply vide 22.09.2016. The PCIT was not convinced and he passed the revision order u/s.263 of the Act dated 19.03.2019 and set aside the assessment and directed the AO to verify the expenses and frame reassessment afresh by observing in para 5 & 6 as under:- “5. The submissions of the AR and the material on hand have been carefully perused. Upon perusal of the submissions, it is noticed that the quantity increase is only 5 lakh to 8 lakhs which does not justify the 50% increase in charges connected with converting of yarn into fabric. Further, there are transactions with 40A persons involving section 2(22)(e) of the Act and disallowance u/s 40A(3), which aspects were not examined by the AO while passing the impugned assessment order.
Accordingly the order of the AO dated 25/09/2017 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 verify these aspects and re-do the assessment afresh after satisfying himself 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, assessee came in appeal before the Tribunal.
Before us, the ld.counsel for the assessee reiterated the same arguments and also filed paper-book consisting of 31 pages, wherein the details called by the AO vide notice dated 31.01.2017 and reply submitted by assessee vide letter dated 09.02.2017 and 22.09.2016 are enclosed. The assessee has also submitted the details of parties covered u/s.40A(2) of the Act during the financial year 2014-15 relevant to this assessment year 2015-16 and also filed the details of dyeing charges, fabric finishing expenses, weaving charges, sizing charges and processing charges. The ld.counsel stated that this issue is deliberated by the Hon’ble Madras High Court in the case of Virtusa Consulting Services (P) Ltd., vs. DCIT, [2022] 442 ITR 385, wherein the Hon’ble High Court has considered a similar issue in para 20 & 21 as under:-
On a perusal of the order passed by the PCIT, we find there is no discussion and finding with regard to the exercise of jurisdiction under Section 263, which according to the assessee was without jurisdiction. Secondly, the issue whether it is mandatory for the assessee to maintain separate books of accounts was also not decided by the PCIT. If according to the PCIT, it is mandatory to maintain separate books of accounts, the alternate submission made by the assessee that they have maintained separate profit and loss account and the same was submitted
Assessing Officer, who has considered the same and then completed the assessment, was not dealt with or discussed. To be noted that the Assessing Officer did not reject the profit and loss account submitted by the assessee, but undertook an exercise to rework the deduction, which was not challenged by the assessee.
21.The PCIT would state that the Assessing Officer has not made any enquiry. This finding is absolutely vague, as we find from the assessment order under Section 143(3) of the Act, the Assessing Officer did conduct an enquiry, called for details, the details were produced and thereafter, the assessment was completed. Therefore, the finding of the PCIT in that regard is erroneous, consequently, assumption of jurisdiction under Section 263 of the Act was not sustainable.
5.1 The ld.counsel for the assessee also relied on Co-ordinate Bench decision in the case of State Industries Promotion Corporation of Tamilnadu Ltd., in & 1312/Chny/2018, order dated 08.4.2022.
6. When these facts were confronted to ld.CIT-DR, he only relied on the revision order passed by PCIT. He stated that the AO has simply made adhoc addition of Rs.20 lakhs to the returned income but has not examined the expenses properly as there is substantial increase in expenses relating to converting of yarn into fabric and there are transactions involving with related persons u/s.40A(2)(b) of the Act. In reply, the ld.counsel for the assessee stated that the details regarding the transactions and parties covered u/s.40A(2)(b)
Act was provided to the AO during original assessment proceedings, on a specific query AO examined this issue and hence need not to revise the original assessment order.
We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO has issued show- cause notice while framing assessment on these very expenses which are subject matter of revision u/s.263 of the Act i.e., dyeing charges, sizing and wrapping charges, employees benefit expenses viz-a-viz increase in expenses to the extent of 57%, 49% & 49% respectively as against turnover increased by 18% and consumption of raw material increased by 9%. We noted that the assessee during the course of scrutiny assessment proceedings has filed complete details and AO after satisfying himself and after applying his mind to the facts of the case reached to a conclusion that the assessee has claimed the expenses on evidences and taken a possible view. We also noted that the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd., supra, has categorically held that once the AO after making due enquiries adopted one of the view and granted partial relief, CIT is not permitted to exercise power u/s.263 of the Act because when two views are possible and CIT does not agree with the view taken by the AO, the assessment
Revenue unless the view taken by the AO is unsustainable in law. Hence, keeping in mind entirety of facts, we are of the view that the PCIT erred in revising the assessment u/s.263 of the Act without holding the assessment framed by the AO u/s.143(3) of the Act after due enquiry and investigation as erroneous as well as prejudicial to the interest of Revenue. In such circumstances, we set aside the revision order passed by PCIT and allow the appeal of assessee.
In the result, the appeal filed by the assessee is allowed Order pronounced in the open court on 22nd June, 2022 at Chennai.