GOLDEN FASHIONS (INDIA) P LTD,ERODE vs. ACIT,C-2,, ERODE

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.

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.

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.

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.

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.