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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI G. MANJUNATHA & SHRI ANIKESH BANERJEE
आदेश /O R D E R आदेश आदेश आदेश
PER ANIKESH BANERJEE, JM:
The instant appeal was filed by the Assessee against the order of the Principal Commissioner of Income Tax-1, Coimbatore (in brevity “the PCIT”)bearing order No.ITBA/COM/F/17/2019-20/1024378455(1) for the Assessment Year 2015 – 2016, order passed u/s.263 of the Income Tax Act, 1961 (in brevity “the Act”), order dated 29.01.2020. The said order was generated from the order
::2 :: Assistant Commissioner of Income Tax, Non-Corporate Circle-2, Coimbatore (in brevity “the AO”), order dated 30.12.2017 passed u/s.143(3) of the Act.
At the outset, it is noticed that the appeal of the Assessee is time barred by 65 days due to the outbreak of ‘Covid-19’ pandemic. The Hon’ble Bench took into cognizance the Order of the Hon’ble Supreme Court the “Suo Moto WP 03/2020 dated 20.03.2020 while considering the condonation of delay. It is a fact that ‘Covid-19’ pandemic was prevalent and in term of the directions issued by the Hon’ble Supreme Court in Miscellaneous Application No.21/2022 in Suo Motu Writ Petition No.3 of 2020, we condone the delay of 65 days and admit the appeal for adjudication on merits.
The brief facts of the case are that the assessment was made u/s.143(3) of the Act and the Assessee had gone through the limited scrutiny before the learned Assessing Officer. The order was passed whilst there is no demand. Against this order, the learned PCIT issued a notice u/s.263 of the Act to the Assessee; wherein the Assessee had filed the submissions and the order u/s.263 of the Act was passed. The issue was that, during the assessment year, the Assessee received a gross sale
::3 :: Rs.4,08,05,404/- . The amount of Rs.30,60,000/- was deducted from the sale receipts and reflected in the liabilities side of the balance-sheet under the head “Flat-Warranty Deposit”. The learned PCIT asked for explanation, wherein the Assessee had filed the same.However, the direction was made for de novoassessment relating to this provision amounting to Rs.30,60,000/- under the head “Flat- Warranty Deposit”. Aggrieved, the Assessee filed an appeal before the Tribunal for judicious consideration.
4. The learned Counsel of the Assessee vehemently argued and mentioned that this particular amount was deducted from the sale turnover as per the agreement with the party. At the time of selling the flat, the provision was made for payment of ‘contingent liability’ before handing over of the flats to the residents and to complete the regular expenses before the handing over of the project. In the next year, the said amount was paid and approximately Rs.2.00 lakhs is due in the books of accounts. The learned Counsel of the Assessee further mentioned that all the documents are submitted at the time of hearing and the scrutiny was completed under limited scrutiny.
::4 :: A part of the assessment order is extracted as under:
“2. The Assessee’s Authorized Representative, Shri G. Sridhar Rao, C.A. (herein after referred to as “The Act”) appeared and submitted power of attorney. During the course of hearing, the Authorized Representative filed a Schedules of Balance Sheet, Sundry Creditor, details of Machinery purchased & invoices and details, Form 26AS, Ledger Copies, etc. The “CASS” reasons were verified with the details submitted by the Assessee and reconciled.
After carefully considering the details filed and discussion held with the Authorized Representative of the Assessee, the Assessment u/s.143(3) of the Act is completed as under:”
The learned CIT-DR vehemently argued and mentioned that this particular provision was not examined by the learned Assessing Officer during the assessment proceedings. The purpose of the “Warranty Deposit” was not clear before both the Revenue authorities. An ad hoc provision was made by deducting the gross sale, which is loss of revenue. So, the issue was prejudicial to the interest of the Revenue. The relevant portion of the order of the learned PCIT is extracted as under:
“3. A notice of show cause dated 18.09.2019 was served to the Assessee for objections, if any, to the proposed revision. The reason for considering the order of assessment as erroneous and prejudicial to the interest of revenue was also furnished to the Assessee. The Assessee was deriving income from business of garments as well as from construction and sale of flats. In the construction business, in the receipts and payments account filed by the Assessee, it was noticed that an amount of Rs.30,60,000/- was shown as “Flat-Warranty Deposit” and this sum was deducted from the gross sale receipts from flats – Rs.4,08,05,404/-. The same sum was shown in the liabilities side of the balance sheet for the instant assessment year.
In response to the above show cause notice Shri G. Sridhar Rao, C.A. appeared on 07.01.2020 and furnished submissions on behalf of the Assessee. The Authorized Representative also relied on the various decisions of the Hon’ble Courts and Tribunals in support of their action on Warranty Deposit. The gist of submissions on this impugned issue submitted by the Authorized Representative as under:-
“…..It was submitted that the Assessee was guided by Architects, Technical People in this line of Flat Construction Activity and based on practice and its follow up in scientific approach, the Assessee was advised to provide in the first year, a minimum warranty of 10% of capital cost, since the sale consideration comprises of not only cost of construction plus warranty advance. Since, warranty is not there in the first year, the warranty portion does not form part of the Assessment Year 2015-2016. This is to cover the expenditure to be incurred in setting right leakages in pipelines, drainage, underground tanks connected to sewerage, borewell, motor & pump set in the constructed building, the possession of which are handled over to the buyers. Our submissions can be cross examined with flat buyer of the Coimbatore city in and around.
More years of warranty would have a better sale than otherwise. This is the universal truth and not limited to Assessee alone. Flat promotion from this line of activity is no way an exception.
But as prudent person, the Assessee choose to effect scientifically 7.5% only on total sale value of Rs.4,08,05,404/- amounting to Rs.30,60,040/- and rounded off to Rs.30,60,000/- as against Minimum Warranty of 10% generally prevailing in ::6 :: market and surrounding areas in this line of activity. The sale value includes warranty claims that arise in the following years as referred to in supra paras.”
We heard the rival submissions and relied upon the documents available on record. The order passed by the learned Assessing Officer is under limited scrutiny. The specific fact of the provision was not discussed and even the issue was not considered during the assessment proceedings. In this regard, this particular issue of “Flat-Warranty Deposit” has not made its footprint during the assessment proceedings. Accordingly, this particular order can be said as erroneous.
6.1. The order of ITAT, Chennai elaborately explained about the error related erroneous order. In the case of Sify Software Limited Vs. ACIT, Corporate Circle 6 (2), Chennai reported in [2017] 80 taxmann.com 273 (Chennai - Trib.) the relevant paragraphs are reproduced, as under:
“5. We have carefully considered the rival submissions in the light of material placed before us and also gone through all the judgments cited by the parties before us. First we take up the legal issue with reference to the jurisdiction of invoking the provisions of section263 of the Act by the learned CIT. The scheme of the IT Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the assessing officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the revenue. As held in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC), the Commissioner can exercise revision jurisdictional u/s. 263 if he is satisfied that the order of the assessing officer sought to be revised is (i)erroneous; and also (ii) prejudicial to the interests of the revenue. The word 'erroneous' has not been defined in the Income Tax Act. It has been however defined at page 562 in Black's Law Dictionary (seventh Edition) thus';'erroneous, adj. Involving error, deviating from the law'. The word 'error' has been defined at the same page in the same dictionary thus:
"'error No. 1 : A psychological state that does not conform to Objective reality; a brief that what is false is true or that what is true is false'. At page 649/650 in P. RamanathaAiyer's Law Lexicon Reprint 2002, the word 'error' has been defined to mean
'Error: A mistaken judgement or deviation from the truth in matters of fact, and from the law in matters of judgement 'error' is a fault in judgement, or in the process or proceeding to judgement or in the execution upon the same, in a Court of Record; which in the Civil Law is called a Nullityie' (termes de la ley)."
Something incorrectly done through ignorance or inadvertence S.99 CPC and S.215 Cr.PC.
"Error, Fault, Error respects the act; fault respect the agent, an error may lay in the judgement, or in the conduct, but a fault lies in the will or intention."
6. At page 650 of the aforesaid Law Lexicon, the scope of Error, Mistake, Blunder, and Hallucination has been explained thus:
"An error is any deviation from the standard or course of right, truth, justice or accuracy, which is not intentional. A mistake is an error committed under a misapprehension of misconception of the nature of a case. An error may be from the absence of knowledge, a mistake is from insufficient or false observation. Blunder is a practical error of a peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or awkwardness. An error may be overlooked or atoned for, a mistake may be rectified, but the shame or ridicule which is occasioned by a blunder, who can counteract. Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgement or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived."
6.2. On the other hand, the deduction of Rs.30,60,000/- from the gross turnover also the loss of revenue, which clearly indicates erroneous and prejudicial to the interest of the revenue. The learned PCIT had correctly considered both the issues in the order passed u/s.263 of the Act. Hence, we are inclined in the observations made by the learned PCIT in his order. Therefore, under these circumstances, we do not find any valid reason to interfere with the order passed by learned PCIT.
::9 :: Accordingly, the impugned order passed u/s.263 of the Act is upheld.
In the result, the appeal of the Assessee in I.T.A No.:612/Chny/2020 is dismissed.