BALARAM CONSTRUCTION LIMITED,BANASKANTHA vs. THE PCIT, AHMEDABAD-1, AHMEDABAD

4. He has erred in law and facts in not appreciating the facts that the said amount has already been shown as income in assessment year 2019-2020 which has been duly assessed and the income tax rates been same no loss has occurred to revenue and it is revenue neutral.

5. The learned PCIT has erred in law and facts in not properly appreciating the submission of the assessee objecting to the initiation of proceedings U/s 263 for Α.Υ. 2018-19.

3. The appeal was marked by the Registry to be delayed for filing by 324 days. The Ld.Counsel for the assessee, therefore, was first heard on the aspect of condonation of delay. Our attention was drawn in this regard to the Affidavit filed by the Director of the assessee-company explaining the reason for the delay in filing the present appeal before us, which reads as under:

BALARAM CONSTRUCTION LIMITED AFFIDAVIT FOR EXPLAINING DELAY IN FILLING APPEAL AGAINST ORDER PASSED U/S 263 DATED 29/03/2023 FOR A.Y. 2018-19 I the under signed, Dinesh Gadhvi aged about 53 residing at Pedagara, post:malan,ta:palanpur dist:banaskantha, having PAN: ACUPG7815K as director for and on behalf of Balaram Construction Limited hereby execute this affidavit explaining the delay in filling appeal before Honorable ITAT, Ahmedabad against order. U/s 263 for A.Y. 2018- 19 passed on 31/03/2023 by Honorable PCIT, Ahmedabad 1: That our company is assessed vide PAN AAACB6264C by the A.O. NFAC and for A.Y. 2018-19 complete scrutiny assessment order under E-assessment Scheme, 2019 was passed on 17/02/2021 assessing the income at Rs. 73,32,210/- after verification of contract Receipts. That the PCIT, Ahmedabad 1 issued notice dated 01/03/2023 U/s 263 considering the scrutiny assessment order as erroneous and prejudicial interest to the revenue with regard to revenue recognition of Rs. 3.70 Crore not included as receipts. That the above point of receipts was duly examined by the learned A.O. NFAC while passing scrutiny assessment order. That detailed submission filed before the PCIT taking objection to the proceedings initiated U/d 263 of the Act but the said submission was not accepted and the original assessment order dated 17/02/2021 was set aside by his order passed on 29/03/2023. That the issue of not considering amount of Rs.3.70 Crore as revenue for A.Υ. 2018-19 which was offered for taxation in A.Y. 2019-20 as the impugned receipts did not accrue in A.Y. 2018-19. That the company was under bonafide belief that the issue being adequately explained and accepted during original assessment proceedings will be accepted by the A.O. while passing order r.w.s. 263 but the explanation has not been accepted by the A.O. who has passed the order on 29/02/2024 making addition of 3.70 Crores. That the order passed U/s 263 being against the accepted principles of accountancy and the delay in filling appeal being for valid reasons and balance of convenience being in favor of assessee by executing this affidavit the unintended delay of more than 300 days is prayed to be condoned. The above facts are solemnly affirmed, on oath and are true to the best of my knowledge and belief. Balaram Construction Ltd. vs. PCIT AY 2018-19 4 Place: Ahmedabad. Date: 06/04/2024 FOR, BALARAM CONSTRUCTION LIMITED (Seal) DINESH GADHVI (Deponent) DIRECTOR DIN: 00022586 3.1. A perusal of the contents of the Affidavit would reveal that the reason for the delay in filing of the appeal was that the assessee had consciously chosen not to pursue the appellate route against the order passed by the Ld.PCIT u/s.263 of the Act initially ,believing that it had a favourable case on merits and would be granted relief in the consequential set aside proceedings before the AO in pursuance to the direction of the Ld.PCIT u/s.263 of the Act, but when the AO ,in the consequential order passed u/s.143(3) of the Act r.w.s.263 of the Act, did not grant relief to the assessee and ruled against the assessee making addition to its income, the assessee decided at this stage to pursue the appellate route against the order of the Ld.PCIT .That, therefore, the assessee consciously opted not to file appeal against the order of the Ld.PCIT initially, but when it was not granted relief by the AO in the consequential proceedings, it followed the appellate route which the assessee had initially deliberately abandoned. The reason, patently for avoiding appellate route initially by the assessee was that it had a clear-cut case in its favour on the issue on which the Ld.PCIT had invoked his revisionary jurisdiction and was certain of getting relief from the AO in the set aside proceedings consequent to the directions of the Ld.PCIT in his order passed u/s 263 of the Act. Balaram Construction Ltd. vs. PCIT AY 2018-19 3.2. The Ld.Counsel for the assessee was confronted at bar with the fact that having consciously chosen not to file the appeal against the order of the Ld.PCIT initially, how the filing of the appeal now by delay of 324 days was justified in any case to be entertained. It was pointed out that clearly there was no sufficient and reasonable cause for the delay, considering the fact that the assessee had consciously opted not to exercise its right of filing appeal against the order of the Ld.PCIT.

To this, the Ld.Counsel for the assessee contended that the Hon’ble Jurisdictional High Court in the case of Vareli Textile Industries vs. CIT reported in {2016] 284 ITR 238 (Guj.) had held that the settled legal position of law with regard to condonation of delay was that a meritorious case should not be thrown out on the ground of limitation. That, it is necessary atleast prima facie to examine whether the assessee has a case on merits, for condoning the delay in filing the appeal or not. Copy of the order was filed before us. He pointed out that in the facts of the case before the Hon’ble High Court also the assessee had consciously abandoned its right of raising a cross objection initially and had exercised it at a later stage with considerable delay and in the light of these facts, the Hon’ble High Court had held that in such circumstances where a cause is consciously abandoned the party seeking condonation must show by cogent evidence sufficient cause in support of its claim for condonation. That, the onus on the party seeking condonation is greater. The Hon’ble High Court, it was pointed out, went on to state that one of the propositions of settled legal position is to ensure that a meritorious case is not thrown out on the ground of limitation. Therefore, it is necessary to examine atleast, prima facie, whether the assessee has or has not a case on merits. In this regard, our attention was drawn to paragraph No.12 of the Balaram Construction Ltd. vs. PCIT AY 2018-19

order of the Hon’ble High Court in the case of Vareli Textile Industries vs. CIT, (supra) which reads as under:

12. However, what is more material is whether the Tribunal was justified in refusing to condone the delay in filing cross-objection beyond the statutory period of limitation. There is no dispute as to the propositions laid down by the apex court in relation to condonation of delay. It is equally well settled that where a cause is consciously abandoned (as in the present case) the party seeking condonation has to show by cogent evidence sufficient cause in support of its claim of condonation. The onus is greater. One of the propositions of settled legal position is to ensure that a meritorious case is not thrown out on the ground of limitation. Therefore, it is necessary to examine, at least prima facie, whether the assessee has or has not a case on the merits.

4.1. Taking note of this submission of the Ld.Counsel for the assessee, he was asked at bar to explain how on merits he had a good case before the Ld.PCIT such that if the appeal is held to be non-maintainable on the grounds of limitation it would result in a meritorious case being thrown out. To this effect, the Ld.Counsel for the assessee pointed out that the Ld.PCIT had exercised revisionary power on the assessment order passed in the case of the assessee u/s.143(3) of the Act finding it erroneous so as to cause prejudice to the interests of the Revenue for having not verified the negative balance of debtors amounting to Rs.3.70 crores reflected in its balance-sheet. He pointed out that the case of the Ld.PCIT was that the assessee being a Balaram Construction Ltd. vs. PCIT AY 2018-19 contractor, this amount was billed by the assessee to the debtor but was withheld by him and therefore needed to be treated as income of the assessee as per Income Computation and Accounting Standards(ICDS). The assessee was noted to have explained to the AO as the amount representing advance given by the debtor to the assessee against work not actually carried out. Noting the issue to have not been examined by the AO in the light of the facts before him ,as to whether it constituted income of the assessee, he was stated to have assumed jurisdiction to revise the order of the AO u/s 263 of the Act. In this regard, he drew our attention to the notice issued by the Ld.PCIT u/s.263 of the Act, is as under:

“To BALARAM CONSTRUCTION LIMITED, 311 SHREYAS. COMPLEX, OPP, JAIN DERASAR India, NAVARANGPURA AHEMDABAD 380009, Gujarat, India, PAN: AAACB6264C, Assessment Year: 2018-19 Dated: 01/03/2023, DIN & Notice No.ITBA/COM/F/17/2022-23/1050270518(1)

Sir/Madam Subject: Proceeding u/s 263 of the Income-Tax Act, 1961 - Notice Please refer to the assessment order u/s 143(3) r.ws/143(3A) & 143(38) of the Income-tax Act, 1961 for A.Y. 2018-19, passed in your case by the NoFAC, New Delhi on 17.02.2021 after accepting the returned income at Rs. 73,32,210/

2.1 In this regard, your kind attention is invited to the provisions of ICDS which stipulate that revenue recognition of retention (withheld) amount, ie, amount of Rs.3.70 crore in your case, which was billed by you but not received from the EEAUT as it was withheld, is to be recognized in current year's income. However, you had not included this amount in income for, the year under consideration.

4 You are requested to furnish your objection/ comments online through e-filing portal or at the email address ahmedabad pcit1@incometax.gov.in on or before 07.03.2023. If you wish to attend the hearing personally, you may do so on 07.03.2023 at 11.30 A.M. along with your submissions.”

4.1. He contended that this issue was demonstrated to the Ld.PCIT and was evident from the records before him also, as having been examined by the AO during the course of assessment proceedings. He drew our attention to the notice issued during the assessment proceedings placed before us at page Nos.57 & 58 of the paper-book, being notice issued during assessment proceedings u/s.142(1) of the Act dated 03/12/2020 and specifically drew our attention to the explanation sought from the assessee at point Nos.6, 11 and 13 which he contended related to the issue of negative balance of trade receivables as under:

6. On verification of balance sheet, under the head other current assets, trade receivable of Rs.3.06 crores is shown as negative. Please explain as to how the receivables are negative and also furnish the list of the trade receivables along Balaram Construction Ltd. vs. PCIT AY 2018-19 9 the Name, address, PAN and email-id, opening balances as on 01.04.2017, addition during the year, received during the year, closing balance as on 31.03.2018 in a tabular form.

4.2. He also drew our attention, in this regard, to page Nos.63 to 68 of the paper-book placed before us and more particularly to page No.65, wherein he pointed out that it was explained to the AO that the negative balance reflected advance received from the trade debtors. The actual work having not been carried out as under:

“Point-(6): On verification of Balance sheet, under the head other current Assets, trade receivables of Rs.3.06 cores is showing negative Please explain as to how the receivables are negative and also furnish the list of the trade receivables along with Name, Address, PAN and e-mail id, opening Balances as on 01.04.2017, addition during the year, received during the year, closing balance as on 31.03.2018 in the tabular form.

Reply: In fact, in the Balance sheet, balance of Trade receivables is Rs.3,69,75,671 (credit) as per note no.2.12. The credit balance is due to the Provision entry of Rs.3,70,00,000 in respect of Building Construction work of Executive Engineer, Agriculture University, Tharad. The said amount is taken in the Books as per instruction of the Agriculture University (Contractee) as their grant was getting lapsed and they need to book the expense under relevant grant head, while the actual work was not carried out. Actual work was carried out in the F.Y.2018-19 and revenue against the provision entry of Rs. 3,70,00,000/- is booked in the F.Y.2018-19. The detailed ledger Account explaining the transaction is attached as per EXHIBIT-V.”

4.3. The Ld.Counsel for the assessee, therefore, contended that the AO had examined the issue of negative balance of trade receivable of Rs.3.70 crores Balaram Construction Ltd. vs. PCIT AY 2018-19 and after applying his mind had taken a reasonable view of not treating it as the income of the assessee. That, the issue, therefore, stood examined by the AO and the Ld.PCIT, therefore, had erred in holding assessment order erroneous on this aspect since the assessee had clearly demonstrated the amount to represent advance from a trade debtor.

4.4. To this, it was pointed out that the Ld.PCIT had noted this explanation of the assessee in his notice issued u/s 263 of the Act and had still found the AO to have erred in accepting the explanation of the assessee. His attention was also drawn to para No.2.1 of the order of the Ld.PCIT, wherein it was noted that the Ld.PCIT has considered this explanation of the assessee and had found no merit in the same noting the fact that the advance of Rs.3.70 crores arose on account of a bill raised by the assessee originally on the concerned party; Executive Engineer Agricultural University (EEAUT), who had withheld from the said bill an amount of Rs.4.70 crores. That, subsequently an amount of Rs.1 crore was released and Rs.3.70 crores was withheld. That, therefore, he found no merit in the explanation of the assessee that the amount represented advance given by the assessee to facilitate budgetary grants of EEAUT not lapsing. The case of the Ld.PCIT was that Rs.3.70 crores actually represented bill raised by the assessee on Agricultural University (AUT) which apparently was not approved to this extent ,which meant that the assessee had completed work to this extent of Rs.3.70 crores. He therefore found the explanation of the assessee of Rs.3.70 crores representing the amount paid by EEAUT to the assessee since their grant was getting lapsed and no work actually being done on account of the same, as not in order. The contents of para 2.1 of the order are as under: Balaram Construction Ltd. vs. PCIT AY 2018-19 “2.1. It is further gathered from the ledger account, regarding the said transaction that the EEAUT had passed a bill raised by the assessee company during December 2017, out of which an amount of Rs.4.70 Crores was withheld by the EEAUT. Thereafter, an amount of Rs. 1.00 crore was released in January 2018 while Rs. 3.70 Crores was withheld by the EEAUT: From the transaction, it is very clear that the EEAUT could not have passed a bill without the same being raised (RA bill certifying that they had completed the work). Thus, the submission that a provision was made in the books of the assessee company, in order to facilitate lapse of budgetary grants of EEAUT does not appear to be in order.”

When these facts were pointed out to the Ld. Counsel for the assessee he failed to point out any infirmity in this finding of the Ld.PCIT.

4.5. He thereafter stated that it had also been pointed out to the Ld.PCIT that the amount of Rs.3.70 crores had been booked by the assessee as its income in succeeding year and TDS credit relating to the same claimed by the assessee. That, having returned the said amount in the subsequent year, there was no loss to the Revenue and, therefore, the Ld.PCIT had patently erred in passing this order u/s.263 of the Act directing the AO to examine its taxability in the impugned year.

4.6. The Ld.Counsel for the assessee , at this juncture, was asked to point out how it was demonstrated to the Ld.PCIT that the impugned amount of Rs.3.70 Crs was returned to tax in the succeeding year. To this, he drew our attention to the submissions made before the Ld.PCIT, which was placed before us at page No.23 of the assessee’s paper-book as under:

It is only during the F.Y.2018-19, when the work was actually performed and income is booked on performance basis. The Entire amount of Rs.3,70,00,000/- was booked as Contract Income when the work was actually performed. We have attached Balaram Construction Ltd. vs. PCIT AY 2018-19 12 herewith the Ledger Accounts of Contract receipt both for F.Y.2017-18 and F.Y.2018-19 herewith for your kind perusal as an attachment to this reply However, a provisional book entry (can be regarded as partially erroneous/Non- mandatory) of Rs.3,70,00,000/- was passed in the our Books of accounts so as to keep in record probable revenue and recoveries from the Agriculture University, Tharad as worked out by them in their record in F.Y.2017-18 as their grant from the Government for the project was getting lapsed.

4.7. The Ld.Counsel for the assessee also drew our attention to the return of income filed by the assessee, placed before us, in the subsequent AY 2018- 19, and pointed out therefrom the disclosure of the fact that it had claimed TDS in the impugned year on contract receipt of Rs.3.70 crores. Copy of the ledger account of contract income earned for the succeeding year, i.e A.Y 19- 20, was also placed before us.

4.8. On going through the same, the Ld.Counsel for the assessee was asked to show where the amount of Rs.3.70 Crs was reflected in the ledger account of income of succeeding year . Ld.Counsel for the assessee was unable to point out the same , but however reiterated that it was reflected in the various figures mentioned in the ledger account.

4.9. The Ld.Counsel for the assessee was also confronted at bar that the TDS credit on Rs.3.70 Crs reflected to have been taken by the assessee in the ROI of the succeeding year ,did not establish the fact of income of Rs.3.70 Crs being returned to tax. That it only reflected credit of TDS being taken on the same.

4.10. Ld.Counsel was unable to controvert the same with any cogent explanation. Balaram Construction Ltd. vs. PCIT AY 2018-19

5.1. As noted above, the case of the Ld.Counsel for the assessee was that the issue on non-examination by the AO of Credit balance of trade receivable of Rs.3.70 crores ,raised by the Ld.PCIT in the order passed u/s.263 of the Act , was clearly demonstrated to have been examined by the AO and rightly accepted as pertaining to the advances received by the assessee . His case also was that, even otherwise it was demonstrated to the Ld.PCIT that this amount of Rs.3.70 crores had been returned to tax in the succeeding year and, therefore, the exercise of revisionary jurisdiction by the Ld.PCIT directing the AO to re-examine the taxability of the same in the impugned year would serve no purpose being a revenue neutral exercise.

5.2. From the facts narrated by the Ld.Counsel for the assessee, we find that the Ld.Counsel for the assessee was unable to demonstrate before us sufficiently that the issue was examined by the AO during the course of assessment proceedings and the AO had taken a reasonable view on the same. What has been demonstrated before us is that the AO did inquire on the negative balance of trade receivable of Rs.3.70 crores which the assessee explained as representing an amount which was given as advance by the AUT to the assessee relating to work not completed ,the amount being advanced for the reason that it did not want the grant received by it from the Balaram Construction Ltd. vs. PCIT AY 2018-19 Government to lapse. This is the only communication and enquiry on the issue done by the AO. The Ld.PCIT however has noted the records to reveal that the Rs.3.70 Crs represented amount billed by the assessee to EEAUT . He noted that the assessee had raised bill on EEAUT of which Rs.4.70 crores was not approved by the Executive Engineer of Agricultural University. That, subsequently Rs.1 core out of the same was released to the assessee to Rs.3.70 crores still remained unapproved. The Ld.PCIT noted from these facts that the assessee completed the work in relation to the amount of Rs.3.70 crores received from AUT and it was not the case of mere advance received from AUT without any completion of work on the part of the assessee. The facts on record, he therefore noted ,was not in consonance and did not corroborate the explanation of the assessee that Rs.3.70 cores were given by AUT for work not completed.

5.3. Clearly the AO has accepted the explanation of the assessee on the face of it without making any further enquiries .There is clear contradiction in the facts before the Ld.PCIT showing Rs.3.70 Crs to represent billed amount, and the explanation of the assessee to the AO stating the amount to be advance for work not completed.

5.4. The finding of the Ld.PCIT therefore of the assessment order being erroneous , we hold, is clearly not patently incorrect as pleaded by the Ld.Counsel for the assessee.

5.5. As for the contention of the Ld.Counsel for the assessee that it was demonstrated to the Ld.PCIT that the amount of Rs.3.70crores had been returned as income in the subsequent year, we find no merit in the same. Our Balaram Construction Ltd. vs. PCIT AY 2018-19 attention was drawn to the ledger account of income of the assessee in the subsequent year. The ledger account income records a total income of Rs. 31 Crs earned by the assessee in the subsequent year. There is no entry pertaining particularly to Rs.3.70 crores (relating to AUT) to clearly demonstrate that the assessee had reflected that amount of income in the impugned subsequent assessment year. Ld.Counsel counsel for the assessee was unable to point out the relevant entry in the ledger pertaining to Rs.3.70 Crs. Therefore the ledger account of income of AUT in the subsequent year not patently reflecting Rs.3.70 crores being included in its income, it is difficult to agree with the Ld.Counsel for the assessee that it was demonstrated to the Ld.PCIT that the impugned amount was returned to tax in the succeeding year.

5.6. As for the credit of TDS shown to have been claimed by the assessee from the said income in the return of income filed in the subsequent year, the said detail only mentions the fact of the assessee having claimed the credit of TDS pertaining to the income of Rs.3.70 crores. It in no way establishes the fact that the assessee had returned income of Rs.3.70 crores in the said subsequent year.

5.7. In view of the above, we are unable to concur with the Ld.Counsel for the assessee that it had a clear cut case in its favour in the order passed u/s 263 of the Act .

5.8. Having noted so, therefore, even applying the proposition of law pointed out by the Ld.Counsel for the assessee before us that a meritorious case on merits, should not be dismissed merely on account of limitation, we Balaram Construction Ltd. vs. PCIT AY 2018-19 find that the Ld.Counsel for the assessee has miserably failed to make out such a case before us.

5.9. It is pertinent to point out that by not condoning the delay in filing appeal against order passed u/s 263 of the Act, the assessee is not left high and dry. In fact the Ld.PCIT in his order passed u/s 263 of the Act had only directed the AO to reexamine the issue. The Ld.PCIT had not directed the AO to make addition on this count. The AO has passed order in consequence to the direction of the Ld.PCIT after examining the issue afresh , as stated by the Ld.Counsel for the assessee. The assessee is well within its rights to challenge the order of the AO to the CIT(A) and seek relief as per law .

5.10. Therefore, we hold that the assessee having consciously not opted to file appeal against the order of the Ld.PCIT and finding that no case on merits as such has been made out by the assessee, we do not condone the delay of 324 days in the filing of the present appeal before us and dismiss the appeal of the assessee as not maintainable.