MALHAAR RESTAURANT,MUMBAI vs. PR. CIT-27, MUMBAI

This appeal is filed by the assessee/ Appellant Malhaar Restaurant against the order passed by Pr. Commissioner of Income-Tax, Mumbai-27, [ the ld PCIT ] under section 263 of the Income-tax Act, 1961 (hereinafter referred to as 'Act’) dated 15th March, 2021 for Assessment Year 2016-17, wherein it has been held that the order passed under section 143(3) of the Act on 21.12.2018 by the Income-tax Officer, ward 27(2)(2), Mumbai[ the Ld AO ] is erroneous so far as it is prejudicial to the interest of the Revenue whereby Assessing Officer is directed to pass a fresh assessment order.

The assessee is aggrieved with that and has preferred the appeal raising solitary ground of appeal as under:-

The brief fact of the case shows that assessee is a partnership firm engaged in the hotel business and catering.

It filed its return of income on 29.12.2016 at ₹2,11,250/- which is subsequently revised on 28th March, 2017 at ₹12,11,250/-.

A survey under section 133A of the Act was conducted on 27.09.2016 at premises of assessee. Statement of one of the partner Mr Vikram N Naik was recorded under section 131 of the Act. He made disclosure on account of unaccounted sales and consequent gross profit thereon for some years. In reply in response to question No. 10, 11 and 13, he disclosed the additional income of ₹25 lacs for Financial Year 2015-16[AY 2016-17]. The above disclosure was made on account of the gross profit at certain

During the course of assessment proceedings the learned assessing officer issued notice u/s 142 (1) of the act wherein he asked the brief note on the business of the assessee, financials i.e. profit and loss account, balance sheets and audit report for assessment year 2016 – 17 along with copy of the partnership deed. In response to that assessee submitted the details of the business income stating assessee has disclosed total sales of ₹ 8,095,065/– and net profit of ₹ 1,149,664. During the year the assessee has disclosed a sum of ₹ 25 lakhs as additional business income (Under IDS scheme) which has been credited to the profit and loss account. Based on these examination , the learned assessing officer passed assessment order u/s 143 (3) of the Act on 21/12/2018 at ₹ 1,249,640/– making an addition/disallowance of several expenditure amounting to ₹ 38,364/–.

Thus the assessing officer allowed remuneration u/s 40 (b) of the act of ₹ 2,041,875/- in the original assessment proceedings.

Subsequently, the records were examined by the learned Principal Commissioner of income-tax and found that in the original return of income filed on 29.12.2016 of ₹2,11,247/-, assessee claimed partners remuneration of ₹5,41,875/-. Subsequently, the return was revised on 28th March, 2017 at ₹12,11,250/- and the claim of the

Assessee submitted its reply on 30th February, 2021 stating that the assessee has disclosed the above sum as a business income, and the claim of the deduction of partner’s remuneration is allowable under section 40(b) of the Act which was allowed by the learned Assessing Officer after examining the return of income and partnership deed. It was further stated that while explaining details of business, assessee has specifically submitted in response ‘note on business’ that assessee has disclosed total sales of ₹80,95,065/- and earned a net profit of ₹11,49,664/-. Further, during the year sum of ₹25 lacs was also disclosed as a business income which is credited to the profit and loss account. Therefore, the assessee’s submission was that assessee made a complete disclosure with respect to the income earned on account of gross profit credited in the profit and loss account as business income, claim of remuneration as allowable under section 40(b) of the Act, such remuneration is paid in accordance with the partnership deed. Based on this the learned assessing officer accepted the claim of the assessee. Therefore there is no error in the order of the learned assessing officer. It was stated that learned Assessing Officer has taken one of the plausible view, hence, there is no error in the order of the learned Assessing Officer and hence, the action under section 263 is not called for. The

The learned PCIT held that it is clear that the Assessing Officer has not considered the fact that income is declared by the assessee during the course of survey under section 133A of the Act after filing of the return of income for the year under consideration. Therefore, the failure to verify the facts and reasons for revising the return filed by the assessee has rendered the assessment order erroneous and prejudicial to the interest of the Revenue. Therefore, he passed an order under section 263 of the Act on 15th March 2021 setting aside the assessment order passed and directing the Assessing Officer to pass a fresh assessment order considering the above issues.

The assessee is aggrieved with the above order and has preferred the appeal before us.

The learned Authorised Representative submitted the paper book containing 35 pages and another paper book containing seven pages. I he further relied on the decision of the coordinate bench in case of torrent pharmaceuticals Ltd versus DCIT 164//2018 for assessment year 2014 – 15 dated 8/8/2018 submitting that explanation 2 to Section 263 cannot be invoked casually.

The learned departmental representative vehemently supported the order of the learned PCIT.

We have carefully considered the rival contention and perused the order of the learned principal Commissioner of income tax as well as the order of the learned assessing officer. The facts shows that assessee filed return of income declaring a total income of ₹ 211,247/– . Subsequently survey proceedings were carried out on 27/9/2016, wherein the assessee disclosed an additional business income of ₹ 25 lakhs which was credited to the profit and loss

Accordingly appeal of the assessee is allowed.