INDONG TEA CO. PVT. LTD.,KOLKATA vs. PCIT-2, KOLKATA

This is an appeal preferred by the assessee against the order of the Ld. Principal Commissioner of Income Tax (Appeals)-2, Kolkata [hereinafter referred to as ‘Ld. PCIT’] dated 29.05.2020 for the assessment year 2015-16.

Though the Registry has pointed out that the appeal is time barred, however, in view of the decision of the Hon’ble Supreme Court in Miscellaneous Application No. 665 of 2021 in SMW(C) No. 3 of 2020, the period of filing appeal during the COVID- 19 pandemic is to be excluded for the purpose of counting the limitation period. In view of this, the appeal is treated as filed within the limitation period.

Facts in brief are that the case of the assessee was selected for scrutiny under CASS for limited scrutiny on three issues as under: i) Large Agricultural Income ii) Unsecured loan from persons who have not filed their Return of Income (Form 3CD) iii) Mismatch in amount paid to related persons u/s 40A(2)(b) reported in Audit Report & ITR.

The Ld. A.R while referring to page no. 5 of Ld. PCIT in the revisionary order which is the reply of the assessee reproduced in the revisionary order submitted that the case of the assessee was selected under CASS for limited scrutiny in respect of above three issues. The Ld. A.R. submitted that during the assessment proceedings all these issues were completely examined by the AO by specifically calling for from the Indong Tea Co. Pvt. Ltd. assessee the explanation on these issues and framed the assessment after accepting the pleas of the assessee by taking a plausible and possible view on all these issues. The Ld. A.R referred to notice dated 27.02.2017 issued u/s 142(1) of the Act where he pointed out in para 4,5 and 6 that the AO has called upon the assessee to furnish accounts and documents pertaining to these points. The Ld. A.R. submitted in the meantime the AO was changed and the new incumbent issued another notice u/s 142(1) dated 30.08.2017 copy of which is filed at page no. 3 of PB wherein he has specifically called for the details from the assesseeparticularly in para no. 12,13 and 14. The assessee submitted all these details and the assessee the reply to the said notice on 14.09.2017 is filed at page 8 to 23 of the PB dated 22.02.2017 submitting the detailed reply on all the issues and AO only after taking into account the submissions of the assessee accepted the contentions of the assessee on all these issues. The Ld. A.R submitted that on the issue no. 1 which relates to large income ,the assessee’s contention was accepted by the AO after taking into account the explanation of the assessee. Similarly on the increase in the amounts of unsecured loans from various parties, which was the second reason for selecting the case for limited scrutiny reasoning that the lenders have not filed their return of income, was fully proved before the AO by filing ITRs of lenders from whom the assessee secured money by way of unsecured loan and thus the basis on which the limited scrutiny was selected qua this issue was fully proved. The Ld. A.R also submitted that the observations of the Ld. PCIT is wrong and against the facts on record that the AO has not verified these loans by not issuing summons u/s 131 or notice u/s 133(6) of the Act by referring to page no. 28 to 159 of PB which contained the replies of the lenders furnished in response to notices issued u/s 133(6) of the Act comprising copies of ITRs, audited accounts, confirmations, bank statements etc. in respect of all these parties and therefore, the Ld. PCIT is misdirected on all these issues. The Ld. A.R submitted that AO has examined these issues by issuing notices u/s 133(6) to lenders and after taking into account the replies received in response thereto the AO accepted the contentions of the assessee and did not make any addition. The Ld. A.R. also contended that the Ld. PCIT has not recorded any independent findings to justify the Indong Tea Co. Pvt. Ltd. exercise of revisionary jurisdiction u/s 263 of the Act and therefore the jurisdiction u/s 263 of the Act was exercised invalidly. In defense of his arguments the Ld. A.R relied on the two decisions of Hon’ble Jurisdictional High Court at Calcutta in the case of PCIT-4, Kolkata vs. M/s Bengal United Credit Belani Housing Ltd. in ITAT/188/2018 (IA No.: GA/1/2018 (Old No. GA/1412/2018) ITAT/188/2018 (IA No.: GA/1/2018 (Old No. GA/1414/2018) dated 6.4.2022 and in the case of PCIT-1, Kolkata vs. J.K. Tyre & Industries Ltd. in ITAT/62/2022 (IA No. GA/1/2022) dated 14.09.2022. The Ld. A.R. finally submitted that in view of the aforesaid facts and the judicial pronouncements the appeal of the assessee may kindly be allowed.

The Ld. D.R on the other hand relied heavily on the order of Ld. PCIT.

We have heard the rival submissions and after perusing the material on record, we note that the ld. PCIT invoked the jurisdiction u/s 263 by issuing show cause notice u/s 263 of the Act dated 06.03.2020 in respect of two issues namely no enquiry of large agricultural income of Rs. 5 Lakhs and non-verification of unsecured loans taken during the year which increased to Rs. 5.23 crores from Rs. 3.15 crores during the year. We note that the case of the assessee was also selected for limited scrutiny under CASS on these issues and AO after raising specific quarries from the assessee in the notice issued u/s 142(1) of the Act dated 27.02.2017 and 30.08.2017. We also observe that the assessee has comprehensively replied the said notices and were examined by by the AO. The copies of the replies are filed at the paper book at page no. 23,24 to 26 of the PB. We also note that the AO had issued notices u/s 133(6) on all these parties had duly responded to the said notices by filing ITRs, bank statements, confirmations, and audited annual accounts evidencing the said payments. Therefore we have matetrials before us on the basis of which we reasonable believe that the observations of the Ld. PCIT that the AO has not examined the issues and no notices u/s 133(6) were issued to the lenders is wrong and against the facts on record. We also note that the Ld. PCIT has failed to demonstrate as to how the assessment order was erroneous and prejudicial to the interest of the revenue as no relevant findings has not recorded by the Ld. PCIT showing that the assessment framed is erroneous as well as Indong Tea Co. Pvt. Ltd. prejudicial to the interest of the revenue. We have perused the decisions relied by the A.R and observe that the case of the issue is squarely covered by the said decisions of Hon’ble Jurisdictional High Court cited supra. The Hon’ble High Court in both the above decisions has held that the Ld. PCIT has to record reasons justifying the invoking of jurisdiction u/s 263 of the Act as to how the assessment order is erroneous and prejudicial to the interest of the revenue. In absence of which the assumption of jurisdiction u/s 263 is not sustainable under the Act. We therefore respectfully following the said decisions of Hon’ble Jurisdictional High Court set aside the order passed u/s 263 of the Act by ld. PCIT on the ground of invalid jurisdiction.

In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 9th November, 2022