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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: Shri P.M. Jagtap & Shri Siddhartha Nautiyal
Date of hearing : 27-07-2022 Date of pronouncement : 14-10-2022 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This is an appeal filed by the assessee against the order of the ld. Principal Commissioner of Income Tax (Appeals)-3, Ahmedabad in vide order dated 30/03/2022 passed for the assessment year 2017-18.
Page No. 2 Avirahi Realty vs. Pr. CIT
The assessee has raised following grounds of appeal:-
“GROUND I :- On the facts and in the circumstances of the case, the Principal Commissioner of Income Tax - 3 Ahmedabad (hereinafter referred to as "Pr.CIT") has erred in invoking the provisions of section 263 and order passed by Pr. CIT although the order passed by the A.O. u/s. 143(3) of the Act was neither erroneous nor prejudicial to the interest of revenue. (a) The Pr.CIT failed to appreciate and ought to have held that the assessing officer has passed a scrutiny assessment order u/s. 143(3) after making a conscious application of mind and keeping in mind the various jurisdictional pronouncements and therefore the order passed by AO is neither erroneous nor prejudicial to the interest of revenue. (b) The order u/s 263 passed by the Pr. CIT is illegal, bad in law and without jurisdiction as detailed replies filed before the Pr. CIT, in response to the notice u/s 263, have not been considered while passing the final order. Hence the order u/s 263 is liable to be quashed. (c) That the exercise of jurisdiction by Pr. CIT u/s 263 is bad in law and without any basis as the same has been done on mere assumption and therefore, as such the assessment order is not erroneous and there is no prejudice to the interest of Revenue. (d)That the Pr. CIT has erred on facts and in law in not appreciating that the reply in specific reference to various heads of expenditure Page No. 3 Avirahi Realty vs. Pr. CIT and TDS was enquired during the assessment proceedings and also confirmed by the Pr. CIT while issuing notice u/s 263 of the Act,
(e) That the Pr. CIT has erred on facts and in law in assuming jurisdiction u/s 263 when the assessment order u/s 143(3), was passed only after making detailed enquiries into purchases / various expenses and its allowability to the appellant. The assessment order u/s 143(3) cannot be set aside merely because the CIT feels that further enquiry should have been made. On the facts and circumstances of the case the Appellant therefore, prays that the said order passed u/s. 263 being bad-in-law, unwarranted and illegal be quashed. GROUND III :- The appellant craves leave to add, to amend, to alter and/or to withdraw any of the grounds at the time of hearing.”
The brief facts of the case are that the assessee is a firm engaged in the business of selling of plots. The assessee had filed return of income for assessment year 2017-18 declaring total income at Rs. Nil. Thereafter, the case was selected for scrutiny and assessment u/s 143(3) of the Act was passed determining the total income at Rs. 1,97,640/- by making various additions/disallowances. On examination of the assessment records, the Pr. CIT observed that the assessee had claimed deduction with regard to various expenses like consultation charges, professional fees, security charges, professional expenses, brokerage expenses etc. on which no TDS was Page No. 4 Avirahi Realty vs. Pr. CIT deducted. Therefore, as per provisions of section 40(a)(ia) of the Act, the disallowance of 30% amounting to Rs. 28,04,823/- of the total amount of Rs. 93,49,410/- was required to be made. According to the Pr. CIT, omission to deduct TDS should have called for disallowance by the Assessing Officer u/s. 40(a)(ia) of the Act and hence the assessment order was erroneous in as much as prejudicial to the interest of the revenue. The Pr. CIT further observed that sum of Rs. 48,72,350/- was paid to S.V. Construction for construction of club house and underground water tank and the same was allowed as labour charges by the Assessing Officer during assessment proceedings. The Pr. CIT was of the view that since the assessee was engaged in sale of plots only therefore construction of club house and underground water tank was not a part of the scheme. Therefore, expenditure incurred was in the nature of capital expenditure and not incurred wholly and exclusively of the purpose of business of the assessee. Therefore, expenditure claimed of Rs. 48,72,350/- claimed for consideration of club house and underground water tank was required to be disallowed which was not done while passing the assessment order u/s. 143(3) of the Act.
3.1 In the proceedings u/s 263 of the Act, the counsel for the assessee submitted that the assessee had deducted TDS on all the expenses amounting to Rs. 93,49,410/-. He submitted that at the time of online submission, the assessee filed the ledger, though without a detailed narration as the online size of filing of the submission was a constraint. Further, regarding the labour charges paid to S.V. Construction amounting to Rs. 48,72,350/-, the assessee submitted that the underground water tank is in relation to plots Page No. 5 Avirahi Realty vs. Pr. CIT sold at Dholera where there is salty water and in order to provide sweet water to the plot owners, construction of underground water tank is a necessary requirement. So far as the construction of club house is concerned, it is a part of the scheme itself and it is a common facility provided to the plot holders. Further, the assessee submitted that the assessee has capitalized the aforesaid expenses incurred for the project and shown as WIP which is mentioned in the financial statements and return of income as well.
The Pr. CIT however rejected the assessee’s submission and set aside the assessment order as being erroneous and prejudicial to the interests of the Revenue with the following observations:
“8. The submissions dated 10.02.2022 and 22.02.2022 of the assessee have duly been considered but the same is not found acceptable for the following reasons : a) The assessee has submitted ledger account of Consultancy Charge Account, Professional Fees Expenses, Security Charges account, Professional Fees (Advocate & Legal) account, SV Construction Account, and Brokerage Expenses account, showing the name of the person to whom amount has been paid and TDS has been deducted with narration. The assessee has also stated that TDS amount has been deducted and duly reflected in the Quarterly return of TDS i.e. 26Q. However, on perusal of the ledger account, it is noticed that although, the basic information about the person to whom payment has been Page No. 6 Avirahi Realty vs. Pr. CIT made and tax has been deducted is provided but the assessee has failed to submit the requisite supporting documentary evidences to prove the factum as actually such deduction was made and if yes, how much deduction was made in respect of each transaction. The information is lacking in this aspect. Therefore, it is not possible to verify the claim of the assessee that due compliance of the TDS provision has been made or not. b) The assessee has submitted a chart in the form of Annexure- F for consultancy charges, PMC charges, Professional Fees, Rent, Salary and labour charges. This chart contains the name of the party to whom payment has been made, PAN, address, amount paid/payable, date of payment, Bank Statement page number highlighting the payment and mode of payment made to the party concerned. However, it its support, the assessee has not submitted relevant supporting documentary evidence to verify the claim of assessee about TDS and its payment. c) The assessee has submitted Quarterly TDS Statement for the four quarters from 01.04.2016 to 31.03.2017 showing details in Statement of TDS u/s 200(3) containing the details such as number of challans, total challan amount, total tax deducted and total tax deposited as per deductee details. The assessee has also submitted Form No. 27A containing the details such as number of deductees. Amount paid, tax deducted and tax deposited. However, the assessee has not submitted the breakup of the total amount deducted quarter wise and nature of Page No. 7 Avirahi Realty vs. Pr. CIT payment-wise and person-wise with supporting corroborative documentary evidences which can substantiate the alleged claim of the assessee. In absence of the details regarding the deductee wise details, it is not possible to verify and examine the veracity of the claim of the assessee that TDS has been deducted and deposited into the government account as per the provisions of the law. d) On verification of 3CD report of Tax Auditor, it is noticed that the column no.21(b) pertaining to details of amount admissible u/s 40(a)(ia) is provided but no information has been given in that column. e) Basically, the assessee has failed to co-relate each payment with details of TDS actually made or not and should provide detail break-up of challans to ascertain that due TDS was made by the assessee and the same was deposited in Government account. On perusal of the 360 profile of the assessee, it is noted that the assessee has only deposited tax to the tune of Rs. 85,471/- vide challan No. 19019 dated 31.12.2019. Relevant portion is a under : f) AY Tax Major Minor BSE Challan Challan
Depo Head Head code sequence deposit sited Page No. 8 Avirahi Realty vs. Pr. CIT date
2016 6820 21 400 051030 2569 25.12.201 -17 8 8 2017 1000 21 100 051030 14866 14,06.201 -18 00 8 6 2017 8547 21 400 051030 19019 31.12.201 -18 1 8 9
Thus, from the above, it is clear that although the assessee has claimed that TDS was deducted from the amount paid/payable to various parties but failed to verify its claim that the amount has been deposited into the government account in timely manner. As such the explanation offered by the assessee is not found acceptable for the reasons mentioned above. 8.1 So far as the issue related to labour charges expenses of Rs. 50,76,850 is concerned , it is noticed that out of the above amount, Rs 48,72,350 was paid to S.V. Construction on various dates. It was noticed from the submission of the invoices raised by the recipient that the work carried out was for construction of club house and underground water tank. In this regard, the assessee failed to prove the allowability of the expenditure with supporting ledger account as well as invoice/payment vouchers etc to substantiate the nexus of his Page No. 9 Avirahi Realty vs. Pr. CIT claim of expenditure with business activities of the assessee. Further, the invoice issued by the S.V. Construction did not mention the address of the site of work done. Therefore, the expenditure incurred cannot be said to have been incurred wholly and exclusively for the purpose of business of the assessee. The assessee vide submission dated 10.02.2022 contended that it will submit confirmation letter regarding the invoices raised by the SV Construction pertain to the infrastructure activities at Dholera site. It is pertinent to mention that nothing has been submitted by the assessee in this regard till date.
9. On careful examination of the documents submitted by the assessee it is observed that the assessee has not provided the bifurcation of the opening WIP, addition in WIP and closing WIP as on 31.03.2017 with supporting documentary evidences. It is to mention that the AO has not properly verified and examined the expenditure under the head of labor charges regarding the allowability of the same under the section 28 to 44 of the Act.
The contentions of the assessee have duly been considered, however, the same are not found acceptable in the light of facts discussed above, the then AO neither collected/obtained the relevant details nor raised relevant queries so obviously there was no application of mind on his part. In this case, 1 am of the considered opinion that the impugned order was passed without making necessary enquiries / verification which should have been made on the above issues. Besides this, it is apparent from record that the then Page No. 10 Avirahi Realty vs. Pr. CIT
Assessing Officer passed the order allowing relief on the issues discussed above which admittedly erroneously claimed by the assessee. Thus, this case is covered by clause (a) & (b) of Explanation 2 to section 263 reproduced above.”
The assessee is in appeal before us against the above order passed by Pr. CIT u/s. 263. The counsel for the assessee submitted that as many as 8 hearings took place before the ld. Assessing Officer during the course of assessment proceedings and the Assessing Officer has taken cognizance of all the issues which are the subject matter of proceedings u/s. order passed u/s 263 of the Act of the Act. The counsel for the assessee drew our attention to pages 10 to 21 of the paper book with the ledger copy of all the relevant expenses and submitted that TDS has been deducted on all the expenses which are the subject matter of 263 proceedings and the same is evident from copy of the ledger accounts of the respective heads of expenditure along with acknowledgement of quarterly TDS return filed within the due dates. Accordingly, there is no basis of initiating proceedings u/s. 263 of the Act. Regarding the expenses of Rs. 48,72,350/- incurred for construction of underground water tank and club house, the assessee submitted that the Pr. CIT was unable to appreciate the nature of business carried out by the process. The assessee is not engaged in carrying on any construction on the plots but only provides infrastructural facilities and related amenities like internal roads, water supply, sewage systems, electricity through cables and poles and other essential facilities as part and parcel of the project. The water tank was constructed by SV Construction is underground water tank for common utilization for all the plot owners and it Page No. 11 Avirahi Realty vs. Pr. CIT is not an individual water tank. The purpose of constructing the same was that Dholera has more of salty water and it was necessary to provide basic water facilities to the plot holders and it was with this object that the common underground water tank was constructed by S.V. Construction. The club house is also common facility provided to the plot owners as part of the scheme. The said scheme is approved by collector and related authorities for the residential plotting system. Further, the aforesaid expenditure has already been capitalized and shown as WIP which is mentioned in the annual financial statements as well as the income tax return. Therefore, the claim of such expenses has been correctly allowed by the Assessing Officer. The counsel for the assessee drew our attention to the page 99-100 of the paper book and submitted that the assessee vide submission dated 4th Nov, 2019 had given a detailed explanation in connection with the expense of underground water tank and club house facilities and had explained before the Assessing Officer that this expense has been capitalized and same is included in the closing WIP as per relevant accounting standard and policy. Further, vide the same submission, the assessee also furnished details of TDS on various expenses in response to query raised by the Assessing Officer u/s. 40(a)(ia) of the Act. Accordingly, the counsel for the assessee submitted that all the issues which were raised u/s. 263 proceedings were already answered by the assessee before the ld. Assessing Officer vide its submission dated 4th Nov, 2019 and 25th Nov, 2019. Therefore, the Assessing Officer has duly applied its mind and taken a conscious decision in respect of all issues which were subject matter of 263 proceedings.
Page No. 12 Avirahi Realty vs. Pr. CIT
In response, the ld. Departmental Representative relied upon the observations made by Pr. CIT order u/s. 263 of the Act.
We have heard the rival contentions and perused the material on record. On going through the submissions and documents placed before us, we are of the considered view that that issues which were raised by the Pr. CIT were examined by the ld. Assessing Officer as well during the course of assessment proceedings. Regarding the issue of non-deduction of TDS, the assessee has placed detailed evidences that TDS has already been deducted in respect of all payments, however, the Pr. CIT was unable to appreciate the factual and legal submission placed before him. Further, regarding expenses on account of labour charges in connection with the construction of underground water tank and club house facility, the assessee has already placed on record, a detailed submission in this regard before the ld. Assessing Officer, which was also duly considered by him while passing 143(3) order. Accordingly, in our view, since the Ld. Assessing Officer has conducted due enquiries on these aspects (TDS on various payments and allowability of deduction for labour charges), the order passed by the ld. Assessing Officer is not erroneous and prejudicial to the interest of the revenue. Regarding the scope of enquiry u/s 263 of the Act, it may be useful to refer to jurisdictional Gujarat High Court decision in the case of Principal Commissioner of Income Tax-3 v. Minal Nayan Shah [2020] 121 taxmann.com 30 (Gujarat), which has made the following observations in this regard:
Page No. 13 Avirahi Realty vs. Pr. CIT
“9.1 As pointed out on behalf of the assessee, two pre-requisites must coexist before the designated authority could exercise the revisional jurisdiction conferred on him namely; the order should be (I) erroneous & (ii) the error must be such that it is prejudicial to the interests of the Revenue. However, an erroneous order does not necessarily mean an order with which the Pr. CIT is unable to agree. The AO while passing an order of assessment, performs judicial functions. An order of assessment passed by the AO cannot be interfered only because an another view is also possible on the issue as held in CIT v. Greenworld Corporation [2009] 181 Taxman 111 (SC). If in given facts and circumstances of the case, two views are possible and one view as legally plausible has been adopted by the AO then existence of other possible view alone would not be sufficient to exercise powers under s.263 of the Act, by the Pr. CIT/CIT concerned. Hence, there can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO. It is only when an order is erroneous and causing prejudice, that the Section will be attracted. An incorrect assumption of facts or incorrect application of law will satisfy the requirements of the order being erroneous. ….. 9.3 An inquiry on the issue contemplated under section 263 r.w. Explanation 2 of the Act has its limits implicit in it. It is only a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before AO and such inquiry was not conducted which resulted an error fatal to the Page No. 14 Avirahi Realty vs. Pr. CIT interest of the Revenue, the revisional power so conferred can be exercised to invalidate the action of the AO. The AO is not expected to chase will of the wisp to find out something adverse to the assessee on each and every transaction. What is significant is the lack/inadequacy of inquiry should result in a substantive error or a visible abnormality resulting in loss of Revenue
In view of the above observations, we are of the view that ld. Pr. CIT has erred in facts and in law invoking the provisions of section 263 in the instant set of facts. Accordingly, we direct that the order passed by the Pr. CIT u/s. 263 of the Act may be set aside.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 14-10-2022 Sd/- Sd/- (P.M. JAGTAP) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 14/10/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, Page No. 15 Avirahi Realty vs. Pr. CIT
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद