M/S. RAMKRISHNA COTSPIN PVT. LTD.,AHMEDABAD vs. THE PR. CIT-3, AHMEDABAD

This appeal is filed by assessee against the order dated 22.03.2022 passed by the PCIT-3, Ahmedabad for the Assessment Year 2017-18.

The assessee has raised the following grounds of appeal :-

The assessee filed return of income for A.Y. 2017-18 on 26.10.2017 declaring total income of Rs.1,33,360/-. The case was selected for limited scrutiny assessment through CASS and the Assessment Order under Section 143(3) of the Income Tax Act, 1961 was passed on 31.12.2019 thereby assessing total income at Rs.4,16,52,180/-, making addition of Rs.4,15,18,825/- on account of unexplained cash credit under Section 68 of the Act. The Principal Commissioner of Income Tax observed that the Balance Sheet of the assessee shows that on Assets side the amount of Rs.5,45,14,045/- which includes EPCG claim receivable of Rs.5,06,94,581/- During the assessment proceedings notice was issued to explain supporting document for determining the true nature of the claim of EPCG and its details of income and expenditure and Profit & Loss account. In its submission the assessee stated that EPCG is claim receivable from Government for incentive provided for export done by the assessee and the said income was already recorded in the books of accounts. However, the PCIT observed that as per Profit & Loss account the revenue from operation sales of traded goods was Rs.1,17,71,255/- only and other income was Rs.4,47,561/-. The receivable amount in the form of EPCG waiver of Customs Duty was required to be routed through the Profit & Loss Account. The PCIT observed that the above receivable amount of Rs.5,06,94,581/- was not passed through Profit & Loss account by the assessee. The PCIT passed the order under Section 263 dated 22.03.2022 thereby holding that the Assessing Officer failed to property analyse the facts and failed to assess the income correctly. So this case was partly set aside and further directed the Assessing Officer to pass fresh assessment order after properly ascertaining the correct facts on the above.

The Ld. AR submitted that the order passed under Section 263 of the Act is bad in law as the assumption of jurisdiction is bad and illegal as the assessment order passed by the Assessing Officer itself is not valid. As the ACIT, Circle-7(2) Ahmedabad passed the Assessment Order but the statutory notice under Section 143(2) of the Act was issued by ACIT, Surendra Nagar who has no jurisdiction over the assessee. The Ld. AR further submitted that the PCIT erred in law and on facts in Page 3 of 4 considering that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. In fact during the course of assessment proceedings the Assessing Officer vide notice dated 12.09.2019 has specifically called for the details of EPCG claim and after making proper enquiry and considering the facts available on record has allowed the claim without making any specific observation in the Assessment Order. The Ld. AR submitted that non-observation cannot amount to non-verification on the part of the Assessing Officer. Without prejudice to these submissions, the ld. AR further submitted that the assessee is eligible for refund of Excise Duty for purchase of machinery. In fact the Superintendent of Excise and Customs has issued certificate certifying that the supplier has paid the excise duty and has not claimed any credit or refund of the same. Thus, the assessee has received refund from Government of EPCG claim in subsequent years and thus the same was not recorded in the books of account for this particular A.Y. The Ld. AR pointed out that EPCG claim in its books of account from the ledger as well as schedule-13 of the books of account under the head ‘loans and advances’. Thus, the Ld. AR submitted that the order passed by the Assessing Officer is not prejudicial to the interest of Revenue and there is no loss to the Revenue. The Ld. AR relied upon the decision of the Hon’ble Supreme Court in the case of PCIT vs. Maithon Power Limited (2021) 124 taxmann.com 205 (SC).

Ld. DR submitted that the PCIT has rightly passed the order under Section 263 of the Act thereby directing the Assessing Officer to pass a fresh assessment order after properly ascertaining the facts in respect of the EPCG claim. The Ld. DR further submitted that the issue of determination of income receivable under EPCG scheme for the year under consideration was never properly verified by the Assessing Officer while finalizing the assessment proceedings under Section 143(3) of the Act as the said claim was not offered as income by the assessee in respect of EPCG refund. The Ld. DR, therefore, relied upon the order of the PCIT.

We have heard both the parties and perused all the relevant material available on record. The PCIT in paragraph no.2 of the order has categorically mentioned that during the assessment proceedings, a notice was issued by the Assessing Officer to explain with supporting documents for determining the true nature of the claim of Page 4 of 4 EPCG and its details of income and expenditure and Profit & Loss account. The assessee during the assessment proceeding has given all the details and further clarified that the refund from the Government of EPCG claim was received in subsequent years. The Assessing Officer has specifically asked the assessee during assessment proceeding to explain with supporting documents regarding EPCG claim of receivable of Rs.5,06,94,581/- in assessee’s assets and its treatment given by assessee in its income expenditure/Profit & Loss account. Further, it is on record that the assessee has given the details related to this claim as the said claim is in respect of government incentive and assessee already offered said income for taxation. It is pertinent to note that the analogy given by PCIT while directing the Assessing Officer, the PCIT has failed to appreciate that the treatment given by the Assessing Officer to EPCG claim in the present assessment year depends on the refund which is actually received in subsequent year. Thus, this clearly amounts to change of opinion which is not permissible under the provisions of Section 263 of the Act. Thus, the PCIT cannot say that the Assessing Officer has not verified this claim and thus this amounts to prejudice to the interest of Revenue. The appeal of the assessee is, therefore, allowed.

In the result, appeal filed by the assessee is allowed. Order pronounced in the open Court on this 8th day of August, 2022.