SHREE SAMARTH SWITCHGEAR AND TRANSMISSION PVT LTD,JAMNAGAR vs. PRINCIPAL COMMISSIONER OF INCOME TAX, JAMNAGAR, JAMNAGAR

Learned Counsel for the assessee, also submitted that the grandfather used to look the taxation matters of this entire group, and he was feeling severe illness, and because of hissevere illness, the grandfather appointed an advocate for compliance of taxation matters, however, because of the mistake of the Advocate, so appointed, there was a delay in filing these respective appeals, therefore, such delay may be condoned in the interest of the Justice.Since the reasonsfor the petition for condonation of delay are similar in ITA No.609 and 610/RJT/2024, therefore, the delay should be condoned in the interest of justice, in other groupappeals also, based on the same sufficient cause.

On the other hand, the ld. DR for the Revenue submitted that these different three assessees have explained the reasons of delay that the grandfather who

We have heard both the parties on this preliminary issue. We note that these three assessees, are the group and associated concerns and the group taxation matter used to look after by the grandfather, of the key managerial persons of these group concerns. These group concerns are managed by the same family members. Due of critical health of grandfather, the group management appointed an advocate for compliance of taxes and matters,namely, Mr. Kirtikumar Paun who took long leave, after death of grandfather. The ld. Counsel submitted that the grand-father of the assessees- group, has died on 13.03.2024 and death certificate of the assessee’s grand- father is placed before the Bench. The ld.Counsel for the assessee, also submitted before us that due to tension environment in the family members because death of their grand-father, and due to non-cooperation of the Advocate (for compliance of taxation matters), these assessees, could not file appeal before the Tribunal, on time, prescribed it under the Act. We are of the view that provisions of law have to be adhered strictly and that one cannot be allowed to act in leisure and make a mockery of enacted law, because law & provisions are laid down to benefit both sides of litigation. Be that as it may, we have to do justice and the Hon’ble Supreme Court in the case of Collector, “4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non- deliberate delay.”

For the sake of convenience, the grounds as well as the facts narrated in ITA No.612/RJT/2024, for assessment Year 2018-19, have been taken into consideration for deciding the above appeals en masse.

Grievances raised by the assessee, in lead case in ITA No. 612/RJT/2024, for assessment Year 2018-19, are as follows:

The relevant material facts, as culled out from the material on record, are as follows.The assessee has filed return of income for assessment year(AY) 2018- 19, on 30/10/2018, declaring total income of Rs.71,57,260/-, for the year under consideration. The assessee`s case was selected for complete scrutiny, as in the case of assessee, a survey u/s 133A of the Act was carried out on the business premises of the assessee. The assessment u/s 143(3) of the Income-tax Act, 1961 (‘the Act’ for short) was finalized on 15/04/2021 accepting the returned income.

Later on, Learned Principal Commissioner of Income Tax-1, Rajkot (“Ld.PCIT” for short), exercised his juri iction under section 263 of the Income Tax Act, 1961.On perusal of assessment records for assessment year 2018-19, it was noticed by ld. PCIT that the assessee has debited contract and sub- contract expenses and job work expenses in the Profit& Loss account without deducting TDS from the said expenses, as required u/s 194C of the Act. Therefore, 30% of such expenses was required to be disallowed u/s 40(a)(ia) of the Act, by the assessing officer at the time of passing order u/s 143(3) of the Act, dated15/04/2021. 11.Further, ld. PCIT also noticed that the assessee has debited expenses in the name of Row Expenses, under the Direct Expenses in the Profit& Loss account for the assessment year (AY) under consideration. It was observed that Row expense is generally not claimed as revenue expenditure, instead the expenses is to be capitalized, as it has an expected useful life of greater than one year. The assessing officer has allowed the same without verifying the documentary evidences from which the nature and genuineness of the expense claimed by the assessee can be verified.

On verification of record for the assessment year (AY) under consideration, it was noticed that during the previous year, a survey proceedings u/s 133A of the Act, was conducted at the business premises of the assessee. As on date of survey, difference in the valuation of stock was found in physical stock and as recorded in the books of account of the assessee. Accordingly, in the statement recorded during the survey proceedings conducted u/s 133A of the Act, the Director of the assessee has admitted the same excess stock as unaccounted income which was not recorded in the books and account and agreed to offer this income as current year’s income over and above his regular business income of the current year. However, the manner of earning of the same has not been admitted / explained by the assessee at the time of survey proceedings u/s 133A of the Act and as also during the course of assessment proceedings. As such unaccounted stock was required to be taxed as per the provisions of section 69 r.w.s. 115BBE of the Act. However, the assessing officer has failed to do so and has taxed such additional income as regular income of the assessee.

Accordingly, a show- cause notice for initiation of proceedings u/s 263 of Act, dated 21/11/2023, on the issue discussed above was issued to the assessee through ITBA,(with a request to submit the written submissions), which is reproduced as under:

The ld.Pr.CIT, again issued show -cause notice, under section 263 of the Act on 30.01.2024, which is reproduced by the ld.Pr.CIT, on page no.4 to 5 of his order, wherein, the ld. PCIT raised the issue, relating to excess stock, the relevant portion of the show -cause notice is reproduced below: “In addition to the issues raised in the above referred notice, on perusal of assessment records for assessment year 2018–19, it is seen that a survey under GojijyaBhikhubhai and Others ITA No.609, 610 and 612/RJT/2024 (AY :2018-19) 10 section 133A of the Act was carried out in your business premises on 16.02.2018, and during the course of survey proceedings, uncounted stock worth Rs.65,25,851/- was found. During the course of statement recorded in this regard, it was admitted by you that you will disclose this disclosure amount of Rs.65,25,851/-, as additional income over and above your normal / regular income and due tax will be paid by you. However, you have not furnished the explanation about the source from which the unexplained stock has been purchased. Accordingly, you have offered gross disclosure of amount of Rs.65,25,851/-, in the return of income filed for the year under consideration”

In response to the above show -cause notices, the assessee, submitted written submissions before the ld.Pr.CIT and explained, the issues raised by the ld. PCIT.About the stock difference in the valuation of business stock, the assessee submitted before the learned PCIT that during the survey proceeding u/s 133A of the Act, the survey team did the valuation of the stock in a different way, than the valuation done by the assessee. It was nothing but due to changes in the measures of some stock items. However, to buy peace, the assessee agreed to pay the tax thereon and actually paid the same. Hence, there is no question about escaped income, or loss of revenue, as the assessee paid the taxes on the difference in valuation of business stock. Since the stock pertains to the business, hence no any tax liability may be imposed on the assessee under section 115BBE of the Act.

About TDS on contractor payment, the assessee submitted before the ld. PCIT thatTDS on contractor payment, needs to be done when the amount credited or paid to a contractor or sub-contractor exceeds Rs. 30,000 in a single payment or Rs. 1,00,000 in aggregate during a financial year. As the individual- wise payment was less than these threshold limit, therefore, assessee was not liable to deduct the TDS on these expenses. Therefore, the assessee has not deducted nor made the payment of TDS on these transactions andlist of these transactions were submitted before the ld. PCIT.

About the issue of row expenses of Rs. 1,36,50,985/-, the assessee stated before the ld. PCIT that he was a Job Work Contractor & Material Supplier in Electrical Line anddoing various job works, like Erection, Installation, Repairing, Maintenance, Operating etc, of Electrical Sub-Station, Generator, Transformer, Electric Line etc, as per the requirements of customer. To pass over the electrical transmission line from agricultural or private land, it requires permission from the farmers or private land owner to pass an electrical line or to set- up electrical pole in them farm or private land. Which is known as Right of Way (ROW). Thus,assessee has to pay ROW compensation to the farmers or private land owners for the usages of their land. Which is being debited as ROW expenses into assessee`s books of accounts. During the year assessee has paid ROW expenses of Rs. 1,36,50,985/-. Thus, these are not capital expenditure but revenue expenditure.

However, the ld.Pr.CIT rejected the contentions of the assessee and observed that the assessing officer failed to examine these aspects of the assessee’s case, as discussed under three heads above, while finalising the assessment order. Such failure on the part of assessing officer rendered the assessment order passed u/s 143(3) of the Act, on 15/04/2021 for the A.Y. 2018-19, is erroneous in so far as it is prejudicial to the interest of the revenue within the meaning of the provisions of section 263 of the Act. Therefore, ld. PCIT directed the assessing officer to examine and investigate and to verify these various expenses, as claimed by the assessee and documentary evidences submitted by the assessee, during the course of proceedings under section 263 of the Act. Thus, the assessing officer was directed to revise the assessment order.

Aggrieved by the order of ld.Pr.CIT, the assessee is in appeal before us.

About the issue of excess business stock, Learned Counsel for the assessee, argued that during the survey proceedings, the assessee has explained to the survey team, that excess stock was worked out by the survey team due to different valuation method adopted by the survey team, than the method adopted by the assessee. During the survey proceedings, the statement of the assessee was recorded and the assessee has categorically submitted that the excess stock related to the assessee’s business and the assessee has admitted the quantum of the excess stock and also agreed to pay the tax on the excess stock, and in fact, tax was paid by the assessee, hence, there is no loss of revenue. To buy the peace,the excess stock, was admitted by the assessee and in fact the assessee has paid the taxes on the excess stock found during the course of survey proceedings, as per the statement of assessee recorded by the survey team. Therefore, Ld.Counsel for the assessee submitted that during the assessment proceedings, the assessing officer has examined all these facts,therefore, the order passed by the assessing officer should not be erroneous and prejudicial to the interest of the Revenue.

About the TDS issue raised by the Ld.PCIT, the ld Counsel submitted the List of these transactions, before the Bench, which was submitted by the assessee, before the assessing officer also and argued that TDS obligation in case of contract and sub-contract, arises when the amount credited or paid to a contractor or sub-contractor exceeds Rs. 30,000/- in a single payment or Rs. 1,00,000/- in aggregate during a financial year. As the individual- wise payment was less than these threshold limit, therefore assessee was not liable to deduct the TDS, on these expenses. Therefore, order passed by the assessing officer on this count should not be erroneous.

On the other hand, the ld.DR for the Revenue submitted that the assessee has explained the nature of excess stock, before the assessing officer, however, source of the excess stock has not been explained by the assessee, therefore, the order passed by the assessing officer is erroneous as well as prejudicial to the interest of the Revenue.

About the TDS issue raised by the Ld.PCIT, the ld. DR submitted that the assessee has failed to deduct the TDS, and assessing officer has not examined this aspect during the assessment proceedings, therefore assessment order passed by the assessing officer is erroneous.

About the issue of row expenses of Rs. 1,36,50,985/-, the ld. DR argued that assessee is going to get the benefit in the future, therefore, these expenses should be treated capital expenditure and assessee may claim the depreciation. However, considering the nature of these expenses, as these expenses will give enduring benefit to the assessee, therefore, these are capital in nature, therefore assessing officer has failed to examine the nature of these expenditure, hence

We have carefully considered the facts of the case, the submission of the Learned Counsel for the assessee and ld DR for the Revenue and evidences on record.Though facts have been discussed in detail in the foregoing paragraphs, however in the succinct manner, the relevant facts and background are reiterated in order to appreciate the controversy and the issue for adjudication. We note that learned PCIT has raised three issues in these appeals, which are as follows:

Now we shall take these issues one by one as follows. The first issue raised by the ld. PCIT is the excess stock found during survey proceedings. The ld PCIT noticed that during the previous year, a survey proceedings u/s 133A of the Act, was conducted at the business premises of the assessee. As on date of GojijyaBhikhubhai and Others ITA No.609, 610 and 612/RJT/2024 (AY :2018-19) 15 survey, difference in the valuation of stock was found in physical stock and as recorded in the books of account of the assessee and accordingly, the statement was recorded during the survey proceedings conducted u/s 133A of the Act, and the Director of the assessee has admitted the same excess stock as unaccounted income which was not recorded in the books and account and agreed to offer this income as current year’s income over and above his regular business income of the current year. The Ld. PCIT noticed that assessee has paid the taxes on excess stock, however, the assessee has not explained the manner of earning of the excess stock, therefore, order passed by the assessing officer is erroneous and prejudicial to the interest of the revenue.

We note that during the assessment proceedings, the assessing officer has issued notice under section 142(1) of the Act, which is placed at PB Page No.13 to 19 of the assessee`s paper book. In the said notice, the assessing officer has asked the question about the valuation of the closing stock and also asked the question whether this stock relates to the business.The important question raised by the assessing officer, during the assessment proceedings, by way of notice under section 142(1) of the Act, is reproduced below:

In response to the notice of the assessing officer, the assessee has submitted detailed reply before the assessing officer, which is placed at paper book Page no.25 and relevant reply of the assessee is reproduced below:

From the above reply by the assessee, during the assessment proceedings, it is abundantly clear that assessee has explained the source of income disclosed during survey,and as the Survey team was satisfied with the nature and source of income. The assessee has agreed to pay the tax on excess stock and subsequently assessee has paid the taxes on excess stock, and hence there is no GojijyaBhikhubhai and Others ITA No.609, 610 and 612/RJT/2024 (AY :2018-19) 17 loss to the revenue.Thus, we find that both the aspects, being nature and source of the impugned amount were explained by the assessee and such explanation of the assessee, was accepted by the assessing officer, therefore we note that assessing officer has applied his mind and framed the assessment order by taking the plausible view. Therefore, the order passed by the assessing officer is neither erroneous nor prejudicial to the interest of the revenue, hence consequently, section 115BBE of the Act, too does not apply to the facts of the assessee`s case. The income declared during the course of survey is from assessee`s business, which is evident from the statement given during the course of survey by the assessee. The stock was from the current business of the assessee, and the excess stock found by the survey team was because of different valuation technique adopted by the survey team. Therefore, we find that assessee has explained the source and nature of the stock and moreover the assessee has paid the taxes on excess stock, as per his statement recorded, during the survey proceedings. Therefore, there is no loss to the revenue, hence, the order passed by the assessing officer is neither erroneous nor prejudicial to the interest of the revenue.

According to us, the present order of assessing officer passed u/s 143(3) of the Act dated 15.04.2021 of the Act, cannot be termed as erroneous, since enquiry was, in fact, carried out by him on the issue on which the ld PCIT has found fault with and has taken a plausible view. We note that the assessing officer has made enquiry during the assessment proceedings about excess stock and assessee has explained the nature and source of the stock. Thus, we note that the assessing officer enquired during assessment proceedings and the assessee had filed details before him. So, we find that the assessing officer’s action cannot be termed “erroneous”. Since not only enquiry was carried out by the assessing officer on the issue under consideration and based on the GojijyaBhikhubhai and Others ITA No.609, 610 and 612/RJT/2024 (AY :2018-19) 18 evidence gathered, he has taken a plausible view, which at any rate cannot be called, as an un-sustainable view.

Let us take the guidance of judicial precedents laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional juri iction u/s 263 of the Act by the PCIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the assessing officer can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the assessing officer has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined, as to whether the actions of the assessing officer can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to theinterest of the revenue’’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order

In the result, appeal filed by the assessee, in ITA No. 612/RJT/2024, is allowed.

Since we have adjudicated the issue relating to excess stock by taking the lead case, in ITA No. 612/RJT/2024, for assessment Year 2018-19, the same and identical issues are involved in other group appeals of the assessee, Viz: in ITA No.609/RJT/2024, and in ITA No.610/RJT/2024.Accordingly, our observations made in ITA No. 612/RJT/2024, for assessment Year 2018-19, shall apply mutatis mutandis to the aforesaid other appeals of Assessees, namely, ITA No.609/RJT/2024, and ITA No.610/RJT/2024. For the parity of reasons, we allow the abovementioned appeals of the Assesseein terms of directions noted in in ITA No. 612/RJT/2024, for assessment Year 2018-19. 35. In the result, appeals of the assessees ( in ITA No.609/RJT/2024, and ITA No.610/RJT/2024), are allowed.

Issue No.2 Job work expenses/ contract expenses/sub-contract expenses paid without deducting TDS Rs.5,17,98,259/-. This issue pertains to ITA No.612/RJT/2024 (GojjyaBhikhubhai). We note that during the assessment proceedings the assessee has explained the said issue,relating to TDS and in GojijyaBhikhubhai and Others ITA No.609, 610 and 612/RJT/2024 (AY :2018-19) 20 fact, the assessing officer issued the notice under section 142(1) of the Act, asking the assessee to submit details of TDS. In response, the assessee submitted required details of the TDS which is placed at paper book Page no.

Therefore, we find that in respect of TDS, on contract and sub -contract expenses of Rs.13,00,93,467/-, the assessee has submitted that TDS has already been deducted, as per applicable rates and the same was also deposited into the government account. In respect of the same, the assessee has submitted ledger account, copy of challan of TDS payment and acknowledgement of TDS return filed, during the assessment proceedings. In respect of TDS, on Job work expenses of Rs. 4,25,67,395/-, the assessee has submitted that there was no liability of TDS as all the payment were below Rs 30,000/- in a single payment or below Rs.1,00,000/- in aggregate during a financial year. As the individual wise payment was less than these threshold limit, the assessee was not liable to deduct the TDS from this expenses. In respect of the same, the assessee has submitted the ledger account of job work expenses of Rs. 4,25,67,395/- .We note that as per ld. PCIT,an amount of Rs. 5,17,98,259/- being 30% of Rs. 17,26,60,862/- (13,00,93,467 + 4,25,67,395) is required to be disallowed u/s 40(a)(ia) of Act.

We find that in respect of TDS, on contract and sub -contract expenses of Rs.13,00,93,467/-, the assessee has submitted that TDS has already been deducted, as per applicable rates and the same was also deposited into the government account.In respect of TDS, on Job work expenses of Rs. 4,25,67,395/-, the assessee has submitted that there was no liability of TDS, as all the paymentswere below Rs. 30,000/- in a single payment or below Rs.1,00,000/- in aggregate during a financial year. As the individual- wise payment was less than these threshold limit, the assessee was not liable to deduct the TDS from this expenses. All these facts were examined by the GojijyaBhikhubhai and Others ITA No.609, 610 and 612/RJT/2024 (AY :2018-19) 21 assessing officer during the assessment proceedings with supporting documentary evidences, and applied his mind and took the plausible view therefore, such order passed by the assessing officer is neither erroneous nor prejudicial to the interest of the revenue.

Therefore, we allow issue No.2 of Job work expenses/ contract expenses in ITA No.612/RJT/2024 (GojjyaBhikhubhai), and quash the order of the ld. PCIT.

Issue No. 3 :Row expenses, in ITA No.612/RJT/2024 (GojjyaBhikhubhai), pertains to revenue expenditure Vs. Capital expenditure. The assessee treated revenue expenditure, however, as per Ld. PCIT it should be capital expenditure. We note that assessee is in the business of Job Work Contractor & Material Supplier in Electrical Line anddoing various job works, like Erection, Installation, Repairing, Maintenance, Operating etc, of Electrical Sub-Station, Generator, Transformer, Electric Line etc, as per the requirements of customers. The assessee has been doing the same business since last, many years and row expenses were claimed by the assessee, in the past, as a revenue expenditure and department did not raise any objection in the previous years. Therefore, based on the principle of consistency, the assessing officer took the plausible view and treated these expenses, as a revenue expenses.It is a well settled legal position that factual matters which permeate through more than one assessment year, if the Revenue has accepted a particular's view or proposition in the past, it is not open for the Revenue to take a entirely contrary or different stand in a later year on the same issue, involving identical facts unless and until a cogent case is made out by the Assessing Officer on the basis of change in facts. For that we rely on the order of the Hon’ble Supreme Court in Radhasoami Satsang vs. CIT 193 ITR 321 (SC), wherein it was held as follows:

We note that in assessee`s case under consideration, there is no change in facts, and assessing officer took the plausible view based on the past trend and past assessment years. Therefore view taken by the assessing officer is a plausible view, which is not erroneous and prejudicial to the interest of the revenue.The assessee, during the assessment proceedings, has submitted the details of direct expenses, ledger account and other relevant documents before the assessing officer, in response to the notice under section 142(1) of the Act. Therefore, the order passed by the assessing officer should not be erroneous and prejudicial to the interest of the Revenue. We find that ld. PCIT has exercised juri iction u/s.263 of the Act on the ground that the assessing officer failed to make proper enquiry which he ought to have made before completing the assessment. However, there is a distinction between "lack of enquiry" and "inadequate enquiry. If there is an enquiry, even inadequate, that would not by itself give occasion to the PCIT to pass order under section 263 of the Act, merely because he has a different opinion in the matter. The assessing officer is not required to give detailed reason in respect of each and every item of issue in the assessment order. The assessing officer had called for explanation regarding various issues and the assessee had furnished his explanation. Therefore, the view taken by the assessing officer was one of the plausible views and the assessment order passed by the assessing officer could not be held to be GojijyaBhikhubhai and Others ITA No.609, 610 and 612/RJT/2024 (AY :2018-19) 23 prejudicial to the Revenue. We derive support for our conclusions, as above, from the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd. 332 ITR 167 (Del.). For reasons stated above, we are of the view that the juri iction u/s.263 of the Act was not properly exercised by the PCIT, as the condition precedent for invoking the same viz., that the order of the assessing officer is erroneous and prejudicial to the interest of the revenue, is not shown to be present in the present case. We therefore quash the order u/s.263 of the Act and allow these three appeals of the different assessees.

In the combined result, the appeals of the assessees (in ITA No.612/RJT/2024,in ITA No.609 and 610/RJT/2024 ), are allowed.