SHREE SAMARTH ELECTRICALS PVT LTD,JAMNAGAR vs. PRINCIPAL COMMISSIONER OF INCOME TAX, JAMNAGAR

4. 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 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.

5. 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 GojijyaBhikhubhai and Others 610 and 612/RJT/2024 (AY :2018-19) 5 used to look the taxation matters of the entire group, was feeling severe illness and eventually he died, is not a ‘sufficient cause’, to condone such delay, therefore, the delay should not be condoned and these appeals of the assessees should be dismissed.

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.

GojijyaBhikhubhai and Others 610 and 612/RJT/2024 (AY :2018-19) 6 When we weigh these two aspects then the side of justice becomes heavier and casts a duty on us to deliver justice. We note that the reasons given in the affidavit for condonation of delay were convincing and these reasons would constitute reasonable and sufficient cause for the delay in filing these appeals. Having heard both the parties and after having gone through the affidavit as well the delay condonation, application, in each appeal,weare of the considered opinion that in the interest of justice, the delay deserves to be condoned. We, accordingly, condone the delay of 120 days in ITA No.612/RJT/2024,as also 119 days’ delay, each in filing, the appeals in ITA No.609 and 610/RJT/2024, and admit these respective appeals for hearing.

8.Grievances raised by the assessee, in lead case in for assessment Year 2018-19, are as follows:

“All the below mentioned grounds of appeal are independent and without prejudicial to each other.

1.Learned PCIT Jamnagar erred in law as well on facts by holding that the assessment order, dated 15/04/2021, passed by the Assessing Officer u/s 143(3) of the Act for the A.Y. 2018-19 is erroneous and it is prejudicial to the interest of the revenue within the meaning of the provisions of section 263 of the Act, and set- aside the assessment order and giving direction to the assessing officer to revise the assessment order.

2.Learned PCIT Jamnagar erred in law as well facts by not giving effective opportunity of being heard, and passed order which is against the law and principle of natural justice. Appellant craves leave to add, amend, alter or withdraw any ground of appeals.”

GojijyaBhikhubhai and Others 610 and 612/RJT/2024 (AY :2018-19) 7 9.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.

GojijyaBhikhubhai and Others 610 and 612/RJT/2024 (AY :2018-19) 8 12.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.

“Please refer to the above.

GojijyaBhikhubhai and Others 610 and 612/RJT/2024 (AY :2018-19) 9 There were no documentary evidences available on records from which it can be ascertained whether you have deducted any TDS on the said payments. As you have failed to deduct / deposit TDS on expenditure of Rs 13,00,93,467/- and Rs 4,25,67,395/-, 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 and added to your total income. 3.2 Further, on verification of the records, it is noticed that the you have debited P&L account with Rs. 1,36,50,985/- as direct Expenses w.r.t. ROW expenses being a contractor whereas Right of way is the right to pass over or through real property owned by someone else and expense included the amount paid to Government authorities or others towards permission to use of land for laying pipelines, along with cost of respective pipelines and the depreciations / amortization is being charged based on useful life of the pipelines. It is 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. There are no documentary evidences available on record from which the nature and genuineness of the expenses claimed by you can be verified.

6. Under the circumstances, you are requested to show cause as to why the order dated 15/04/21 should not be revised u/s 263 of the Income-tax Act. You may submit your written submissions to this office either through e-proceedings module of your e-filing account on the website https://www.incometax.gov.in or email to jamnagar.pcit@incometax.gov.in or by any other postal modes / personal appearance or through your authorized representative latest by 28/11/2023 at 11:00 AM, failing which it may be presumed that you have no submission to make and revision order will be passed, based on the details and materials available on record.”

15.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.

16.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.

GojijyaBhikhubhai and Others 610 and 612/RJT/2024 (AY :2018-19) 11 17. 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.

18.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.

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

GojijyaBhikhubhai and Others 610 and 612/RJT/2024 (AY :2018-19) 12 20. 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.

GojijyaBhikhubhai and Others 610 and 612/RJT/2024 (AY :2018-19) 13 22.About the issue of row expenses of Rs. 1,36,50,985/-, the ld. Counsel submitted that no any fixed asset came into existence on account of these expenses, these are purely revenue expenses. Therefore, these expenses should be allowed as a revenue expenditure and should not be treated capital expenditure. 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 allowed the same. All these facts were explained with documentary evidences, before the assessing officer, hence order passed by the assessing officer should not be erroneous.

23.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.

24.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.

25.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 GojijyaBhikhubhai and Others 610 and 612/RJT/2024 (AY :2018-19) 14 order passed by the assessing officer is erroneous as well as prejudicial to the interest of the revenue.

26.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:

(1)Issue No.1 Excess stock found during survey processing. This issue is involved in the following appeals: (a) In Rs.72,46,345/- (b) In Rs.74,25,708/- (c ) In ITA No.612/RJT/2024 Rs.65,25, 851/-

(2) Issue No.2 Job work expenses/ contract expenses/sub-contract expenses paid without deducting TDS Rs.5,17,98,259/-. This issue is in only.

(3) Row expenses, under the direct expenses Rs.1,36,50,985/-, assessee had treated revenue expenditure, however, as per Ld. PCIT it should be capital expenditure.This issue is in only.

29.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:

GojijyaBhikhubhai and Others 610 and 612/RJT/2024 (AY :2018-19) 16 “The provision of section 15BBE are applicable when income chargeable assessable u/s. 68 to 69. The Scheme of Sections 69,69A, 69B and 69C of the Income - Tax Act 1961 would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion etc. owned by, the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, than, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of the assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, than the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act.For invoking provision of sections 69, 69A, 69B & 69C two conditions are required to be satisfied. They are (i) investment/ expenditure are not recorded in the book; of account of assessee and (ii) the nature and source of acquisition of asset; or expenditure are not explained or not explained Satisfactorily.In case of survey u/s 133A it is to be noted that once a specific surrender made by the assessee has been realized, the department cannot take a U turn while framing the assessment of the assessee by taxing the same under the head income from other sources under section 69, 69A and 69B. It has to be assessed under the Head Income from Business.

We have explained the source of income disclosed during survey satisfactorily to the income tax authority at the time of survey. And as the income tax authority was satisfied with the nature and source of income, the tax at applicable rate were agreed to be deposited and subsequently the challan copy was sent to the income tax authority. Hence in our case provision of section 68 to 69 cannot be invoked.

Both the aspect being nature and source of the impugned amount were explained by us and our explanation was accepted by the survey officer and no further question or doubt were raised and the survey was closed.

As a result of evidence of my statement on record, the question of invoking provisions of sec. 69 etc, does not arise because the source and nature having been explained and accepted in authorized survey proceeding in a statement on oath sees. 69 etc, become inapplicable and consequently, section 115BBE too does not apply to facts of our case. The income declared during the course of survey is from our business income is evident from the statement given during the course of survey.The stock was from the current business,shown in our books of accounts and treated as our Business Income.”

31.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 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.

33.In the result, appeal filed by the assessee, in is allowed.

34.Since we have adjudicated the issue relating to excess stock by taking the lead case, in 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 .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.

36.Issue No.2 Job work expenses/ contract expenses/sub-contract expenses paid without deducting TDS Rs.5,17,98,259/-. This issue pertains to (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.80. 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.

39.Issue No. 3 :Row expenses, in (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:

GojijyaBhikhubhai and Others 610 and 612/RJT/2024 (AY :2018-19) 22 "We are aware of the fact that, strictly speaking, res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasoning, in the absence of any material change justifying the Revenue to take a different view of the matter - and, if there was no change, it was in support of the assessee – we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of lncome- tax in the earlier proceedings, a different and contradictory stand should have been taken."

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