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Facts
The Principal CIT (PCIT) invoked Section 263 of the Income-Tax Act to revise an assessment order for AY 2016-17, alleging that the original assessment was erroneous and prejudicial to the interest of the revenue due to various alleged deficiencies, including lack of inquiry into creditors, suppliers, advances, revenue recognition, disallowances under Section 40A(a)(ia) and Section 43B, and issues related to theft claims and notional interest.
Held
The Income Tax Appellate Tribunal (ITAT) found that the Assessing Officer had conducted relevant inquiries and formed an opinion, and the PCIT's jurisdiction under Section 263 was improperly exercised based on an assumption of lack of inquiry or a mere difference of opinion. The ITAT concluded that the assessment order was neither erroneous nor prejudicial to the interest of the revenue, and the PCIT's order was unjustified.
Key Issues
Whether the PCIT's revisionary order under Section 263 was valid when the Assessing Officer had already conducted inquiries and the assessment order was not erroneous or prejudicial to the interest of the revenue.
Sections Cited
263, 143(3), 40A(a)(ia), 43B
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Income Tax Appellate Tribunal, DELHI BENCH: ‘H’ NEW DELHI
Before: SHRI G.S. PANNU, VICE- & SHRI ANUBHAV SHARMA
ORDER
PER ANUBHAV SHARMA: JUDICIAL MEMBER:
The assessee has challenged the order under Section 263 of the Income-Tax Act, 1961 (hereinafter referred “the Act”) passed by the learned Principal CIT, Ghaziabad in regard to the assessment order Section 143(3) of the Act dated 26.12.2017 for assessment year 2016-17 passed by the learned ACIT, Central Circle, Ghaziabad.
Heard and perused the record.
It comes up on the basis of submissions and material before us that learned PCIT, Ghaziabad (herein referred as the “revisionary authority”) had examined the assessment record and questioned the same on the basis of 14 items which included creditors’ examinations, not conducted by the Assessing Officer, lack of confirmation of suppliers and contractors, matter arising out of business transactions with some of the parties and allegations as to why the transactions and advances were made, the commissions paid, matter arising out of revenue recognition by percentage of completion of method followed by assessee, verification of land purchased and sums paid to Ghaziabad Development Authority appearing work in progress and 26 QB return, disallowance under Section 40a(i)(a) of the Act, investment in mutual funds, verification of certain expenses, verification of long term liability, statutory due under Section 43B, addition fixed assets and disallowance of depreciation, verification of TDS and verification of short term loan advances as the same were Rs.19,94,28,373 as against earlier years of 11.15 crores. Amongst all these issues examined by the revisionary authorities on the basis of explanation given by the assessee, the revisionary authority concluded in paras 3.1, 3.2, 3.3, 3.4 and 3.5 as under: “3.1 M/s. Bangur Cement (A Unit of Shree Cement): It is alleged that there is a difference of Rs.29,k96,151/- in the amount stated in the list of a creditors by Assessee (Rs.68,21,147/-) and balance in statement of the Company Shree Cement (Rs.38,24,996/-). We have pursued our records and it is noticed that there is no such difference of Rs.29,96,151/- as being alleged. It is thus respectfully requested, that the documentary on record alleging the difference, be provided to us, with a reasonable opportunity to enable us place on record a possible reply. 3.2 Regarding 8 parties tabulated vide table at page no. 2 and 3. Except for three parties being separately vide paras 3.4 to 3.6, nothing is communicated except a generalized allegation that as to why advance payments were made to parties and no succeeding years statement of accounts were called for to verify genuineness of payments. In this connection, it is respectfully submitted that even for the subsequent years, the assessment was concluded under section 143(3), wherein the genuineness and purpose of business advances and other matters are already on record.
Irrespective that the subsequent years statements of accounts are already on record and the comments are without making references to such assessment proceedings of subsequent years conducted after examination of books and other records by subordinate assessing officers, the subsequent years statements of accounts of all 8 parties tabulated are being placed on record for ready reference and in support of genuineness apparently following from them examination thereof in subsequent years. Further, considering the factum of advances are duly confirmed and acknowledged as ascertained by the assessee and concerned parties, without prejudice to the above, it is also submitted that, the terms agreed upon between the parties are commercially accepted and are also quite normal under the ordinary course of business. Further, it is at the sole discretion of the parties to decide the terms of business. In case where a commercial arrangement is entered into between the two entities carrying on business, the Revenue cannot enter into the arrangement and dictate as to what should be the terms of the arrangement. It is for the entities to decide what kind of business obligations to be executed after taking into consideration, questions of commercial expediency. It is not open for anyone else to question or decide the best business strategy for the parties carrying on the business. Also, it has been time and again upheld in catena of judgments by the judicial authorities that the assessing officer cannot step into the shoes of the businessman to decide upon how the business is to be conducted. Though assessee relies on all such judgments but are not being reproduced for sake of brevity, in case if your honor so desire, the same shall be placed on record. Thus, in the present case, the Revenue has no power to question the terms of the agreement entered in to by the assessee which are normal under ordinary course of business and the order so passed cannot stated as erroneous and prejudicial to the interest of revenue on such grounds.
Thus the assumption of jurisdiction on such opinion is being objected and prayed that no action under section 263 be taken against the assessee.
3.3 M/s. Ayush Buildtech, M/s. MI Enterprises, M/s. S.K Enterprises, M/s. Johnson Lifts P. Ltd Since, nothing is communicated with respect to above 4 parties, therefore does not require any comment. Obulously, the matter does not require any revision under section on the issues.
3.4 M/s. Finlace Media Ventures P. Ltd. It is alleged that: A single bill of Rs. 16,42,276/-is received from the party is in the name of sky makers which is credited whereas advances of Rs. 22,15,625/- is paid.
At the very outset it may be appreciated, that there is no discrepancy arising out of confirmed statement of account is brought on record. As submitted and duly examined during assessment proceedings, the advances were paid for advertisement services, and the party provided the services through another advertisement agency ie. M/s. Sky Makers. Since the advertisement services obtained by Finlace Media Enterprises P Ltd. were through sub agency i.e. Sky makers therefore credited.
Nevertheless, the balances at the year-end are confirmed, ascertained and acknowledged by both the parties, therefore there is no discrepancy as such Moreover, as against the services provided in subsequent year, the advances made during the year were adjusted and the such advances were squared off in subsequent year. In support ledger accounts of subsequent years are being placed on record. Regarding the allegation as to why advance payments were made to parties and no succeeding years statement of accounts were called for to verify genuineness of payments.
The finding obviously does not lead to any proposition of erroneous and prejudicial assessment as per section 263 of the Act, therefore most respectfully prayed accordingly.
Thus the assumption of jurisdiction on such opinion is being objected and prayed that no action under section 263 be taken against the assessee.
3.5 M/s. Kone Elevators India P Ltd (Bynish The only observation other than generalized observation I already dealt vide para 3.2, abovej, being that AO not raised any query regarding payment of Rs. 95,170/-against theft, whether any FIR was lodged.
Is this connection it is respectfully submitted that the fact that there was a theft and the fact is acknowledged by both the parties. There can be number of reasons on time and economy scale not to register the FIR, but non registration of an FIR for a petty amount does not render the claims as not allowable particularly considering that such fact and existence of state of affairs admitted and acknowledged by parties concerned.
Further, there is no provision in the income tax act that such claims of theft involving petty thefts can only by allowed where there is an FIR. It is not in doubt that the inquiries were made by Ld. AO and in response the confirmation of accounts were submitted. The Ld. AO formed an opinion based upon the genuineness claims proved to his satisfaction arising out such inquiry. Thus the opinion based upon inquiry made does not render it erroneous and prejudicial to interest of revenue merely because a different view is expressed in the notice. In this connection reference is once again drawn to legal position relied by assessee. Thus the assumption of jurisdiction on such opinion is being vehemently and prayed that no action under section 263 be taken against the assessee”.
Thus, it appears that learned PCIT was satisfied with regard to substantial issues for which on the basis of lack of inquiry powers Section 263 of the Act were invoked. As with regard to charge of notional interest for which directions have been issued to the Assessing Officer, we are of the considered view that jurisdiction seems to have been exercised on assumption of lack of inquiry while otherwise it was established in the proceedings before the revisionary authority that Assessing Officer had raised all relevant queries. There appears justification in the contention of learned AR that proceeding Section 263 of the Act cannot be initiated to make fishing and roaring inquiries. As with regard to question of notional interest for which directions are issued to the Assessing Officer as a matter of fact out of interest free funds available with the assessee, these advances were given in the past and no new interest free advance was given during the year. Learned AR has established that the assessments stand completed year for earlier years and there was no addition on the allegations that interest bearing funds were diverted for making interest free advances.
In the light of aforesaid, we are of the considered view that there was no justification to hold assessment order erroneous so far prejudicial to interest of the Revenue. We sustain the grounds raised
. The appeal of assessee is allowed and the impugned order is quashed.