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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ]
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : KOLKATA [Before Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ] I.T.A No. 716/Kol/2017 Assessment Year : 2012-13 Prashant Impex Pvt. Ltd. -vs- Pr. CIT-3, Kolkata [PAN: AABCP 5328 A] (Appellant) (Respondent)
For the Appellant : Shri Vinod Kumar Jain, AR For the Respondent : Shri P.K. Srihari, CIT DR
Date of Hearing : 13.06.2018 Date of Pronouncement : 01.08.2018
ORDER Per M.Balaganesh, AM
This appeal by the assessee arises out of the order of the Learned Principal Commissioner of Income Tax-3, Kolkata [in short the ld. CIT] in Memo no. Pr. CIT, Kol/u/s.263/AC,Cir-8(2)/2016-17/14935-14938 dated 23.02.2017 passed u/s 263 of the Act against the order passed by the DCIT, Circle-8(2), Kolkata [in short the ld. AO] under section 143(3) of the Income Tax Act, 1961 [in short “the Act”] dated 22.03.2015 for the Assessment year 2012-13.
The only issue to be decided in this appeal is as to whether the ld CIT was justified in invoking revisionary jurisdiction u/s 263 of the Act in the facts and circumstances of the case.
2 ITA No.716/Kol/2017 Prashant Impex Pvt. Ltd. A.Yr. 2012-13 3. The brief facts of this appeal are that the assessee is a private limited company and is an agent of liquor, bottling plant of liquor and engaged in investment activities. The return of income for the Asst Year 2012-13 was electronically filed by the assessee on 30.9.2012 declaring total income of Rs 43,10,479/- . The assessment was completed u/s 143(3) of the Act on 22.3.2015 determining the total income of the assessee at Rs 69,00,00/- under the normal provisions of the Act and Rs 40,04,138/- u/s 115JB of the Act. The following additions were made in the assessment under normal provisions of the Act :-
a) Disallowance u/s 14A read with Rule 8D - Rs 12,34,419/- b) Disallowance u/s 43B - Rs 97,481/- c) Addition towards Unsecured Loans - Rs 8,00,000/- d) Disallowance of Freight, Forwarding & loading exps-Rs 4,30,385/-
The disallowance u/s 14A of the Act in the sum of Rs 12,34,419/- was also added to the computation of book profits u/s 115JB of the Act in the said assessment.
Later this assessment was sought to be revised by the ld CIT u/s 263 of the Act by treating the order passed by the ld AO as erroneous in as much as it is prejudicial to the interests of the revenue on the following grounds:- “It was found that the assessee derived income from operation of Rs. 4,24,86,369/- from which Excise Duty of Rs. 67,44,948/-, Sales Tax of Rs. 94,99,332/-; TCS of Rs. 1,14,270/- and Service Tax of Rs. 15,15,274/- were deducted to arrive at Net income from Operation of Rs. 2,46,12,545/-. The net income was credited to the concerned profit & Loss account. As per Notes forming part of Financial Statement (Note no. 2.6)- Sales are net off returns and trade discount. Sales include Excise Duty but exclude Sales Tax and VAT. A. Since Excise Duty was included in Sales the amount of Excise duty was deducted from Sales. Sales tax was not included in Sales but the same was also deducted from Sales which resulted in under assessment of sales to the extent of Sales Tax of Rs. 94,99,332/-. Hence, Sales Tax of Rs. 94,99,332/- debited to Sales was required to be disallowed and added back. Omission to do so resulted in under assessment of income of Rs. 94,99,332/-.
3 ITA No.716/Kol/2017 Prashant Impex Pvt. Ltd. A.Yr. 2012-13 B. TCS is a prepaid tax and the assessee is eligible for claiming credit of the same while computing tax payable. Accordingly, the assessee claimed TDS/TCS credit of Rs. 1,16,597/- and the same was allowed in the assessment. Further, the assessee claimed deduction of TCS of Rs. 1,14,270/- from sales. TCS is not deductible from Sales but deduction of the same from sales resulted in reduction of income. Deduction of TCS of Rs. 1,14,270/- claimed by the assessee was required to be disallowed and added back. Omission to do so resulted in under assessment of income of Rs. 1,14,270/-.”
The assessee stated that there were clerical errors in the Notes to Accounts in Point No. 2.6. related to ‘Revenue Recognition’ wherein it was mentioned as under:- ‘Sales are recognized , net of returns and trade discounts, on transfer of significant risks and rewards of ownership to the buyer, which generally coincides with the delivery of goods to customers. Sales include excise duty but exclude sales tax and value added tax’.
The authorized representative of the assessee responded to the show cause notice issued by the ld CIT as under:- “To Dt: 23.02.2017 The Pr. Commissioner of Income Tax-3/Kolkata Aayakar Bhawan P-7, Chowringhee Square Kolkata-700069. Dear Sir, Ref: Pr. CIT-3/Kol/AC, CIT-8(2)/u/s.263/16-17/4091,dated 13.02.2017 Sub: In the matter of Prasant Impex Pvt. Ltd, A.Y.2012-13 Show Cause notice u/s 263(1) of the I.T.Act, 1961. We as authorized representative above name of the company are submitting the following submission in response to your above cause notice. 1. That the apprehence of under assessment income by Rs. 94,99,332/- and Rs. 1,14,270/- is misplaced. As the sales tax amount of Rs. 94,99,332 & TCS of Rs. 1,14,270/- were included in the gross amount of sale of produce stated in note 18: Revenue from operations, clause (a) amounting of Rs. 2,62,59,695/-. 2. That the AO initiated the rectification proceeding under section 154 of the Act after passing the order u/s 143(3) of the Act, on 02.07.2015 on the same subject, “Sales Tax & TCS wrongly allowed”. 3
4 ITA No.716/Kol/2017 Prashant Impex Pvt. Ltd. A.Yr. 2012-13
That in response thereof the company submitted letter dated 14.07.2015. The company explained that gross sales include Excise Duty, Sales Tax, and TCS collected from Vendor. That in same letter the company admitted that remark given in note no. 2.6 “Revenue recognition” stating “Sales includes Excise Duty but excludes Sales Tax and VAT, was a clerical typing error made by the auditor of the company in its audited annual accounts of the company for the year ended on 31st March, 2012. For the purpose, the auditor of the company issued the clarification letter dated 14.07.2015, said clarification letter was filed along with letter of the company. 4. That during the course of proceeding the company also filed a statement of sales party wise having details of quantity, rate, gross total, goods value, sale tax, excise duty & TCS. On submission the matter was discussed and decided. There was no instance of any under reporting/assessment of income the company. The confusion created by typographical error in the notes was cleared.
That above facts could be verified from the assessments records of the company. 6. That on facts there is no under statements of income as pointed out in our cause notice therefore we request you kindly drop the proceedings. Thanking You, Yours Faithfully V.K. Jain (AR)
The ld CIT however ignored the entire contentions of the assessee together with the details and explanations offered in response to show cause notice and proceeded to set aside the order of the ld AO treating the same as erroneous in as much as it is prejudicial to the interests of the revenue and passed an order u/s 263 of the Act. Aggrieved, the assessee is in appeal before us.
We have heard the rival submissions. From the facts available on record, we find that the ld AO had issued a notice u/s 154 of the Act dated 2.7.2015 to rectify the mistake apparent from record in the assessment completed u/s 143(3) of the Act on 27.3.2015 for the Asst Year 2012-13 on the following ground:- “Sales Tax and TCS wrongly allowed” 4
5 ITA No.716/Kol/2017 Prashant Impex Pvt. Ltd. A.Yr. 2012-13 The assessee gave a reply dated 14.7.2015 stating that in the Balance Sheet Note No. 18, Gross Sales includes Excise Duty, Sales Tax and TCS collected from Vendor which has been deducted to derive Net Sales but in Balance Sheet, Note No. 2.6, ‘Revenue Recognition’ , it was stated that Sales includes Excise Duty but excludes Sales Tax and VAT which was clerical typing error for which a certificate was enclosed from a Chartered Accountant. TCS deducted in Note No. 18 is the TCS collected by the assessee on the sales from Vendor which was later deposited to the account of the Central Government. The assessee sells Alcoholic Liquor on which they had to collect TCS from the Vendor of the sales amount. It was duly clarified by the assessee that the tax credit claimed by it while computing the tax liability in the form of TCS / TDS was not the tax collected at source from the sale of liquor made by the assessee. The assessee duly placed the clarification in the form of letter dated 14.7.2015 from a chartered accountant along with the reply to section 154 notice before the ld AO stating that there was a clerical typing error in the notes on accounts point no. 2.6. “Revenue Recognition”. It was specifically clarified that the correct notes on accounts thereon would be as under:- ‘Sales are recognized , net of returns and trade discounts, on transfer of significant risks and rewards of ownership to the buyer, which generally coincides with the delivery of goods to customers. Sales include excise duty, sales tax, TCS and value added tax’. (Underlining provided by us) This clarification letter of chartered accountant is enclosed in page 88 of the paper book.
7.1. We find that the assessee in the audited financial statements in Note No. 18 had disclosed the Revenue from Operations as under:-
Sale of Manufactured Goods Rum 97,51,298/- Whisky 59,16,872/- Gin 1,05,91,525/- 5
6 ITA No.716/Kol/2017 Prashant Impex Pvt. Ltd. A.Yr. 2012-13 ----------------- Total Sale of Products 2,62,59,695/- -----------------
Sale of Services Bottling Charges 1,62,26,674/- ----------------- Total Sale of Services 1,62,26,674/- -----------------
(A) Total Sale of Products 2,62,59,695/-
(B) Total Sale of Services 1,62,26,674/-
(C ) Less: Excise Duty 67,44,948/- Sales Tax 94,99,332/- Tax Collected at Source 1,14,270/- Service Tax 15,15,274/- ------------------- 1,78,73,824/- --------------------- Net Revenue from Operations (A) + (B) – (C ) 2,46,12,545/- ---------------------
7.2. We find that the tax collected at source of Rs 1,14,270/- represents TCS collected from buyers as per section 206C of the Act. In the case of sale of alcoholic beverages for human consumption, the Act authorize the seller to collect from the buyer , the applicable TCS which is included in the invoice raised on the buyer and the said TCS was duly remitted by the assessee to the account of the Central Government. The assessee also had placed the entire date wise and party wise sales statement for the period 1.4.2011 to 31.3.2012 clearly mentioning the quantity, rate per case, value of goods, value of sales tax, value of excise duty and value of TCS as tabulated above. The assessee had also placed the sample invoices to justify its claim in the sales statement. These details with evidences were filed before the ld AO which are part of the
7 ITA No.716/Kol/2017 Prashant Impex Pvt. Ltd. A.Yr. 2012-13 assessment records. The ld CIT factually misunderstood the TCS deducted to the credit of the assessee herein with the TCS collected by the assessee on behalf of the buyer of liquor and erroneously applied the provisions of section 40(a)(ii) of the Act and stated that the TCS is not allowed as a deduction. The above facts with tabular statements clearly depict the treatment of TCS by the assessee. We hold that the ld CIT got clearly confused with the TCS deducted by assessee with TCS deducted on behalf of the assessee. There is no dispute that the TCS collected by the assessee from the buyer of liquor from the assessee, had been duly remitted to the account of the Central Government by the assessee. Hence we have no hesitation in holding that there is absolutely no error committed either by the assessee with regard to TCS, sales tax and excise duty or by the ld AO. Hence the order of the ld AO cannot be treated as erroneous warranting revisionary jurisdiction u/s 263 of the Act. We also find that the ld CIT had wrongly stated that the non-enquiry with reference to section 40(a)(ii) and section 145A of the Act had made the order of the ld AO erroneous in as much as it is prejudicial to the interests of the revenue. We also find from the tax audit report in Annexure A to Form 3CD enclosed in page 62 of supplementary paper book wherein the method of valuation of inventories is mentioned and the items included in the valuation of inventories. It was specifically stated that the excise duty in respect of goods manufactured is accounted upon removal of goods from the factory. This goes to prove that there is neither a debit towards excise duty in the profit and loss account ( in respect of goods lying in closing stock) for consequential inclusion of the same in the valuation of closing stock as per section 145A of the Act. Hence we hold that there is no violation of section 145A of the Act. All these details were duly available before the ld AO himself which has been duly appreciated by the ld AO while framing the assessment by not making any addition towards the same. With regard to one more aspect of applicability of provisions of section 43B of the Act, we find that the ld AO had elaborately looked into the disallowance u/s section 43B of the Act in the assessment and had even made disallowance of Rs 97,481/- u/s 43B of the Act in the 7
8 ITA No.716/Kol/2017 Prashant Impex Pvt. Ltd. A.Yr. 2012-13 assessment. Hence there is absolutely no error in the action of the ld AO as alleged by the ld CIT.
7.3. In view of the aforesaid observations, we hold that the order of the ld AO is neither erroneous nor prejudicial to the interests of the revenue warranting revisionary jurisdiction u/s 263 of the Act. Hence we have no hesitation to quash the revision order passed by the ld CIT u/s 263 of the Act. Accordingly, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 01.08.2018
Sd/- Sd/- [S.S. Godara] [ M.Balaganesh ] Judicial Member Accountant Member
Dated : 01.08.2018
SB, Sr. PS
Copy of the order forwarded to: 1. Prashant Impex Pvt. Ltd., C/o, RSVPC & Company, 41A, A.J.C. Bose Road, Suite No.613. 2. Pr. CIT-3, Kolkata, P-7, Chowringhee Square, Aayakar Bhawan, Kolkata-700069. 3..C.I.T.(A)- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.