SHRI SUMAN SHARMA,DURGAPUR vs. PCIT, DURGAPUR, DURGAPUR

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH ‘A’, KOLKATA (Before Shri P. M. Jagtap, A.M. & Shri S.S. Viswanethra Ravi, J.M.) ITA No. 1169/Kol/2016 : Assessment Year: 2011-12 Shri Suman Sharma, Prop. Vs P.C.I.T, Durgapur Bright Security Service PAN: AKWPS3792B (APPELLANT) (RESPONDENT) Appellant by : Shri S.K. Tulsian, Advocate Respondent by : Shri R.S. Biswas, CIT Date of Hearing : 05.06.2017 Date of Pronouncement : 23.06.2017 ORDER Shri P.M.Jagtap, A.M. This appeal filed by the assessee is directed against the order of ld. Principal CIT Durgapur dated 30.03.2016 passed under section 263 of the Income Tax Act, 1961. 2. The assessee in the present case is an individual who is engaged in the business of providing security services under the name and style of his propriety concern, M/s. Bright Security Service. A survey under section 133A of the Act was carried out in the premises of the assessee, during the course of which certain books of accounts were impounded. Thereafter, the return of income for the year under consideration was filed by the assessee on 03.11.2011 declaring a total income of Rs. 79,72,329/-. In the scrutiny

ITA No. 1169/KOL/2016 2 assessment made under section 143(3), vide an order dated 30.03.2014, the total income of the assessee was determined by the AO at Rs. 89,83,360/-. The record of the said assessment subsequently came to be examined by the Ld. CIT and on such examination he was of the view that the assessment order passed by the AO under section 143(3) contained certain errors which were prejudicial to the interest of the revenue. He accordingly issued a notice under section 263 pointing out such errors as under: i. It is seen as per the Balance Sheet as on 31.03.2010, there is current liabilities under the head “Security Staff & Others” amounting to Rs. 1,08,61,332/- and Sundry Debtors of Rs. 1,52,36,940/-. With relation to these two amounts, the assessee during the course of survey u/s. 133A of the Act in the statement dated 04.02.2011, in answer to question No. 6 has offered an income of Rs. 54,85,432/- as income for assessment year 2011-12 u/s. 41 of the Act, as this outstanding amount could not explained by the assessee. However, the assessee has made a submission thereby retracting from this admission and declaration of the income of Rs. 54,85,432/-, during the assessment proceeding for assessment year 2011-12 and the Assessing Officer has accepted this submission without making any field enquiry and verification in this regard. The Assessing Officer has not brought any evidence on record and the genuineness and authenticity of such contradictory statement of the assessee during the assessment proceeding has not been examined and verified by the Assessing Officer from the perspective of the revenue. ii. It is also seen that in the Balance Sheet as on 31.03.2011 in the current liabilities under the head “Security Staff and Others”, the amount shown is of Rs. 1,34,30,393/- and the AO has not examined the genuineness and veracity of such liability. iii. Besides the Balance Sheet in the current liabilities under the heading ‘Service Tax’ shown is of Rs. 18,76,419/-, ‘EPF’ shown is of Rs. 23,41,216/- and ‘ESIC’ shown is of Rs. 3,45,161/-. In the Profit & Loss Account, the assessee has debited ESIC contribution

ITA No. 1169/KOL/2016 3 of Rs. 14,25,266/-, PF contribution of Rs. 40,71,529/- and the Assessing Officer has not examined these details. The Assessing Officer has also not examined the applicability of Section 43B of the Act to the liabilities shown in the Balance Sheet as stated above. iv. In the Profit & Loss Account, the assessee has debited Rs. 23,96,692/- under the head “Miscellaneous Deduction”. The Assessing Officer has not examined the genuineness and veracity of such claim debited to Profit & Loss Account. v. It is also seen that in the accounts maintained by the assessee in Union Bank of India, Bidhannagar and State Bank of India, Bidhannagar there are various cash deposits and cash withdrawals and the Assessing Officer has not carried out any enquiry regarding the source of such deposits as well as the purpose of such cash withdrawals and whether such amounts are properly accounted for in the books of accounts of the assessee. The Assessing Officer has also not examined the applicability of the legal provision u/s. 40A(3) of the Act. The assessee accordingly was called upon by the Ld. CIT in show cause as to why the assessment order passed by the AO under section 143(3) of the Act should not be considered for revision under section 263. 3. In reply to the notice issued by the Ld. CIT under section 263, a written submission was filed by the assessee explaining his stand on the errors allegedly pointed out by Ld. CIT in the order passed by the AO under section 143(3) as under: 1. INCOME DISCLOSED OF RS. 54,85,432/- U/S 41 OF I.T. ACT, 1961: In course of survey on 04.02.2011, the assessee has been asked to clarify the current liabilities under the heads of A/c “SECURITY STAFF & OTHERS” of Rs. 1,08,61,332/- as on 31.03.2010 relating to F.Y.:- 2009-2010 relevant to A.Y:- 2010- 2011 along with Sundry Debtors of Rs. 1,52,36,940.00 on the same date.

ITA No. 1169/KOL/2016 4 The assessee is not a position to explain the same at that moment and the survey team has written the said amount as disclosure U/S 41 of I.T. Act, 1961. Though, the fact is different which is duly explained in course of scrutiny assessment proceeding for A.Y.:- 2011-2012 and the liability is continuing one and no cessation of liability occurs either as on 31.03.2010 relating to A.Y:- 2010-2011 or as on 31.03.2011 relating to A.Y.:- 2011-2012. Hence, invoking of provision of Section 41 does not arise herein. Keeping in view the line of trade and business of the assessee for deployment of security man power, the Wages & Salary remain always unpaid in last 2/3 months of the accounting year due to paucity of fund because of blocked of bills receivables from the contractees in this regards. Again, the issue relates to F.Y.:- 2009-2010 relevant to A.Y.:- 2010-2011 and so disclosure in F.Y.:- 2010-2011 relevant to A.Y.:- 2011-2012 is irrelevant as per provision of I.T. Act, 1961. 2. C/L ON A/C OF SECURITY STAFF & OTHERS AS ON 31.03.2011: The O/S amount of Rs. 1,34,30,393/- is genuine liability on A/c of O/S Salary & Wages, which is duly examined and verified by Ld. A.O. in course of scrutiny assessment proceeding U/S 143(3) of I.T. Act, 1961 for A.Y.:- 2011-2012 and it is, obviously, an accepted feature in the line of trade and business of the assessee for deployment of manpower of security at various sites, keeping in view of the facts that an amount of Rs. 1,28,56,989.11 is due for bills receivables as on 31.03.2011, being blocked causing shortage of funds to pay the liabilities. 3. C/L ON A/C OF SERVICE TAX, E.P.F, E.S.I.C ETC: The entire liabilities on A/c of Service tax of Rs. 18,76,419/-, “E.P.F” of Rs. 23,41,416/- and E.S.I.C of Rs. 3,45,161.00 respectively have been paid by the assessee before due date of filing of Return of Income U/S 139(1) of I.T. Act, 1961. The amount of Rs. 14,25,266/- on A/c “E.S.I.C” contribution and of P.F contribution of Rs. 40,71,529/- debited to P&L A/c as per challans, in this regard. Ld. A.O. has, duly, examined the issue and all the copies of relevant challans have been furnished to Ld. A.O. in course of

ITA No. 1169/KOL/2016 5 hearing, which, are all obviously lying in the concerned assessment folder of the assessee at Ld. A.O’s office. However, a statement showing the details along with copy of challans as evidences are attached herewith for your kind verification. Hence, invoking of the provision of Section 43B does not arise at all, in this case. 4. MISCELLANEOUS DEDUCTION OF RS. 23,96,692/-: The details are attached herewith along with certificate of deductions issued by the relevant contractees on A/c of shortage of man power and other issues, which are very common features in the line of trade and line of the business of the assessee concerned. Ld. A.O. has also verified the same in course of scrutiny assessment proceedings for A.Y.: 2011-2012. 5. UNION BANK OF INDIA, BIDHANNAGAR & STATE BANK OF INDIA BIDHAN NAGAR: i. That , the assessee is not maintaining any bank account/s with Union Bank of India, Bidhan Nagar Branch. Hence, the issue is irrelevant. And; ii. That, the bank book relating S.B.I. Bidhan Nagar Branch along with statement of Bank A/c has been, duly, examined and verified by Ld. A.O. in reference to Cash Book in course of scrutiny assessment proceeding for A.Y.: 2011-2012. All the transactions are duly accounted for in the books of account. 4. The Ld. CIT(A) did not find the explanation offered by the assessee to be acceptable. According to him, the additional income of Rs. 54,85,432/- offered by the assessee during the course of survey on account of the unexplained

ITA No. 1169/KOL/2016 6 liability towards ‘security and other staff’ was not reflected in the return of income and the retraction of the same by the assessee by not offering the income surrendered during the course of survey under section 41 of the Act was accepted by the AO without making any field enquiry and verification. He also held that the Assessing Officer during the assessment proceedings had not made any query with regard to this issue and had written only two sentences in the assessment order while accepting the claim of the assessee. He further held that similarly other issues pointed out by him in the notice issued under section 263 were not examined and verified by the AO by conducting necessary enquiries. He held that two questionnaires issued by the AO along with the notices under section 142(1) of the Act were stereotype and the queries raised therein were general in nature without taking into consideration the facts of the assessee’s case and legal points involved therein. According to the Ld. CIT, there was thus no application of mind by the Assessing Officer and even the relevant documents stated to be submitted by the assessee along with the reply filed in response to under section 142(1) were not traceable on record. He held that the issues raised by him in the notice under section 143(3) thus were not examined and verified by the Assessing Officer and the assessment order passed by him under section 143(3) without making enquiries or verification on the said issues was erroneous as well as prejudicial to the interest of the revenue. He accordingly set aside the order of the AO passed under section 143(3) on the said issues vide an order passed

ITA No. 1169/KOL/2016 7 under section 263 with the direction to the AO to pass a fresh assessment order on the said issues in the light of observations made by him in the order under section 263 in accordance with law. Aggrieved by the order of the Ld. CIT(A) passed under section 263, the assessee has preferred this appeal before the Tribunal. 5. The learned Counsel for the assessee took us through the various documents filed by him in the paper book containing copies of notices issued by the AO under section 142(1) and submissions made by the assessee in reply to the said notices along with the documentary evidence filed in support. He also invited out attention to the copy of reply submitted by the assessee in the reply to the show cause notice issued by the Ld. CIT under section 263 placed at page No. 28 to 31 of the Paper Book and pointed out that point- wise reply was submitted by the assessee to show that there were no errors in the order passed by the AO under section 143(3) as alleged by the Ld. CIT in the notice issued under section 263. As regards the first error allegedly pointed out by the Ld. CIT, he submitted that the current liability appearing under the head ‘security staff and other’ could not be readily explained by the assessee to the extent of Rs. 54,85,432/- during the course of survey for want of relevant details and accordingly additional income was surrendered by him in his statement recorded during the course of survey. He submitted that the relevant details however could be gathered by the assessee subsequently on the basis of which the genuineness

ITA No. 1169/KOL/2016 8 of the said liability could be established and accordingly the statement under section 133A was retracted successfully and satisfactorily by the assessee during the course of assessment proceedings before the AO. He submitted that the explanation offered by the assessee in this regard was found to be satisfactory by the AO and after recording his satisfaction specifically at page No. 2 of the assessment order the claim was accepted by him. He contended that this issue was thus decided by him after making necessary enquiry and verification and after applying his mind and there was no error in his order passed under section 143(3) as alleged by the Ld. CIT. 6. The learned counsel for the assessee also contended that similarly other issues raised by the Ld. CIT in the notice under section 143(3) were enquired into and verified by the AO as is evident from the questionnaires issued by him along with the notices under section 142(1) as well as the submissions made by the assessee in reply thereto. In this regard, he pointed out that the details of current liability appearing under the head ‘security and other staff’ amounting to Rs. 1,34,30,393/- were completely furnished by the assessee as per point No. 7 of his written submissions dated 21.09.2014 filed before the AO while the details showing payment of outstanding ESI contribution and PF contribution before the specified date were furnished by the assessee specifically in the tax audit report filed along with his return of income. He submitted that the nature of Miscellaneous

ITA No. 1169/KOL/2016 9 Deduction of Rs. 23,96,692/- debited in the profit and loss account was also explained by the assessee and even the details of the same as appearing on page No. 10 of the Paper Book were furnished by the assessee during the course of assessment proceedings. He also pointed out from the questionnaires issued by the AO that the details of bank accounts maintained by the assessee were called for by the AO and even the assessee was required by him to file the bank statements of his all bank accounts. He contended that all the bank transactions of the assessee thus were verified by the AO and merely because there was no discussion in his assessment order on this matter could not make the said order erroneous and prejudicial to the interest of the revenue. In support of this contention, he relied on the decision of Hon’ble Delhi High Court in the case of CIT vs Vikas Polymers (2012) 341 ITR 537 (Del) as well as the decision of this Tribunal in the case Chroma Business Ltd. vs DCIT – (2004) 82 TTJ 540 (Cal). He also relied on the decision of Allhabad High Court in the case of CIT vs Krishna Capbox (P) Ltd. (2015)372 ITR 310 (All) wherein it was held that once enquiry was made by the AO, a mere non-discussion in the assessment order could not lead to assumption that the Assessing Officer did not apply his mind or that he had not made enquiry justifying interference by the Ld. CIT under section 263.

ITA No. 1169/KOL/2016 10 7. The learned DR, on the other hand, strongly relied on the impugned order of the Ld. CIT passed under section 263 in support of the revenue’s case and submitted that assessing the order passed by the AO under section 143(3) without making the necessary enquiries or verification as pointed out by the Ld. CIT was erroneous as well as prejudicial to the interest of the revenue calling for revision under section 263. 8. We have considered the rival submissions and also perused the relevant material available on record. We have also carefully gone through the notices issued by the AO under section 142(1) during the course of assessment proceedings along with the questionnaires and the reply filed by the assessee in response to the said notices. It is observed that the first issue raised by the Ld. CIT in the notice issued under section 263 while pointing out the alleged error in the order of the AO passed under section 143(3) was related to the additional income of Rs. 53,75,901/- surrendered by the assessee during the course of survey on account of liability appearing under the head “Securities Staff & Others” to the extent of Rs. 53,75,901/-. According to the Ld. CIT, this additional income was not offered by the assessee in his return of income filed for the year under consideration thereby retracting his statement recorded during the course of survey and the same was accepted by the AO without making any enquiry or verification. As explained on behalf of the assessee before Ld. CIT as well as before us, the additional income was surrendered by the assessee during the

ITA No. 1169/KOL/2016 11 course of survey for want of the relevant details readily available with him, but the said liability having been found subsequently as genuine business liability on the basis of the relevant details gathered by him, the additional income was not offered by the assessee in the return of income. During the course of assessment proceeding, the said details were furnished by the assessee along with the supporting documents and on verification of the same, the claim of the assessee was accepted by the AO as is evident from the following observations / findings recorded by him in the assessment order During deposition the assessee in his reply stated ‘Out of above amount, Rs. 53,75,901/- represent as salary for the month of March, 2010. These creditors were paid in subsequent financial year, i.e. 2010-11. For the balance, I have no explanation and hence I offer the amount of Rs. 54,85,432/- as my income for the A.Y. 2011-12 u/s 41 of the I.T. Act, 1961. But during the assessment proceeding, assessee appeared with different set of mind and in the reply dated 03.03.2014, he stated that ‘The above said amount is, in fact, liabilities for expenses comprising of salary, wages & other expenses brought forward from F.Y. 2009-10 relevant to A.Y. 2010-11 and the assessee has replied about fraction of liability of salary & wages of Rs. 53,75,901/- for the month of March 2010 on the basis of records readily available with the assessee, on the spot and the balance amount of Rs. 54,85,432/- is also dues of salary & wages and other expenses, keeping in view the facts that the assessee’s receivables amount to Rs. 1,52,36,940.62 as on 31.03.2010/01.04.2010 payables of Rs. 1,08,61,100/- on a/c of “Liabilities for Expenses” is obviously natural and quite reasonable ................ it is a fact that the assessee cannot pay the liabilities till the dues have been received by him for his clients/contractors.’ Assesssee also submitted documents to support his claim. In such circumstances, there is no other way but to accept claim of the assessee.

ITA No. 1169/KOL/2016 12 The above observations / findings recorded by the AO in the assessment order clearly show that this issue was not only enquired into and examined by the AO during the course of assessment proceedings but the stand of the assessee was accepted by him on application of mind after having found that the statement made by the assessee during the course of survey surrendering the additional income was successfully and satisfactorily retracted by the assessee by filing the relevant details as well as documentary evidence. 9. It is also observed that similarly the other issues raised by the Ld. CIT in the notice issued under section 263 while pointing out the alleged errors in the order of the AO were duly enquired into and verified / examined by the AO as demonstrated by the learned counsel for the assessee from the questionnaires issued by the AO and the submissions made by the assessee in reply thereto along with relevant documentary evidence. As pointed out by the learned counsel for the assessee the relevant details of sundry creditors were called by the AO from the assessee as per point No. 7 of the questionnaire dated 25.01.2014 issued by him and in the reply filed by the assessee in wiring vide letter dated 29.02.2014, it was clarified by the assessee that there was no sundry creditors as on 31.03.2011. It was also clarified by the assessee that the liability appearing under the head “Security Staff & Others” was related to outstanding expenses mainly on account of salary & wages and the details of the same

ITA No. 1169/KOL/2016 13 were also furnished by the assessee as per the format given by the AO. 10. It is also observed that the details of current liabilities on account of service tax of Rs. 18,76,419/-, E.P.F. contribution of Rs. 23,41,416/- and E.S.I.C. contribution of Rs. 3,45,161/- were furnished by the assessee in the Tax Audit Report filed along with the return of income and the said details showing dates of payments of these liabilities before the due date of filing of income were sufficient to show that no disallowance under section 43B was called for. The details of sum of Rs. 23,96,692/- claimed by the assessee under the head “Miscellaneous Deduction” were also placed on record by the assessee before the AO and a perusal of the letter filed by the assessee in this regard before the AO (copy at Page No. 8 of the Paper Book) clearly shows that the claim of the assessee for Miscellaneous Deduction was duly examined and verified by the AO by making the necessary inquiry. 11. As regards the bank accounts of the assessee and the transactions reflected therein including the cash transactions, it is observed that the name and addresses of all the bank accounts were called for by the AO from the assessee vide his questionnaire dated 29.12.2012 along with the bank reconciliation statement and even the copies of the bank statements of the said accounts were required by the AO from the assessee vide his questionnaires dated 22.01.2014. It is also evident from the letter dated 21.09.2014 submitted by the assessee before the that AO, not only the photocopies of

ITA No. 1169/KOL/2016 14 all his bank statements along with the relevant details were furnished by the assessee, but even the original books of accounts comprising of cash book, bank book, ledger, journal were purchase for verification. In our opinion, it therefore, cannot be said that the various cash deposits and cash withdrawals reflected in the bank accounts of the assessee were not verified or enquired into by the AO as alleged by the Ld. CIT. 12. We, therefore, find that all the issues raised by the Ld. CIT were enquired into and examined/verified by the AO as is evident from the questionnaires issued by him as well as the reply filed by the assessee in response thereto and there were no errors in the orders of the AO under section 143(3) as alleged by the Ld. CIT in the notice under section 263. In the case of CIT vs Krishna Capbox (P) Ltd. (2015)372 ITR 310 (All) cited by the learned counsel for the assessee, the Assessing Officer had made certain queries to which the assessee’s replied and after inquiry and being satisfied with the assessee’s answers, the claim of the assessee was accepted and order was passed by the AO. The Ld. CIT however, set aside the assessment made by the AO on the ground that the Assessing Officer had accepted the version of the assessee without making any inquiry or verification and directed the Assessing Officer to pass a fresh order of assessment after making such enquiry or verification. The Tribunal, however, found the order of the Ld. CIT passed under section 263 contrary to record and held that once inquiry was made by

ITA No. 1169/KOL/2016 15 the AO, the mere non-discussion or non-mention thereof in the assessment order could not lead to assumption that the Assessing Officer did not apply his mind or that he had not made any enquiry on the subject justifying interference by the Ld. CIT under section 263. The order of the Ld. CIT passed under section 263 accordingly was set aside by the Tribunal and the order passed by the Tribual was upheld by the Hon’ble Allahabad High Court thereby dismissing the appeal of the revenue. Keeping in view the decision of Hon’ble Allahabad High Court in the case of Krishna Capbox (P) Ltd. (2015)372 ITR 310 (supra), which is squarely applicable in the present case and having regard of the facts of the case as discussed about, we are of the view that there were no errors in the order of the AO made under section 143(3) as alleged by the Ld. CIT justifying interference under section 263. We, therefore, set aside the impugned order passed by the Ld. CIT under section 263 and restore the order of the AO passed under section 143(3). 13. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 23rd June, 2017 Sd/- Sd/- (S.S. Viswanethra Ravi) (P.M.Jagtap) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23/06/2017 Biswajit, Sr.PS

ITA No. 1169/KOL/2016 16 Copy of order forwarded to: 1 Shri Suman Sharma, Prop. Bright Security Service, B-15/2, Ispat Pally, Bidhannagar, Durgapur – 713212. 2 PCIT, Durgapur, Aayakar Bhawan Annexe, City Centre, Durgapur - 713212 3 The CIT(A), 4 The CIT 5 DR True Copy, By order, Sr. P.S. / H.O.O. ITAT, Kolkata