SHRI VISWANATHAN UDAYAKUMAR,,COIMBATORE vs. THE PRINCIPAL CIT-I, , COIMBATORE

The only issue in this appeal of assessee is as regards to the revision order passed by the PCIT, Coimbatore u/s.263 of the Act revising the assessment framed by the AO u/s.143(3) of the Act for the reason that the AO has not examined increase in share capital. As against the order of PCIT, the assessee has raised following two grounds:- 2. Learned CIT is magnanimous enough to mention the fact that we objected for 263 proposal but he never discussed it or decided it as it will make the 263 proposal itself invalid in law. The fact that there is no scope for 263 invoking in this case as, neither the order of assessing officer is erroneous nor the order is prejudicial to the interest of revenue was the crux of the issue raised by us which was ignored and to pacify himself he goes on with back ground of the case.

Brief facts are that the assessee is an individual doing the business of jewellery. Originally, the assessee filed return of income for the relevant assessment year 2015-16 on 24.03.2017. The AO completed assessment u/s.143(3) of the Act and he examined the details namely tax audit report, balance sheet, profit and loss account, 26AS detail, interest expenses details, capital a/c details - 3 - etc. Accordingly, the assessment was framed and returned income was accepted. The PCIT on examination of assessment records noticed that the AO has not made verification on the issue of increase in capital as according to him, as per the details available on the return, there was an increase in proprietors capital from Rs.1,56,18,810/- in the preceding assessment year to Rs.3,84,05,937/- in the current assessment year 2015-16. In the course of assessment proceedings in response to notice u/s.142(1) of the Act dated 26.09.2017 issued calling for details required to examine the CASS issue, initially, the assessee had authorized a Chartered Accountant to represent his case, who had provided partial details called for vide his letter dated 16.10.2017 and later on when the requisite details were not forthcoming, the AO had issued a letter dated 13.11.2017 wherein it was informed to the assessee that the assessment will be completed exparte based on materials available on record. In term of the above, a show-cause notice dated 23.07.2018 was issued. The assessee vide written submission dated 06.08.2018 and 07.01.2020 objected the show-cause notice for revising the assessment by filing the details. The assessee replied as regards to increase in capital, that on verification of return and verification of papers, there is huge difference in capital figures and assets and the figures mentioned in the balance sheet enclosed - 4 - with the return of income does not contain the correct picture but the capital account copy filed during the course of scrutiny assessment proceedings wherein the assessee’s mother had invested 14000 grams of gold jewels in ARK jewelers was the capital investment and it is on account of capital distributing her assets to her legal heirs after she expired on 27.01.201. The ld.counsel explained that the assessee during scrutiny assessment proceedings submitted the correct balance sheet as on 31.12.2017 and the capital balance declared in the balance sheet filed along with the return of income, there are mistakes which the AO after going through the entire details had framed assessment. But the PCIT noted that the introduction of 7000 grams of gold with ARK Jewellers valued at Rs.16,43,000/- in the financial year 2013-14 relevant to assessment year 2014-15 in the capital account of that very year and the revised computation of business income wherein the assessee admitted a figure of Rs.1,20,54,348/- as on 31.03.2015 has not been put for thorough examination. Thus, the PCIT alleged that as per the income statement, the returned income is Rs.6,35,046/- whereas as per the revised computation filed by the assessee, the net profit in the P&L account is at Rs.1,20,54,348/-. He also noted that in the original return of income filed, the capital account on sale of stocks of gold jewellery was reported at - 5 - Rs.39,16,400/- whereas in the revised computation, it was declared at ‘nil’. Therefore, the PCIT noted that the assessment order is passed by the AO without verification of facts and hence, the assessment order is held to be erroneous. For this, the PCIT recorded his finding in para 10 as under:- “10. In view of the discussions above, the order of assessment passed by the AO u/s.143(3) r.w.s147 dated 31.12.2017 is made without verification of the facts. The only issue for which the case was selected for scrutiny was not at all examined in the right perspective. The order so made, suffers in as much as it is erroneous and prejudicial to the interest of revenue, requiring an intervention to cure the order made erroneous and prejudicial to the interest of revenue.” Aggrieved, assessee is in appeal before the Tribunal.

We have heard rival contentions and gone through facts and circumstances of the case. We noted that the ld.counsel for the assessee before us argued that the financial statements formed part of the return of income filed did not capture the actual financial position and in view of the mistake formed part of the balance sheet filed by the original chartered accountant was revised by successor chartered accountant wherein the assessee had brought on record the correct income tax computation along with the financial statements including the capital account and ledger account reflecting the correct financial position. It was contended that the main reason for increase in capital during the assessment year under - 6 - ARK Jewellers to the tune of Rs.1,20,54,349/- and the source of the same is that the assessee received or inherited the gold of 7000 grams and gold ornaments of 425 grams upon death of his mother on 27.01.2014 and was recorded in capital account for the year ending 31.03.2014. It was contended by the ld.counsel for the assessee that during assessment year under consideration, the assessee had sold jewellery to the extent of 5000 grams to ARK Jewllers and the gain from such transfer was reported under the head ‘capital gains’. The ld.counsel argued that these documents were available before AO during the course of scrutiny assessment and assessee had even reconciled the capital account balance between the original balance sheet and the rectified balance sheet. The AO during the course of assessment proceedings has completely scrutinized the original balance sheet as well as revised balance sheet or correct balance sheet and hence, there is no lack of enquiry or non-verification of documents by the AO and rather the AO has correctly made assessment and there is no error in the assessment order and there is no prejudice caused to the Revenue due to this assessment order.

The ld.CIT-DR stated that when there are two set of balance sheets and he confirmed this by filing written submissions dated 17.06.2023, wherein original balance sheet clearly shows differential - 7 - Rs.1,57,18,810/- and there is increase in proprietor’s capital to that extent.

We noted that the assessee has filed correct balance sheet wherein complete details of capital introduction is provided as on 31.03.2014 and as on 31.03.2015. In the balance sheet, the assessee has shown capital account at Rs.2,69,78,493/- and consequent application of funds to the same. The ld.counsel for the assessee drew our attention to Annexure-3 filed by Revenue i.e., CIT-DR along with their written submissions wherein capital account on sale of gold jewels of 5000 grams for an amount of Rs.1,17,50,000/- is debited and capital gain is declared at Rs.39,16,400/-. He argued that subsequently due to indexation of gold value as on 2001, the long term capital gain was disclosed at ‘nil’ after indexing the cost. He argued that on merits also, there is no case. We have gone through the entire facts and noticed that the PCIT while revising the assessment has simpliciter gone through the original balance sheet which is part of the assessment record. But the AO has never acted upon on the original balance sheet but he accepted the correct balance sheet filed during the course of assessment proceedings. We find that the assessee vide reply dated 14.12.2017 has admitted the new balance sheet and the differentials between the original and rectified balance sheet which are part of - 8 - 90-92. We noted that on merits also, the assessee has explained the differentials and hence, the assessment order is neither erroneous nor prejudicial to the interest of Revenue because of non-verification of assessment. The AO has verified the complete details as it is evident from the assessee’s paper-book that the AO asked for the entire details and the assessee replied the same on various dates. In view of the above, we allow the appeal of assessee and quash the revision order passed by the PCIT.

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