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Income Tax Appellate Tribunal, “C” BENCH KOLKATA
Before: SHRI SONJOY SARMA & SHRI RAKESH MISHRA
Present for: Appellant by : Shri Manish Tiwari, FCA Respondent by : Shri Rakesh Kumar Das, CIT-DR Date of Hearing : 08.08.2024 Date of Pronouncement : 23.09.2024 O R D E R
PER RAKESH MISHRA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of the Ld. Principal Commissioner of Income Tax (hereinafter referred to as “the Ld. PCIT”) passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2018-2019 dated 14.03.2024, which has been passed against the assessment order u/s 153A of the Act, dated 29.03.2022.
The grounds of appeal raised by the assessee are reproduced as under:
“1) That on the facts and in the circumstances of the case, Ld. Pr. CIT (Central), Kolkata- 2 erred in initiating proceeding u/s 263 of Income Tax Act, 1961. 2) That on the facts and in the circumstances of the case, Ld. Pr. CIT (Central), Kolkata- 2 has erred in holding that assessment order u/s 153A of Income Tax Act, 1961 dated 29.03.2022 is erroneous & prejudicial to the interest of revenue. 3) That on the facts and in the circumstances of the case, Ld. Pr. CIT (Central), Kolkata- 2 erred in observing that the AO failed to disallow Rs. 6,82,720/- under the head personal expenses which is not allowable as per IT Act.
Ambia Sohrab: AY: 2018-19 4) That on the facts and in the circumstances of the case, Ld. Pr. CIT (Central), Kolkata- 2 erred in observing that the assessment order passed by AO is without enquiries or verification which should have been made in the instant case. 5) That on the facts and in the circumstances of the case, Ld. Pr. CIT (Central), Kolkata- 2 has erred in not appreciating the facts properly that the A.O. has conducted complete enquiries and verified all the details and after proper satisfaction framed assessment u/s 153A dated 29.03.2022. 6) That on the facts and in the circumstances of the case, Ld. Pr. CIT (Central), Kolkata- 2 has erred in passing order u/s 263 mechanically without proper application of mind. 7) That the appellant craves leave to add, alter, adduce or amend any ground or grounds on or before the date of hearing of the appeal.”
Brief facts of the case are that the assessee filed the original return of income u/s 139 of the IT Act, 1961 on 24.09.2019 declaring total income at Rs.79,14,700/-. A search & seizure under section 132 of the Act was conducted on 13.01.2021 and subsequent dates against the Hospitality Group of cases and the assessee Ambia Sohrab belongs to this group. The assessee was covered in search by execution of a warrant at "114C & 114D Ripon Street, Kolkata 700001." In response to the notice issued u/s 153A, the assessee filed the return of income for the AY 2018-19 on15.01.2022 declaring total income at Rs. 79,14,700/-. In response to the notices issued during the assessment proceedings, the assessee furnished a reply and after consideration of the reply, the total income was assessed u/s 153A of the Act at Rs. 60,55,28,750/- vide order dated 29.03.2022 by the Ld.AO.
3.1 Subsequently, the Ld. PCIT (Central), Kolkata-2 observed from Form No. 3CD that a sum of Rs. 6,82,720/- was debited in the profit and loss account under the head ‘personal expenses’, which was not allowable as per the Act and according to him the assessment order was erroneous insofar as it was prejudicial to the interests of the revenue. In response to the notice issued, the assessee submitted that the initiation of proceedings under section 263 was not valid as there existed neither any error nor any prejudice was caused to the revenue. The assessee during the year was the proprietor of ‘Amby International’ engaged in the wholesale and retail business of fruits and the return of income was filed on 24/09/2019 Ambia Sohrab: AY: 2018-19 declaring total income of Rs.79,14,700/-. Consequent upon the search operation, the assessment under section 153A of the Act was completed on 29/03/2022 at the total income of Rs.60,55,28,750/- after making various additions/disallowances. As regards the personal expenses, the assessee submitted as under before the Ld. PCIT:
Regarding personal expenditure of Rs. 6,82,720/- as mentioned in the Tax Audit Report, I would like to state that I, the assessee, suo moto has disallowed and added back Rs. 12,52,172/- towards expenditure personal in nature in my computation of income for the relevant assessment year. Hence, such personal expenditure of Rs. 6,82,720/- as reflected in the TAR is also included in the said disallowed expenditure of Rs. 12,52,172/- in my computation of income for the relevant assessment year. Copy of computation of Income for the relevant Assessment year is enclosed herewith for your reference. Hence, expenditure personal in nature once disallowed by the assessee in his computation of income and again disallowing the same towards personal expenditure of Rs. 6,82,720/- u/s 263 will amount to repetition and double taxation, which is not permissible in law. In view of above facts and position, it is submitted that since there neither any error nor there is any prejudice caused to the Revenue, your Honour are requested to drop the proceeding u/s. 263 of the Act. 1961. 3.2 The Ld. PCIT considered the reply but held as under:
I have considered the facts of the case and the submissions made by the assessee. In this case, assessment was completed u/s 153A of the Income Tax Act, 1961 on 29.03.2022. In the instant case u/s 153A of the Act the assessee has filed a return of income amounting to Rs.79,14,700 for A.Y. 2018-19. On the other hand, it is observed that from Form 3CD at SL. No.21(a) that a sum of Rs 6,82,720/- was debited in the Profit & Loss Account under the head of ‘Personal Expenses’ which is not allowable as per IT Act, 1961. On this issue, to surmise the contention of the assessee, it can be said that he has already added back a sum of Rs. 12,52,172/- towards expenditure of personal in nature in his computation of income and therefore, the sum of Rs.6,82,720/- reflecting in his Profit and Loss account as on 31.03.2018 as 'Personal Expenses' which is a part of Rs. 12,52,172/- as mentioned above, should not be added back. However, the material available on record does not throw any light on the action of the assessing officer vis-a-vis his enquiry on this issue. The assessee has to show the correctness of his contention with the return uploaded on ITBA by drawing corresponding reference to column/rows therein. No credence can be given to the computation filed as both the forms and the return which need to be taken cognizance of are the data and form uploaded on ITBA. As the assessee has failed to draw such evidence, it leads to clear inference that the A.O. failed to carry out enquiry and verification on this which he failed to carry out. 4.1 In view of the above discussion, it is clear that the AO has not enquired into this issue at all at the time of the assessment proceedings. Such failure on the part of the AO to enquire into the issue involved herein which he should have done in the facts and circumstances of the case, clearly attracts the provisions of clause (a) of Ambia Sohrab: AY: 2018-19 Explanation 2 to section 263 of the I. T. Act, 1961, making the order of the AO on this issue erroneous in so far as it is prejudicial to the interest of the revenue. 4.2 In light of the above, it is evident that the A.O. had failed to disallow the amount of Rs. 6,82,720/- as described in the above paras herein during the assessment proceedings. Such failure of the Assessing Officer, as it appears, rendered the assessment order u/s 153A of the Act dated 29.03.2022 without making necessary verification, enquiry or investigation on this issue. Thus, lack of enquiry and verification which should have been made in the facts and circumstances of the case, has made the assessment order erroneous in so far as it is prejudicial to the interest of the revenue within the meaning of section 263 of the Act. 4.3 Therefore, I am of the opinion that Rs. 6,82,720/- was required to be added back to the total assessed income.
3.3 After quoting various judicial pronouncements, he held in para 14 as under:
In the result, the order passed u/s 153A of the Act dated 29.03.2022 is hereby set aside by exercising the power conferred upon me by section 263 of the Act directing the A.O to make necessary verification/inquiry on the instant issue and pass a fresh assessment order in the light of the judgement of Hon'ble Supreme Court in the case of Principal Commissioner of Income Tax, Central-3 vs Abhisar Buildwell (P) Ltd. [2023] 149 taxmann.com 399 (SC) and re-compute the assessee's income after making proper enquiries on the issue involved herein, after offering reasonable opportunity to the assessee of being heard. Further, the assessment order dated 29.03.2022 is set aside to these limited extent for this purpose of proper and correct computation of assessed income as discussed in the proceedings under section 263 of the Act. The AO is further directed to decided the matter as per law after giving reasonable opportunity to the assessee of being heard. 4. Aggrieved with the order of the Ld. PCIT, the assessee has filed the appeal before us.
We have heard the rival submissions. The Ld. AR, in the course of appeal before us, drew our attention to page 4 of the paper book filed which is the copy of show cause notice issued u/s 263 of the Act, and informed that the assessment was made subsequent to the search and seizure action against which the appeal is pending before the Ld. CIT(A). The contention of the Ld. PCIT that disallowance mentioned in the audit report at Rs. 6,82,720/- was not disallowed by the Ld. AO is not correct as the assessee had suo moto made the disallowance which the Ld. PCIT(Central) has mentioned in para 4 of the order u/s 263, but has set aside the order on the limited issue as para 14 to decide in accordance with the decision of Ambia Sohrab: AY: 2018-19 the Hon’ble Supreme Court in the case of Principal Commissioner of Income Tax, Central-3 vs Abhisar Buildwell (P) Ltd. (supra). The Ld. AR also drew our attention to page 55 of the paper book which is computation of income in which Net Profit from Business has been shown at Rs. 68,12,527/-, to which expenses disallowed at Rs. 12,52,172/- have been added. He also drew our attention to page 65 of the paper book which is the tax audit report in which in column 21 against the personal expenditure, a sum of Rs. 6,82,720/- has been mentioned. On page 74 of the paper book, there is break up of expenses disallowed in the tax audit report and in the computation of income as personal in nature in the amount disallowed at Rs. 12,52,172/- as under:
Expenses considered as Amount disallowed in Tax Amount disallowed personal in nature Audit Report in Computation of income Hotel Charges - 2,49,475.00 Travelling & Conveyance - 2,00,336.00 Motor Car Upkeep 5,53,365.00 5,58,933.00 Business Promotion - 89,073.00 Festival Expenses 51,025.00 51,025.00 Guest Expenses 75,800.00 75,800.00 Mis. Expenses 2,530.00 2,530.00 Prof. & Consultancy - 25,000.00 6,82,720.00 12,52,172.00
Our attention was also drawn to column 14 of the Schedule BP of return of income which mentions a sum of Rs. 12,52,172/- as amounts debited to the Profit & Loss Account, to the extent disallowable u/s 36(6r of Part A-OI) of the Act.
The Ld. AR on the other hand supported the order of the Ld. PCIT.
Ambia Sohrab: AY: 2018-19 8. We have considered the submissions of the Ld. AR as well as the counter arguments of the Ld. DR and have no hesitation in holding that the assessee had suo moto disallowed a sum of Rs. 6,82,720/- on account of personal expenses which was included in the figure of Rs. 12,52,172/- disallowed in the computation of income as per which the total income rounded off u/s 288A of the Act worked out to Rs. 79,14,700/- and which is the same as the total income shown in the return of income as per column 17 of the return of income at Rs. 79,14,700/-. Thus, it is apparent that the disallowance at Rs. 12, 52,172/-, which was made suo moto by the assessee in the computation of income, included personal expenses of Rs. 6,82,720/- which the Ld. PCIT has directed the AO to add to the income. Hence, the order of the Ld. AO was neither erroneous nor prejudicial to the interest of the revenue and therefore, the assessee succeeds in the appeal and the order of the Ld. PCIT (Central) dated 29.03.2022 u/s 263 of the Act is hereby quashed. Hence, all the grounds of appeal are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 23rd September, 2024. Sd/- Sd/- (Sonjoy Sarma) (Rakesh Mishra) Judicial Member Accountant Member Dated: 23rd September, 2024 AK, P.S.