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Income Tax Appellate Tribunal, ‘B’ BENCH, KOLKATA
Before: Shri Rajpal Yadav, Vice-(KZ) & Dr. Manish Borad
Per Rajpal Yadav, Vice-President (KZ):- The assessee is in appeal before the Tribunal against the order of ld. Principal Commissioner of Income Tax, Kolkata-2
ITA No. 549/KOL/2023 (A.Y. 2018-2019) KGVK Agro Limited dated 25.03.2023 passed under section 263 of the Income Tax Act, 1961 in A.Y. 2018-19.
The Registry has reported that the appeal is time barred by 14 days. In order to explain the delay, the assessee has filed an application and in this application, it has contended that the delay in filing the appeal occurs on account of the concerned person leaving the Company. In other words, the person, who was looking after the taxation matter, has left the Company and could not lay his hand any information well in time and, therefore, the appeal came time barred. Ld. D.R., on the other hand, contended that the assessee should be more careful. However, looking to the smallness of the delay and the explanation of the assessee, we condone the delay and proceed to decide the appeal on merit.
The assessee has taken four grounds of appeal. Its grievance is that ld. CIT has erred in taking cognizance under section 263 of the Income Tax Act and thereby setting aside the assessment order with a direction that disallowance of loss to the extent of Rs.67,61,080/- ought to be assessed as a cash credit under section 68 and tax rate @ 60% be charged under section 115BBE.
Brief facts of the case are that the assessee has filed its return of income on 27.10.2018 electronically and disclosed a loss of Rs.1,57,21,270/-. The case of the assessee was selected for scrutiny assessment and an assessment order under section
ITA No. 549/KOL/2023 (A.Y. 2018-2019) KGVK Agro Limited 143(3) was passed on 20.02.2021 at a negative income of Rs.(-)87,09,756/-. The ld. Assessing Officer has made two additions, namely- (a) disallowance of Gratuity Provision of Rs.2,50,434/-; (b) addition of Rs.67,61,080/- on account of suppressed sales.
The ld. Commissioner gone through the assessment record and formed an opinion that the receipt of suppressed sale ought to have been added under section 68 of the Income Tax Act as undisclosed cash credit, which is chargeable to tax @ 60% under section 115BBE. On the strength of this opinion, he issued a notice under section 263 of the Income Tax Act. After hearing the assessee, ld. Commissioner held that assessment order was erroneous and prejudicial to the interest of revenue. He set aside the assessment order and relegated the issue to the file of ld. Assessing Officer for verification of the books and thereafter passing a denovo assessment order.
Before us, ld. Counsel for the assessee contended that the assessee carried this matter in appeal before the ld. CIT(Appeals) against the assessment order dated 20.02.2021. It has submitted a detailed written submission, which has been reproduced and out of this submission, the relevant part is noted as under:- “From the perusal of the above, it is clear that out of total receipts of Rs.67,61,080/- reported in form 26AS, the appellant had already considered receipts of Rs.27,61,080/- in the audited accounts for the year under consideration. Copy of the audited accounts is enclosed and marked as Annexure-2 for your kindself's ready reference. Further, as mentioned in the table above, the balance receipt of Rs.20,00,000/- each from Peterhouse investments India Ltd & from Usha Martin Ventures 3
ITA No. 549/KOL/2023 (A.Y. 2018-2019) KGVK Agro Limited Ltd. Has been considered in the accounts of subsequent year i.e. FY 2018-19 [AY 2019-20], This is due to the fact that the work was not executed in the year under consideration but the other party booked the expenditure in their books of accounts and effected TDS”.
The ld. CIT(Appeals) has allowed the appeal of the assessee partly and deleted the addition of Rs.27,61,080/- made by the ld. Assessing Officer. He upheld the addition of Rs.40,00,000/-.
On the strength of the above, ld. Counsel for the assessee submitted that sub-clause (c) of Section 263, sub-clause (1) restricts the ld. Commissioner to take cognizance on any of the issues, which was pending before the ld. CIT(Appeals). The ld. D.R., on the other hand, relied upon the order of the ld. CIT and submitted that the subject matter of the dispute is altogether different. The issue before the ld. CIT(Appeals) was whether any addition on account of suppressed sale is to be made or not, whereas the issue before the ld. Commissioner was whether it is to be treated as unexplained cash credit under section 68 or the sales representing out of regular business. Therefore, the ld. Commissioner is fully justified in taking cognizance of the issue.
We have duly considered the rival contentions and gone through the record carefully. Before we embark upon an enquiry on the facts and issues agitated before us to find out whether the action u/s 263 of the Act, deserves to be taken against the assessee or not, it is pertinent to take note of this section. It reads as under:-
ITA No. 549/KOL/2023 (A.Y. 2018-2019) KGVK Agro Limited “263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
[Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income Tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) “record shall include and shall be deemed always to have included all records relating to any proceeding
ITA No. 549/KOL/2023 (A.Y. 2018-2019) KGVK Agro Limited under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
A bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the
ITA No. 549/KOL/2023 (A.Y. 2018-2019) KGVK Agro Limited learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show-cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of
ITA No. 549/KOL/2023 (A.Y. 2018-2019) KGVK Agro Limited the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263.
(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
ITA No. 549/KOL/2023 (A.Y. 2018-2019) KGVK Agro Limited
(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law.
(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.
(vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.
(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction.
ITA No. 549/KOL/2023 (A.Y. 2018-2019) KGVK Agro Limited
(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
The subject matter before the ld. Assessing Officer was whether any suppressed sale is available or not. The ld. Assessing Officer has made a comparison between the receipts on which TDS was deducted and reported in Form No. 26AS, vis-à- vis recognized by the assessee in the Profit & Loss Account. He found that certain receipts were not recognized by the assessee. The explanation of the assessee was that it has recognized Rs.27,61,080/- in this accounting year and Rs.40,00,000/- in A.Y. 2019-20. When the quantum addition travelled to the ld. CIT(Appeals), then, ld. CIT(Appeals) was satisfied about the claim of the assessee that receipts reflected in Form No. 26AS on which TDS was deducted, the assessee itself has recognized it in the Profit & Loss Account to the extent of Rs.27,61,080/-. The ld. CIT(A) has deleted the addition to the extent of Rs. 27,61,080/-.
Thus, in view of the above, once an addition of Rs.27,61,080/- was deleted by ld. CIT(A), then it is not called for to decide the nature of such receipts for making any addition 10
ITA No. 549/KOL/2023 (A.Y. 2018-2019) KGVK Agro Limited with the angle of charging tax at the rate of 60% u/s 115BBE of the Act. The next question remains about the addition of Rs. 40 Lakh, which has been sustained by the ld. 1st Appellate Authority. The case of the assessee is that it has disclosed these sales in the next accounting year because till the date confirmation was received, its accounts were closed. This fact has not been verified by the ld. Assessing Officer in the assessment order. In case, this addition as confirmed by the ld. CIT(Apeals) remained confirmed, then its nature deserves to be examined.
We have not been informed whether assessee has filed any appeal against the order of ld. CIT(Appeals) or not because assessee was suffering losses and by making a disallowance of Rs. 40 Lakh, its losses reduced. There may not be any tax implication, therefore, assessee might have not challenged that order.
As far as the protection available under sub-Clause (c) of Section 263(1) of the Act is concerned, the subject matter before the ld. CIT(A) in the quantum appeal is altogether different than the subject matter before the ld. PCIT while exercising the powers u/s 263 of the Act. Ld. PCIT u/s 263 of the Act was concerned about the nature of receipt and if nature of receipt is to be examined, then source of purchases and the parties’ detail to whom sales were made are to be identified. It is to be proved that such receipts are from the regular business of the assessee and in case it is not proved, then this addition will be segregated from the addition under the normal provision. It is to be charged to tax 11
ITA No. 549/KOL/2023 (A.Y. 2018-2019) KGVK Agro Limited at a higher rate of 60% as against normal rate of 30%. Therefore, to that extent, we concur with the ld. D.R. We modify the impugned order of ld. CIT passed u/s 263 of the Act directing the ld. Assessing Officer to examine whether this addition of Rs. 40 Lakh confirmed by the ld. CIT(Appeals) represents the receipts from regular source of business or not. The assessee will be required to file details of purchases as well as sales made to the parties. In case, it is not proved by the assessee that these sales are not from regular source of business, then the issue is to be decided by the ld. Assessing Officer as per law by taking into consideration Section 115BBE of the Act. In view of the above, we partly allow the appeal of the assessee.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 19/02/2024. Sd/- Sd/- (Manish Borad) (Rajpal Yadav) Accountant Member Vice-President (KZ) Kolkata, the 19th day of February, 2024 Copies to :(1) KGVK Agro Limited, Block-A, 3rd Floor, Flat-3, 46B, Sridhar Roy Road, Kolkata-700039 (2) Principal Commissioner of Income Tax, Kolkata-2, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700069 (3) Commissioner of Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre (NFAC), Delhi;
ITA No. 549/KOL/2023 (A.Y. 2018-2019) KGVK Agro Limited
(4) CIT- , Kolkata (5) The Departmental Representative; (6) Guard File TRUE COPY By order
Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.