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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: Shri Amit Shukla, & Shri Ashwani Taneja
आदेश / O R D E R Per Ashwani Taneja (Accountant Member): This appeal has been filed by the assessee against separate orders of Ld. order of Ld. Commissioner of Income Tax-10, Mumbai, {(in short ‘CIT(A)’}, passed against
2 Achiles Knitwear Pvt. L. Assessment Order u/s 263 of the Act, for the A.Y.2007-08 on the following grounds: “
1.On the facts of the case and in Law, the learned CIT has erred in invoking Section 263 to the case of the Appellant only on guesswork and surmises, without pointing out any error in the order of the Assessing Officer by disregarding detailed submissions made to him from time to time.
2. On the facts of the case and in Law, the Show Cause Notice & or order u/s 263 alleging errors and prejudice, itself is erroneous on many counts as follows. 3.On the facts of the case and in Law, the learned CIT has erred in making a change of opinion about the facts already submitted before the Assessing Officer. 4.On the facts of the case and in Law, the learned CIT has erred in disallowing Rs.4,39,573/- which has been debited to profit & loss a/c on account of alleged prior period expense item. 5.On the facts of the case and in Law, the learned CIT has erred in holding that the sum of Rs 4,39,573/- represents prior period items although discounts and rebates were recorded in the books as per accrual system of accounting in AY 2007-08.”
During the course of hearing, arguments were made by Shri Jitendra Singh & Miss Neha Paranjpe, Authorised Representative (AR) on behalf of the Assessee and by Shri B. Pruseth, Departmental Representative (DR) on behalf of the Revenue.
We have heard both the parties on this issue. It is noted that Ld. CIT has passed the order only on the ground that it was noted by him from the perusal of the accounts that there was a claim of prior period expenses of Rs.4,39,573/- in the profit and loss account which was not added back by the assessee in the computation of income nor by the AO in the 3 Achiles Knitwear Pvt. L. assessment order. With the assistance of Ld. Counsel, it is noted by us that assessee is in the business of job work and trading of Knitted hosiery fabrics and the impugned expenses actually pertain to the year under consideration. Ld. Counsel of the assessee had drawn our attention In this regard upon detailed reply submitted to Ld. CIT in response to the show cause notice received u/s 263. The relevant portion of the said reply is reproduced below: “Vide show cause notice dated 14/11/2011 received by your assessee on 18/11/2011, the learned Commissioner of Income Tax has wrongly proposed to add Rs. 4,39,573/- which has been debited to profit & loss a/c on account of alleged prior period expense item which was added neither in the computation of income nor in the Asst Order by the Assessing Officer at the time of Scrutiny Assessment. During earlier years certain labour charges were received from certain parties mentioned as per the annexure F attached to Form no.3CD. Therefore the original labour charges were accounted for in the respective years in which labour charges were earned. But the discounts and rebates were recorded in the books as per accrual system o accounting in AY 2007-08. The assessee also submitted all the necessary details with the AO, during the course of assessment. The A.O. did not raise any further query thereafter in this connection and passed the Assessment Order u/s 143(3) after due verification of all the details filed as per his requirement. Moreover, it is also pointed out that the tax auditor had wrongly classified these expenses as prior period expenses at column 22(b) of Form no. 3CD. Moreover, annexure F attached to the Form no. 3CD gave party wise details of discounts & rebates which accrued during the year in respect of labour charges earned by the assessee in the prior years. It is also submitted that labour charges were accounted for in the respective years on the basis
4 Achiles Knitwear Pvt. L. of mercantile system of accounting. However, the settlement of those labour charges took place in the AY 2007-08. On settlement of the bills of labour charges there are bound to be discounts, rebates, rate difference kasar etc. Therefore those discounts etc. have to be accounted for as & when it accrues.”
3.1. It is further noted by us that Ld. CIT while passing the order u/s 263 has not even taken any pain to discuss the reply submitted by the assessee. The Ld. CIT, before passing the order u/s 263, made no analysis and did not discuss any facts to examine allowability or otherwise of the impugned expenses. The order passed by the CIT is non- speaking, cryptic and casual, as would be evident from the findings and observations given by CIT in the impugned revision order which are reproduced as under: “4.2 The argument of the assessee that the conditions laid down in the provisions of Sec.263 are not satisfied cannot be accepted. The Hon'ble Supreme Court in the case of M/s.Malabar Industrial Co. Ltd. 243 ITR 83 (SC) has laid down the conditions precedent by which the CIT can invoke the provisions of Sec.
The Hon'ble Supreme Court has held that "if the order of the A. 0. is erroneous in so far as it is prejudicial to the interest of the Revenue." It is further held that "an incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous." Further, it is held that "the Phrase prejudicial to the interest of Revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to the loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the /TO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the Revenue. Moreover the Hon'ble Kerala High Court in the case of English Indian Clays Ltd. 331
5 Achiles Knitwear Pvt. L. ITR 219 (Ker.) has held that a lack of proper enquiry by the Assessing Officer will render the order erroneous and prejudicial to the interest of the Revenue. In the instant case the Auditor of the assessee had qualified in the notes to accounts (Schedule M) Sr.No.lI (7) that the assessee had debited an amount of Rs.4,39,5731- on account of prior period items. Since the assessee is following mercantile system of accounting. In view of the above, the Assessment Order passed u/s. 143(3) dated 21.12.2009 is erroneous and prejudicial to the interest of Revenue, and the same is set aside to the file -tt1sessing Officer to frame the assessment, de novo.
3.2. Perusal of the above order reveals that CIT reproduced observations of Hon’ble Supreme Court and Hon’ble Kerala High Court and thereafter without discussing the facts of this case and without giving any proper reasoning, he abruptly reached on the conclusion that assessment order passed u/s 143(3) dated 21.12.2009 is erroneous and prejudicial to the interest of revenue and therefore same was set aside to the file of the AO for de novo assessment. No analysis or reasoning has been given by Ld. CIT. Nothing has been mentioned that how prior period items were not allowable. On the other hand, assessee had explained that impugned expenses pertain to the year under consideration. The CIT did not meet or controvert the explanation and justification given by the assessee. Actually, we find the order passed u/s 263 itself, to be erroneous as per law and facts. The impugned revision order has been passed in highly unfair and unjustified manner. The impugned expenses were not disallowable per se as these pertain to the year under consideration, we find that the order
6 Achiles Knitwear Pvt. L. passed u/s 263 is contrary to law and therefore, same is hereby quashed.
In the result, the appeal filed by the Assessee is allowed.
Order pronounced in the open court on 27th July, 2016.