M/S KIRAN SANRAN ASSOCIATES,PUNE vs. PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), PUNE, PUNE

Facts of the case in brief, are that the assessee is an AOP and is engaged in the business of building construction, promoters and builders. It filed its return of income on 17.10.2018 declaring total income at Rs.23,09,450/-. The case was selected under ‘complete scrutiny’ under CASS and accordingly on the basis of various submissions filed by the assessee from time to time, the Assessing Officer completed the assessment u/s 143(3) of the Act on 13.08.2021 accepting the returned income of Rs.23,09,450/-.

The Ld. PCIT examined the record and noted that the order passed by the Assessing Officer u/s 143(3) of the Act is prima facie erroneous and prejudicial to the interest of Revenue on account of the issues which he had reproduced at paras 3 to 6 which read as under: “03. On perusal of the assessment records it is seen the assessee had offered total sales at Rs.4.67 crores. The assessee had also provided break up of sales of residential Units owned by the assessee forming stock in trade. The assessee had violated the provisions of section 43CA of the Act in below mentioned instances- S.No. Flat No. Name of the flat Sale Stamp duty Difference holder consideration valuation (Rs.) (Rs.) 1 A-401 Mrs Urmila Bhosale 78,60,000/- 83,18,955/- 4,58,955/- 2 B-704 Mrs Rutuja Shinde 38,50,500/- 38,50,500/- 0 3 B-1105 Namo Landmark 65,72,000/- 67,25,217/- 1,53,217/- LLP 4 B-401 Mr Ritesh Neheta 81,93,404/- 85,18,110/- 3,24,706/- 5 B-205 Mr Sameer Kotkar 60,39,200/- 78,43,443/- 18,04,243/- Total 3,25,15,104/- 3,52,56,225/- 27,41,121/- 3.1 Further, on perusal of assessment records, it is found that there is substantial variation between consideration received or accrued and value adopted or assessed or assessable. The same difference is corroborated by the Index-II submitted with respect to the concerned sales. However, during the course of assessment proceedings, the assessee had relied on various case laws where it has been held that if the difference between Sale consideration and Stamp duty valuation is less than 10% then AO may substitute the Sale Consideration against the actual Sale Consideration i.e. Stamp duty valuation. Further, the assessee also submitted that permissible variation of 10% is also inserted in Finance Act. 2020 is retrospective in nature. However, it is pertinent to mention here that the provision of 10% variation inserted by Finance Act, 2020 is prospective in nature applicable w.e.f. 01.04.2021 Further, the case laws relied upon by the assessee does not hold good as the provisions of section 43CA of the Act are clearly defined in the Income Tax Act. The Assessing Officer (AO) failed to consider the issue during the assessment proceedings for the year under consideration. 3.2 Further, on perusal of the assessment records, it is seen that the auditor has remarked late deposit of employees PF contribution into Govt. Account beyond the prescribed due date. In this regard, it is pertinent to mention that the provisions of section 36(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause

Considering the above facts of the case it is seen that the AO has not examined and verified the above issues and therefore income has been under assessed Therefore, assessment order u/s 143(3) of the Act dated 13.08.2021 passed by the AO for A.Y. 2018-19 appears to be erroneous in so far as it is prejudicial to the interest of revenue.

In view of the facts and circumstances mentioned above, the assessment order passed u/s 143(3) of the Act the case of M/s Karan Sanran Associates for AY 2018-19 prima facie appears to be erroneous as so far as it is prejudicial to the interest of revenue in terms of the provisions of Explanation (2)(a) to See 263(1) The Income Tax Act. I, therefore, intend to set aside / modify the assessment order within the meaning of sec 263 of the IT Act, 1961. An opportunity of being heard is therefore given to you. You are requested to attend in person or through your authorized representative on 20.01.2024 at 03:30 PM”.

He, therefore, issued a show cause notice asking the assessee to explain as to why the order passed u/s 143(3) of the Act should not be set aside. Rejecting the various explanations given by the assessee, the PCIT held that the Assessing Officer passed the order without making necessary examination, verification & enquiries on account of the above issues, therefore, he held the assessment order to be erroneous and prejudicial to the interest of Revenue. He accordingly, set aside the order to the file of the Assessing Officer for examining the above issues in detail and pass a fresh assessment order after giving due opportunity of being heard to the assessee.

Aggrieved with such order of the PCIT, the assessee is in appeal before the Tribunal by raising the following grounds of appeal:

The Ld. Counsel for the assessee at the outset strongly opposed the order passed by the PCIT. So far as the issue relating to the non-examination of provisions of section 43CA of the Act is concerned, the Ld. Counsel for the assessee submitted that the Assessing Officer vide notice dated 142(1) of the Act dated 25.01.2021, copy of which is placed at pages 31 to 41 of the paper book had asked the assessee to provide the details of sale of Rs.4,67,15,104/- with value as

SR Particulars F.Y.2014-15 F.Y. 2015-16 F.Y. 2016-17 F.Y. 2017-18 No. UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT (NO’S) RS. (NO’S) RS. (NO’S) RS. (NO’S) RS. 1 A Wing 11 5,03,62,067 35 15,92,39,964 4 2,70,17,166 2 1,40,60,000 2 B Wing 12 4,82,48,498 33 17,93,40,212 10 6,32,62,639 6 3,26,55,104 TOTAL 23 9,86,10,565 68 33,85,80,176 14 9,02,79,805 8 4,67,15,104

Referring to the above, he submitted that in the subsequent submissions the assessee relying on the decision of the Pune Bench of the Tribunal in the case of Rahul Construction vs. DCIT reported in 38 DTR 19 has explained to the Assessing Officer that the provisions of section 43CA of the Act are not applicable where the difference between the sale consideration and the valuation as per stamp duty valuation is less than 10%. So far as the sale of flats where the difference is more than 10% is concerned, the Ld. Counsel for the assessee referring to the notice dated 17.05.2021 of the Assessing Officer, copy of which is placed at pages 62 to 65 of the paper book, drew the attention of the Bench to question No.10 where the Assessing Officer had asked the following queries:

Referring to the reply of the assessee dated 14.06.2022 to the Assessing Officer, copy of which is placed at pages 66 to 84 of the paper book, the Ld.

He accordingly submitted that the issue relating to the applicability of provisions of section 43CA of the Act is duly explained before the Assessing Officer who after due application of mind has accepted the submissions made by the assessee and therefore the PCIT was not justified in invoking the provisions of section 263 of the Act on the first issue.

So far as the second issue is concerned i.e. late payment of PF and ESI to the credit of the central government is concerned, the Ld. Counsel for the assessee submitted that the tax auditor in reply to point No.20(b) has reported the sum received from the employees towards PF, due date of payment under the PF Act and date of payment. He submitted that the employees’ contribution towards PF and ESI was paid before the due date of filing the return i.e. 30.09.2018. He submitted that the Hon'ble Supreme Court’s decision in the case of Checkmate Services Pvt. Ltd. vs. CIT (supra) which the Ld. PCIT has referred is dated 12.10.2022 which is well after the date of passing of the assessment order dated 13.08.2021. He submitted that when the Assessing Officer completed the assessment, the law on the subject was laid down by the Hon’ble jurisdictional High Court in the case of CIT vs. Ghatge Patil Transports Ltd. (2015) 53 taxmann.com 141/228. He submitted that the various other Hon’ble High Courts have also decided the issue in favour of the assessee, according to which the employees’ contribution of PF and ESI if paid within due date of filing the return, then no addition is called for. He accordingly submitted that since the assessee in the instant case has admittedly deposited the employees’ contribution to PF and ESI before the due date of filing the return, therefore, in view of the decision of the Hon’ble jurisdictional High Court prevailing at that time, the Assessing Officer could not have made any addition u/s 43B r.w.s. 36(1)(va) of the Act. Further, the decision of the Hon'ble Supreme Court was pronounced subsequent to the passing of the assessment order, therefore, there is no error on the order of the Assessing Officer so as to invoke the provisions of section 263 of the Act.

So far as the applicability of provisions of section 269SS of the Act is concerned, he submitted that the PCIT observed from the tax audit report that the assessee has accepted the loan / deposit otherwise than by an account payee cheque / bank draft from Mr Anil Kharadkar and Mr Dnyandeo Aade. He submitted that the assessee in reply to the notice u/s 263 of the Act vide letter dated 13.02.2024 filed complete details explaining the non-applicability of section 269SS of the Act. It was explained that the amount of Rs.8,10,000/- was towards interest provided of Rs.9 lacs after TDS of Rs.90,000/-. The provision for interest in the Ledger account after TDS is accounted for by journal voucher and the assessee has not accepted any loan during the year under appeal, therefore, the provisions of section 269SS of the Act are not applicable on account of loan / deposit shown to have been taken from Mr. Anil Kharadkar at Rs.8,10,000/-. So far as the amount of Rs.5 lacs received from Mr. Dnyandeo Ade is concerned, he submitted that the assessee during the year has received an amount of Rs.5 lacs from Mrs. Shobha Jatte of Buldhana who is assessed to income tax, for booking of flat No.D 604 in project EVA, Bavdhan, Pune vide cheque No.001405 which was deposited in the HDFC bank account maintained by the assessee. However, she requested subsequently for cancellation of her booking vide letter dated 21.01.2018 and requested to consider the amount paid by her of Rs.5 lacs towards booking of flat No.C-706, Project EVA, Bavdhan, Pune in the name of her sister’s son Mr. Dnyandeo Aade of Shukrawar Peth, Pune. Thus, the receipt of amount of Rs.5 lacs from Mr. Dnyandeo Aade towards flat No.C-706, EVA, Bavdhan, Pune is not in cash and the provisions of section 269SS of the Act are not applicable. Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Noida Toll Bridge Co Ltd. reported in 262 ITR 260 (Del), he submitted that the Hon’ble High Court in the said decision has held that when no payment is made in cash but the same is effected by a journal entry in the books of account of assessee, there is no violation of provisions of section 269SS of the Act. He submitted that a similar view has been taken by the Hon’ble High Court of Rajasthan in the case of CIT vs. Govind Kumar reported in 253 ITR 103 (Raj).

So far as the applicability of section 269T of the Act is concerned, the Ld. Counsel for the assessee submitted that an amount of Rs.1,35,00,000/- was outstanding in the case of Mr. Ranajagjit Sinha Patil which the assessee AOP has repaid during the year. He submitted that an amount of Rs.10,00,000/- was paid through RTGS drawn on ICICI Bank on 14.03.2018. Similarly, an amount of Rs.1 crore was paid through RTGS on 01.03.2018 and another amount of Rs.25 lacs on 14.03.2018 again was paid through RTGS to M/s. Terra Electrosoft Pvt. Ltd. He submitted that an amount of Rs.5 lacs which was received from Mrs. Shobha Jatte was transferred in the name of her sister’s son Mr. Dnyandeo Aade which was already explained while explaining the non-applicability of provisions of section 269SS of the Act. The Ld. Counsel for the assessee accordingly submitted that when the assessee has explained the first two issues before the Assessing Officer and has proved before the PCIT that there is no violation of provisions of sections 269SS and 269T of the Act, there was no reason on part of the PCIT to invoke the provisions of section 263 of the Act. Relying on various decisions, the Ld.

So far as the third and fourth issues i.e. applicability of sections 269SS and 269T are concerned, he submitted that there is no violation of the provisions of section 269SS and 269T which was duly explained before the PCIT and therefore, the order is neither erroneous nor prejudicial to the interest of the Revenue. He accordingly submitted that the order passed by the PCIT be set aside and the grounds raised by the assessee should be allowed. He also relied on the following decisions: i) Maria Fernandes Cherly vs. ITO, 123 taxmann.com 252 ii) Sai Bhargavanath Infra vs ACIT, 144 taxmann.com 168 iii) Bajaj Housing Finance Ltd. vs. PCIT, 161 Taxmann.com 213 iv) Malabar Industrial Co Ltd. vs. CIT, 109 Taxmann 66 v) PCIT vs. Clix Finance India P Ltd., 160 taxmann.com 357 vi) PCIT vs. SPPL Property Management (P) Ltd., 151 taxmann.com 103 vii) PCIT vs. Delhi Airport Metro Express P Ltd., 398 ITR 08 viii) Nipro India Corporation Pvt Ltd vs PCIT, order dated 03.05.2023 ix) Narayan Tatu Rane vs ITO,, 70 taxmann.com 227 x) PCIT vs. Mohak Real Estate P Ltd., 161 taxmann.com 388

The Ld. DR on the other hand strongly supported the order of the PCIT. He submitted that the Assessing Officer in the instant case has not examined the issue in the manner in which it should have been examined and he has not given any finding regarding the applicability of provisions of section 43CA of the Act where there is huge difference between the sale consideration received and the value adopted by the stamp valuation authority. Similarly, he has not made any addition on account of belated payment of employees’ contribution to PF and ESI. The Ld. DR submitted that when the auditor has given details of acceptance of loan and repayment of loan during the year, the Assessing Officer should have applied his mind and made due verification which he has failed to do. Therefore, the order passed by the Assessing Officer has become erroneous as well as prejudicial to the interest of Revenue. Therefore, the PCIT has fully justified in setting aside the order of the Assessing Officer with a direction to examine the issue afresh and decide the issue after giving due opportunity of being heard to the assessee.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case passed the order u/s 143(3) of the Act on 13.08.2021 accepting the income returned by the assessee. We find the PCIT after examining the assessment record noted that the Assessing Officer has failed to make necessary examination of four issues, the details of which are already reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the Assessing Officer had examined the issue of applicability of provisions of section 43CA of the Act and also followed the decision of the Hon’ble jurisdictional High Court on account of late payment of employees’ contribution to PF and ESI. So far as the applicability of provisions of sections 269SS and 269T of the Act are concerned, it is the submission of the Ld. Counsel for the assessee that there is absolutely no violation of the above provisions since the assessee has neither accepted nor repaid any loan in cash and the acceptance or repayment of loan are through journal entries or through RTGS / banking channels.

Thus, it is his submission that the order passed by the Assessing Officer is not at all erroneous and therefore on account of non-fulfillment of the twin conditions i.e. order must be erroneous and the order must be prejudicial to the interest of the Revenue, the PCIT is not justified in invoking the provisions of section 263 of the Act.

We find merit in the above arguments of the Ld. Counsel for the assessee. A perusal of the questions raised by the Assessing Officer and the submissions made by the assessee from time to time shows that the Assessing Officer during the course of assessment proceedings had asked the assessee to explain the difference between the sale consideration received and the value adopted by the stamp valuation authority. The assessee has replied before the Assessing Officer that when the difference between the sale consideration received and the valuation adopted by the stamp valuation authority is less than 10%, the provisions of section 43CA of the Act are not applicable in view of the decision of the Pune Bench of the Tribunal in the case of Rahul Construction vs. DCIT (supra). So far as the flat sold to Mr. Sameer Kotkar is concerned, where the difference is 29.88%, the assessee has duly explained before the Assessing Officer that the flat consists of carpet area of 690.90 sq.ft and non-accessible terrace of 766.86 sq.ft aggregating to 1,457.76 sq.ft. It was explained that the carpet area and non-accessible terrace area was taken by the stamp valuation authority at Rs.19,59,174/-, due to which the difference arose. We find the Assessing Officer after accepting the above contention of the assessee did not make any addition on this issue. Since the Assessing Officer in the instant case has after duly putting queries to the assessee and after considering his reply has not made any addition, therefore, we are of the considered opinion that the PCIT is not justified in invoking the jurisdiction u/s 263 of the Act on the first issue i.e. applicability of section 43CA of the Act due to variation between the sale consideration received and the value adopted by the stamp valuation authority.

So far as the second issue i.e. late payment of employees’ contribution to PF and ESI is concerned, we find there is no dispute to the fact that the assessee has deposited the employees’ contribution to PF and ESI before the due date of filing the return. The Hon’ble jurisdictional High Court in the case of CIT vs. Ghatge Patil Transports Ltd. (supra) and various other Hon’ble High Courts have decided this issue in favour of the assessee, according to which no addition can be made on account of late payment of employees’ contribution to PF and ESI if the said sum is deposited to the credit of the central government before the due date of filing the return. The law was finally settled by the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT (supra) which was pronounced on 12.10.2022 whereas the Assessing Officer has passed the order on 13.08.2021. Therefore, we are of the considered opinion that since the assessee has admittedly deposited the employees’ contribution to PF and ESI before the due date of filing of return, therefore, the PCIT was not justified in invoking the provisions of section 263 of the Act by relying on the decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT (supra), which came subsequent to the order passed by the Assessing Officer. We, therefore, are of the considered opinion that the PCIT is not justified in invoking the provisions of section 263 of the Act on the issue of late payment of employees’ contribution to PF and ESI.

So far as the issue of loan taken amounting to Rs.13,10,000/- is concerned, we find an amount of Rs.8,10,000/- is on account of interest of Rs.9 lacs less TDS of Rs.90,000/-. Such amount has been provided through journal voucher and therefore, the provisions of section 269SS and 269T of the Act are not applicable for Rs.8,10,000/-.

So far as the amount of Rs.5 lacs is concerned, we find the assessee explained before the PCIT that the amount was paid by Mrs. Shobha Jatte who subsequently requested to cancel the booking and transfer the same to her nephew Mr. Dnyandeo Aade against the booking of flat C-706 at the same project. Thus, there is no acceptance of advance of Rs.5 lacs from Mr. Dnyandeo Aade in cash and therefore, the provisions of section 269SS of the Act are not applicable.

So far as the repayment of Rs.1,40,00,000/- is concerned, we find an amount of Rs.1,35,00,000/- is repaid through RTGS and Rs.5 lacs which is alleged to be repaid to Mrs. Shobha Jatte is due to cancellation of booking of the flat and subsequent transfer to her nephew account through journal entry. Under these circumstances, we are of the considered opinion that the provisions of sections 269SS and 269T of the Act are also not applicable and the PCIT is not justified in invoking the provisions of section 263 of the Act on account of violation of provisions of sections 269SS and 269T of the Act. In view of the above discussion, we are of the considered opinion that the PCIT is not justified in invoking the provisions of section 263 of the Act in the case of the assessee. Accordingly, the order passed by the PCIT is set aside and the grounds raised by the assessee are allowed.

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