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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & SHRI VINAY BHAMORE
This appeal filed by the assessee is directed against the order dated 28.03.2024 of the CIT(A) / NFAC, Delhi relating to assessment year 2011-12.
This is the second round of litigation before the Tribunal. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing of forged parts. It filed its return of income on 26.09.2011 declaring Nil income and carried forward loss of Rs.8,85,27,151/-. During the course of assessment proceedings the Assessing Officer observed that the assessee has a very high ratio of cost of material consumed to sales and it is not according to the norms of the industry. On being confronted by the Assessing Officer, the assessee submitted that the expenses for consumables contain one provision entry amounting to Rs.53,15,000/- which is wrongly made in the current year and the same has been reversed and capitalized in the assessment year 2012-13. The assessee also filed certain details explaining that due to wrong clubbing of some of the expenses in the manufacturing expenses group, such expenses had gone up to 151%. The assessee filed revised expenses to sales which is at 97%.
However, the Assessing Officer was not satisfied with the arguments advanced by the assessee and made addition of Rs.2,80,80,875/- to the total income of the assessee and accordingly determined the brought forward losses to be carried forward at Rs.6,04,46,280/-.
The assessee preferred an appeal before the CIT(A) / NFAC, who deleted the addition. On appeal by the Revenue, the Tribunal vide order dated 29.06.2021 restored the issue to the file of the Assessing Officer by observing as under: “7. At the time of hearing, the Ld. Counsel for the assessee demonstrated that before the Ld. CIT(Appeals), at Page 12, Para 5.3, Note No.2, the assessee vide its submission has explained the provision entry in consumables amounting to Rs.53,15,000/-.
We find that the Ld. CIT(Appeals) has not given any specific findings regarding the observation made by the Assessing Officer at Para 9.1 vis-à-vis submission of the assessee before the Ld. CIT(Appeals) at Para 5.3, Note No.2 in the assessee’s submission. That further, the Ld. CIT(Appeals) at Para 2.2.7 of his order has observed that the assesse before the Assessing Officer has not explained its loss properly and its material consumption ratio was also abnormally high. Thereafter, as per reasoning contained in his order, the Ld. CIT(Appeals) deleted the addition made by the Assessing Officer. However, we observe the submission of the assessee at Para 9.1 of the Assessing Officer’s order wherein the assessee itself has stated that there was an error in making excess provision of Rs.53,15,000/- and the subsequent justification given by the assessee thereof, this issue requires factual verification. That further from the observation of the Ld. CIT(Appeal), he has also raised doubts regarding the claim of the assessee and that they were not properly explained before the Assessing Officer. We have observed in the open Court before the parties that the matter needs to be verified by conducting detailed enquiry and examination on facts.
In view thereof, we set aside the order of the Ld. CIT(Appeals) and restore the matter to the file of Assessing Officer to re-adjudicate the issue while complying with the principles of natural justice as indicated hereinabove.”
5. The Assessing Officer in the set aside proceedings issued a show cause notice to the assessee asking it to explain as to why the proposed variation of Rs.53,15,000/- should not be made. It was explained by the assessee that if addition regarding excess provision of Rs.53,15,000/- is made in assessment year 2011-12, same will lead to double taxation since reversal entry has already been passed in the assessment year 2012-13. The assessee further requested the Assessing Officer that if he intends to make addition in assessment year 2011-12, then to reduce the same from assessment year 2012-13 in which the assessee has already reversed the entry and offered the amount of Rs.53,15,000/- to tax. However, the Assessing Officer did not accept the above contention of the assessee and made addition of Rs.53,15,000/- to the total income of the assessee on the ground that the assessee did not rectify this mistake before filing the return of income and filed the income tax return on 26.09.2021. The failure on the part of the assessee to rectify the mistake amounted to reduction of profit and increase of loss by Rs.53,15,000/- for the year under consideration. He, therefore, made the addition of Rs.53,15,000/-.
In appeal, the CIT(A) / NFAC upheld the action of the Assessing Officer by observing as under:
“8.2 On the facts and circumstances of the case it is observed that the assessee filed its Return of Income for the assessment year 2011-12 showing loss of Rs.8,85,27,151/. The AO completed the assessment computing total loss of Rs. 8,32,12,150/- While computing the total income of the assessee the AO made addition of Rs.53,15,000/- under the head 'excess provision. The AO specifically pointed out in the assessment order that the assessee itself agreed that there was one provision entry in consumables amounting to Rs.53,15,000 which had been reversed in next year and had been capitalized in AY 12-13. The appellant submitted before the AO that broad reasons for error in making excess provision was that the provision for Rs 53,15,000/- was made on the assumption that these purchases (for which bills were awaited) were active tools (which were to be debited to consumption or P&L). However, in actual when invoices were received, assessee realized that these were standard tools (which needed to be capitalized). Hence, this provision was reversed in May and June 2011 by the assessee and the bills were capitalized. The AO found that the assessee did not rectify the aforesaid mistake before filing the return of income and filed ITR on 26.09.2011. The AO concluded that failure on the part of the assessee to rectify, the profit was reduced or loss was increased by Rs.53,15,000/- for the year under consideration. Hence, the excess provision was disallowed and added the said amount of Rs.53,15,000/- to the total income of the assessee by the AO. In this case during the course of assessment proceedings the appellant itself admitted that it had made error in making excess provision for Rs 53, 15,000/- and the error was made on the assumption that these purchases were active tools (which were to be debited to consumption or P&L), However, in actual when invoices were received by the assessee, the assessee itself realized that these were standard tools (which needed to be capitalized). During the course of appellate proceedings, the Hon'ble ITAT while setting aside the case observed that- "we observe the submission of the assessee at Para 9.1 of the Assessing Officer's order wherein the assessee itself has stated that there was an error in making excess provision of Rs.53,15,000/- and the subsequent justification given by the assessee thereof, this issue requires factual verification. That further from the observation of the Ld. CIT(Appeal), he has also raised doubts regarding the claim of the assessee and that they were not properly explained before the Assessing Officer. We have observed in the open Court before the parties that the matter needs to be verified by conducting detailed enquiry and examination on facts." During the course of reassessment proceedings the appellant failed to substantiate its claim with proper documentary evidences. During the course of present appellate proceedings also, the appellant again failed to substantiate its claim with proper documentary evidences, therefore, I do not find any infirmity in the order of the AO and the addition of Rs 53,15,000/- made by him is fully justified. The contention of the appellant that there is double taxation in grounds of appeal No.2 and 3 is also not tenable, as proper verification by the AO it was found that the assessee did not rectify the aforesaid mistake before filing the return of income and filed ITR on 26.09.2001. Failure on the part of the assessee to rectify, the profit was reduced or loss was increased by Rs. 53,15,000/- for the year under consideration Hence, the excess provision was disallowed The AO has acted in strict compliance of the directions of the Hon'ble ITAT and, therefore, I do not find any infirmity in the order passed by the Assessing Officer. Therefore, Ground No.s 1, 2 and 3 are dismissed.”
Aggrieved with such order of CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds:
“1. The learned CIT(A)-NFAC erred in law and on facts in assessing total loss of appellant at Rs 8,32,12,151/- instead of returned loss of Rs. 8,85,27,151/, by making disallowance of Rs. 53,15,000/- 2. The learned Lower IT authorities erred in law in not following the decision of Hon'ble ITAT in pith & substance. Learned lower IT authorities ought to have appreciated that double taxation is taking place in present case due to errors/mistakes of AO.
3. The learned CIT(A)-NFAC erred in law and on facts in not appreciating that provision of Rs. 53,15,000, though erroneously made in the AY 11-12 was reversed in the A.Y.2012-13 and as such, addition of Rs. 53,15,000 in AY 11-12 will lead to double taxation in two years.
4. The learned CIT(A)-NFAC erred in law and on facts in not appreciating the fact that provision of Rs. 53,15,000 was subsequently reversed in the AY 2012-13. The CIT(A) NFAC contended that on proper verification by the AD it was found that the appellant did not rectify the aforesaid mistake before filing the return of income, despite the fact that the said provision was reversed in May and June 2011 and the bills were capitalized.
Without prejudice to the ground no 1 to 4, appellant contends that, in case, the amount of Rs.53,15,000 is to be taxed in A.Y 2011-12, a direction/undertaking to remove the amount of Rs.53,15,000 from taxable income of A.Y.2012-13 ought to have been issued / assumed. Appellant further contends that, double taxation of any item of income is besides mandate of ITA, 1961.
6. Appellant craves leave to add/amend/modify/delete all/any of the grounds of appeal.
8. The Ld. Counsel for the assessee at the outset submitted that the effect of erroneous provision made in the impugned assessment year i.e. 2011-12 gets nullified by the reversal entry made in the assessment year 2012-13. He submitted that the tax rates for both the assessment years are same. Further, despite making request before the Assessing Officer that if addition is made in this year, then the corresponding reversal entry made in the subsequent year by offering the amount to tax should be reduced, was not considered either by the Assessing Officer or the CIT(A) / NFAC. He submitted that making the addition of the same income in two assessment years is not correct. He accordingly submitted that the matter may be restored to the file of the Assessing Officer with a direction to verify the record and if the assessee has already offered the income to tax in assessment year 2012-13 by making reversal entry, then the addition for this year should be deleted.
9. The Ld. DR on the other hand while supporting the orders of the Assessing Officer and Ld. CIT(A) / NFAC fairly conceded that the Assessing Officer or CIT(A) / NFAC has not given any finding on this issue and he has no objection if the issue is restored to the file of the Assessing Officer for verification and pass a detailed speaking order.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed by both the sides. It is an admitted fact that due to erroneous provision by the assessee for the assessment year 2011-12 an amount of Rs.53,15,000/- was added by the Assessing Officer which has been sustained by the CIT(A) / NFAC, the reasons of which has already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the amount of Rs.53,15,000/- has already been offered to tax in assessment year 2012-13 by reversing the entry and the tax rate for assessment years 2011-12 and 2012-13 is same and therefore, if the addition is made in this year without reducing the same from assessment year 2012-13, then it will lead to double taxation. It is also his submission that despite making a request before the Assessing Officer and the CIT(A) / NFAC on the issue of double taxation of the same amount in both the years, they have not considered the same.
We find some force in the above arguments of the Ld. Counsel for the assessee on this issue. It is an admitted fact that the assessee before the Assessing Officer has repeatedly requested that the amount has already been reversed in assessment year 2012-13 and has been offered to tax and therefore, if the addition is made in the assessment year 2011-12, then the corresponding reduction should be made in assessment year 2012-13. It is also his argument that since the assessee has offered the amount of tax in 2012-13 and tax rate is same for both the assessment years, therefore, no addition should be made in assessment year 2011- 12 as this would amount to double taxation of the same income. However, neither the Assessing Officer nor the CIT(A) / NFAC has addressed this issue as to whether the amount which has already been offered to tax in assessment year 2012-13 by reversing the entry can again be taxed in assessment year 2011-12 and if so, whether the corresponding reduction should be made in assessment year 2012-13. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore this issue to the file of the Assessing Officer with a direction to verify the record and adjudicate the issue as to whether the amount which has already been offered to tax in subsequent year can be added in this year and if so, whether corresponding reduction should be given in the subsequent year. Needless to say, the Assessing Officer shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds of appeal raised by the assessee are accordingly allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 6th September, 2024.
Sd/- Sd/- (VINAY BHAMORE) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 6th September, 2024 GCVSR आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: अपीलार्थी / The Appellant; 1. 2. प्रत्यर्थी / The Respondent 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘A’ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune
S.No. Details Date Initials Designation 1 Draft dictated on 04.09.2024 Sr. PS/PS 2 Draft placed before author 04.09.2024 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS Date on which the file goes to the Head 9 Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order