RAREMAT MALL MANAGEMENT CO.PVT.LTD.,SURAT vs. INCOME TAX OFFICE, AAYKAR BHAVAN, MAJURA GATE, SURAT

1. On the facts and circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income-tax has erred in passing revisionary order u/s 263 of the I.T. Act setting aside the order of ld. assessing officer passed u/s 143(3) of the Act dated 25.12.2019 for the year under consideration although said order is neither erroneous nor prejudicial to the interest of revenue.

Brief facts, as discernible from the orders of lower authorities are that assessee-company (M/s. Raremat Mall Management Company Pvt. Ltd.) had filed its return of income for assessment year (AY) 2017-18, on 07.11.2017, declaring returned loss of Rs.2,73,097/-. The assessee`s case was selected for complete scrutiny and the scrutiny assessment under section 143(3) of the Act, was completed on 25/12/2019, determining total assessed income of Rs.34,91,960/-, by making addition of Rs.37,65,052/-, on account disallowance u/s 40(a)(ia) of the Act. Thereafter, a rectification order, under section 154 r.w.s. 143(3) of the Act dated 30/09/2020 was passed determining income at Rs Nil. (i.e. losses of Rs.2,45,66,126/-, determined of earlier years i.e. A.Y. 2015-16 and A.Y. 2016-17, not included in the assessment order, passed on 25/12/2019.

Later on, Learned Commissioner of Income Tax, (in brief ‘ld PCIT’) has exercised his jurisdiction under section 263 of the Income tax Act, 1961. Ongoing through the assessment records, it was observed by ld PCIT that assessee- company has made cash payment to Rare Mat Mall Management Office, an amount of Rs.3,84,00,000/- in 87 transactions and the mall operation expenses were found to be booked at Rs.1,28,15,659/-. Therefore, the difference of Rs.2,55,84,341/- [Rs.3,84,00,000 minus Rs.1,28,15,659] was found to be unexplained. Therefore, ld PCIT noted that during the assessment

Accordingly, proceedings for revision of order u/s 263 of the Act were initiated by ld PCIT, by issuing show cause notice bearing DIN No. ITBA/REV/F//REV1/2021-22/1040474492(1), dated 08.03.2022, which was duly served on the assessee. In response to the above notice, the assessee-company submitted its reply, vide letter dated 14.03.2022. The relevant para of reply of the assessee is reproduced as under: “During the assessment proceedings, we have submitted all the details asked for by the learned Assessing officer along with the supporting documents. The assessment was completed on the basis of the same. On prima facie reading the reason given in the notice u/s 263, we believe that it is a case of clear misunderstanding of the facts. For a better and clear understanding of the case, we will like to put before your Good Self the following facts of the case which were already mentioned and elaborated during the assessment proceedings: Raremat Mall Management Private Limited is a private limited company engaged in the business of managing the day to day affairs and running the Rahulraj Mall at Surat. It used to collect the maintenance charges from the tenants and owners of the shops at Rahul Raj Mall Surat and take care of the routine management of the mall viz power supply, security, housekeeping, repair and maintenance etc. The difference between the collection of charges and the expenses incurred was income of the company, and the company paid tax on the same. But, due to non-payment of maintenance charges by the /AY.2017-18 Raremat Mall Management Co. Pvt. Ltd. owners of vacant shops and even occupied shops for a long period of time, the company was incurring losses and eventually had to shut down its operations with accumulated losses. The funds already collected in earlier financial years, on which tax was already paid, were being used to meet the expenses of the F.Y. 2016-17 and onwards. The funds sent to the Mall Management Office was debited to Raremat Mall Management Office Account. And from there the office was supposed to incur the expenses. Rs.3,84,00,000 were transferred from main cash book to Raremat Mall Management Office Account for that purpose only. It is Cash Account at Mall Administration Office. It was to be used from there for the payment of expenses. The copy of the ledger was submitted to the Assessing officer and the same explanation was offered. The total balance of Rs.3,84,00,000 was shown as Part of Current Assets in Balance Sheet, the copy of the which is enclosed here with for your ready reference. Thus the amount was not expended but was shown as Current Asset in Balance Sheet of F.Y.2016-17. The A.O had duly enquired about it, that being the reason for the submission of ledger of the account. The Mall Operation Expenses of Rs.1,28,15,659.00 was not paid in cash from the Raremat Mall Management Expenses. As the enclosed ledger shows clearly that the Expenses were debited and respective suppliers were credited. The creditors were subsequently paid from bank or cash as the case may be. The learned A.O has accepted the expenses after due verification of the ledger. Therefore there arise no question of unexplained cash expense of Rs.2,55,84,341 as mentioned in the notice. The learned A.O. during the Assessment Proceedings has enquired and verified both the aspects and we therefore submitted the ledgers and verbally explained the things to him. From above facts, it becomes clear that the order passed by the learned A.O. is not erroneous as it was passed after due verification of records, details and proper application of mind. While issuing the notice u/s 263 it is assumed that the Rs.2,55,84,341 were unexplained expenses and were allowed by A.O. But this is not the case. The Total Amount of Rs The details of the 87 transactions for cash given to Raremat Mall Management Office was submitted in response to the inquiry by the assessing officer during the assessment proceeding. Hence it cannot be said the A.O. has neither inquired into the matter of cash payment to Rare Mall Management Office and has not made any addition on this account. As the balance with Raremat Mall Management Office has been shown as assets and not claimed as an expense, the question of disallowance does not arise at all. Therefore we believe that the case is not fit to be covered u/s 263 of the income Tax Act.”

However, ld PCIT rejected the contention of the assessee and observed that reply of the assessee to the effect that assessing officer (AO) has inquired and verified the matter was not acceptable. The reason is that no query has been raised in this regard by the assessing officer, during the assessment stage. The assessing officer had called for 'cashbook' to inquire into the issue of cash deposit in the bank accounts during the period 08.11.2016 to 31.12.2016, and the said issue is a different issue than the issue raised by ld PCIT. Further, the assessee has submitted that cash of Rs.3,84,00,000/- were transferred from main cash book to Raremat Mall Management Office account, for the purpose of incurring expenses. It was also submitted that total balance of Rs.3,84,00,000/- was shown as part of current assets in balance sheet and the amount was not expended but was shown as current asset in Balance-Sheet of F.Y.2016-17. From balance-sheet, current assets are shown at Rs.2,35,05,982/- is ‘on account of short term loans and advance’, therefore, ld PCIT note that the submission of the assessee is not correct.

The ld PCIT further observed that the assessee has also furnished copy of ledger account of Raremat Mall Management Office in the books of Ramat Mall Management C. Pvt. Ltd., which shows that the said amount of cash of Rs.3,84,00,000/- received from the cash book has been utilized to make cash payments vide vouchers No.1 to 87 from 01.01.2017 to 26.03.2017 and no explanation has been offered regarding the nature and purpose of such cash payments and how the cash received by the Raremat Mall Management office has been utilized. No inquiry or verification has been made by the AO regarding the manner in which cash of Rs.3,84,00,000/- has been utilized by the assessee during the period 01.01.2017 to 26.03.2017 and whether the /AY.2017-18 Raremat Mall Management Co. Pvt. Ltd. cash payments are in violation of section 40A(3) of the Act. Further, it is also observed from the balance-sheet that trade payables have reduced from Rs.961,04,032/- as on 31.03.2016 to Rs.764,16,174/- as on 31.03.2017 and cash equivalents have reduced from Rs.505,48,632/- to Rs.66,517/-.Thus, it is clear that issue of utilization of cash of Rs.3,84,00,000/- by the company, post demonetization period i.e. from 01.01.2017 to 26.03.2017 has not been inquired into by the AO and assessment has been completed without ascertaining if the payments for purchases or to creditors are in violation of section 40A(3)/section 269T of the Act. Therefore, ld PCIT held that during the course of assessment proceeding, the AO has not inquired the issue of utilization of cash of Rs.3,84,00,000/- by the company and its implication on the tax liability of the company. This shows non- application of mind by the AO while completing the assessment proceedings. Therefore, ld PCIT held that assessment order passed by the assessing officer is erroneous in so far as it is prejudicial to the interest of revenue.

Aggrieved by the order of the ld. PCIT, the assessee is in appeal before us.

Shri Sapnesh Sheth, Learned Counsel for the assessee argued that relationship between assessee company and Raremat Mall Management office is kind of a petty cash book, like main cashier issues the cash to the petty cashier and the petty cashier reports to the main cashier about amount spent on various expenses. The Raremat Mall Management office, is not a separate entity for income tax purposes. It is the separate office created by the assessee- company to handle cash expenses. The Raremat Mall Management office, is the /AY.2017-18 Raremat Mall Management Co. Pvt. Ltd. office of the assessee -company itself, hence there is no violation of section 40A(3)/section 269T of the Act. It is like transfer of money from one pocket to another pocket by an individual. The learned counsel for the assessee further submitted that during the course of assessment, the assessing officer has issued notice under section 142(1) of the Act, and in that notice the assessing officer has raised the same issue as raised by ld PCIT. In response to the notice of the assessing officer, the assessee has submitted its reply and therefore there was a sufficient compliance, that is, the assessing officer has examined the issue raised by PCIT. Therefore, it is not a case of no enquiry. The ld Counsel further stated that it is own money of the assessee-company, which has been transferred to his own office, called, Raremat Mall Management office. The ld Counsel also stated that an explanation has been offered by the assessee during the assessment stage, regarding the nature and purpose of such cash payments and how the cash received by the Raremat Mall Management office has been utilized. Therefore, ld Counsel contended that order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue, hence order passed by ld PCIT may be quashed.

On the other hand, the Learned Departmental Representative (ld.DR) relied on the findings of the ld. PCIT and stated that in assessee`s case there is violation of provisions of section 269T of the Act, therefore order passed by ld PCIT may be upheld.

We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. PCIT and other

We have gone through the notice issued by the Assessing Officer under section 142(1) of the Act, wherein the Assessing Officer asked the relevant questions from the assessee, which are reproduced below: “13. Please furnish ledger copy with complete narration and month wise details of expenses exceeding Rs.20,000/- debited in profit & Loss Account. If payment is related to any specific person which exceeds Rs.50,000/-. Please furnish the name and address and the ledger account of such person. 14. Please furnish explanation in respect of such item of expenses and receipts appearing in Trading account and profit & loss account, where there is a variation in excess of 25% of such expenses of receipt to total turnover (either by way of expenses or reduction) in comparison to last year. The comparative details may be furnished in the following format:

We note that Assessing Officer has also issued further notice under section 142(1) of the Act, dated 04.12.2019, wherein assessing officer (AO) has asked the assessee to submit month-wise details of cash sales for the financial year 2015-16 and month-wise details of cash sales for the financial year 2016-17 relevant to assessment year 2017-18. The assessing officer also asked the assessee to submit cash book for the assessment year 2017-18. The assessing officer also asked the assessee to submit Sales Tax return and VAT return and other returns filed under the Income Tax Act. In response to this, the assessee has submitted its reply, which is placed in the paper book at page nos.17 to 23. We note that with help of these documents and details, the assessing officer has examined the cash received by the Raremat Mall Management office (assessee`s office) from the assessee and summery of cash which have been utilized by the Raremat Mall Management office. Therefore, we note that assessing officer has examined the issue raised by the ld PCIT in his revision order therefore order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue.

According to us, the present order of AO passed u/s 143(3) dated 25.12.2019 of the Act cannot be termed as ‘erroneous’ since enquiry was, in fact, carried out by him on the issue on which the ld PCIT has found fault with and has taken a plausible view. We note that the AO has made enquiry during the assessment proceedings about cash issued to Raremat Mall Management office and utilization of the such cash. Thus we note that the AO enquired during assessment

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