Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, KOLKATA BENCH ‘A’, KOLKATA
Before: Shri P. M. Jagtap, A.M. & Shri N.V.Vasudevan, J.M.)
ORDER Shri P.M.Jagtap, A.M. This appeal filed by the assessee is directed against the order of ld. CIT-XIX, Kolkata, dated 06.03.2013 passed under section 263 of the Income Tax Act for the assessment year 2008-09.
The assessee in the present case is an individual who is carrying on the business as insurance agent. The return of income for the year under consideration was filed by him on 15.07.2008 declaring total income of Rs.8,15,179/-. In the assessment completed under section 143(3) vide an order dated 27.12.2010, the total income of the assessee was determined by the AO at Rs.8,75,890/- after making disallowance on account of motor car expenses, telephone expenses and business promotion expenses aggregating to Rs.60,708/-. The record of the said assessment came to be examined by the ld. CIT and on such Assessment Year 2008-09 examination, he found that the assessment order passed by the AO under section 143(3) has suffered from the following errors. a) The assessee has debited a sum of Rs.3,99,778/- to the P&L account under the head “computer stationery expenses”. This claim is found to include purchase of spare parts worth Rs.2,03,000/-from M/s. Hindusthan Sales Corporation as on 31- 3-2008. However, the schedule of fixed assets forming part of the balance sheet revealed no addition on account of computer purchase. Aforesaid purchase was also not reflected in the stock-in-trade. The A.O. is found to have neither made any enquiry nor called for any explanation from the assessee regarding such huge purchase of spare-parts on the last day of the F.Y. Further the reasonableness of the expenditure appears to have not been examined by the A.O.
(b) The assessee has claimed a sum of Rs.1,57,325/- under the head "forms and circulars expenses". This claim is found to include purchase to the tune of Rs.1,08,825/- in the month of March,2008 alone. It is noticed that A.O. did not make any enquiry about the business expediency of the consumption of such a bulk quantity of forms and circulars in the last month of the F.Y. In other words, the reasonableness of the impugned expenditure was omitted to be probed by the A.O.
(c) The assessee's claim of expenditure under the head "printing and stationery materials" stood at Rs.2,05,129/-. This claim included purchases worth Rs.1,04,129/- from M/s Assessment Year 2008-09 Hindusthan Sales Corporation on 03-12-2007. In this regard the A.O. is found to have not enquired about the nature of stationery purchase and as to how the materials stood consumed by the assessee during the relevant F.Y. Reasonableness of the expenditure under this head also appears to have not been verified by the A.O. at all.
(d) The assessee is found to have claimed an expenditure of Rs.5,78,269/- on account of "business promotion". Complete details in relation to this claim werenot obtained by the AO. However, the assessment record reveals that two purchase bills of jewelleries [11 pieces of gold chains worth Rs.1,17,543/- and two pieces of bracelets and a chain worth Rs.60,432/-] in this connection were available therein. These jewelleries appeared to be quite unusual for business promotion activity in connection with the assessee's line of business i.e. the LIC commission agency. The AO seems to have failed to examine this aspect. On the contrary, the A.O. only disallowed a sum of Rs.20,000/- on estimate basis for which no rationale was discernable It is pertinent to mention that for a commission agent of LIC the question of incurring business promotion expenditure generally does not arise.
(e) The assessee's total claim of expenditure under the head "salary and bonus" stands at R.4,28,000/-. Details of such expenditure furnished by the assessee during the assessment proceeding revealed that the assessee required an average salary payment of RS.31,000/- (approx.) per month, but in the month of March the assessee had claimed salary Assessment Year 2008-09 expenditure of Rs.82,000/-. The AO. is found to have not enquired about the rationale behind such abrupt increase in the salary expenditure during the last month of the relevant F.Y. He did not call for any explanation from the assessee in this regard.
The ld. CIT therefore, issued a notice under section 263 requiring the assessee to showcause as to why the order passed by the AO under section 143(3) should not be revised treating the same as erroneous as well as prejudicial to the interest of the Revenue. In reply, the following explanation was offered by the assessee in writing before the ld. CIT.
“The learned A.O. had passed a scrutiny assessment order u/s 143(3) of I.T.Act,1961. All the details of expenses along with supporting evidences were submitted to him during the course of the assessment. He has examined the books of accounts, bills, vouchers etc. under different heads of expenses and passed the order after making additions to the totai income. Additional income tax raised from scrutiny assessment order was duly deposited by the assessee on time. The photocopy of the said challan is enclosed herewith for your kind reference. In this connection I would like to furnish as under :- It is humbly submitted that notice u/s 263 of the Income Tax act, 1961 may be issued only if both the following conditions are satisfied: The order passed by the AO is erroneous and The order is prejudicial to the interest of the Revenue. In the case of Malabar Industrial Company Ltd. Vs. CIT(2000) 159 CTR(SC) 1: (2000) 243 ITR 83(SC), the Hon'ble apex Court has observed that a bare reading of s. 263(1) makes it clear that the prerequisite conditions to exercise revisionary jurisdiction by the CIT, suo motu, is that the order of the AO is erroneous insofar as it is Assessment Year 2008-09 prejudicial to the interest of the Revenue. Meaning thereby, the CIT has to be satisfied with/twin conditions, namely, the order of the AO sought to be revised is erroneous and is also prejudicial to the interest of the Revenue. In case one of the above conditions is absent, say, if the order of the AO is erroneous but is not prejudicial to the interest of the Revenue or vice versa, recourse to s. 263 of the Act cannot be taken. The words 'prejudicial to the interest of the Revenue', have not been defined but legally it is well settled that they only mean that order should not have been passed in accordance with the provisions of law, in consequence thereof the lawful revenue, due to the state, has not been realized or cannot be realized Likewise, the expression "erroneous" has not been defined in the Act. But it's plain meaning is that the term 'erroneous' involves error or deviation from law. Therefore, an assessment order made by complying the provision of Law cannot be branded as erroneous by the CIT simply because according to him the same should have been passed or framed in a different manner.
In the present case of the assessee the A.O has examined all the required documents furnished by the assessee in detail during the scrutiny proceeding. The AO has conducted detailed scrutiny proceeding and called for all the documents and vouchers relating to the expenses incurred by the assessee. Additions have also been made by the A.O under several heads of expenses. Thus the order of the AO cannot be said to be erroneous, as all expenses have been examined by the AO in detail including the expenses and purpose mentioned by your goodself in the notice issued.
Reference is made to the judicial pronouncement by the ITAT, Jodhpur Bench in Pawan Kumar vs. Assessing Officer (2007) 106 TT J 494 where it was held that where the AO had fully verified the purchase/sale of goods and examined the audit report, it could not be said that the AO has not applied his mind to the relevant material on these aspects and therefore, the order of the AO cannot be said to erroneous and could not be revised by CIT under sec. 263.
It is further submitted that the order of the AO is not prejudicial to the interest of the revenue as a number of expenses have been disallowed by the AO in spite of documentary evidence being present. Ad hoc additions have been made by the AO and tax on the same has been borne by the assessee. Therefore, there should not be any reason for the order to be prejudicial to the interest of the revenue.
Assessment Year 2008-09 Without prejudice to the above, it is further submitted that the assessee is a LIC Commission Agent and earns LIC commission against sale of new LIC policies under different policy plans. Under the current scenario, it is very difficult to sell LIC policies. Returns against investment made in LIC policy are much lower than any other investment plan. Hence, no one becomes interested in taking any new LIC policy. Thus either a push sale is required or any incentives/gifts etc. need to be given against sale of new LIC policies. In such a competitive market, the assessee has shown a net profit of 20% of the total commission receipts. It is very difficult to earn this income after debiting various expenditures incurred regularly.
Further, the assessee had incurred various expenditures under different heads of expenses to carry on the said LIC commission business. He has to maintain an office with optimum staff to carry on the day to day regular business. As asked by you, the various expenditures incurred by the assessee during the F.Y. 2007-08 are discussed as under:
1. 1. Computer Stationery Expenses: - The assessee has installed computer machines for maintaining the details of policies under Magic LIC approved software. Hence the assessee has to purchase computer stationeries including computer COs and various other day-to-day computer consumable items. All such expenses are revenue in nature, hence claimed as expenses into the Profit and Loss Account. All the purchases are made by paying VAT @ 4% by Account Payee cheques only.
2. Pamphlets and Circular Expenses : Various LIC policy plans are announced from time to time and the features and details of such plans are circulated through pamphlets and circulars among potential and existing policy holders to inform them about the new policies and plans. Huge expenses are incurred in distribution and circulation of pamphlets and circulars to communicate about the new policies to various customers. All payments under this head are being made by cash/cheques against bills and vouchers. These payments are made wholly and exclusively for the purpose of this LIC business.
3. Printing and Stationery Expenses :- Printing and stationery expenses are incurred for the purpose of printing of various pamphlets, brochures, envelopes, visiting cards, letter heads etc. Huge papers and stationeries are regularly required to run the day, to day operation. Printing papers are regularly required for various proposals and correspondences to various customers. Greeting cards on various Assessment Year 2008-09 occasions such as Diwali, New Years eve and Birthday of clients etc. are to be given to all policy holders to maintain a regular relationship with them. Sometimes free COs are to be distributed to highlight the details of the new Lie policy plans etc. Huge payments are incurred for photocopy of all documents of new policy proposal before submitting to LIC office every month.
4. Business Promotion Expenses :- In LIC Agency business, various meetings and seminars are organized from time to time by the assessee in which current existing policyholders and potential customers are invited to inform about new policies and plans. Various expenses towards venue booking charges, food arrangements etc. are incurred to organize such meetings. Distributions of sweets are made on Diwali and other festive occasions. Calendars, Personal Diaries and other free gifts are distributed on New Years to various policyholders to maintain a cordial relationship with them. Flower Bouquets along with greetings and gifts are sent to esteemed and valued policyholders on special occasions such as Birthdays, Anniversaries, etc. Gold Chains and pendants are gifted to some of the key policyholders to promote new policies and plans to them. It is a kind of incentive which is given against new LIC policies. It is very difficult to sell new LIC policies without any incentive schemes to the new policyholders. It is very much necessary for every agent to offer all these gifts to increase their business.
5. Salary and Bonus :- Salary and Bonus payments are made to various regular staffs in the office. LIC office has provided a server machine in the assessee's office to collect the premium of the policyholders either by cash or cheque and issue independent receipts on behalf of LIC office to the policyholders. Permanent staffs are required to run a premium collection centre at the assessee's office. A set of separate staffs are employed to collect the policy premium cheques from the policy-holders' address as by going from home to home. Some staffs are recruited for marketing the business, explaining about various LIC policies and plans to potential and existing customers and bringing in new business. Some staffs are required for preparing forms and other documents of new policies. Policies cannot be approved at the Divisional or Central offices until proper documents are submitted to them. Sanction of loans against the running policies. Death Claim Sanctions, surrender value of policies etc. are regular activities to be provided to existing policyholders. All these activities can only be performed with the help of regular educated staffs only. Hence proper human resources are required to carry on day to day regular work for facilitating the assessee to render different categories Assessment Year 2008-09 of services to the policyholders. However, now-a-days, smart and educated staffs having good working knowledge of computers are only available against hefty salary payments.
Thus, from the above explanation it can be clearly observed that the said expenses have been incurred for the purpose of the business of the assessee. Almost all payments have been made through account payee cheques to genuine parties. Supporting documents and invoices were available for verification in case of all payments. Necessary details of all the heads of expenses were submitted for verification during the course of assessment proceedings.
Thus under the facts and circumstances of the case, the assessee has shown a moderate income of 20 % of total receipt during the A.Y. 2008-09. He has paid an Income Tax amount of Rs.2,00,000/-(approx.). There is no loss to revenue. Hence the assessment order passed for A.Y. 2008-09 is not erroneous and prejudicial to the interest of the revenue. I, therefore, request your honour to drop the proceedings u/s 263 of Income Tax Act, 1961”.
The above explanation offered by the assessee was not found acceptable by the ld. CIT for the following reasons given in his impugned order: “Though the Ld. A.R. has tried assiduously to establish the genuineness of the expenditure claimed by the assessee in his P&L account under various heads, it is amply evident that the AO did not call for the requisite details and the related documentary evidences to ascertain the veracity and the reasonableness of the assessee's different claims. Regarding the computers stationery expenditure it is clearly noticed that a part thereof constitutes a capital expenditure, but the entire claim has been shown by the assessee as revenue expenditure. In respect of the business promotion expenses it is noticed that a significant part thereof constitutes personal expenditure in the form of jewellery purchase etc. In relation to the other heads of expenses it is seen that the claims increased abruptly in the last month of the F.Y. The rationale behind such increase is apparently not comprehensible. In respect of the forms and circulars expenses and printing and stationery expenditure it is clearly discerned that the A.O. failed to enquire about the disproportionate increase in the consumption of these materials by the assessee in a single month of the F.Y. This abnormal increase in the expenses in a particular month appears to have not surprised the A.O. who was supposed to be mentally alert enough to suspect this kind of claims made by the assessee. The A.O. should have got apprehensive Assessment Year 2008-09 about the genuineness and the reasonableness of the conspicuously inflated expenditure claim. Omission/failure on the part of the AO. to conduct the necessary enquiries to unearth/unravel the ingenuine type of claim in the P & L account has undoubtedly rendered the assessment order erroneous as well as prejudicial to the interests of the revenue. All these aspects omitted to have been examined by the A.O. during the assessment proceeding need to be revisited for indepth enquiry.”
For the reasons given above, the ld. CIT set aside the assessment order passed by the AO under section 143(3) by exercising powers conferred upon him under section 263 of the Act with a direction to the A.O. to reframe the same afresh, after taking into consideration the observations and findings recorded by him. Aggrieved by the order of the ld. CIT passed under section 263, the assessee has preferred this appeal before the Tribunal.
The ld. Counsel for the assessee submitted that the so-called errors in the order of the AO have been pointed out by the ld. CIT in his impugned order passed under section 263 on the basis of details and documents furnished by the assessee during the course of assessment proceedings. He contended that the fact that these documents and details were available on record before the AO itself shows that the errors pointed out by the ld. CIT were duly examined by the AO during the course of assessment proceedings and on such examination, the assessment was completed by him under section 143(3). He contended that adequate enquiries thus were made by the AO during the course of assessment proceedings on all the relevant issues and even if the ld. CIT was of the view that the enquiries made by the AO were not adequate, that cannot be a ground for revising the assessment by exercising powers conferred upon him under section 263. He relied on the decisions of the Hon’ble Delhi High Court in the case of DIT-vs- Jyoti Foundation 357 ITR 388 (Del.) and in the case of CIT-vs- Sunbeam Auto ltd. 332 ITR 167 (Del.) as well as the decision of the Coordinate bench of this Tribunal in the case of M/s. Fairland Development (P) Ltd. –vs- CIT in dated 20.01.2016 to contend that the Assessment Year 2008-09 assessment cannot be held to be erroneous and prejudicial to the interest of the Revenue on the basis of inadequate enquiry.
The ld. DR, on the other hand, invited our attention to the assessment order passed by the AO under section 143(3) dated 27.12.2010 to point out that there was no discussion whatsoever made by the AO on the issues raised by the ld. CIT in the notice issued under section 263. He contended that the absence of such discussion as well as any other evidence brought on record by the assessee to show that the enquiries as warranted in the facts and circumstances of the case were made by the AO clearly shows that it was a case of lack of enquiry by the AO which fully justified the revision by the ld. CIT under section 263 of the assessment made by the AO.
We have considered the rival submissions and perused the relevant material on record. As rightly pointed out by the ld. DR, a perusal of order passed by the AO under section 143(3) clearly shows that there is no discussion whatsoever on the various issues pointed out by the ld. CIT in the notice issued under section 263. The ld. Counsel for the assessee also has not been able to bring anything on record to show that the enquiries as warranted in the facts and circumstances of the case were actually made by the AO during the course of assessment proceedings. The mere fact that the errors on the part of the AO in not conducting enquiries in respect of relevant issues while completing the assessment were pointed out by the ld. CIT on the basis of details and documents available on record by itself cannot prove that such enquiries were actually conducted by the AO during the course of assessment proceedings. There is nothing brought on record to show that such enquiries were indeed conducted by the AO. We therefore, find ourselves in agreement with the ld. DR that it was a case of lack of enquiry on the part of the AO while completing the assessment under section 143(3) and such lack of enquiry made the assessment order passed by the AO under section 143(3) erroneous as well as prejudicial to the interest of the Revenue giving jurisdiction to the ld. CIT under section 263 to set Assessment Year 2008-09 aside the same with a direction to the AO to make the assessment afresh. We therefore, uphold the impugned order of the ld. CIT passed under section 263 and dismiss this appeal filed by the assessee.
In the result, the appeal filed by the assessee is dismissed.
Order Pronounced in the Open Court on 22nd April, 2016.