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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SMT.ANNAPURNA GUPTA & SHRI T.R. SENTHIL KUMAR
BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER Assessment Year :2017-18 Shashikant Bhavajjibhai Rajpara Vs. The Pr.CIT-1 409, Aadarsh Plaza, Rajkot. 150 ft. Ring Road Rajkot. PAN : ABIPR 9935 Q अपीलाथ�/ (Appellant) �� यथ�/(Respondent) Assessee by : Shri D.M. Rindani, ld.AR Revenue by : Shri Shramdeep Sinha, Ld.CIT(DR) सुनवाई क� तार�ख/Date of Hearing : 13/03/2023 घोषणा क� तार�ख /Date of Pronouncement: 22/03/2023 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the assessee against order passed by the ld.Pr.Commissioner of Income Tax-I, Rajkot [hereinafter referred to as “Ld.Pr.CIT under section 263 of the Income Tax Act, 1961 ("the Act" for short) dated 7.2.2022 pertaining to the Asst.Year2017-18.
2. The grounds raised
by the assessee in appeal are as under: “1. The learned Principal Commissioner of Income-tax - Rajkot -1, Rajkot erred in assuming jurisdiction u/s 263 of the Act, particularly in the light of reasons stated by him in the show cause notice and in the order passed u/s 263 of the Act and hence the impugned order is bad in law.
2. The learned Principal Commissioner of Income-tax, Rajkot - 1, Rajkot erred in setting aside the assessment order framed u/s 143(3)of the Act by holding that the AO has not properly examined the facts of the case in respect of genuineness of sub-contract expenses and that the AO ought to have examined possibilities of applicability of provisions of Sec. 115BBEof the Act.
2. The learned Principal Commissioner of Income-tax, Rajkot - 1, Rajkot failed to appreciate that the very impugned issues were duly examined by the assessing officer by way of specific inquiries/notices and replies thereto, while finalizing assessment proceedings u/s 143(3) of the Act,
3. The learned Principal Commissioner of Income-tax, Rajkot - 1, Rajkot failed to appreciate that the first appeal of the Appellant against addition made in the assessment order on impugned issues were pending before the Commissioner (Appeals) and therefore the order u/s 143(3) could not be revised u/s 263 of the Act.
4. The appellant craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal.
3. At the outset itself, the ld.counsel for the assessee pointed out that ld.Pr.CIT assumed jurisdiction under section 263 of the Act to revise order of the AO on noting error in his order to the effect that the addition made by the AO of Rs.29,30,229/- as unexplained and unjustified expenditure, came within the purview of section 69C of the Act and should have been taxed at the special rate provided under section 115BBE of the Act at 60% plus surcharge at 25%, but the AO had subjected the same to tax at the normal rate only. He drew our attention to para-2 and 3 of the ld.Pr.CIT’s order and also to copy of the show cause notice placed before us in PB (Annexure-A) as under:
“2. On particular examination of the records, it is seen that during the previous year 2016-17 relevant to A.Y 2017-18, addition is made of Rs. 29,30,229/- as unexplained and unjustified expenditure comes under the purview of section 69C of the Income-tax Act.
3. However, it is observed that during the assessment proceeding, the AO while charging the tax on such addition of unexplained expenditure u/s. 69C of the Act, has not applied the provisions of Sec. 115BBE of the Act. The AO should have been taxed @ 60% enhanced by applicable surcharge of 25% of such tax as per the provision of Sec. 115BBE of the IT. Act. The AO had not verified the issue and correct application of law while finalizing the assessment proceeding u/s. 143 (3) of the Act on 25-12-2019. This has rendered the order erroneous as well as prejudicial to the interest of the revenue.
In view of the above, a show cause notice dated 16-01-2022 was issued proposing to subject the assessment order of the AO to revision u/s 263 of the Income-tax Act.”
SHOW CAUSE NOTICE
NOTICE FOR THE HEARING M/s/Mr/Ms Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961 -Assessment Year 2017-18.
In this regard, a hearing in the matter is fixed on 24/01/2022 at 11:00 AM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov. in In your case, the Assessment for A.Y. 2017-18, was finalized u/s. 143 (3) of the Act on 25-12-2019 determining total Income at Rs.63,35,829/- after making addition of Rs.29,30,229/- as unexplained and unjustified expenditure.
On perusal of record, it is seen that during the previous year 2016-17 relevant to A.Y 2017-18, addition made in your case of Rs.29,30,229/- as unexplained and unjustified expenditure comes under the purview of section 69C of the IT Act. Therefore, in view of section 115BBE of the IT Act, such income should have been taxed @ 60% enhanced by applicable surcharge of 25% on such tax. However, the tax was charged on this income @30% while finalizing the assessment. The AO had not verified these issues during the finalizing the assessment proceedings/s.143 (3) of the Act on 25-1 2-201 9.
Therefore, the assessment order passed by the Assessing Officer for A.Y 2017-18 may be prima facie erroneous in so far as it is prejudicial to interests of the revenue. Hence, proceedings u/s 263 of the Act are being initiated with a view to pass a suitable order. Before passing of such order, you are hereby given an opportunity of being heard in the matter. In this connection you are requested to famish your reply / submission / explanation or objection if any by mail address id rajkot.cit1@incometax.gov.in / speed post to this office on or before 24-01- 2022. Due to pandemic condition, physical presence is not required.
DAMODAR PRASAD GUPTA PCIT, Rajkot-1”
4. The ld.counsel for the assessee contended that ld.Pr.CIT had grossly erred in stating that the disallowance made by the AO was to be treated as unexplained expenditure under section 69C of the Act. He pointed out that expenditure of Rs.29,30,229/- had been disallowed by the AO, finding it to be ingenuine in terms of provisions of section 37(1) of the Act. He contended that section69C of the Act subjected to tax expenditure, source of which was not explained. Therefore, in the present facts of the case, the expenditure being found to be in-genuine, it was not case of expenditure incurred by the assessee, source of which was unexplained, to be treated as taxable under section 69C of the Act. He therefore contended that provision of section 69C of the Act were not attracted in the present facts of the case at all on the disallowance of Rs.29,30,229/- made by the AO, and therefore, there was no error in the order of the AO having subjected thedisallowance of expenditure to tax at normal rates and not at the special rates prescribed under section 115BBE which are applicable to additions of unexplained expenditures made u/s 69C of the Act and not to disallowance made under section 37(1) of the Act.
Our attention was drawn to the assessment order passed in the case of the assessee placed before us in PB Page No.1 to 5, more particularly,para-4 of the order to para-4.3 of the order, where the issue of disallowance of expenditure at Rs.29,30,229/- was discussed as under:
4.3 But in view of the above discussion and facts, the authenticity of the expenses could not be ascertained. Hence, an amount of Rs. 29,30,229/- is disallowed and added back to the total income of the assessee. Penalty proceedings u/s 270A of the I.T. Act, 1961 are initiated separately for misreporting of income in consequence of under reporting of income
Our attention was also drawn to provision of section 69C of the Act, which reads as under:
69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year : Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.
And also provisions of section 37(1) of the Act, as under:
37 (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".
The ld.DR however supported the order of the ld.Pr.CIT.
We have considered the above contentions made by the ld.counsel for the assessee, and find merit in the same. As per the ld.Pr.CIT the disallowance of Rs.29,30,229/- made by the AO came within the purview of section 69C of the Act. We have gone through the provision of section 69C of the Act and also disallowance made by the AO in his assessment order which is reproduced above. As is evident from bare perusal of the order of the AO, disallowance related to expenses incurred by the assessee in relation to sub- contractor which were not found to be genuine. Section 69C on the other hand, brings to tax expenses incurred, source of which remain unexplained. Therefore, purview and scope of section 69C is totally different from the disallowance of expenses found to be not genuine. The basic premise with the ld.Pr.CIT therefore for finding error in the order of the AO, that the disallowance made by him of contractors’ expense came under the purview of section 69C of the Act is found to be untenable in law. His finding of error, as a consequence whereof, thatthe same not being subjected to tax at a special rate provided under section 115BBE of the Act also as a result does not survive.
There is, we hold, therefore no error in the order of the AO, as noted by the ld.Pr.CIT in his order passed under section 263 of the Act, and the same is accordingly set aside on this count alone. Accordingly, the grounds of the appeal of the assessee are allowed in above terms.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 22nd March, 2023 at Ahmedabad.