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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SHRI WASEEM AHMED, & SHRI SIDDHARTHA NAUTIYAL
आदेश/O R D E R PER BENCH:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Principal Commissioner of Income tax , Rajko1,, dated 07/03/2022 arising in the matter of assessment order passed under s.263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2017-18.
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The only interconnected issue raised by the assessee is that the learned Principal CIT erred in holding the assessment framed under section 143(3) of the Act as erroneous insofar prejudicial to the interest of Revenue under the provisions of section 263 of the Act.
The brief facts are that the assessee is a partnership firm and filed its return of income declaring income of ₹ 2,66,56,280.00 which was accepted in the assessment framed under section 143(3) of the Act vide order dated 07 December 2019. However, the ld. PCIT, having examined the case records of the assessee observed certain infirmities in the assessment order as detailed below: i. The assessee on one hand was paying interest on the loan borrowed by it and on the other hand it has given interest-free advances to its sister concern amounting to ₹ 25,57,242.00 only. Thus, the learned PCIT was of the view that the interest-bearing fund has been diverted for non-commercial purposes, thus, the corresponding amount of interest attributable to such interest-free loans and advances to the sister concern should be disallowed. ii. The assessee has shown import purchases but the value of the same recorded were in the books of accounts viz a viz declared the assessable value for the custom purposes were not matching. As such there were huge differences in the invoices value shown by the assessee, custom value, amount of duty paid and the date available in the ITS. iii. There was payment towards the Provident fund of ₹ 7,35,447.00 which is subject to the provisions of section 36(1)(va) of the Act and the conditions laid down under the provisions of section 43B read with section 36(1)(v) of the Act. As such the impugned amount was not allowable as deduction. 4. In view of the above the learned CIT proposed to hold the assessment framed under section 143(3) of the Act as erroneous insofar prejudicial to the interest of Revenue by issuing the show cause notice under section 263 of the Act.
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The assessee in response to such show cause notice submitted that the ITS data which was considered to point out the difference in the amount of import purchases, custom duty payment etc. was pertaining to the earlier years. As such the differences observed by the learned PCIT was based on wrong assumption of facts. As such the current year data of the ITS, custom, CBEC can only be compared with the data of the relevant years of the assessee to point out the infirmities. However, the assessee filed a reconciliation statement before the learned PCIT to justify that there is no difference in the amount of import purchases, payment of custom duty with the date of the ITS/custom/ CBEC.
5.1 The assessee further submitted that it has not only imported the raw materials but also the fixed assets and spare parts of the fixed assets which were subject to the payment of the customs duties. The details with respect to the import purchases of raw material, fixed assets and spare parts of the fixed assets were duly furnished during the assessment proceedings in response to the query raised by the AO in the notice under section 142(1) of the Act. As such the assessment was framed after necessary verification and due application of mind. Thus the assessment order cannot be said erroneous insofar prejudicial to the interest of revenue on account of non-verification of the items as discussed above.
However the learned PCIT did not agree with the contention of the assessee and held the assessment order as erroneous insofar prejudicial to the interest of revenue on account of non-verification by observing as under: 12. The assessee's submission has been considered and found hot acceptable for the reason that the submissions made in the present proceedings were not fully furnished before the AO and the AO has not carried out any examination or enquiry upon the same. Further the assessee has not established that the loans given to the associate concern namely Stylo Tablewares was for the purpose of business of the assessee. No evidences in this regard has been submitted. The assessee's contention that both the concerns are assessed to tax on the same date is not relevant to the proceedings for the reason that the tax has to be paid in the right hands and in the right assessment year. Thus the tax burden of one concern cannot be shifted to the other person. 13. Further with regard to the ITS data and CBEC data, assessee's contention that those were not pertaining to the relevant assessment year is incorrect as evident from the fact that if the same was not pertaining to the year under consideration then how the assessee has prepared the reconciliation of the data and arrived at the conclusion that there was no
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difference. It means the data provided by this office was correct and pertaining to the year under consideration. Further the reconciliation submitted is unverifiable for want of complete details and documents in support. Therefore the same would have to be done by the AO in the subsequent proceedings as per the directions in the subsequent paras of this order. Thus the AO has failed to examine the huge difference of the invoice value and assessable value in the books of account vis a vis the as per the custom records/ other records. So there was difference in the assessable value for customs and the invoice value which the AO has failed to examine in the assessment proceedings. So there was lack of enquiry at the time of completion of assessment. Further with regard to the non-payment of the employees contribution within the specified dates for the reason of express provisions u/s 36(1)(v) the same is required to be disallowed and added in the total income, which the AO has failed to do so while completing the assessment. 14. The above facts will indicate that AO has not conducted any inquiries/verification in respect of issues discussed above during the course of assessment proceedings which ought to have been done so. It may be mentioned that two essentials condition for invoking the provisions of section 263 of IT. Act are that the order passed by the AO is erroneous and prejudicial to the interest of revenue.
Being aggrieved by the order of the learned PCIT, the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 73 and contended that there was necessary verification carried out by the assessee with respect to the purchase of raw materials import, sales of the products export, payment of the custom duty , import of fixed assets and other items. To this effect the learned AR drew our attention on the notice issued by the AO under section 142(1) of the Act dated 18 September 2019 which is placed on pages 22 to 30 as well as the reply made by the assessee in response to such notice dated 27th of November 2019 which is placed on pages 31 to 36 of the paper book.
8.1 The learned AR further contended that the assessee has furnished the copies of purchase/import purchase account, import expenses and custom duty expenses along with the details of suppliers for the period under consideration which is placed on pages 37 to 56 of the paper book.
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8.2 The learned AR also submitted that the copies of fixed assets accounts for the period under consideration were also furnished which are placed on pages 57 to 73 of the paper book.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that, the assessment framed by the AO under the provisions of section 143(3) of the Act has been held by the learned PCIT as erroneous insofar judicial to the interest of revenue under the provisions of section 263 of the Act on account of 3 counts which have already been detailed in the preceding paragraph.
10.1 With respect to the 1st issue alleging that the assessee has diverted interest- bearing fund to non-commercial purposes without charging any interest thereon. In this regard we find that there was a query in the notice issued under section 142(1) of the Act bearing question number (xv) placed on page 26 of the paper book. In the query it was asked to furnish the details of outstanding loans and advances at the beginning of the year, loans and advances given during the year including squared up loans in the format. On perusal of such query, it is transpired that there was no question with respect to the diversion of interest-bearing loan for non- commercial purposes. Thus, in the absence of any query, assessment order can be held as erroneous insofar prejudicial to the interest of revenue. It is also significant to note that, the assessee before us is a partnership firm and whatever capital is owned by the partnership firm belongs to the partners on which the firm generally bears the interest expenses. Thus, we are of the view that generally the partnership firm does not have any interest free fund with it. Therefore, it appears to us that the assessee cannot be given the benefit that it (the assessee) has given advances out of its own interest free funds and reserves. Thus to our understanding, this aspect as pointed out by the learned PCIT was supposed to be verified by the AO
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during the assessment proceedings. But the same has not been done by the AO, accordingly we do not find any infirmity in the observation of the learned PCIT.
10.2 With respect to the 2nd allegation that there were differences in the import purchases, payment of custom duty and ITS data/ CBES, in this regard we find that the AO during the assessment proceedings has carried out requisite verification which can be verified from the details as given hereunder:
Please provide copy of ledger of purchase account highlighting import purchase. Please provide details of import made during the year in the following format. Invoice no. Name of Description of Invoice value Assessable Duty paid and date party and item value for (Rs.) country custom
Reply of the assessee dated 27-11-2019
Please provide copy of NA Purchase ledger for the period form Annexure 10 ledger of purchase account the 01.04.2016 to 31.03.2017 highligjhting import highlighting import purchases at purchases Annexure10 Please provide details of NA Details of import purchase in Annexure 12 import made during the desired format is attached at year in following format Annexure 12 Please provide copy of NA Detail regarding import purchase is ledger of purchase account furnished at para (ix) supra. highlighting import purchase Please provide details of NA Detail regarding import purchase is import made during the furnished at para (ix) supra year in the following format
10.3 Besides the above, the assessee before the learned PCIT has categorically submitted that the information provided in ITS data/ CBES data was not pertaining to the year under consideration and therefore based on that no adverse inference can be drawn against the assessee. The submission of the assessee has not been controverted by the learned PCIT. From the finding of the ld. PCIT, reproduced above, we find that there was no tangible material referred by the PCIT highlighting
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the differences between the value of purchases and the custom duty as discussed above. Based on this we hold that the learned PCIT has assumed the jurisdiction on this issue on wrong assumption of facts. Thus on this count, the assessment order framed under section 143(3) of the Act cannot be categorized as erroneous insofar prejudicial to the interest of revenue.
10.4 With respect to the 3rd allegation that there was no verification of the contribution made by the assessee towards the Provident fund, in this regard we have referred the paper book filed by the assessee and find that there was no query raised by the AO during the assessment proceedings with respect to the delay in the payment of the contribution towards the PF which is subject to the conditions of section 36(1)(v)/36(1)(va) read with section 43B of the Act. Thus, on this count as well, we are of the view that the order framed under section 143(3) of the Act suffers from infirmity so far the necessary facts were not verified by the AO during the assessment proceedings. In view of the above, after considering the facts in totality we confirm the order of the learned PCIT in part as discussed above. Hence, the ground of appeal of the assessee is allowed in part.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the Court on 14/09/2022 at Ahmedabad.
Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 14/09/2022 Manish