SACH ELECTRO MECH PVT. LTD.,,SURAT vs PR. CIT-2, SURAT

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 392/SRT/2018 (AY: 2013-14) (Hearing in Virtual Court)

Sach Electro Mech Private Limited Pr. Commissioner of Income C/2, Maheshwari Apartment, Tax-2, Vs. Nanpura, Timaliawad, Room No. 227, 2nd Floor, Surat. Aayakar Bhawan, Majura Gate, PAN : AAICS 8963 M Surat-395001 APPELLANT RESPONDEDNT

Appellant by Shri Rasesh Shah, CA Respondent by Shri H. P. Meena, CIT-DR Date of hearing 21/01/2022 Date of pronouncement 06/04/2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: This appeal by the assessee is directed against the order of Pr. Commissioner of Income Tax-2, [in short ‘ld. Pr. CIT], Surat, dated 20.03.2018, for the Assessment Year (AY) 2013-14.The assessee has raised the following grounds of appeal: “1. The Pr. Commissioner of income tax-2, erred in issuing notice on the ground which was already inquired or verified by the Dy. Commissioner of Income tax in detail during the scrutiny proceedings. 2. The Pr. Commissioner of Income tax -2 erred in set aside with direction to frame the assessment denovo and not appreciating the overall facts and circumstances of the case and in the process overlooked the legality of the claim made by the Appellant. 3. The appellant craves leave to add, amend or alter the aforesaid grounds of appeal at the time of hearing, if the need arise.”

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT 2. Brief facts of the case are that the assessee is a company engaged in business of electrical installation and commissioning activities, filed its return of income for Assessment Year (AY) 2013-14 declaring income of Rs. 96,72,140/-. The return of income was selected for scrutiny. The Assessing Officer after making various enquiries made various additions/disallowance consisting of disallowance on account of delay in deposit in contributions of employ EPF and ESI, disallowance of interest under section 40A(ia)(a) of the Income Tax Act, 1961 (in short, the Act) and disallowance out of interest paid on TDS and disallowance under section 14A, while passing assessment order 15.01.2016. The assessment order was revised ld. Pr.CIT by exercising his jurisdiction under section 263 dated 20.03.2018. Before passing, the revision order, the ld. Pr. CIT, on perusal of assessment record noted that assessee has shown the sales of services above ten lakh and have shown total revenue on account of rendering service of Rs. 25,40,05,845/-. It was further noted that the assessee has claimed TDS credit of Rs. 33,41,391/-. The credit was allowed by Assessing Officer. It was further noticed from the details sales of Rs. 10 lakhs and above furnished by assessee and form 26AS, the assessee received sales income of Rs. 1,75,79,736/- on which TDS was deducted, which was not offered as income as evidenced from list of details of sale in excess of Rs. 10 lakhs furnished by assessee. The detail of dedicator’s name not in the list is as under; Sr No. Name Amount of sale of TDS services (Rs.) deducted Rs. 1 Weal developers 15,26,796 30,557 2 Synergy Developers 10,00,650 20,113

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT 3 Sar Infracon 52,41,574 1,04,831 4 Gurang Yogeshbhai 81,24,446 16,24,489 5 Hazira Lng Ltd 16,86,271 36,556 Total 1,75,79,736 3. Thus, the assessee has not reported the receipt received from above five entities.

On further scrutiny of balance-sheet, profit and loss account, computation of income and tax audit report, the ld. PR.CIT find that auditor in from 3CD (item 21(ii) in respect of sales tax, custom duties excise duties or any other indirect tax, levy, cess, impost etc passed through the profit and loss account. However, in profit and loss account and note of 22 of other expenses, the assessee has debited Rs. 68,75,826/- as service tax and Rs. 8,78,073/- as VAT. These were allowed by Assessing Officer. The accountant in tax audit report has mentioned that such indirect taxes are not passed through profit and loss account indication that neither indirect tax receipt are taken as income nor payment of exclusive method net effect under section 145A remains as whatever amount of tax collected by assessee is paid as such. The assessee has collected tax but has not shown the same as income whereas payment of the same has been taken as expenditure. On aforesaid observations, the ld. Pr. CIT issued show cause notice dated 07.07.2018 to the assessee that the assessment order is erroneous and prejudicial to the revenue. The assessee was asked to attend the hearing on 16.02.2018 with written submission. The ld. Pr. CIT recorded that assessee filed its reply dated 12.03.2018. The relevant part of reply is extracted by ld PR.CIT in para3 of his order.

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT “………4. Reconciliation of 26AS and sales.

Amount of Advance Year in which Sr No Name TDS sale Received sales booked deducted(Rs.) of services(Rs.) 1. Weal Developers 1526795 30557 1175280 F.Y. 203-14 2. Synegry Developers 1000650 20013 997877 F.Y. 2014-15 3. Sar Infracon 5241574 104831 5031461 F.Y. 2014-15 GurangYogeshbhai 4. 8124446 162489 0 F.Y. 2012-13 Shah HaziraLng Pvt Ltd 1686271 36556 0 F.Y 2012-13

Section 194C of the income tax Act provides that" if tax is to he deducted either at the time of credit of such a sum to the account of the payee, or at the time of payment thereof in cash or by issue of cheque or by any other mode whichever i$ earlier". By following this clause weal Developers, Synergy Developers & Sar Infracon, has deducted TDS while making advances to assessee. Hence the assessee has not taken advances as sales. Assesses has already shewn, as sales in the year when work is completed.

In Sr. No. 4, we are providing ledger of Gaurang Yogeshbhai Shah (Prop. of Tejasvi Const.) for your kind verification.

In Sr. No, 5, information provided in notice was found clerical mistake as amount of service match with the name. Adani Hazira port Pvt. Ltd. as per 26AS and Hazira Ing Pvt Ltd. have sales below 10 lacs

In the scrutiny assessment proceedings for the AX 2013-14, MAS already reviewed in the submission given dated 23,11.2015.- 5. Auditor has made clerical mistake while preparing audit report. Indirect taxes have been passed through profit and loss account. A certificate from the auditor regarding the mine has been attracted. It is hereby submitted 4

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT that sales amount credited to profit and loss account includes indirect taxes………”

The ld. Pr. CIT after considering, the submission of the assessee held that the explanation furnished by assessee is not acceptable, firstly for the reasons that the sales receipts of more than Rs. 10 lakhs is shown in the years when the work is completed as stated by the AR of assessee. In case of Weal Developers, Synergy Developers and Sar Infracon the assessee has shown the sales in FY 2013-14, FY 2014-15 and FY 2014-15 respectively. However, the assessee is following the mercantile system of accounting and section 5 of the Income Tax Act provides that the total income of a person for any previous year shall include all income from whatever sources derived, actually received or accrued or deemed to be received or accrued. The above said companies had deducted tax and the assessee had claimed the TDS amount in the return of income and shown the sale income in the year when work is completed. Hence, onus lies upon the assessee to shown the sales income in return of income on accrual basis. The assessee had not offered the sale income and the same is not verified by Assessing Officer during the assessment proceedings which makes the assessment order erroneous and prejudicial to the interest of revenue. Secondly, in case of Gaurang Yogeshbhai Shah (Pro. of Tejasvi Const.), during the assessment the assessee has not submitted the above mentioned case as sale receipt during FY 2012-13 in its submission dated 23.11.2015. Though, the assessee claim TDS of Rs. 1,62,489/- on sales deducted by Gaurang Yogeshbhai Shah. Thus, it required to verify details of whether the assessee had offered the

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT income receipt from sales or not. And thirdly in Note 22 of Audit report, of column of other expenses of service tax and VAT debiting from profit and loss account of Rs. 68,75,826/- and Rs. 8,78,073/- respectively. The assessee stated that auditor’s committed clerical mistake while preparing audit report and a certificate from the auditor regarding the same has been submitted. In certificate dated 12.03.2018 auditor stated that by mistake while report in form 3CD (item 21(ii) of report) in respect of state sale tax, custom duty, excise duty or any other indirect tax, levy cess, import etc. has wrongly mentioned that schedule 22, other expenses shown service tax (Sr. No. 22) and VAT (Sr. No. 31 as expense, so it shown that its already passed through profit and loss account. During the assessment proceedings, the Assessing Officer has not seen this issue which is erroneous and requires that detail verification, which ought to have been made in this case.

On the basis of his above observation, the ld. Pr. CIT, held that the assessment order is erroneous in so far it is prejudicial to the interest of revenue. The assessment order was set aside with the direction to frame the assessment de novo after granting reasonable opportunity of hearing to the assessee. Aggrieved by the order of ld. Pr.CIT, the assessee has filed present appeal before this Tribunal.

We have heard both the submissions of Learned Authorized Representative (ld. AR) for the assessee and Learned Commissioner of Income tax- Departmental Representative (ld. CIT-DR) for the Revenue and have gone through the order of lower authorities carefully. The ld. AR for the assessee submits that assessee

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT company is engaged in the business of electrical installation, commissioning activities and manpower supply services. The turnover of the assessee is Rs. 25.32 crores; the assessee has shown gross profit of Rs. 3.09 crores which @ 12.20%. The assessee is required to maintain accounts on accrual basis, the assessee is in its audit report in column No. 11(a) about following of mercantile system of accounting. As per mercantile system of accounting, the assessee is not required to take into consideration, the advances received from customer as income, until the works are completed and bills are raised. The assessee followed the inclusive method of accounting of VAT and service tax as per section 145A of the Income Tax Act.

The ld. AR of the assessee further submits that the case of assessee was selected for scrutiny. During the course of assessment proceedings, the questionnaires in the notices were issued by assessing officer on 05.06.2015 and again on 12.10.2015. In the notices, the Assessing Officer has specifically asked about the various explanation including details at para no. (i), (vi), (x) and (xvi) of this said notices. The ld. AR of the assessee invited out attention on various such questionnaire which were required.

“(i) Furnish the copy of the return of income filed for A.Y. 2012-13, Audit Report and all its enclosures. Also furnish the copies of returns of income filed by directors of the company for A.Y. 2013-14 (vi) Furnish the name and address of the persons / parties to whom sales exceeding Rs.10 lacs made during the year with supporting / documentary evidences.

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT (x) Furnish the complete details of the following expenses debited in P & L A/c with supporting/documentary evidences: (a) Office expenses – Rs. 13,88,547/- (b) Office Rent – Rs. 4,05,000/- [copy of rent agreement, if any] (c) Room Rent – Rs. 38,94,500/- [copy of rent agreement, if any] (d) Service Tax – Rs. 68,75,826/- [along with Service Tax returns and proof of payments made] (xvi) Please furnish- i) Copies of claimed TDS/TCS/prepaid taxes or 26AS statement. Please certify whether receipts of all claimed TDS/TCS certificates were shown in A.Y. 2013-14. ii) Copies of acknowledgments of return of income and computation related to brought forward losses, if any. iii) Copy of assessment order passed in your case under Section. 143(3)/144 in last four years, if any.”

The ld. AR of the assessee further submits that assessee filed its reply/explanation vide reply dated 23.11.2015, along with reply, filed the copy of assessment order of Assessment Year 2010-11 and 2012-13 and audited accounts and evidence in support of service tax payment in addition to other details. The assessee vide its reply dated 23.12.2015 furnished reconciliation of figures mentioned in Form 26AS regarding TDS and TDS as per books of assessee and TDS as per income tax return in the following memo.

“II. Above difference comprised of TDS reported by following parties: (ii)(a) Rahul Raj Estates Pvt. Ltd. Rs. 46,917/- (ii)(b) Rahul Raj Estate Pvt. Ltd. Rs. 1,877/-

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT III. Out of Rs.46,917/- mentioned at (ii)(a) for Rahul Raj Estate Pvt. Ltd. Rs. 25,350/- pertains to sales made by Sach Electro Mech Pvt. Ltd. (assessee). Rs.21,567/- does not pertain to sales of the assessee. Rs.21,567/- are REPORTED incorrectly M/S Rahul Raj Estate Pvt. Ltd. And they have filed a correction form for rectifying above mistake. IV. Balance Rs.25,350/- pertains to sales made by the assessee. The assessee has offered sales to its income for computing income tax. However, the deductor had not furnished TDS certificate till date of filing ITR by the assessee. Hence the assessee has not taken credit of TDS. V. Rs.1,877/- of TDS mentioned at (ii)(b) above REPORTED by Rahul Raj Estate Pvt. Ltd. pertains to the assessee. The assessee has offered sales to its income for computation of income tax. However, the deductor had not furnished TDS certificate till date of filing of ITR by the assessee. Hence the assessee has not taken credit of TDS.” 10. The ld AR for the assessee explained that there was difference of Rs.48,794/ in the TDS account of Rahul Raj Estate Pvt. Limited, which was explained and the assessing officer was satisfy with the explanation of assessee and has not made any addition on account of suppressed receipt with reference to TDS in Form- No AS 26. Though, the assessing officer made additions on other various issues.

11.

On the issue of service tax and VAT, the ld AR for the assessee submits that the assessee is following inclusive method of accounting in respect of accounting of taxes and government levies, which is in accordance with the mandates of section 145A of the Income Tax Act. The service tax and VAT are collected as a part of sales. The liability of service tax and VAT is separately debited in Profit and loss accounts. The assessee has shown revenue from operation of Rs. 25,32,92,741/- which is mentioned in the audited accounts includes service tax and VAT. The assessee has debited service tax of Rs. 68,75,826/- and VAT of Rs. 8,78,073/- under Schedule -22 9

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT of other expenses forming part of profit and loss account. In exclusive method of accounting the service tax and VAT are separately credited in the accounts and when payments are made this account is debited. So both income and expenses are not taken into accounts. Thus, both method of accounting are revenue neutral. And the assessee is following same method of accounting year to year which has been accepted by the department.

12.

The ld AR for the assessee submits that in item No. 21(ii) in Audit report it was erroneously reported by auditor that indirect taxes were not passed through profit and loss account, although, it was actually passed through profit and loss account which is evident from Schedule-22 of other expenses where service tax and VAT has been mentioned at serial No. 25 & 31 respectively. The ld. AR of the assessee submits that the assessment for the A.Y. 2010-11 and 2012-13 were also made under scrutiny assessment on 20/03/2013 and 03/03/2015 respectively. The assessee’s method of accounting regarding mercantile system and inclusive method were accepted by the assessing officer in those years also. No addition for difference between TDS reflected in Form No. 26AS and TDS embedded in actual sales was made in the past.

13.

The ld. Pr.CIT while issuing show cause notice on 07/02/2018 alleged that in respect of five parties although sales were exceeding Rs. 10.00 lacs as reflected in Form 26AS which was not shown in the list of the details of the sales exceeding Rs. 10 lacs during the assessment proceedings and that service tax and VAT were not

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT routed through profit and loss account as mentioned in item no. 21 (ii) of Form No. 3CD, the sales shown the assessee were exclusive of these items. The assessee filed its detailed reply vide letter dated 12.03.2018 in response to show cause notice issued under Section 263 of the Act. With reply, the assessee furnished reconciliation of Form No. 26AS and sales in tabular form. Even during the course of assessment proceedings, the assessee reconciled the same with reference to the credit in the bank accounts and the ld. Pr.CIT wanted reconciliation with reference to sales shown by the assessee. The assessee explained in respect of the three parties viz. Weal Developers, Synergy Developers and Sar Infracon, the advances were received on which the TDS was made for which the sales was accounted in succeeding years in respect of the advances. For the fourth party i.e. Gaurang Yogeshbhai Shah, it was submitted that no advances were received and therefore the sales were shown in the list of sales exceeding Rs. 10 lacs. The fourth party i.e Gaurang Yogeshbhai Shah, who is the proprietor of Tejasvi Construction and the sales were shown in the name of Tejasvi Construction (Gaurang Shah) in the list. The allegation of the ld. Pr.CIT that the sales in respect of Gaurang Yogeshbhai Shah were not shown in the list was wrong. For fifth party i.e. Hazira Lng Pvt. Ltd. the assessee stated that the sales were less than Rs. 10 lacs and therefore were not shown in the list. The amount of Rs. 6,45,286/- as referred by the ld. PR.CIT in his show cause notice was in respect of Adani Hazira Port Pvt. Ltd. and therefore it was a clerical mistake committed by the ld. PR.CIT. The ld. AR further submits before the ld. Pr.CIT that during the scrutiny assessment for A.Y. 2013-14, Form 26AS has already been reviewed in the

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT submission filed vide letter dated 23.11.2015. On the second allegation in the show cause notice, the ld. AR submits that the Auditor has made clerical mistake while preparing Form No. 3CD and accordingly, certificate from the auditor was filed with the submission before the ld.Pr. CIT. Before the ld. PR.CIT, the assessee also furnished the ledger accounts of all five parties and the ledger accounts were Adani Hazira Port Pvt. Ltd. The ledger accounts of succeeding years in case of Weal Developers, Synergy Developers and Sar Infracon were also filed showing the advances being adjusted against sales in succeeding years. The ld. Pr.CIT in respect of first three parties referred above held that the income was required to be shown by the assessee, even when mercantile system of accounting was followed. In respect of Gaurang Yogeshbhai Shah, proprietor of Tejasvi Construction, the ld. Pr.CIT stated that the matter required to be verified whether the assessee has offered the income from sales or not. Regarding fifth party namely Hazira Lng Pvt. Ltd., the ld. Pr.CIT has not made any comment.

On the second issue, with regard to indirect taxes, not routed through profit and loss account and that the assessing officer has not seen this issue and the assessment order was erroneous and required verification. The ld. AR of the assessee submits that the assessing officer passed the assessment order after making proper inquiry, which should have been made by him. The ld. AR reiterated that the assessee has reconciled the difference as per the receipt in the bank as not all the receipts from the customers partake character of income in the current year as the assessee is maintaining the accounts on mercantile basis. Though, the 12

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT customers are obliged to deduct tax under Section 194C of the Act on the payment made but the assessee is not required to offer the income on advances received. The income is required to be offered by assessee only after raising of the bill on completion of work as per mercantile system of accounting. The same method of accounting was being followed by the assessee in past years where scrutiny assessment was made. The payments of service tax and VAT are duly reflected in audited books of account. The assessing officer after considering all details, passed the assessment order. The assessment order passed by the assessing officer is not erroneous. The twin condition as enunciated in Section 263 should be satisfied cumulatively. The assessing officer after raising the sufficient queries on the issues were satisfied and passed the assessment order. The ld. AR submits that every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interests of the revenue. The assessing officer has taken the course permissible in law and accepted the explanation furnished by assessee on accepting such plea the assessment order cannot be branded as erroneous. To support his submissions, the ld. AR of the assessee has relied upon the following decisions: 1. CIT vs. Max India Ltd. [295 ITR 0282 (SC)] 2. Malabar Industries Co. Ltd. vs CIT [243 ITR 0083] (SC) 3. CIT vs G.M. Mittal Stainless Steel Pvt Ltd [263 ITR 0255] (SC) 4. CIT vs Amit Corporation [81 CCH 0069] (Guj HC) 5. CIT vs Arvind Jewellers [259 ITR 0502] (Guj HC)

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT 6. Bilag Industries Pvt. Ltd. vs. CIT (A) [SCA No. 24128 of 2005] (Guj HC) 7. CIT vs. R. K. Construction Co. [313 ITR 0065] (Guj HC) 8. CIT vs. Nirma Chemicals Works. Pvt. Ltd. [309 ITR 0067] (Guj HC) 9. Rayon Silk Mills vs. CIT (A) [221 ITR 0155] (Guj HC) 10. PR.CIT v/s. Shreeji Prints Pvt. Ltd. [Tax Appeal No. 828 of 2019] (Guj HC) 11. CIT vs. Nirav Modi [390 ITR 0292 (Bom. HC)] 12. CIT vs Gabriel India Ltd. [203 ITR 108(Bom)] 13. Moil Ltd. vs CIT [81 taxmann.com 420 (Bom. HC)] 14. CIT vs. Fine Jewellery India Ltd. 55 taxmann.com 514] (Bom HC) 15. Anil Kumar Sharma [335 ITR 0083] (Delhi HC) 16. ITO vs. DG Housing Projects Limited [343 ITR 329](Del HC)] 17. CIT vs. Sunbeam Auto Ltd. [189 Taxman 0436 (Del.)] 18. PR.CIT vs. Delhi Airport Metro Express Pvt. Ltd. [ITA No. 705/2017(Del HC)] 19. CIT V/S. Vikas Polymers [341 ITR 537] (Delhi HC) 20. CIT vs Ganpat Ram Bishnoi [296 ITR 0292] (Raj HC) 21. CIT vs Jain Constructions Co [257 ITR 0336] (Raj HC) 22. Sree Alankar vs. PR.CIT [ITA no. 108/CTK/2018] (CTK Trib.) 23. JRD Tata Trust vs. DCIT [122 taxmann.com 275] (Mum. Trib.) 24. Narayan Tatu Rane v/s ITO [2016] 70 taxmann.com 227 (Mum) (Trib) 25. Indus Best Hospitality & Realtors Pvt. Ltd. vs. PR.CIT [ITA No. 3125/mum/2017] (Mum Trib) 26. Shanti Krupa Estate Pvt. Ltd. vs. ACIT - [1252/Ahd/2015] (Ahd Trib) 14. The assessee has also filed following documents on record:

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT Letter filed by assessee before PR.CIT,  Letter filed by Auditor before PR.CIT.,  Notice issued by PR.CITunder Section 263,  Assessment Order passed under Section 143(3),  Letter filed before assessing officer in assessment proceedings,  Letter filed before assessing officer in assessment proceedings,  Acknowledgement of Return of Income along with Computation of  Total Income, Audit Report along with Audited Financial Statements,  Audit Report along with Return of Income,  Statement showing partywise sales of more than 10 lacs,  Ledger A/c of Weal Developers for A.Y. 2013-14 to 2015-16,L  Ledger A/c of Synergy Developers for A.Y. 2013-14 to 2015-16,  Ledger A/c of Sar Infracon for A.Y. 2013-14 to 2015-16,  Ledger A/c of Gaurang Yogesh Bhai Shah,  Ledger A/c of Hazira LNG Pvt. Ltd.,  Ledger A/c of Adani Hazira Port Pvt. Ltd.  15. On the other hand, the ld. CIT-DR appearing on behalf of the Revenue has supported the order of the ld. Pr.CIT. The ld. CIT-DR submits that the assessment order is silent on the issues identified by the ld. Pr.CIT in his show cause notice. The assessee has made sales of more than 10.00 lacs to five parties as reflected in Form No. 26AS. Further the receipts of indirect taxes were not routed through profit and loss account as reported by the Auditor. The assessing officer passed assessment order without touching such issues. The assessing officer passed the assessment order without application of mind, which resulted in loss of tax, thus the assessment order resulted to loss of revenue, therefore, the order is prejudicial to the interests of

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT the revenue. The assessment order was passed by ignoring the vital issues and the assessment order is erroneous. Accordingly, the twin conditions as prescribed under Section 263 of the Act are clearly meet out in the present case. Therefore, the ld. Pr.CIT has rightly assumed the jurisdiction under Section 263 of the Act. The ld. Pr.CIT while setting aside the assessment order, gave clear direction to the assessing officer that before examining the issue, the assessee be given reasonable opportunity of hearing. Thus, no harm is likely to cause to assessee when the assessee would have an opportunity to explain the fact before the assessing officer which was not examined by him during the scrutiny assessment. To support his submissions, the ld. CIT-DR for the Revenue relied upon the decisions of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT (2000) 109 Taxman 66 (SC), Rajmandir Estates (P) Ltd. Vs Pr.CIT (2017) 77 taxmann.com 285 (SC), Deniel Merchants P Ltd. & Anr. Vs ITO SLP (C) No. 23976/2017 dated 29/11/2017, Hon'ble Calcutta High Court decision in the case of CIT Vs RKBK Fiscal Services (P) Ltd. (2013) 32 taxmann.com 153 (Calcutta) and the decision of this Tribunal in the case of Anuj Jayendra Shah Vs Pr.CIT in ITA No. 2546/Mum/2015 dated 30/12/2015.

16.

We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. Basically, the ld. Pr.CIT in his show cause notice under Section 263 of the Act identified two issues i.e. first relates to the issue of TDS reflected in Form 26AS in respect of five parties, of which the sales has shown is exceeding Rs. 10.00 lacs and second, the service tax and VAT were not

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT routed through profit and loss account as mentioned in item No. 21(ii) of audit report.

17.

First we take the second issue for our consideration. We find that in reply to the show cause notice under Section 263, the assessee specifically stated that while reporting in Form No. 3CD (audit report), at item No. 21(ii) of the report and note No. 22 of other expenses of service tax or VAT debiting from profit and loss account, the assessee explained that it was auditor’s made clerical mistake while preparing report. The assessee furnished certificate from auditor dated 12/03/2018, copy of which was also placed on record, explaining that the State Sales Tax, Custom duty and Excise duty or any other indirect tax, levy, cess, import etc. as mentioned wrongly that such indirect taxes are not passed through profit and loss account. We find that in Schedule-22 (other expenses), forming part of profit and loss account, the assessee has included service tax and VAT, thus it is routed through profit and loss account. Even otherwise, the assessee had pleaded that they were following inclusive method of accounting for the purpose of indirect taxes. Such method is regularly followed by the assessee. This fact is not disputed by ld Pr CIT, despite bringing this fact to his notice that assessment order for AY 2010-11 & 2012-13 was passed under section 143(3) and inclusive method was accepted by assessing officer in those years. Even otherwise, inclusive method and exclusive method both are revenue neutral. We further find that the ld. Pr.CIT in his order has not made any comment over the reply furnished by the assessee. Thus, we are of the view that reference in the audit report was a clerical mistake by the auditor of the assessee 17

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT which was admitted by the auditor by giving his certificate in writing and on verification. As noted above that indirect taxes are routed through profit and loss account and in accordance with inclusive method of accounting. Therefore, the assessment order on second issue is not erroneous or prejudicial to the interests of the revenue.

18.

Now adverting to the first issue, we find that during the assessment, the assessing officer vide his questionnaire dated 12/10/2015 specifically asked the assessee to furnish the name, address of the parties to whom the assessee made sale exceeding Rs. 10.00 lacs or more. The assessee vide its reply dated 23/11/2015 furnished the required details. The assessee again vide its reply filed on 23/12/2015 furnished the reconciliation of 26AS with TDS reflected in the bank and claimed in income tax return. The assessee also furnished difference in TDS claimed as per Form 26AS was only Rs. 48,794/-. The said difference was comprising TDS reported by Rahul Raj Estate Pvt. Ltd. of Rs. 46,917/- and Rs. 1,877/-. We find that the assessing officer after receipt of reply of assessee, accepted the contention of assessee and no addition on account of difference in receipt vis a vis TDS reflected in 26AS was made.

19.

We find that assessee while filing its reply vide dated 12.03.2018 to show cause notice issued under Section 263 of the Act, furnished reconciliation of Form No. 26AS and sales in tabular form, even during the course of assessment proceedings, the assessee reconciled the same with reference to the credit in the

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT bank accounts. The assessee again explained in respect of first three parties viz. Weal Developers, Synergy Developers and Sar Infracon, the advances were received on which the TDS was made for which the sales was accounted in succeeding years in respect of the advances. For the fourth party i.e. Gaurang Yogeshbhai Shah, it was submitted that no advances were received and therefore the sales were shown in the list of sales exceeding Rs. 10 lacs. The fourth party i.e Gaurang Yogeshbhai Shah, who is the proprietor of Tejasvi Construction and the sales were shown in the name of Tejasvi Construction (Gaurang Shah) in the list. The allegation of the ld. Pr.CIT that the sales in respect of Gaurang Yogeshbhai Shah were not shown in the list was wrong. For fifth party i.e. Hazira Lng Pvt. Ltd. the assessee stated that the sales were less than Rs. 10 lacs and therefore were not shown in the list. The amount of Rs. 6,45,286/- as referred by the ld. Pr.CIT in his show cause notice was in respect of Adani Hazira Port Pvt. Ltd. and therefore it was a clerical mistake committed by the ld. Pr.CIT. We find that the assessee has also explained the facts before assessing officer. In our view, the assessing officer after considering the reply of assessee has adopted a reasonable, plausible and legally sustainable view.

20.

The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT[2000] 243 ITR 832 (SC), held that the prerequisite for the exercise of jurisdiction by the Commissioner suo-motu is that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the 19

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT interests of the revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1) of the Act. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law.

21.

Further, Hon’ble Bombay High Court in CIT Vs Gabriel India Ltd (233 ITR 108 Bom /71 Taxman 585) held that the power of suo-moto revision under sub-section 20

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT (1) of section 263 is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub- section, viz., (i) the order is erroneous; and (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. One finds that the expressions 'erroneous', 'erroneous assessment' and 'erroneous judgment' have been defined in Black's Law Dictionary. According to the definition, 'erroneous' means 'involving error; deviating from the law'. 'Erroneous assessment' refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, 'erroneous judgment' means 'one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. The Hon’ble High Court also held that from the definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an assessing officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualized where the ITO while making an

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the revenue. But that by itself will not be enough to vest the Commissioner with the power of suo-moto revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the revenue, then also the power of suo-moto revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. Therefore, in order to exercise power under section 263(1) there must be material

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT before the Commissioner to consider that the order passed by the ITO was erroneous insofar as it is prejudicial to the interests of the revenue and that it must be an order which is not in accordance with the law or which has been passed by the ITO without making any enquiry in undue haste. An order can be said to be prejudicial to the interests of the revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo-moto revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to examine whether the relevant objectives were available from the records called for and examined by such authority. The decision of the ITO could not be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. Moreover, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous, he simply asked the ITO to re-examine the matter, which was not permissible.

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT 22. The Hon'ble Jurisdictional High Court in Aryan Arcade Ltd., Vs PR.CIT (2019) 412 ITR 277 (Gujarat) held that merely because Commissioner held a different belief that would not permit him to take the order in revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of revision is not valid.

23.

In CIT Vs Nirma Chemical Works (P) Ltd (2009) 309 ITR 67, the Hon’ble High Court also held that when assessing officer after making due inquiries had adopted one of the view and granted partial relief, merely because Commissioner took a different view of the matter, it would not be sufficient to permit Commissioner to exercise his powers under section 263. The Hon’ble Court in para 22 of its order on the objection of the revenue that there is no discussion of the issue in the assessment order held that the contention on behalf of the revenue that the assessment order does not reflect any application of mind as to the eligibility or otherwise under section 80-I of the Act requires to be noted, to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic some. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and, secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with. In view of the aforesaid factual and legal discussion, we are of the view that the assessment order 24

ITA 392/SRT/2018 Sach Electro Mech P Ltd. Vs PR.CIT passed by the AO on the first issue identified by the ld. Pr.CIT is reasonable, plausible and legally sustainable order. In our view, the twin condition as prescribed under Section 263 of the Act has not meet out on the first issue.

24.

In the result, the grounds of appeal raised by the assessee is allowed.

25.

In the result, the appeal of the assessee is allowed.

Order pronounced on 06/04/2022, in open court and result was placed on notice board. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 06/04/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File True copy// By order

Sr.Private Secretary, ITAT, Surat

SACH ELECTRO MECH PVT. LTD.,,SURAT vs. PR. CIT-2, SURAT