AI Insights
The case involves Raremat Mall Management Co. Pvt. Ltd., which appealed against the order of the Learned Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961. The PCIT had set aside the assessment order passed by the Assessing Officer under section 143(3), claiming it was erroneous and prejudicial to the interest of the revenue. The main contention was regarding the unexplained cash payments amounting to Rs.3,84,00,000/- and whether these violated sections 40A(3) and 269T of the Act. The Tribunal examined whether the Assessing Officer had adequately inquired into these issues during the original assessment proceedings.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 301775 (ITAT-SURAT)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 4 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-09-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
DB
Next Hearing Date
19-07-2023
Assessment Year
2017-2018
Appeal Filed On
16-05-2022
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.121/SRT/2022 Assessment Year: (2017-18) (Physical Hearing) Raremat Mall Management Co. Pvt. Ltd., Ground Floor, Rahul Raj Mall, Gaurav Path, Dumas Road, Surat – 395007. Vs. The PCIT – 1, Surat. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAFCR8865G (Appellant) (Respondent) Appellant by Shri Sapnesh Sheth, CA Respondent by Shri Ashok B. Koli, CIT(DR) Date of Hearing 20/07/2023 Date of Pronouncement 26/09/2023 आदेश / O R D E R PER DR. A. L. SAINI, AM: By way of this appeal, the assessee has called into question correctness of impugned order passed by the Learned Principal Commissioner of Income Tax, under section 263 of the Income tax Act, 1961, in the matter of assessment under section 143(3) of the Act, for the assessment year 2017-18, on the following grounds: “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. 2. 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 observing that order passed by assessing officer u/s 143(3) of the Act is erroneous on the ground that assessing officer ought to have inquired the issue of utilization of cash of Rs.3,84,00,000/- by the company and examined the violation of 2 ITA No.121/SRT/2022/AY.2017-18 Raremat Mall Management Co. Pvt. Ltd. section 40A(3)/269T of the Act when in fact said amount is not expended during the year but disclosed on assets side of balance sheet. 3. It is therefore prayed that order passed by Pr. Commissioner of Income- tax u/s 263 of the I.T. Act setting aside the order of assessing officer and directing assessing officer to pass fresh assessment order may please be quashed. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 2. 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. 3. 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 3 ITA No.121/SRT/2022/AY.2017-18 Raremat Mall Management Co. Pvt. Ltd. proceeding, the assessing officer (AO) has neither inquired into the matter of excess cash payment to Rare Mall Management Office and has not made any addition on this account. From the above facts, the ld PCIT observed that Assessing Officer has passed the Assessment Order without proper verification/inquiry on the issue as mentioned above, which should have been made during the course of assessment proceedings and thereby rendering the assessment order u/s 143(3) of the Act passed by the Assessing Officer on 25.12.2019, as erroneous in so far as it is prejudicial to the interest of Revenue within meaning of Section 263 of the I.T. Act. 4. 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 4 ITA No.121/SRT/2022/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.” 5 ITA No.121/SRT/2022/AY.2017-18 Raremat Mall Management Co. Pvt. Ltd. 5. 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. 6. 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 6 ITA No.121/SRT/2022/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. 7. Aggrieved by the order of the ld. PCIT, the assessee is in appeal before us. 8. 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 7 ITA No.121/SRT/2022/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. 9. 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. 10. 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 8 ITA No.121/SRT/2022/AY.2017-18 Raremat Mall Management Co. Pvt. Ltd. material brought on record. Before us, Ld. Counsel for the assessee submitted following documents and evidences, which were also submitted before the assessing officer, during the scrutiny proceedings: (i)Letter filed before assessing officer along with proof of upload on the portal (vide Pb. 1 to 6), (ii) Letter filed before Assessing Officer along with proof of upload on the portal (vide Pb. 7 to 9), (iii) Audit Report along with Audited Financial Statements for AY 2017-18 (vide Pb. 10 to 12), (iv) Ledger Account of Raremat mallmanagment Office from 01.04.2016 to 31.03.2017 (vide Pb.36 to 37),(v)Ledger Account of Mall operation expenses from 01.04.2016 to 31.03.2017 (vide Pb.38 to 42), (vi) Group summary of Loans & Advances (Asset) from 01.04.2016 to 31.03.2017 (vide Pb.43),(vii) Relevant extract of cash book reflecting cash on hand as on 01.01.2017 (vide Pb. 44).Based on these documents and evidences, the ld. Counsel contended that adequate enquiry was made by the Assessing Officer, in respect of the issue raised by ld PCIT, therefore order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue. 11. 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: 9 ITA No.121/SRT/2022/AY.2017-18 Raremat Mall Management Co. Pvt. Ltd. S. No. Expenses & Receipts in Trading P&L A/c in A.Y.2016-17 Expenses & Receipts in Trading & P&L A/c in AY.2017-18 12. 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. 13. 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 10 ITA No.121/SRT/2022/AY.2017-18 Raremat Mall Management Co. Pvt. Ltd. proceedings and the assessee had filed details before him. So we find that the AO’s action cannot be termed “erroneous”. Since not only enquiry was carried out by the AO on the issue under consideration and based on the evidence gathered he has taken a plausible view, which at any rate cannot be called as an un-sustainable view. Let us take the guidance of judicial precedents laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interest of the revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses 11 ITA No.121/SRT/2022/AY.2017-18 Raremat Mall Management Co. Pvt. Ltd. permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”.Therefore, we are of the considered opinion that AO’s order cannot be termed as “erroneous as well as prejudicial to the interest of the revenue” and therefore, jurisdictional condition precedent as prescribed by statute for invoking revisional jurisdiction is absent and therefore, we are inclined to quash the impugned order dated 25.12.2019 of the Learned Principal Commissioner of Income Tax. 14. In the result, appeal filed by the assessee is allowed. Order is pronounced on 26/09/2023 in the open court. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 26/09/2023 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat
Other Referred Cases
Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC)
Laws Referred To
Income Tax Act, 1961
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