M/s. Reward Constructions Pvt.Ltd, Pune V. Deputy Commissioner of Income-tax, Pune

ITA 1224/PUN/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1411 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 16-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Bad and doubtful debts; Assessment record; Set aside
• Section: 142(1); 201; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH , A PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY , JUDICIAL MEMBER . / ITA NO. 1224 / PUN /201 7 / ASSESSMENT YEAR : 201 2 - 1 3 M/S. REWA RD CONSTRUCTIONS PVT. LTD., PRABHA, 768/1, OPP. PYC GYMKHANA, PUNE 411004 PAN: A ACCR5134M VS. D CIT, CIRCLE 6 , PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 24.03.2017 PASSE D BY THE LD. CIT U/S 263 OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) IN RELATION TO THE A.Y. 201 2 - 1 3 . 2 . SUCCINCTLY, TH E FACT UAL MATRIX OF THE CASE IS THAT THE ASSESSEE FILED ITS RETURN DECLARING TOTAL INCOME OF RS.10.56 CRORES. THE ASSESSMENT WAS COMPLETED DETERMINING TOTAL INCOME AT RS.10.68 CRORES. THE LD. CIT INVOKED S ECTION 263 OF THE ACT BY NOTICING THAT ASSESSEE BY MRS. DEEPA KHARE REVENUE BY SHRI SHIVRAJ B. MOREY DATE OF HEARING 0 5 - 0 7 - 2021 DATE OF PRONOUNCEM ENT 06 - 0 7 - 2021 ITA NO. 1224 /PUN/201 7 M/S. REWARD CONSTRUCTIONS PVT. LTD. 2 THE AO DID NOT CARRY OUT ENQUIRIES OR EXAMINATION IN RESPECT OF FIVE ISSUES, NAMELY, (I) TRADE PAYABLE AT RS.12.16 CRORES; (II) ADVANCES RECEIVABLE AT RS.47.98 CRORES & SHORT TERM BORROWINGS AT RS.5.60 CRORES ; (III) INVENTORY AT RS.25.75 CRORES; (IV) SALARY TO DIREC TORS INCREASED FROM RS. 63.95 LAKH TO RS.1.73 CRORES; AND (V) BAD DEBTS WRITTEN OFF AT RS.86.31 LAKHS. THE ASSESSEE SUBMITTED REPLY , WHICH HAS BEEN INCORPORATED IN THE IMPUGNED ORDER AT PAGES 3 TO 7 , GIVING DETAILS OF THE ENQUIRIES CONDUCTED BY THE AO ON SU CH ISSUES , COPIOUS DETAILS OF THE REPLIES FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND JUSTIFICATION F OR THE AO ACCEPTING THE CLAIM IN RESPECT OF ALL THE FIVE ITEMS ABOVE . THEREAFTER, THE ASSESSEE CARRIED OUT AN INSPECTION OF THE ASSESSMENT RECORD AND FURNISHED ONE MORE REPLY TO THE LD. CIT WHICH HAS ALSO BEEN REPRODUCED AT PAGES 7 TO 10 OF THE IMPUGNED ORDER , THEREBY SHOWING THAT THE AO CONDUCTED ENQUIRIES ON ALL THE POINTS , WHICH WE RE DULY RESPONDED BY THE ASSESSEE. NOT CONVINCE D, THE L D. CIT HELD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. SETTING ASIDE THE SAME, HE RESTORED THE MATTER TO THE FILE OF AO FOR DE NOVO ASSESSMENT ON THE POINTS RAISED BY HIM . ITA NO. 1224 /PUN/201 7 M/S. REWARD CONSTRUCTIONS PVT. LTD. 3 3 . WE HAVE HEARD BOTH THE SIDES THROU GH VIRTUAL COURT AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD . THE LD. CIT HELD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AS, IN HIS OPINION, THE AO DID NOT CONDUCT DUE AND PROPER ENQUIRY ON THE FIVE ITEMS. W E ESPOUSE ALL THE FIVE ITEMS FOR CONSIDERATION AD SERIATIM . 4 . THE FIRST ITEM IS T RADE PAYABLE STANDING AT RS.12.16 CRORES . THE ASSESSEES REPLY - AS REPRODUCED IN THE IMPUGNED ORDER - CATEGORICALLY ELABORATES THE QUERY MADE BY THE AO IN HIS NOTICE U/ S 142(1) ON THIS SCORE AND THE DETAILS FURNISHED BY I T DURING THE COU RSE OF ASSESSMENT PROCEEDINGS. THE SECOND ITEM IS A DVANCES RECEIVABLE FROM CUSTOMERS & ` S HORT TERM BORROWINGS . T HE ASSESSEE S REPLY GIVEN TO THE LD. CIT ABUNDANTLY REFERS TO THE POINT RAISED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THIS ISSUE AND THE REPLY FURNISHED B Y THE ASSESSEE GIVING THE MECHANISM AND DETAILS OF ADVANCES RECEIVABLE FROM CUSTOMERS AMOUNTING T O RS.47.98 CRORES WHICH WERE DULY ADJUSTED AGAINST THE FINA L BILLS. AS REGARDS S HORT TERM BORROWINGS OF RS.5.60 CRORES, THE ASSESSEE , ON ENQUIRY BY THE AO, SUBMITTED THAT IT WAS BANK BALANCE AS ON 31.03.2012 AGAINST CASH CREDIT LIMIT FOR WHICH PROPER ITA NO. 1224 /PUN/201 7 M/S. REWARD CONSTRUCTIONS PVT. LTD. 4 RECONCILIATION WAS ALSO FILED. AS REGARDS THE THIRD POINT OF I NVENTORY OF RS.25.75 CRORES, IT W AS SHOWN TO THE LD. CIT THAT THE AO DID MAKE ENQUIRY ON THIS AND THE ASSESSEE ALSO SUBMITTED NECESSARY DETAILS OF THE SAME. ON THE FOURTH ISSUE OF HIKE IN REMUNERATION TO THE DIRECTORS , THE ASSESSEE , AS STATED BEFORE TH E LD. CIT, PUT FORTH BEFORE THE AO THAT SALARY PAID TO THE DIRECTORS WAS WITHIN THE LIMITS PRESCRIBED UNDER THE COMPANIES ACT AND IT ALSO GAVE JUSTIFICATION FOR INCREASE IN THE REMUNERATION TO THE AO BY EXPLAINING THAT ITS TURNOVER INCREASED FROM THE PRECE DING YEAR OF RS.30.65 CRORES TO RS.126 CRORES DURING THE YEAR. THE ASSESSEE ALSO DEMONSTRATED THAT THE TOTAL REMUNERATION GIVEN TO DIRECTORS IN THE CURRENT YEAR WAS 1.30% OF TURNOVER AS COMPARED TO 1.66% FOR THE PRECEDING YEAR AND 1.98% FOR THE EARLIER YE AR. ON THE LAST POINT OF B AD DEBTS SHOWN BY THE ASSESSEE AT RS.86.31 CRORES , THE ASSESSEE SUBMITTED THAT NECESSARY DETAILS OF BAD DEBTS AND ALSO THE POLICY UNDER WHICH THE BAD DEBTS WERE WRITTEN OFF WERE GIVEN TO THE AO DURING THE COURSE OF THE ASSESSM ENT PROCEEDINGS . 5 . FROM THE ABOVE DISCUSSION, IT IS OVERT THAT ALL THE FIVE POINTS RAISED BY THE LD. CIT FOR REVISING THE ASSESSMENT ORDER WERE DULY ITA NO. 1224 /PUN/201 7 M/S. REWARD CONSTRUCTIONS PVT. LTD. 5 ENQUIRED INTO BY THE AO AND THE ASSESSEE ALSO FURNISH ED ITS REPLY T O EACH ONE OF THE M . 6 . BROADLY THERE CAN BE THREE S ITUATIONS JUSTIFYING THE REVISION ARY EXERCISE . FIRST, WHERE THE AO PASSES AN ORDER WITHOUT MAKING ENQUIRY O N CERTAIN POINT (S), WHICH ARE VITAL FOR ASSESSMENT . T HE MERE FACT OF NOT MAKING ENQUIRY JUSTIFIES REVISION . 7. S ECOND , WHERE THE AO MAKES/ CAUSES ENQUIRY ON CERTAIN POINT(S) BUT THE ASSESSEE DOES NOT REPLY TO THE SAME AND ASSESSMENT ORDER IS PASSED ACCEPTING THE ASSESSEES CLAIM ON SUCH POINTS WITHOUT ANY FURTHER QUESTIONING. THIS IS ALSO A SITUATION WARRANTING REVISION OF THE A SSESSMENT ORDER AS THE ORDER G E T S PASSED IN AN ERRONEOUS MANNER CAUSING PREJUDICE TO THE INTEREST OF THE REVENUE BECAUSE OF NON - APPLICATION OF MIND BY THE AO . 8. T HIRD , WHERE THE AO MAKES ENQU IRIES AND THE ASSESSEE FURNISHES HIS EXPLANATION. THERE CAN BE TWO OUTCOMES OF THIS EXERCISE VIZ. , ONE WHERE THE AO DOES NOT GET SATISFIED AND MAKES ADDITION AND WHERE THE AO GETS SATISFIED WITH THE ASSESSEES REPLY AND DOES NOT MAKE ANY ADDITION. IN THE FIRST OUTCOME, T HE MATTER REST S THERE ITSELF FROM THE ANGLE OF REVISION . T HE SECOND OUTCOME OF THE AO GETTING SATISFIED WITH THE ASSESSEES REPLY AND NOT MAK ING ANY ADDITION CAN ITA NO. 1224 /PUN/201 7 M/S. REWARD CONSTRUCTIONS PVT. LTD. 6 HAPPEN IN TWO WAYS. ONE, IN WHICH THE AO DISCUSSES THE ISSUE IN THE ASSESSMENT ORDER, ALBEIT BRIEFLY, ACCEPTING THE ASSESSEES CLAIM. TWO, IN WHICH THE AO DOES NOT DISCUSS THE ISSUE IN THE ASSESSMENT ORDER. REVISION WILL BE POSSIBLE IN THE FIRST WAY ONLY ON THE CIT SPECIFICALLY POINTING OUT AS TO WHERE THE AO WENT WRONG AND HOW THE ASSESSMENT ORDER WA S ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF THE REVENUE. AN ERRONEOUS ORDER MEANS AN ORDER WHICH IS WRONG EITHER ON FACTS OR I N LAW AND AN ORDER CAUSE S PREJUDICE TO THE INTEREST OF THE REVENUE , IN THE PRESENT CONTEXT , WHEN INCOME IS NOT CORRECTLY CHARGED TO TAX AND DUE TAX HAS NOT REACHED THE COFFERS OF THE EXCHEQUER. IN SUCH FIRST WAY, THE ONUS OF PROOF IS ON THE CIT TO SPECIFICALLY DEMONSTRATE THE EXISTENCE OF THE TWIN CONDITIONS FOR A VALID INVOCATION OF SECTION 263. THE CIT CANNOT SIMPLY SAY THAT THE AO HAS NOT VERIFIED THE RELEVANT ISSUES. HE WILL HAVE TO PIN POINT WHERE THE ASSESSMENT ORDER LACKED AND HOW THE A O WENT WRONG ON FACTS OR IN LAW . THE SECOND WAY IS WHERE THE AO DOES NOT DISCUSS THE ISSUE IN THE ASSESSMENT ORDER AND ACCEPTS THE CLAIM OF THE ASSESSEE WITHOUT MAKING ANY ADDITION ON THAT SCORE. ORDINARILY, NO DISCUSSION IS WARRANTED IN AN ASSESSMENT ORDER ON THE POINTS ON WHICH THE AO GETS SATISFIED AND CHOOSES NOT TO MAKE ANY ADDITION. ITA NO. 1224 /PUN/201 7 M/S. REWARD CONSTRUCTIONS PVT. LTD. 7 IT IS FOR THE OBVIOUS REASON THAT AN ASSESSMENT ENTAILS MAKING ENQUIRIES ON ALL THE ITEMS OF INC OME, EXPENSES, ASSETS AND LIABILITIES OF AN ASSESSEE. EXPECTING AN AO TO DISCUSS ALL SUCH POINTS IN THE BODY OF THE ASSESSMENT ORDER , INCLUDING THOSE WITH WHICH HE CONCURS WITH THE ASSESSEE FROM THE ANGLE OF DETERMINATION OF TOTAL INCOME, WILL BE AN UPHILL TASK , THEREBY GIVING NEEDLESS LENGTH TO THE ASSESSMENT ORDER . REVISION WILL BE POSSIBLE IN THE SECOND WAY AGAIN ON THE CIT EXPRESSLY POINTING OUT HOW THE ASSESSMENT ORDER WA S ERRONEOUS IN FACTS OR IN LAW AND HOW THE PREJUDICE W AS CAUSED TO THE REVENUE. TH IS CAN BE DONE EITHER ON THE BASIS OF SOME CIRCUMSTANTIAL EVIDENCE OR SOME CONCRETE EVIDENCE HINTING OR SHOWING THAT THE PER SE ACCEPTANCE OF THE ASSESSEES CLAIM BY THE AO LED TO THE PASSING OF AN ERRONEOUS ORDER WHICH CAUSED PREJUDICE TO THE REVENUE . TO PUT SIMPLY, THERE SHOULD BE SOME THING SPECIFIC AND POSITIVE, APART FROM A GENERALIZED VIEW OF THE CIT, TO E LABORATE HOW AND WHERE THE AO WENT WRONG IN ACCEPTING THE CLAIM OF THE ASSESSEE, WHICH IS A PEDESTAL DIFFERENT FROM THE CIT SIMPLY SAYING THAT TH E AO DID NOT MAKE PROPER ENQUIRY OR FAILED TO VERIFY THE FACTS. FROM THE ANG LE OF ACQUIRING JURISDICTION FOR REVISION, THERE IS NO QUALITATIVE DIFFERENCE BETWEEN BOTH THE WAYS: WHERE THE AO DISCUSSES THE ISSUE IN THE ITA NO. 1224 /PUN/201 7 M/S. REWARD CONSTRUCTIONS PVT. LTD. 8 ASSESSMENT ORDER OR DOES NOT DISCUSS . IN BO TH THE SCENARIOS, THE ONUS LIES ON THE CIT TO DEMONSTRA BLY INDICATE AS TO IN WHICH MANNER EITHER THE AO DID NOT MAKE PROPER ENQUIRY ON RELEVANT ASPECT S OF THE ASSESSMENT OR THAT THE REPLY FURNISHED BY THE ASSESSEE WAS FALLACI OUS , THEREBY RENDERING THE ASSE SSMENT ORDER ERRONEOUS CAUS ING PREJUDIC E TO THE INTEREST OF REVENUE . IF THE CIT SIMPLY DECLARES AN ASSESSMENT ORDER FALLING WITHIN THE KEN OF SECTION 263 JUST ON HIS WHIMS WITHOUT ANY SPECIFIC FOUNDATION FOR SUCH A BELIEF, THE REVISION WILL NOT PASS THE TE ST OF JUDICIAL SCRUTINY. SIMPLY PUT, I N NO SITUATION - WHERE THE AO CONDUCTS PROPER ENQUIRY ; REPLY I S FILED BY THE ASSESSEE ; AND THE CLAIM OF ASSESSEE IS ACCEPTED CAN THE CIT INVOKE SECTION 263 WITHOUT INDICAT ING LACUNAS IN THE AOS ENQUIRY OR FALLACY E ITHER IN THE ASSESSEES REPLY OR IN THE ACTION OF THE AO IN ACCEPTING SUCH REPLY LEADING TO UNDER ASSESSMENT OF INCOME, THEREBY CAUSING PREJUDIC E TO THE INTEREST OF REVENUE. 9 . ADVERTING TO THE FACTS OF EX TANT CASE, WE FIND THAT IT FALLS IN THE AFORE DIS C U SSED SECOND WAY OF THE SECOND OUTCOME OF THE THIRD CATEGORY , NAMELY, WHERE THE AO CONDUCT ED ENQUIRY ; THE ASSESSEE FURNISHED HIS REPLY THERETO ; AND THE ASSESSMENT WAS MADE ACCEPTING THE POINT OF VIEW OF THE ASSESSEE WITHOUT MAKING ANY SEPARATE ITA NO. 1224 /PUN/201 7 M/S. REWARD CONSTRUCTIONS PVT. LTD. 9 DISCUSSION IN THE ASSESSMENT ORDER . IN SUCH A PANORAMA, THE ONUS WAS UPON THE LD. CIT TO SHOW AS TO HOW THE ACCEPTANCE OF THE ASSESSEES CLAIMS BY THE AO LED TO THE PASSING OF AN ERRONEOUS ORDER THEREBY CAUSING PREJUDICE TO THE INTEREST OF REVENUE. THE ONLY RAISON D`ETRE GIVEN BY HIM FOR THE REVISION IS THAT : IN THE PRESENT CASE THE AO HAS NOT VERIFIED ALL THE RELEVANT ISSUES TO DEDUCE THE CORRECT TAXABLE INCOME AND THEREFORE THE ORDER PASSED BY THE ASSESSING OFFICER IS PRIMA - FACIE FOUND TO BE ERRONEOUS IN SO FAR A S IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. IT IS MANIFEST ON A BARE PERUSAL OF THE IMPUGNED ORDER THAT, APART FROM RELYING ON CERTAIN DECISIONS JUSTIFYING THE REVISIONARY EXERCISE, THE LD. CIT HAS NOT REFUTED THE ASSESSEES CONTENTION THAT ALL THE F IVE POINTS WERE RAISED BY THE AO DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND THE ASSESSEE DID SATISFACTORILY FURNISH REPLY TO EACH ONE OF THEM BACKED BY NECESSARY DETAILS AND FURTHER THAT THERE WAS NOTHING AMISS IN THAT . IF THE REVISION IS HELD VALID IN SUCH CIRCUMSTANCES AS ARE INSTANTLY OBTAINING , THEN EACH AND EVERY CASE OF ASSESSMENT WOULD GIVE A LICEN S E TO THE CIT FOR MAKING REVISION U/S 263 WITHOUT FIRST FULFILLING THE JURISDICTION AL CONDITION S OF THE ASSESSMENT ORDER BEING ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF REVENUE. AS SUCH, WE ARE SATISFIED ITA NO. 1224 /PUN/201 7 M/S. REWARD CONSTRUCTIONS PVT. LTD. 10 THAT THE LD. CIT WAS NOT JUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER. THE IMPUGNED ORDER IS OVERTURNED AND HEREBY SET ASIDE. 10 . IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JU LY , 2021. SD/ - SD/ - (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT PUNE ; DATED : 6 TH JU LY , 2021 GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3 . 4 . DR, ITAT, A BENCH, PUNE / GUARD FILE . / B Y ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NO. 1224 /PUN/201 7 M/S. REWARD CONSTRUCTIONS PVT. LTD. 11 DATE 1. DRAFT DICTATED ON 0 5 - 0 7 - 2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 0 6 - 0 7 - 2021 SR.PS 3. DRAFT PR OPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *