MANIRATNAM GEMS PVT. LTD., BEAWAR V. ACIT,C-2, AJMER

ITA 174/JPR/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 7748 (ITAT-JAIPUR)
• Duration Of Justice: 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 10-10-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Transfer pricing; International transaction; TDS
• Section: 263; 143(3); 92; 92B; 92E; 133(6)

Judgement Text

1 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 174/JP/2021 fu/kZkj.k o"kZ@Assessment Year : 2016-17 M/s.Maniratnam Gems (P) Ltd. Chhajer Sadan, Near Chiman Singh Lodha School, Outside Nehru Gate, Beawar cuke Vs. The ACIT Circle-2 Ajmer LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFCM 7852 C vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Amit Kothari, CA jktLo dh vksj ls@ Revenue by: Shri Sanjay Dhariwal, CIT lquokbZ dh rkjh[k@ Date of Hearing : 14/06/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 13/07/2022 vkns'k@ ORDER PER: SANDEEP GOSAIN, JM The present appeal is against the order u/s 263 passed by the ld.PCIT, Udiapur for A.y. 2016-17, wherein the appellant has raised the following grounds of appeal. “The Principal Commissioner of Income Tax, Udaipur (herein after referred to as the Pr.CIT) erred in framing an order dated 01.03.2021 under section 263 of the Act to set aside the order of the Assistant Commissioner of Income Tax, Cricle-2, Ajmer (herein after referred to as the Assessing officer) by holding that the order of the Assessing Officer dated 20.12.2018 2 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer is both erroneous and prejudicial to the interest of Revenue, and giving directions to the Assessing Officer to reframe the assessment order on the issues mentioned in the order dated 01.03.2021. The appellants contend that the Pr.CIT has not appreciated the facts of the case in its entirety; the impunged order under section 263 is bad in law in as much as the assessment order of the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue. The appellant further contends that on the facts and in the circumstances of the case and in law, the Pr. CIT ought not to have reached the aforesaid conclusion in as much as the Assessing Officer, after being satisfied on the basis of documentary evidences filed, framed the order dated 20.12.2018 making an adhoc disallowance of office expenses Rs. 50,000. The appellant further, contend that the observation of the Pr. CIT that “As directed in preceding paragraphs of this order, the AO based on outcome of the his examinations and enquiries on various issues make the additions to the total income of the assessee wherever required per law by modifying the assessment order” is bad in law and needs to be expunged.” 2. The appellant company filed return of income on 29.9.2016 declaring total income of Rs. 23,78,172/-. The case was selected for complete scrutiny on certain parameters, and the case the assessment u/s 143(3) was completed on 20.12.2018 assessing the income at Rs. 24,28,170/-. The appellant is a Private Limited company dealing in trading, import and export of gems and precious stones, diamonds after cutting and assortment. 3. The PCIT, issued notice u/s 263 dated 20.11.2020, proposing to initiate the revision proceedings on the certain issues. The first issue raised by the PCIT in 3 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer the show cause notice has been discussed in para 4 of the order and relates to the issue that appellant had made purchases of Rs. 39,23,25,241/- which is nearly 45% of the total purchases and no form 3CEB was obtained, to examine the arm’s length price. Further as per guidelines reference to TPO was also required which was not made by the AO, and therefore the order is prejudicial. 4. The contention of the appellant before the ld. PCIT was that it had not dealt with any international transaction as specified in section 92 or 92B with any specified associate concern nor had any transaction with specified person in domestic transactions, as such there was no requirement of any report being furnished in form 3CEB, u/s 92E of the Act. The provisions of Transfer Pricing were not applicable, and there was no requirement of any reference to TPO. The appellant also referred to the letter submitted during the assessment in this regard and also details of payments made to related parties in the tax audit report which also indicates that there are no such payments to any associated enterprises. 5. The second objection of the PCIT as discussed in para 5 of the order was with regard to Sundry Creditors being not properly examined that reasons for which selection of case was made was not properly examined. The PCIT observed that the as regards selection of the case for scrutiny, the appellant was required to submit on four issues, for which query was being raised by the AO during the 4 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer assessment but the issues were not properly examined. The reasons for cass were as under : a. Gross total income is less than the value of foreign remittance sent (Form 15CA and total income in Part BTI of ITR). b. High ratio of refund to TDS. c. Large outward remittances to a non resident not being a company or to a foreign company (Form 15CA). d. Large amount of Sundry Creditors (Part 1 of BS of ITR). 6. The objection of the PCIT is that the sundry creditors are very high as compared to the amount of purchases made and the sales being made by the appellant. The PCIT observed that the total turnover was Rs. 83.63 crores against which purchases were 69.88 crores and opening stock was Rs. 13.65 crores which raised doubts about the sundry creditors which was Rs. 218.30 crores. The PCIT observed that in the submissions made by the appellant before him, it was contended that during assessment details of all sundry creditors along with their names and addresses and confirmation was submitted, which was examined by AO. As per the assessee in the list of sundry creditors there were some business advances also which were grouped under sundry creditors, but were unsecured loans and inadvertently grouped in sundry creditors. The assessee submitted that the amount Rs. 35.09 crores of Glory Export was loan and was wrongly shown as 5 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer creditors. The PCIT was however, not satisfied with the reply of the assessee, and observed that after submissions of the appellant the AO has not made any further query and merely accepted the details of the assessee. the loan of Glory Exports was also not shown as loans in the financial statements. In relation to the foreign creditors the AO could have referred the matter to FT and TR which he has failed to do and therefore the order is erroneous on this aspect. He therefore directed the AO to examine this issue of creditors and to examine the source and creditworthiness and genuineness and existence of the foreign creditors and on the basis of outcome of such enquiry and verification necessary addition may be made wherever required. He also directed to examine the issue of cessation of liability if any u/s 41(1) of the Act. 7. As regards Cass reasons the PCIT also observed that the AO has not enquired into the Cass reasons and the assessment order is silent upon such issue. The AO failed to examine the Form 15CA. Further the PCIT also observed that in relation to transaction with Abhi Impex, Mumbai there is total purchases of 16.06 crores and there are only stock purchased or sold, which raises doubts about the nature of transactions which needs to be examined. The PCIT also observed that the contention of the appellant that enquiry was made u/s 133(6) with the said party is of general nature, the AO was required to go for more verification by obtaining further details. 6 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer 8. The contention of the appellant before us had also been that the issues were duly examined at the time of the assessment proceeding and on this issue also the assessment cannot be considered as erroneous or prejudicial to the interest of revenue. The appellant referred to the query letter dated 13.7.2019 issued by the AO which is at departmental paper book page 276, in which the issue No. 7,8, 9, and 10 related to the query raised in the cass for selection. The appellant duly submitted the various details and documents in reply to the same during the course of assessment proceedings and is in the department paper book page 280 to 363) 9. In relation to the issue regard gross total Income being less than value of foreign exchange remittances sent it is submitted that the same has nothing to do with the remittances sent. It was contended that all imports of precious metals and diamonds are verifiable with invoices payment of duty and remittances being sent to the suppliers. It was pointed out that the details of all the foreign remittances made submitted to the AO during assessment and were also annexed in the paper book. As regards high ratio of TDS and refund being claimed, the appellant submitted that the TDS on various payments are statutorily required to be deducted by the payer as per requirement of the Act, and is not based upon the income of the appellant. In relation to the outward remittances to non resident and foreign companies, it was mainly for purchase of diamonds imported from foreign countries mainly Belgium, Russia, Dubai, Hongkong, Israil etc. For the Imports of 7 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer goods assessee had to made the payments which caused outward remittance. All the purchases/imports made by the assessee company are duly certified by the custom department thereafter only the payments are made. It was submitted that the assessee was not liable to furnish Form 15CA to the bank as per press release of CBDT and rule 37BB, he had however also furnished the same to ease his business transaction. 10. As regards sundry creditors, the appellant submitted the complete list of creditors with complete details was submitted during the assessment proceedings. Confirmations of most of the creditors except the foreign creditors were submitted during the assessment proceedings. However, the list of Sundry Creditors also included some accounts which were of the nature of loans, which will have no impact so far as the assessment of income is concerned. The classification of the same to Unsecured Loans will rather reduce the amount of the Sundry Creditors, and thereafter there would have been no grievance that the creditors are large. The inadvertent error if any was not in any prejudice to the revenue. The appellant had also submitted the confirmations of the unsecured loans. The creditors are regular income tax assessee. The appellant submitted that in business of import of diamond the appellant get long credit terms of payments and accordingly payments were made. In relation to M/s Glory Export is one of them which was wrongly grouped under Sundry Creditors instead of Business Advance/Loan. With this 8 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer party there is also regular business and in the preceding years and subsequent years Purchase and Sales transaction were with this party and therefore was grouped as creditors. The balance confirmation of this party was also submitted during the course of assessment proceedings. 11. The appellant further contended that as regards cession of Liability u/s 41 of the Act is not applicable as all the Creditors are regular and none of them is dormant or none of the liability of Creditors has ceased to exist. The confirmation of most of the Creditors were submitted during the assessment with their name and address and many of them have confirmed the balances. In many of the cases ld AO issued the notices u/s 133(6) of the Act and parties confirmed the transactions which also proved the existence of liability in this case and also the genuineness of the transaction and parties. Therefore this point of cessation of liability does not arise at all in this case of the appellant. The appellant company has been assessed u/s. 143(3) continuously since Asst. Yr. 2009-10 to 2014-15 and such creditors are regularly been verified with regard to the purchases made from them, and payments being made regularly. The transactions with the sundry Creditors were regular and liability of them were alive as on the balance sheet date. It is submitted that all the reasons mentioned in the CASS were thoroughly examined by the Ld. AO and only after satisfying with the details and explanation assessment order was made. Therefore saying that the CASS reasons were not 9 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer examined by the AO is factually wrong and on such ground of creditors and for cass reasons, the order passed by AO cannot be said to be erroneous or prejudicial to the interest of the revenue. 12. The next objection of the PCIT is that the commission expenses claimed had not been examined. It is stated that the commission expenses had been claimed at Rs. 26,91,041/- which has not been enquired into. No rent has been claimed for Mumbai and Surat or Beawar office, however certain expenses had been claimed at Surat and Mumbai. In relation to the payment of commission expenses the contention of the appellant is that the details of the same was furnished to the AO, which is also there in the paper book submitted by the department at pages 38 to 88 containing all supporting vouchers and bills. Further copy of their voucher receipts together with their return acknowledgement was also submitted to the ld. AO, TDS was also made u/s. 194H on all the payments made. As regards the registered office of the assessee company it was stated that the office at Beawar was at director Mr Mahendra Chhajer’s residence, and Surat Office was at property of the director Mr. Manoj Chopra for which no rent was paid. 13. In relation to the payment for assortment charges, it was also contended that the diamonds were assorted in Mumbai only. In Surat Goods were sold and purchased there either finished or rough. However goods were transferred to and 10 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer from Mumbai & Surat. Therefore, assortment charges were incurred and paid in Mumbai Office. The complete details of such expenses was also submitted during the course of assessment proceedings, and the details are also there in the paper book filed by the departmental paper book at pages 89 to 103. It was pleaded that the diamond Industry is mainly dominated by Gujaratis base at Surat is essential as the manufacturing of diamonds from rough to polish is majorly done there. However due to custom availability and buyers coming from all over the world, trading business is done in Mumbai. It was therefore the major expenses of assorting of diamonds are being incurred in Mumbai as the experienced persons are there in Mumbai. 14. The next issue raised in the 263 proceedings by PCIT is that the AO has made adhoc disallowance of Rs. 50,000/- out of certain expenses. In A.Y. 2015- 16 disallowance out of expenses was made at Rs. 84,156/- and trading addition of Rs. 3,00,000/- was made. In A.Y. 2014-15 total disallowance was made 6,83,947/- was made, and appeal was withdrawn by the appellant. Therefore disallowance of Rs. 50,000/- was on the lower side and a higher disallowance was required. 15. The appellant submitted no disallowance out of office expenses was required to be made, as in the case of the company, it is not capable to have any personal element. However with a view to buy peace of mind and avoid litigation company 11 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer did not prefer appeal. It was further submitted that the Filing and withdrawing of appeal for the Ass. Yr. 2014-15 was made as the cost of litigation was more than the relief therefore the appeal was withdrawn. This point cannot be made as ground for the reason for review u/s 263 of the Act. Further on this issue the appeal was filed, and the same was dismissed as not pressed, and therefore the order of the ld. AO had merged with the order of CIT(A), and therefore the PCIT will not have any jurisdiction over such issue. Further it is pointed out that the PCIT himself has dropped this issue in his order u/s 263 and has observed that the disallowance be not disturbed. 16. The appellant had also relied upon certain judicial decisions to support his contention that the assessment was made after due enquiry and in the order the PCIT has not pointed out any error in the decision taken by the AO and the said order cannot be said to be erroneous or prejudicial to the interest of revenue to invoke section 263 and requested to quash the order. 17. During the course of hearing, the ld. DR strongly relied on the orders of the authorities below. 18. We have heard both the parties and perused the materials available on record. As regards the first issue raised by the PCIT with regard to reference to TPO, we find from the order u/s 263 of the PCIT at page 6 in para 4 of his order in which he has observed as under : 12 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer 4. In response the assessee has filed submissions dated 11.2.2021 though e filing portal in respect of the issues as discussed in the proceedings paragraphs of this order. It is stated by the assessee that it has neither dealt in any international transactions as specified u/s 92 and 92B nor it has dealt in specified domestic transactions u/s 92BA requiring its reporting by the Chartered Accountant in Form 3CEB u/s 92E r.w. Rule 10E. As per the assessee that it and the persons/ concerns with whom it had dealt (purchases/ sale of goods including import purchases) are neither associated enterprises nor prior agreement in relation to such transactions. It is pleaded by the assessee that when the purchases and other transactions were carried out with the parties were not the associate enterprise, then the question of reference to TPO does not arise at all. Accordingly, the assessee has also not filed Form 3CEB. The AO considering this submissions of the assessee is directed to verify from the records and based on such verification if it is found by him that the purchases and other transactions because of outward remittances to a non resident not being a company or to a foreign company were not carried out with the associated enterprises, then he is not required to make reference to the TPO in respect of international transactions for computation of Arms’s length Price.” 19. From the above, findings, it is clear that the show cause notice issued in this regard was incorrect on facts, and there was only a suspicion that there is requirement of TPO was required, and even after all details being provided, there is no conclusion about requirement of such reference to TPO. On the contrary the ld. PCIT had also himself stated that if there is no such transaction with associated 13 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer enterprises no reference to TPO is required to determine Arms Length Price. The proceedings u/s 263 cannot be initiated just to make any fishing or roving enquiries. Further we also notice that the selection of the case of the appellant was not on the basis of TP risk parameters, and therefore even in a case where there are international transactions with the associated enterprises, and no reference was made to TPO, the proceedings u/s 263 cannot be initiated simply on this reasons unless there are material facts to indicate that the transactions were not at arms length price. We may also refer to the case of PI Industries Ltd. vs. PCIT reported in (2021) 213 TTJ (Jd) 686, in which on such ground where the selection of case was not on TP risk parameters, and there were transactions with associated enterprises, and still the reference was not made to TPO, the proceedings u/s 263 were found to be not justified. In the present case, there are no transactions with the associated enterprises, and therefore on this ground of reference to TPO, valid jurisdiction u/s 263 cannot be invoked. 20. The issue relating to the verification of the sundry creditors, it is seen that the AO during the course of assessment proceedings had raised query and the appellant had submitted the details and confirmation of the creditors. The AO during the course of assessment proceedings had also issued notices u/s 133(6) to some of the creditors on random basis, and was satisfied by the same and no adverse inference was drawn. It cannot be said that proper enquiry was not made 14 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer in relation to the same. The complete address of the creditors and their PAN details were also submitted during the assessment proceedings. In the order u/s 263, nothing adverse has been pointed out in relation to any of the creditors or any irregularities in the account. Simply on the basis of suspicion the order cannot be said to be erroneous when proper enquiry was duly made. The Hon’ble Supreme Court also in the case of CIT vs. Kwality Steel Suppliersd Complex (2017) 297 CTR (SC) 553 have held that the CIT while sitting in the revisionary jurisdiction is not sitting in appeal, judging the view taken by the AO. It the view taken by the AO after verification is a plausible and permissible view, the CIT cannot exercise the powers under s. 263. Even from the impunged order it is seen that various past assessments had been also made under scrutiny and some of the creditors which are regular creditors, nothing adverse had been stated in relation to these creditors. Even from Glory Exports confirmation from the said party was submitted during the assessment. In the present issue the AO has made proper enquiry on this issue and it is not denied that notices u/s 133(6) had been issued to certain creditors, the nature of assessment order does not bring the case of the revenue within the purview of s.263 and cannot be said to be prejudicial to the interest of revenue. 21. On other issues of payment of commission and assortment charges also we find that the details of these expenses and supporting bills and vouchers were also submitted during the assessment proceedings. Nothing material has been pointed 15 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer out in the impunged order about the inadmissibility of any of the expenditure being incurred by the appellant. All payments are also through banking channel, and due tax deduction at source on such payments had also been made by the appellant, which was also submitted during the assessment proceedings. Thus the issues stands duly examined at the time of assessment, and nothing material has been placed on record to show the error in such judgment. 22. In relation to the disallowance out of expenses made, we find that the PCIT himself in his order u/s 263, in para 12 has stated that the submissions of the assessee on this issue is found to be acceptable and the adhoc disallowance of Rs. 50,000/- as made by the AO in the assessment order u/s 143(3) of the Act for A.Y. 2016-17 is not disturb and the same will remain as it is. Thus on this issue the contention of the appellant was accepted by the PCIT, and therefore would not be the subject matter of 263. Even in the case of JR Industries vs. PCIT (2021) 35 NYPTTJ 1150 (Jp) it was held by Bench that if an issue is decided by CIT(A) in an appeal against the assessment order passed by the AO, then, that issue cannot be subject-matter of proceedings under s. 263. 23. In view of the above facts, we find that there was no lack of proper enquiry and the original assessment was made after due verification, and PCIT was not justified in invoking the powers under s. 263. The Hon’ble Rajasthan High Court also in the case of Laxmi Narayan reported in 402 ITR 117 (Raj) following the 16 ITA NO.174/JP/2021 M/s.Maniratnam Gems (P) Ltd. vs ACIT, Circle-2, Ajmer decision of Malabar Industrial Corporation reported in 243 ITR 83 (SC), had held that if the enquiry has been duly made, the revision proceeding cannot be initiated. In view of the same the order u/s 263 is quashed. 24. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 13/07/2022 Sd/- Sd/- ¼ jkBksM deys'k t;UrHkkbZ ½ ¼lanhi xkslkbZ½ (Rathod Kamlesh Jayantbhai) (Sandeep Gosain) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 13/07/2022 *Mishra vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- M/s. Maniratnam Gems (P) Ltd. Beawar 2. izR;FkhZ@ The Respondent- ACIT, Circle- 2, Ajmer 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 174/JP/2021) vkns'kkuqlkj@ By order, Asstt. Registrar