M/s Piyanshu Chemicals Pvt. Ltd., Topsia V. D.C.I.T.,Circle-12(1), Kolkata

ITA 2350/KOL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5161 (ITAT-KOLKATA)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2017-2018
• Appeal Filed On: 24-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANTA KHANRA
• Assessee Lawyers: A K TULSIYAN
• Keywords: Business income; Opportunity of being heard; TDS
• Section: 143(1); 143(2); 72; 37

Judgement Text

1 ITA NO. 2350/KOL/2019 M/S. PIYANSHU CHEMICALS PVT. L TD., AY- 2017-18 , C(SMC) , IN THE INCOME TAX APPELLATE TRIBUNAL C(SMC) BENCH : KOLKATA ( ) . . , ) [BEFORE SHRI A. T. VARKEY, JM] ITA NO.2350/KOL/2019 ASSESSMENT YEAR: 2017-18 M/S. PIYANSHU CHEMICALS PVT. LTD. (PAN: AABCP5664M) VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12(1) , KOLKATA. APPELLANT RESPONDENT DATE OF HEARING 22.01.2020 DATE OF PRONOUNCEMENT 19.02.2020 FOR THE APPELLANT SHRI A. K. TULSIYAN, FCA FOR THE RESPONDENT SHRI JAYANTA KHANRA, JCIT, SR. D R ORDER THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-4, KOLKATA DATED 28-08-2019 FOR THE ASSESSMENT YEAR 2017-18. 2. THE MAIN GRIEVANCE OF THE ASSESSEE IS AGAINST TH E ACTION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE AO(CPC) IN MAKING DISA LLOWANCE OF RS.7,10,679/- U/S. 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT). 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA D FILED AN APPEAL BEFORE THE LD. CIT(A) AGAINST THE INTIMATION DATED 02.02.2019 U/S. 143(1) OF THE ACT PASSED BY THE DCIT(CPC), BANGALORE. ON APPEAL, THE LD. CIT(A) IN THE IMPUGN ED ORDER OBSERVED THAT THE ASSESSEE COMPANY HAD FILED RETURN OF INCOME ON 27.10.2017 DE CLARING TOTAL INCOME OF RS.11,93,30,100/-. SUBSEQUENTLY, THE RETURN WAS PR OCESSED BY CPC AND INTIMATION U/S. 143(1) WAS MADE ON 12.07.2018 REGARDING CERTAIN INC ONSISTENCIES IN DISALLOWANCES U/S. 37 OF THE ACT. ACCORDING TO LD. CIT(A), THE ASSESSEE COMPANY HAD FILED ITS RESPONSE TO THE CPC ON 11.08.2018. HOWEVER, THE AO (CPC) DID NOT C ONSIDER THE SAME (REPLY OF ASSESSEE) AND PASSED THE INTIMATION ORDER U/S. 143(1) OF THE ACT ON 02.02.2019 DETERMINING THE TOTAL INCOME OF RS.12,00,40,780/- BY MAKING AN ADJUSTMEN T OF RS, 7,10,679/-. THEN THE LD. CIT(A), DISMISSED THE ASSESSEES GROUND OF APPEAL BY OBSERVING THAT THE ASSESSEE HIMSELF 2 ITA NO. 2350/KOL/2019 M/S. PIYANSHU CHEMICALS PVT. L TD., AY- 2017-18 HAS SHOWN THE AMOUNT TO BE DISALLOWED IN THE RETURN OF INCOME AND THE CPC HAS MERELY MATCHED THE DIFFERENT COLUMNS AND MADE THE DISALLOW ANCES. HENCE, ACCORDING TO LD. CIT(A), THERE SEEMS NO ERROR IN THE COMPUTATION MAD E BY THE AO (CPC). SO, HE DISMISSED THE ASSESSEES GROUND OF APPEAL. AGGRIEVED, THE AS SESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 4. I HAVE HEARD BOTH THE SIDES AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT THE ASSESSEES RETURN OF INCOME WAS PROC ESSED BY THE CPC, BANGALORE WHEREIN THE ASSESSEE HAD DECLARED TOTAL INCOME OF R.11,93,30,10 0/-. LATER THE ASSESSEE RECEIVED COMMUNICATION OF PROPOSED ADJUSTMENT OF RS.7,10,679 /- U/S. 143(1)(A) OF THE ACT FROM THE DCIT, CPC ON 12.07.2018. THIS FIGURE OF RS.7,10,679 /-, ACCORDING TO LD. AR, WAS A DIFFERENCE BETWEEN THE FIGURE OF RS.11,70,671/- WHI CH WAS ADDED BACK (DISALLOWED) BY THE ASSESSEE IN THE RETURN OF INCOME AND THE AMOUNT OF RS.18,81,350/- MENTIONED IN THE FORM 3CD TAX AUDIT REPORT WHICH WAS THE CLUB EXPENSES OF THE ASSESSEE COMPANY [I.E. (RS.18,81,350 RS.11,70,671) = RS.7,10,679]. THOU GH THE ASSESSEE CLARIFIED ON 11.08.2018 PURSUANT TO THE COMMUNICATION OF PROPOSED ADJUSTMEN T DATED 12.07.2018 THE DCIT, CPC IGNORED THE EXPLANATION AND STUCK TO ITS STAND AND DETERMINED THE TOTAL INCOME AT RS.12,00,40,780/- BY INCREASING THE BUSINESS INCOME BY RS.7,10,679/-. THE DETAILED BREAK- UP FIGURE OF RS.18,81,350/- (AS SHOWN IN THE TAX AU DIT REPORT) AND RS.11,70,671/- WHICH WAS DISALLOWED/ADDED BACK BY THE ASSESSEE IN THE RE TURN OF INCOME IS AS UNDER: BREAK-UP OF RS.18,81,350/- [AS DISALLOWED IN 143 (1)] CLUB EXPENDITURE RS.18,80,285/- PENALTY ON PROVIDENT FUND RS. 498/- PENALTY ON ENTRY TAX TOTAL RS. 567/- RS.18,81,350/- BREAK-UP OF RS.11,70,671/- (SUO MOTO DISALLOWED IN COMPUTATION) EXPENDITURE INCURRED ON CSR ACTIVITIES RS.11,57,88 3/- INTEREST ON LATE PAYMENT OF TDS RS. 11,723/- PENALTY ON PF RS. 498/- PENALTY ON ENTRY TAX TOTAL RS. 567/- RS.11,70,671/- 5. AS NOTED ABOVE THE AO(CPC) HAS DISALLOWED THE FI GURE OF RS.7,10,679/- BEING THE DIFFERENCE OF RS.18,81,350 RS.11,70,671. ACCORDI NG TO LD. AR, THE CONFUSION HAPPENED BECAUSE AMOUNT OF CLUB EXPENSES WAS WRONGLY REPORTE D BY THE AUDITOR IN THE TAX AUDIT REPORT IN COLUMN NO. 21(A) AND ON THE BASIS OF WHIC H DISALLOWANCE WAS MADE BY CPC U/S. 3 ITA NO. 2350/KOL/2019 M/S. PIYANSHU CHEMICALS PVT. L TD., AY- 2017-18 143(1) OF THE ACT. THE LD. AR DREW OUR ATTENTION T O PAGE A1 OF THE PAPER BOOK WHEREIN I FIND THAT A CERTIFICATE OF THE AUDITOR HAS BEEN ENC LOSED WHICH STATES THAT THIS WAS AN INADVERTENT ERROR MADE BY HIM. THEREFORE, THE MAIN CONTENTION OF THE LD. AR IS THAT THE MISTAKE OF THE AUDITOR/CLERICAL ERROR IN THE TAX AU DIT REPORT CANNOT BE THE BASIS FOR DISALLOWANCE OF EXPENSES WHICH HAS BEEN LEGALLY SPE NT BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES AND, ACCORDING TO HIM, IS AN ALLOWABLE CLAIM WHICH HAS BEEN ADDED IN THE HANDS OF THE ASSESSEE WITHOUT GIV ING PROPER OPPORTUNITY OF BEING HEARD. THUS, ACCORDING TO LD. AR, THE CLUB EXPENSES FROM W HICH RS.7,10,679/- WAS DISALLOWED WAS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF THE BUS INESS AND IS ALLOWABLE U/S. 37 OF THE ACT AND COULD NOT HAVE BEEN DISALLOWED THAT TOO PARTLY WITHOUT PROPER SCRUTINY. I FIND FORCE IN THE ARGUMENT OF THE LD. AR SINCE AO COULD NOT HAVE RESORTED TO DISALLOWANCE MERELY ON THE BASIS OF A TAX AUDIT REPORT WHICH WAS FLAWED AND WI THOUT CONSIDERING THE PLEA/EXPLANATION/CLARIFICATION GIVEN BY THE ASSESSE E PURSUANT TO THE COMMUNICATION MADE BY THE CPC PROPOSING THE ADJUSTMENT. AFTER CONSIDERIN G THE EXPLANATION OF THE ASSESSEE IF THE CPC WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSE E, THEN IT HAD TO ISSUE NOTICE U/S. 143(2) OF THE ACT AS DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT. IN THIS REGARD IT IS GAINFUL TO REFER TO THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF PEERLESS GENERAL FINANCE & INVESTMENT CO. LTD. VS. CIT 228 CTR 72 WH EREIN IT HAS BEEN HELD THAT IT IS ALSO NECESSARY FOR THE AO TO EXAMINE SECOND PROVISO BEFORE MAKING ANY DISALLOWANCE. A DISALLOWANCE CANNOT BE MADE UNDER S. 438 SIMPLY BEC AUSE PAYMENT WAS NOT MADE WITHIN THE PREVIOUS YEAR. FROM THE FACTS IT APPEARS THAT THE I NFORMATION CONTAINED IN THE TAX AUDIT REPORT DID NOT ENABLE THE AO TO MAKE ANY PRIMA FACIE ADJUS TMENTS UNDER S. 143(L)(A) WITH REFERENCE TO THE PROVISIONS OF S. 438. IT FURTHER APPEARS THA T THE TAX AUDIT REPORT DID NOT CONTAIN ANY BREAK-UP OF THE AMOUNT OR THE FURTHER INFORMATION R EQUIRED IN THE LIGHT OF THE TWO PROVISOS TO S. 438. THE TAX AUDITOR DID NOT SPECIFY IN-THE TAX AUD IT REPORT THE AMOUNT INADMISSIBLE UNDER S. 438. THEREFORE, IT APPEARS TO US THAT IT WAS NECESS ARY FOR THE AO TO ISSUE A NOTICE UNDER S. 143(2) FOR THE PURPOSE OF MAKING A PROPER ASSESSMEN T UNDER S. 143(3). 6. THEREFORE, IN THE PRESENT CASE, I AM OF THE OPIN ION THAT BASED ON THE AUDIT REPORT DURING THE PROCEEDINGS U/S. 143(1) OF THE ACT, NO A DJUSTMENT/DISALLOWANCE/ADDITION OF THE EXPENDITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF C LUB EXPENSES COULD NOT HAVE BEEN DISALLOWED WITHOUT ISSUE OF NOTICE U/S. 143(2) OF T HE ACT AS HELD BY THE HONBLE HIGH COURT IN PEERLESS GENERAL FINANCE CO. LTD. (SUPRA). FURTH ER, I NOTE THAT THE ASSESSEE HAD ALREADY SUO MOTO DISALLOWED EXPENDITURE INCURRED ON CSR ACT IVITIES AMOUNTING TO RS.11,57,883/-, INTEREST ON LATE PAYMENT OF TDS, PENALTY OF PF AND PENALTY OF ENTRY TAX TOTAL MOUNTING TO RS.11,70,671/-. SO, THE ALLOWABILITY OF CLUB EXPEN SES WHICH ASSESSEE CLAIMED COULD NOT 4 ITA NO. 2350/KOL/2019 M/S. PIYANSHU CHEMICALS PVT. L TD., AY- 2017-18 HAVE BEEN DISALLOWED WITHOUT GIVING PROPER OPPORTU NITY TO THE ASSESSEE, WHICH OMISSION ON THE PART OF AO [CPC] IS AGAINST THE PRINCIPLES OF N ATURAL JUSTICE AND IT CANNOT BE SUSTAINED. THEREFORE, I ALLOW THE APPEAL OF THE ASSESSEE AND D IRECT DELETION OF ADDITION OF RS.7,10,679/-. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . ORDER IS PRONOUNCED IN THE OPEN COURT ON 19TH FEBR UARY, 2020. SD/- (ABY. T. VARKEY) JUDICIAL MEMBER DATED :19TH FEBRUARY, 2020 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT M/S. PIYANSHU CHEMICALS PVT. LTD. 53 A, MESCAB CENTRE, 4 TH FLOOR, TILJALA ROAD, TOPSIA, KOLKATA-700046. 2 RESPONDENT DCIT CIRCLE-12(1), KOLKATA. 3. 4. 5. CIT(A)-4, KOLKATA (SENT THROUGH E-MAIL) CIT- , KOLKATA. DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) BY ORDER, / TRUE COPY, ASSISTANT REGISTRAR