Smt. Rohini Valmik Gadhave, Pune V. Commissioner of Income-Tax -5, Pune

ITA 433/PUN/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 0197 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 24-06-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Assessment record
• Section: 263; 2; 43B; 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER ITA No.433/PUN/2020 निर्धारण वषा / Assessment Year : 2015-16 Smt. Rohini Valmik Gadhave C-Wing, Flat No.603, Mantra Properties, Moshi, Pune – 412105 PAN : BKVPG9947G Vs. Pr.CIT-5, Pune Appellant Respondent आदेश / ORDER PER S.S. GODARA, JM : This assessee‟s appeal for AY 2015-16 arises against the PCIT-5, Pune‟s order dated 13-03-2020 passed in case No.Pn/PrCIT-5/Admn/263/RVG/2019-20 in proceedings under Section 263 of the Income Tax Act, 1961, in short „the Act‟. Heard both the parties. Case file perused. Assessee by Shri B.C. Malakar Revenue by Shri Saradar Singh Meena Date of hearing 12-07-2022 Date of pronouncement 27-07-2022 ITA No.433/PUN/2020 Smt. Rohini Valmik Gadhave 2 2. The assessee‟s sole substantive ground pleaded in the instant appeal seeks to reverse the PCIT‟s revision directions holding the corresponding regular assessment dated 29.09.2017 as an erroneous one causing prejudice to the interest of Revenue as follows: “04. 1 have carefully considered the material on record. An undisputed fact of the case was that this case selected under CASS as Limited Scrutiny with the reasons to verify 'Large Sales Promotion Expenses'. Assessee has debited an expenses of Rs.28,80,000/- as Sales Promotion Expenses in her P & L A/c as on 31.03.2015. The Assessing Officer vide Notice u/s 142(1) of the Act dated 01-09-2017 had requested the assessee to explain in details with documentary evidence and detail note about large sales promotion expenses in respect of her business. During the course of assessment proceedings, the A/R of the assessee along with her husband attended the personal hearing dated 19-09-2017 wherein the Assessing Officer requested them to submit the details as per Notice u/s 142(1) dated 01-09-2017 within two days. The A/R of the assessee had attended the personal hearing dated 27-09-2017 and furnished the copies of ITR for A. Y. 2015-16, Computation of total income, Financials for A. Y. 2015-16, Brief note on nature of Business and Business expenditure and Form 26AS. 4.1. In her brief note on nature of business and business expenditure, the assessee stated that 'In order to ensure the participation of new recruits, the distributor's needs to organize events and educational seminars. It involves huge expenditure like Renting of places, Food expenses while conducting events, consultancy fees to any professional or speaker, travelling expenses and so on. All the specified expenses are incurred in order to facilitate sale, so assessee addressing those as sales promotion expenses'. However, the assessee did not file any documentary evidences in support of large sales promotion expenses, which is evident from the assessment record for the relevant period. It is also noted that the assessee has not furnished any bills/vouchers etc. to prove that she has ever incurred any expense in support of her claim of expenditure on account of any sale promotion such as renting of any place, food expenses and consultancy fee to any professional or speaker, travelling expenses etc. Even not a single photograph of organising ITA No.433/PUN/2020 Smt. Rohini Valmik Gadhave 3 any seminar etc was furnished. It is also noted that the assessee has not even pointed out any entry in her bank account for the relevant period to show that she has made payment to any person through cheque on account of sale promotion expenditure. From the perusal of bank statement of the assessee for the relevant period, it is noted that the assessee has withdrawn huge amount of cash from her bank account regularly, and it is quite possible that the assessee could incurred expenses on account of sales promotion, but neither during the course of assessment nor in review proceeding, assessee could give the names, addresses etc. of the persons to whom such payments could have been made. Therefore, in the absence of any details of sales promotion expenditure, it cannot be said that the assessee had incurred any expenditure under the head –sales promotion" during the relevant period. It is also clear that the assessing officer has mechanically placed the submission and accepted the version of the assessee without bringing any evidence on record of any details of such claimed expenditure under the head Sales Promotion". 4.2. In the assessment order, the Assessing Officer has stated that the assess was asked to furnish the details of the Sales promotion expenses debited to the P & L A/c The A/R of the assessee has submitted requisite details and explained in his submission. On verification, of these details, it was observed that the "entire expenses on this account are not verifiable for want of proper evidences". Considering these facts Rs.2,00,000/- is treated as expenses incurred for non-business purpose'. The assessee had claimed Sales Promotion Expenses of Rs.28,80,000/- in P & L A/c for the year ending 31.03.2015 and Assessing officer had disallowed Rs.2,00,000/- out of the total Sales Promotion Expenses being treated as expenses incurred for non-business purpose. As discussed above in para 4.1, neither any evidence had been furnished by the assessee nor the Assessing Officer had inquired about the veracity of such claimed expenditure on account of sales promotion of Rs 28,80,000/- despite the fact that the impugned case was selected for limited scrutiny to examine/verify the said sales promotion expenses. In the absence of any evidence of such expenditure and verification thereof, the Assessing Officer could not have allowed the expenditure to the tune of Rs.25,80,000/- and disallowed Rs.2,00,000/- of such expenditure. This shows that there was no application of mind by the Assessing Officer in disallowing ITA No.433/PUN/2020 Smt. Rohini Valmik Gadhave 4 Rs.2,00,000/- when there was no material available on record of incurrence of such expenditure by the assessee. When the entire expenses on account of Sales Promotion expenses was not verifiable (As per the assessment order), how the Assessing Officer can allow the expenses of Rs. 26,80,000/- as expenditure without any evidence of incurring the same and estimate the disallowance of such expenses to the tune of Rs.2,00,000/-. Obviously, there is no such basis or application of mind by the Assessing Officer. Here is the case, where the assessing officer has neither made any inquiry nor applied his mind to the facts and circumstances of the case and has allowed the sales promotion expenses of the assessee to the tune of Rs.26,80,000/- and has disallowed expenditure of Rs.2,00,000/- on estimate without any basis for such estimate). Therefore, the undersigned is of the firm opinion that it is a case of no inquiry by the Assessing Officer and the impugned assessment order is erroneous in so far as it is prejudicial to the interest of revenue. In Malabar Industrial Co. Ltd. vs. CIT (2000) 243 1TR 83, it was observed BY THE Hon'ble supreme court that: "7. .......... 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." 4.3 In her submission during the review proceedings before the undersigned, the assessee has submitted that “It is not a case where no verification relating to the sales promotion expenses has been done by the Assessing Officer. It is also not a case where the Assessing Officer has totally ignored and/or overlooked to the relevant issue of sales promotion expenses, which is the basis for the issue of notice u/s 263 of the Act. Therefore, in her opinion, once the issue has been considered threadbare by the Assessing Officer and he had given his specific and positive finding after analyzing and examining the issue under dispute i.e. "Sales Promotion Expenses" in the scrutiny assessment order, subsequent any decision by any authority including the Commissioner of Income Tax during the revisional proceedings u/s 263 would tantamount to "change of opinion". The assessee has further placed reliance on a number of cases in support of her contention which is given above in para 3 of this order. ITA No.433/PUN/2020 Smt. Rohini Valmik Gadhave 5 4.3.1. In this regard, it is stated that neither during the course of assessment nor during the review proceeding, assessee has produced any iota of evidence in support other claim of expenditure on account of sales promotion expenditure for the relevant assessment year. Therefore, there was no occasion for the Assessing Officer to verify the same. Hence, in my opinion, there was no basis for the Assessing Officer either to allow the sales promotion expenditure to the tune of Rs. 26,80,000/- or to disallow the same to the tune of Rs. 2,00,000/-. In fact, the claim of whole expenditure to the tune of Rs. 28,80,000/- has been without any basis and as per the Law, it is liable to be disallowed as the assessee has not even prime facie discharged the burden of proof in this regard. Hence, as discussed above, this is a case, where the assessing officer has neither made any inquiry nor applied his mind to the facts and circumstances of the case and has allowed the sales promotion expenses of the assessee to the tune of Rs 26,80,000/- and has disallowed expenditure of Rs 2,00,000/- on estimate without any basis (for such estimate). Here, it would be apt to say that the Scope of the term 'inquiry' can be diverse in different circumstances. There cannot be straight jacket formula to positively conclude as to conducting or non-conducting of 'inquiry' by the Assessing Officer. While, in some cases, collection of necessary material by the Assessing Officer may lead to an inference about conducting inquiry", in others, mere obtaining and placing the documents on record may not be equalized with conducting an inquiry. Where the facts are just ordinary and prima-facie there is nothing un-to-ward the recorded transaction, in such circumstances, the obtaining of the documents and the application of mind thereon, without a further outside inquiry may mean that the Assessing Officer did conduct inquiry. Leaving the question open as to whether it was a proper or an improper inquiry. But, where the factual scenario of a case, prima-facie indicates abnormalities and cry for looking deep into it, than a mere collection of documents cannot be held as conducting inquiry, leave aside adequate or inadequate. 4.3.2. In support her case, the assessee has placed reliance upon the decision of Hon’ble high court of Gauhati in the case of CIT v. Jawahar Bhattacharjee [2012] 341 ITR 434 (Gauhati) (HC) (FB). However, in my humble opinion, the aforesaid case supports the case of Revenue wherein it has been held that:- "Non application of mind to relevant material or an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of order being erroneous." ITA No.433/PUN/2020 Smt. Rohini Valmik Gadhave 6 4.4. The assessee has also cited the case law of M/s. Ladkat Brothers Service Station vs PCIT-3, Pune adjudicated in the ITAT 'A' Bench, Pune as discussed in aforesaid paras wherein it was held that - 'CIT was not justified in invoking the provisions of section 263 of the Act. As far as La, DR's reliance on insertion of Explanation 2 to section 263 is concerned, we are of the view that the Explanation 2 to section 263 is inserted by Finance Act 2015 w.e.f 01.06.2015 meaning thereby that is applicable for A.Y. 2016-17 and therefore, not applicable to the year under consideration.' 4.4.1 It is observed that in the aforementioned case, the assessment was completed under section 143(3) of the Act on account of scrutiny under CASS for "limited reasoning". The Assessing Officer had not opted for wider scrutiny in that case. Under such circumstances, it was held by the Hon'ble ITAT, PUNE Bench that where the Assessing Officer had exercise the limited powers of scrutinizing the case of assessee on the points for which it was selected, the order of Assessing Officer cannot be held to be erroneous for not looking at issue which was not part of its selection process. Thus, the facts and circumstances of the aforementioned case was entirely different from the facts and circumstances of the present case and therefore, in my humble opinion, do not support the case of present assessee. Furthermore, in the case of Crompton Greaves Ltd. vs. CIT (ITAT Mumbai) [ITA Nos 2690/Mum/2016 & 2691/Mum/2016], it is held that: (i) The amendment to section 263 of the Act by insertion of Explanation 2 to Section 263 of the Act is declaratory & clarificatory in nature and is inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interest of Revenue, it is inter- alia, provided that if the order is passed without making inquiries or verifications by AO which, should have been made or the order is passed allowing any relief without inquiring into the claim; the order shall be deemed to be erroneous and prejudicial to the interest of Revenue. The Hon'ble Supreme Court in the case of Malabar Industrial Company Limited v. CIT (2000) 109 Taxman 66 (SC) held that if the AO has accepted the entry in the statement of account filed by the taxpayer without making enquiry, the said order of the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue. In our considered opinion, the facts of the case of the assessee company are similar to the facts in the case of Malabar Industrial Co. Limited (supra) whereby no enquiry/verification is made by the AO whatsoever with respect ITA No.433/PUN/2020 Smt. Rohini Valmik Gadhave 7 to claim of deduction of Rs. 17.72 crores with respect to the provisions for warranty, excise duty, sales tax and liquidated damages. Moreover, now Explanation 2 to Section 263 of the Act is inserted in the statute which is declaratory and claraficalory in. nature to declare the law and provide clarity on the issue whereby if the A.O. failed to make any enquiry or necessary verification which should have been made, the order becomes erroneous in so far as it is prejudicial to the interest of revenue. (ii) A proviso added from 01-04-1988 to Section 43B of the Act from 01-04-1984 came up for consideration in Allied Motors Private Limited v. CIT (1997) 91 taxman 205(SC) before Hon'ble Supreme Court and it was given retrospective effect from the inception of the section on the reasoning that the proviso was added to remedy unintended consequences and supply an obvious omission so that the section may be given a reasonable interpretation and that in fact the amendment to insert the proviso would not serve its object unless it is construed as retrospective. In CIT v. Podar Cement Put. Limited (1997) 92 Taxman 5^1 (SC), the Hon'ble Supreme Court held that amendment introduced by the Finance Act, 1987 in so far the related to Section 27(iii), (iiia) and (iiib) which redefined the expression 'owner of house property', in respect of which there was a sharp divergence of opinion amongst the High Courts, was clarificatory and declaratory in nature and consequently retrospective. Similarly, in Brij Mohan Das Laxman Das v. CIT (1997) 90 Taxman 41 (SC), explanation 2 added to section 40 of the Act was held to be declaratory in nature and, therefore, retrospective. (Reference Page 569-570, Principles of Statutory Interpretation by Justice G.P.Singh, 13th Ed,). (iii) In our considered view, the CIT has rightly invoked the provisions of section 263 of the Act as the A.O. failed to make proper enquiry, examination and verifications as warranted for the proper completion of the assessment, with respect to claim of deduction of Rs. 17.72 crores with respect to the provisions for warranty, excise duty, sales tax and liquidated damages." 4.5. I have also perused the other case laws relied upon by the assessee, but in my opinion, they do not support the case of the assessee as they have been rendered on the basis of entirely different facts and circumstances from the case of the assessee and can easily be distinguished. ITA No.433/PUN/2020 Smt. Rohini Valmik Gadhave 8 05. In view of the foregoing discussion, it is clear that the assessment completed under section ]43.(3) of the Income Tax Act, 1961, by the Income Tax Officer, Ward - 9(2), Pune, on 29-09-2017, for Assessment Year 2015-16, is erroneous in so far as it is prejudicial to the interest of the revenue as per Explanation (a) of Section 263 of the Act - the order is passed without making inquiries or verification which should have been made. Therefore, the assessment made by the Assessing Officer is set aside with a direction to complete the assessment afresh after due verification.” 3. Both the parties reiterated their respective stands against and in support of correctness of the learned PCIT‟s revision directions. The Revenue vehemently argued that the learned PCIT has rightly held the Assessing Officer as not to have carried out all the detailed enquiry(ies) since he had simply accepted the impugned sales promotion expenditure claim amounting to Rs.28.80 lacs despite the fact that there was no supportive evidence or details filed during the course of scrutiny. 4. We note from a perusal of case records; and more particularly in para 3 of the assessment order, that foregoing revision findings turn out to be against the Assessing Officer‟s specific conclusion that the assessee had submitted all the requisite details followed by his explanation which could not be verified in entirety for want of further proper evidence. He therefore disallowed a lump sum figure of Rs.2 lacs only. All these facts sufficiently indicate that ITA No.433/PUN/2020 Smt. Rohini Valmik Gadhave 9 the Assessing Officer had duly applied his mind qua the assessee‟s impugned claim of sales promotion expenditure as against the learned PCIT‟s revision directions holding otherwise. Faced with this situation, we hold that the learned PCIT‟s revision directions have erred in law and on facts in treating foregoing regular assessment as an erroneous one causing prejudice to interest of Revenue; simultaneously, as held to be mandatory in Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC), ITO vs. DG Housing Projects Ltd. 343 ITR 319 (Del) and Narayan T. Rane vs. ACIT – ITAT, Mumbai. Learned PCIT‟s order under challenge invoking section 263 revision jurisdiction stands reversed therefore. 5. This assessee‟s appeal is allowed in above terms. Order pronounced in the Open Court on 27 th July, 2022. Sd/- Sd/- (DIPAK P. RIPOTE) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER प ु णे Pune; ददिधांक Dated : 27 th July, 2022 GCVSR ITA No.433/PUN/2020 Smt. Rohini Valmik Gadhave 10 आदेश की प्रतिलिपि अग्रेपिि/Copy of the Order is forwarded to: 1. अपीऱधर्थी / The Appellant; 2. प्रत्यर्थी / The Respondent; 3. विभागीय प्रविविवि, आयकर अपीलीय अविकरण, पुणे “B” / DR „B‟, ITAT, Pune 4. गार्ड फाईल / Guard file आदेशान ु सार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अविकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 12-07-2022 Sr.PS 2. Draft placed before author 22-07-2022 Sr.PS 3. Draft proposed & 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.