M/s DSG Papers Private Limited, Patiala V. Pr.CIT, Patiala

ITA 459/CHANDI/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4330 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 23-05-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Search and seizure; Assessment record; Set aside
• Section: 148; 263; 144; 143(3); 115JB; 43; 145(3); 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH ‘A’, CHANDIGARH BEFORE SMT.DIVA SINGH, JUDICIAL MEMBER AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER ITA No. 459/Chd/2022 (Assessment Year: 2013-14) M/s DSG Papers Private Limited 6 Green View Colony Patiala-147001 बनाम The Pr. CIT Patiala थायी लेखा सं./PAN NO: AACCD1450A नधा रती क ओर से/Assessee by : Shri Sudhir Sehgal, Advocate राज व क ओर से/ Revenue by : Shri Vivek Nangia, CIT DR स ु नवाई क तार ख/Date of Hearing : 07/09/2022 उदघोषणा क तार ख/Date of Pronouncement: 22/09/2022 आदेश/ORDER Per Vikram Singh Yadav, AM: This is an appeal filed by the assessee against the order of Ld. PCIT(Central), Ludhiana dt. 31/03/2022 wherein the assessee has taken the following grounds of appeal: “1. That the Ld. PCIT (Central), Ludhiana has erred in assuming the jurisdiction to issue notice u/s 263 of the Income Tax Act, 1961 and, thereby, setting aside the order as passed after due application of mind by the Assessing Officer. 2. That the Ld. PCIT has failed to appreciate that the Assessing Officer was conscious of the fact, that there was an information received from Directorate General of GST Intelligence was very much in the knowledge of the Assessing Officer at the time of framing the assessment and which had been considered by him and, as such, it cannot be said that the Assessing Officer has not taken a conscious decision on the issue of alleged capital employed on the alleged undisclosed sales, while framing the assessment. 3. That the Ld. PCIT has failed to appreciate that the assessment had been completed after due consideration of various replies by the Assessing Officer during the course of assessment proceedings and the Assessing Officer having taken a possible view and, therefore, the assumption of jurisdiction u/s 263 was not called for by the Ld. PCIT. 4. That the Id. PCIT has failed to consider that the issue of alleged undisclosed turnover was considered by the Ld. CIT(A) also and that appeal, has been decided and the issue of alleged undisclosed turnover being linked with the alleged capital employed and, thus the order of the Assessing Officer having 2 been merged with the order of the Assessing Officer, no action u/s 263 could have been called for. 5. Notwithstanding, the above said grounds of appeal, the Ld. PCIT has failed to consider that even after considering the addition of capital employed, no prejudice shall be caused to the assessee since, the MAT is applicable to the assessee and there is no likelihood of any difference in the tax liability for the year under consideration and, therefore, the assessment being not prejudicial to the interest of the revenue and action u/s 263 is not called for. 6. That the Ld. PCIT, otherwise also, has failed to consider that the assessment have been framed on the basis of third party evidence and no corroborative evidence was found for alleged undisclosed investment in stock, which is purely on assumptions/presumptions, hence the conclusion drawn by the PCIT is against the facts & circumstances of the case. 7. Notwithstanding the above said ground of appeal, the Ld. PCIT has erred in assuming the jurisdiction u/s 263 on the basis of audit objections, which is apparently wrong and incorrect in view of the judgment of Jurisdictional High Court in the case of Sohana Woollen Mill and other judgments of jurisdictional ITAT, Chandigarh Bench, Chandigarh in the case of M/s Ganga Acrowools Ltd. in ITA No.196/Chd/2021 and in the case of Sh. Surinder Pal Singh in ITA No. 576/Chd/2021 vide orders, dated 31.01.2022 and also that 263 proceedings have been initiated at the best of proposal sent by the Assessing Officer/Addl.CIT and, thus, the proceedings are void abinitio. 8. The appellant craves leave to add, amend, alter any of the above grounds during the appellate proceedings have been considered.” 2. At the outset, the Ld. AR submitted that the assessee does not wish to press the Ground Nos. 5 and 7, hence, these two grounds are dismissed as not pressed by the ld AR on behalf of the assessee. 3. Briefly the facts of the case are that assessee is a Private Limited Company engaged in the business of manufacturing of paper and paper products. The return of income for the relevant assessment year was filed on 28.09.2013 declaring a loss of Rs. 3,01,960/- whereas the book profit in terms of section 115JB of the Income Tax Act, 1961 (hereinafter called 'the Act') was computed at Rs. 3,27,62,297/- The case was selected for scrutiny. The assessment in terms of section 143(3) of the Act was completed on 20.03.2016 at the returned income and further at an income of Rs. 3,42,59,028/- in terms of section 115JB of the Act. Subsequently, revisionary proceedings were initiated u/s 263 of the Act and vide order dated 31.08.2017, the Ld. Pr. Commissioner of Income Tax (PCIT), Patiala set aside the assessment order and directed the Assessing Officer (AO) to pass a fresh assessment order. The 3 assessment subsequent to the revisionary proceedings was completed on 26.12.2018 wherein the income of the assessee was assessed as per the original assessment order passed u/s 143(3) of the Act on 20.03.2016. 3.1 Meanwhile, there was a search and seizure operation on 05.08.2016 on the business premises of the assessee by the Directorate General of GST Intelligence and the search was also conducted on one Shri Sanjay Dhawan, Ex-President of the assessee company as well as three-four dealers of the assessee company and information was passed on by the Intelligence Wing of GST to the Income Tax Department that the assessee company had been allegedly suppressing its turn over by way of not accounting for the sales by under invoicing the sales. During the course of search at the residential premises of Shri Sanjay Dhawan, parallel invoices of goods manufactured and sold by the assessee company were allegedly recovered. The evidence of under valuation of sales was allegedly in the form of statements of third parties recorded u/s 14 of the Central Excise Act, 1944. There was also allegedly evidence of unaccounted sales and under- valuation of accounted sales made to third parties in the form of e-mail communication between the Assessee Company and third parties. Statements of Shri Sanjay Dhawan as well as one Shri Shiv Charan Lal, the Ex-Dispatch Incharge of the assessee company were also recorded u/s 14 of the Central Excise Act, 1944 which allegedly pointed out towards issuance of parallel invoices by the assessee company. As per the information available, there was evidence of unaccounted sales to third parties in the form of delivery sheets etc. In view of this information, the AO proceeded to reopen the assessee’s case u/s 148 of the Act by recording reasons for the same. 3.2 During the course of re-assessment proceedings, the AO proceeded to reject the books of account maintained by the assessee u/s 145(3) of the Act and, thereafter, proceeded to complete the re-assessment at an income of Rs. 46,36,749/- after making an addition of Rs. 31,40,021/- on account of additional net profit by applying the net profit rate of 4.42% on the alleged 4 undisclosed sales for the year determined at Rs. 3,62,60,331/- and the reassessment was accordingly completed under section 144 r.w.s 147 vide order dt. 29/12/2019. 3.3 The assessment records were subsequently called for and examined by the Ld. Pr. CIT, Ludhiana and a show cause dt. 28/03/2022 was issued to the assessee. In the show cause notice, the Ld. Pr. CIT stated that for carrying out unaccounted additional turnover, additional capital is required for meeting the working capital requirement in the same proportion as used by the assessee in its regular business and since the assessee has made unaccounted sales, the minimum stock maintained at any point of time for carrying out the unaccounted turnover needs to be ascertained and thereafter applying the stock turnover ratio of 5.88% to the undisclosed turnover of Rs. 3,62,60,331/-, the Ld. Pr. CIT stated that the assessee must have maintained an additional stock of Rs. 61,66,723/- for carrying out the out of books turnover and such minimum stock justifies the requirement of additional capital of Rs. 1,21,47,130/- to carry out unaccounted turnover. It was held by the ld PCIT that the assessment order dt. 29/12/2019 is erroneous and prejudicial to the interest of the Revenue in as much as the additional undisclosed capital employed is required atleast for maintaining the minimum additional stock to carry out unaccounted turnover and which has not been inquired into by the AO. 3.4 In response to the show cause, the assessee filed its submission which were considered but same were not found acceptable and the matter was set aside to the file of the AO with the following directions which are contained at para 7 of the impugned order which read as under: “Considering the overall facts and circumstances on the issues and the legal position, assessment order passed by the AO dated 29.12.2019 on the issue of additional capital investment in the form of inventory estimated at Rs.61,66,723/- in the SCN, as indicated above, is set aside to the file of AO with the direction to pass assessment order afresh in 5 accordance with the law, after granting sufficient opportunity to the assessee.” 4. Against the said findings and directions of the Ld. Pr. CIT, the assessee is in appeal before us. 5. During the course of hearing, the Ld. AR submitted that though the assessee has taken various grounds of appeal but in nutshell the grounds of appeal number 1 to 4 relates to the fact that the AO has applied his mind during the course of assessment proceedings, and as such the assessment was neither erroneous nor prejudicial to the interest of the Revenue and therefore, the action of the Ld. Pr. CIT under section 263 is bad in law. It was further submitted that in Ground No. 1, the assessee has assailed the observation of the Ld. Pr. CIT about alleged capital employed in unaccounted sales having not been considered by the AO for the reason that no corroborative evidence have been found during the course of search by the Director General of GST (Intelligence) and further the AO has duly applied his mind on this issue as well. 5.1 It was further submitted that the assessment was framed under section 144 r.w.s 147 and the order itself as passed by the AO runs into 47 pages and while making the addition, the AO has threadbare discussed each and every issue and worked out the undisclosed sales at page no. 43 of the assessment order and applied the net profit rate and the said order of the AO was subject matter of appeal before the Ld. CIT, Ludhiana who gave part relief and thereafter the assessee filed further appeal before the Tribunal and the Tribunal deleted the entire addition on account of alleged sales outside the books of account and consequently the profit as calculated by the AO for which the part addition was sustained by the Ld. CIT(A) was also deleted. In this regard, our reference was drawn to the order of the Tribunal in ITA Nos. 82 to 86/Chd/2022 dt. 29/07/2022 for A.Y 2013-14 to 2017-18 and the relevant findings which are contained at para 9.5 of the said order which read as under: 6 “9.5 Therefore, in our considered opinion, in absence of such cross examination having been allowed to the assessee and also in view of no incriminating material having been recovered from any of the premises searched, coupled with the fact that the statement of Shri Shiv Charan Lal, Ex-employee itself states that the parallel invoices used to be destroyed after the delivery of the consignments, the very foundation to make the additions on account of unrecorded sales stands demolished. The fact that parallel invoices were recovered from the Ex-President after three years of his having left the assessee company under circumstances in which the assessee company had already filed complaint and FIR against him ( Shri Sanjay Dhawan) also does not support the case of the Department in as much as the Department should not have placed complete reliance without any corroborative evidence on such documents when the conduct of Shri Sanjay Dhawan itself was under suspicion. Therefore, in view of the above narrated factual matrix and after duly considering the various evidences which the Department has relied upon for making the impugned additions, we are of the considered opinion that the additions based on such alleged unrecorded sales do not have any sound basis and, therefore, for assessment years 2012-13 and 2013-14, the impugned additions on account of additional net profit earned on alleged unrecorded sales are liable to be deleted. It is so ordered accordingly.” 5.2 It was accordingly submitted that where there is no addition on account of unaccounted sales and the resultant additional net profit, then the question of alleged capital employed to carry out such alleged unaccounted sales and turnover as per the order of the Ld. Pr. CIT for which the proceedings under section 263 of the Act have been initiated is bad in law and it was accordingly requested that the order of the Ld. Pr. CIT may be set aside. 7 6. Per contra the Ld. CIT DR submitted that as per the findings of the Ld. Pr. CIT at para of the impugned order, where the whole of the assessment order has been set aside to the file of the AO with a direction to pass a fresh assessment order in accordance with law, there is no basis for the assessee to rely on the findings of the Tribunal in respect of the order so passed by the AO which is set aside to be decided afresh. Further, the ld CIT DR relied on the order and the findings of the ld PCIT and has also placed reliance on the following decisions: • M/s V.M. Spinning Mills Vs. CIT(A)-II, Ludhiana [2011] 16 taxmann.com 119 (P&H) • CIT Vs. Jaykumar B. Patil [1999] 236 ITR 469 (SC) • CIT Vs. Shri Arbunda Mills Ltd.[1998] 147 CTR 474 (SC) • Shoreline Hotel (P.) Ltd. Vs. CIT, C-1 [2018] 259 Taxman 49 (Bom) 7. We have heard the rival contentions and purused the material available on record. Firstly, we don’t agree with the contention of the ld CIT DR that the whole of the assessment order has been set-aside to the file of the AO. We have carefully gone through the show-cause notice, the submissions of the assessee before the ld PCIT and the detailed discussions and findings of the ld PCIT including the concluding findings at para 7 of the impugned order and find that the assessment order has been set-aside for the limited purposes of examining the matter relating to additional capital employed/invested for maintaining the minimum additional stock of Rs 61,66,723 to carry out unaccounted turnover admittedly of Rs 3,62,60,331/-. Therefore, where the assessee has challenged the matter relating to estimation of net profit on the unaccounted turnover before the Coordinate Bench, the assessee is very much within its rights to rely on the findings of the Coordinate Bench. 8. Further, we have also gone through the order of the Coordinate Bench (supra) in assessee’s case and the findings contained therein in para 9.5 and note that the Coordinate Bench has recorded a finding that very foundation 8 for making the additions on account of unrecorded sales stands demolished and has no sound basis and the additions on account of additional net profit earned on alleged unrecorded sales were directed to be deleted. It is a settled position that for achieving certain turnover, the assessee has to deploy and invest certain funds/capital. Where a finding has already been recorded as in the instant case that there is no basis for determining unrecorded sales and the whole of the additions have been deleted, the question of capital employed for achieving such unrecorded sales/turnover doesn’t arise for consideration. In view of the same, where there is no addition on account of unaccounted sales and the resultant additional net profit, then the question of alleged capital employed to carry out such alleged unaccounted sales and turnover as per the order of the Ld. Pr. CIT doesn’t have any legal basis and the same deserve to be set-aside. In the result, the order of the ld PCIT passed u/s 263 of the Act is hereby set-aside. 9. Before parting, we have also gone through the decisions relied upon by the ld CIT DR and find that the same were rendered in peculiar facts and circumstances of the case and are clearly distinguishable as far as facts of the present case are concerned and doesn’t support the case of the Revenue. 10. In the result, the appeal of the assessee is partly allowed. Order pronounced on 22/09/2022 . Sd/- Sd/- (DIVA SINGH) (VIKRAM SINGH YADAV) याय क सद य/Judicial Member लेखा सद य/Accountant Member Dated: 22/09/2022 AG 9 आदेश क % त&ल'प अ*े'षत/ Copy of the order forwarded to : 1. अपीलाथ+/ The Appellant 2. %,यथ+/ The Respondent 3. आयकर आय ु -त/ CIT 4. आयकर आय ु -त (अपील)/ The CIT(A) 5. 'वभागीय % त न0ध, आयकर अपील य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड फाईल/ Guard File