Red Ice Productions Pvt. Ltd., New Delhi V. Pr. CIT, New Delhi

ITA 5351/DEL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5390 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 13-10-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Keywords: Tangible material
• Section: 263

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 5351/DEL/2016 (ASSESSMENT YEAR: 2011 - 12 ) RED ICE PRODUCTIONS PVT. LTD, D - 46, NARAINA VIHAR , NEW DELHI PAN:AADCR8533M VS. PR. CIT, DELHI - 7, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJAY GUPTA, CA REVENUE BY: SMT PARAMITA TRIPATHY, CIT DR DATE OF HEARING 16/01/2018 DATE OF PRONOUNCEMENT 03 / 0 4 / 201 8 O R D E R PER PRASHANT MAHARISHI , A. M. 1. THIS APPEAL IS FILED BY R ED ICE PRODUCTIONS PRIVATE LIMITED, APPELLANT, AGAINST THE ORDER OF THE PRINCIPLE COMMISSIONER OF INCOME TAX, DELHI 7, NEW DELHI [ THE LD PCIT ] FOR A. Y. 2011 - 12 U/S 263 OF THE INCOME TAX ACT, 1961 O N 08/03/2016 WHEREIN THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 15 (1), NEW DELHI [ THE LD AO ] DATED 28/2/2014 PASSED U/S 143 (3) OF THE INCOME TAX ACT 1961 [ THE ACT] WAS HELD IT TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 2. THE ASSESSEE HAS PREFERRED FOLLOWING GROUNDS OF APPEAL: - I. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. PRINCIPLE COMMISSIONER OF INCOME TAX HAS ERRED IN LAW IN REOPENING THE CASE OF THE ASSESSEE UNDER SEC TION 263 OF THE ACT. II. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. PRINCIPLE COMMISSIONER OF INCOME TAX HAS ENTERED IN LAW IN ALLOWING THE JURISDICTIONAL ASSESSING OFFICER PASSED AN ORDER UNDER SECTION 263 READ WITH SECTION 143 (3) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MAKING OF ADVERTISING FILMS, FEATURE FILMS, DOCUMENTARIES AND ALL RELATED WORK. IT FILED ITS RETURN OF INCOME ON RED ICE PRODUCTIONS PVT. LTD VS. PR. CIT, ITA NO. 5351/DEL/2016 (ASSESSMENT YEAR: 2011 - 12) PAGE | 2 26/9/2011 AND TOTAL INCOME OF RS. 2,61,58,730/ . THE ASSESSME NT U/S 143 (3) OF THE ACT WAS COMPLETED AT THE RETURNED INCOME V IDE ORDER DATED 28/2/2014 . SUBSEQUENTLY , ON EXAMINATION OF THE RECORD , THE LD. PCIT ISSUED A SHOW CAUSE NOTICE ON 15/ 02 /2016 HOLDING THAT AS PER COMMUNICATION RECEIVED FROM THE SENIOR DEPARTMENTAL REPRESENTATIVE , ITAT, IT WAS FOUND THAT THE NO PROPORTIONATE DISALLOWANCE OUT OF INDIRECT EXPENSES CLAIMED IN PROFIT AND LOSS ACCOUNT IN COMPUTING THE WORK IN PROGRESS HAD BEE N MADE FOR THE A.Y. 2011 12. IT WAS FURTHER STATED THAT ON THE SIMILAR DISALLOWANCE BY ADJUSTMENT OUT OF INDIRECT EXPENSES UNDER THE WORK IN PROGRESS HAD BEEN MADE FOR ASSESSMENT YEAR 2009 10. ACCORDING TO THE LD. P CIT THE ORDER OF THE LD. AO IS ERR ONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE TO THE EXTENT THAT NO INDIRECT EXPENDITURE HAVE BEEN LOADED ON THE WORK IN PROGRESS. HE FURTHER IN THE SHOW CAUSE NOTICE COMPUTED THE TOTAL DISALLOWANCE TO BE LOADED TO THE WORK IN PROGRESS OF RS. 2 7615 86/ - . 4. THE ASSESSEE IN REPLY TO THE SHOW CAUSE NOTICE SUBMITTED THAT THE LD. ASSESSING OFFICER WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE UNDER SECTION 143 (3) OF THE INCOME TAX ACT HA S CONSIDERED ALL THESE ASPECTS. IT WAS FURTHER STATED THAT AS PER L ETTER DATED 12/8/2013 THE LD. ASSESSING OFFICER WAS COMPLETELY INFORMED ABOUT THE ISSUE OF THE VARIATION OF WORK IN PROGRESS FOR THE ASSESSMENT YEAR 2009 10 WHICH WAS PENDING BEFORE THE COORDINATE BENCH. IT WAS FURTHER STATED THAT THE METHOD OF VALUATION OF WORK IN PROGRESS WAS ACCEPTED BY THE LD. ASSESSING OFFICER AFTER DUE VERIFICATION. THEREFORE, IT WAS STATED THAT THE PROVISIONS OF SECTION 263 CANNOT BE INVOKED. IT WAS FURTHER STATED THAT THE EVEN OTHERWISE THE VALUATION ADOPTED BY THE PRINCIP AL CIT I S INCORRECT AND THE ASSESSEE WITH THE PROPORTIONATE EXPENSES TO BE ADDED TO THE WORK IN PROGRESS PROVIDED CALCULATION TO HIM. 5. THE LD. PCIT HELD THAT DURING THE COURSE OF HEARING BEFORE THE LD. ASSESSING OF FICER, HE HAS ISSUED A QUESTIONNAIRE REQUIRING TH E ASSESSEE RED ICE PRODUCTIONS PVT. LTD VS. PR. CIT, ITA NO. 5351/DEL/2016 (ASSESSMENT YEAR: 2011 - 12) PAGE | 3 TO GIVE PARTICULARS OF THE ISSUE PENDING IN THE APPELLATE PROCEEDINGS FOR EARLIER YEARS. IN REPLY TO WHICH THE ASSESSEE INFORMED THE ASSESSING OFFICER ABOUT PENDING APPEAL BEFORE THE COORDINATE BENCH IN WHICH ISSUE CONCERNING VALUATION OF WORK I N PROGRESS WAS INVOLVED. THE ASSESSEE SUBMITTED THA T IN ARRIVING AT THE VALUE OF WORK IN PROGRESS INDIRECT EXPENSES RELATABLE TO THE SPECIFIC PROJECT ARE INCLUDED IN IT . IT WAS STATED THAT THE ASSESSEE HAS EMPLOYED DIRECT COST METHOD FOR VALUING THE WI P WHICH REMAIN IN COMPLETE AT THE END OF THE YEAR THEREFORE ACCORDING TO THE LD. P CIT THERE WAS NOT EVEN THE PRIME FACIE MATERIAL TO SUGGEST THAT THE LD. AO HAD APPLIED HIS MIND TO THE DETAILS PUT FORTH BY THE ASSESSEE . HE FURTHER HELD THAT IN THE PREVIOUS YEAR ASSESSMENT ORDER THE LD. AO HAVING EXAMINED THE CALCULATION OF WORK IN PROGRESS WAS NOT SATISFIED WITH THE METHOD ADOPTED AND FOR THAT REASON THE VALUATIONS WAS DISTURBED AND AN ADDITION WAS MADE. THEREFORE, THE CIRCUMSTANCES OF THE CASE ACCORDING TO HIM DEMANDED THAT THE LD. AO NOT ONLY CONDUCTED SUFFICIENT , ADEQUATE INQUIRY WITH REGARD TO THE METHODOLOGY ADOPTED BY THE ASSESSEE IN ARRIVING AT THE VALUE OF WORK IN PROGRESS , BUT HE SHOULD HAVE ALSO BROUGHT IN SOME TANGIBLE MATERIAL IN THE ASSESSMENT ORDER WHICH WOULD CONCLUSIVELY PROVE THAT THE AO HAD APPLIED HIS OWN MIND TO THE MATERIAL GATHERED WITH REGARD TO THE VALUATION OF WORK IN PROGRESS MADE IN ACCORDANCE WITH THE S AID PRINCIPLES OF ACCOUNTING. THEREF ORE ACCORDING TO HIM , THERE IS NO MATERIAL AVAILABLE O N THE RECORD SUGGESTING SO. HE THAT IN THE SUBMISSION DATED 28/11/2013, IT WAS FAST SUBMITTED THAT IT HAS TAKEN INTO ACCOUNT BOTH DIRECT AND INDIRECT EXPENSES IN ARRIVING AT THE VALUE IN PROGRESS AS ON 31/3/2011 FURTHER NOTED IT . FURTHER HE NOTED THAT HOWEVER IN THE LATER PART OF THE SAME LETTER THE AUTHORIZED REPRESENTATIVE HAS CLAIMED THAT THE ASSESSEE FOLLOWED DIRECT COST METHOD FOR VALUING THE PROJECTS RE MAINING INCOMPLETE A S ON THE BALANCE SHEET DAT E . T HEREFORE ACCORDING TO HIM IT WAS AN APPARENT CONTRADICTION RED ICE PRODUCTIONS PVT. LTD VS. PR. CIT, ITA NO. 5351/DEL/2016 (ASSESSMENT YEAR: 2011 - 12) PAGE | 4 IN THE SUBMISSION OF THE ASSESSEE WHICH WAS NOT EXAMINED BY THE LD. ASSESSING OFFICER. THEREFORE, THE LD. CIT WAS OF THE OPINION THAT THERE WAS NO DEFINITE FINDING BY THE LD. AO THAT VALUATION OF WORK IN PROGRESS WAS CARRIED OUT BY THE ASSESSEE IN ACCORDANCE AND CONFORMITY WITH THE ACCEPTED PRINCIPLES OF ACCOUNTING AND METHOD OF VALUATION RECOMMENDED BY THE ICAI AS ALSO IN ACCORDANCE WITH THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF BRITISH PAINTS INDIA LTD. HE THEREFORE CAME TO CONCLUSION THAT IN THE PRESENT CASE, THE ISSUE CONCERNING THE VALUATION OF WORK IN PROGRESS WAS NOT PROPERLY EXAMINED BY THE AO AND THEREFORE THE ASSESSMENT ORDER WAS ERRONEOUS BECAUSE OF LA CK OF ENQUIRY. IT W AS FURTHER SO ALSO BECAUSE OF THE APPARENT CONTRADICTIONS WITH REGARD TO METHODOLOGY FOLLOWED IN VALUATION OF INVENTORY. HE THEREFORE HELD THAT THE ORDER PASSED BY THE LD. ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HENCE , HE SET ASIDE THE ORDER TO THE FILE OF THE LD. AO DIRECTING TO VERIFY THE SPECIFIC ISSUE OF DETERMINATION OF THE CORRECT VALUE OF WORK IN PROGRESS IS MADE BY THE ASSESSEE AND THEREFORE TO DETERMINE THE TRUE AND CORRECT VALUE OF WORK IN PROGRESS AS ON 31 /3/2011 BY INCLUDING IN THE VALUE OF ALL COST WHETHER DIRECT OR INDIRECT WHICH HAD RELATION WITH THE PROJECTS REMAINED UNFINISHED AS ON 31/3/2011. 6. THEREFORE, ASSESSEE AGGRIEVED WITH THE ORDER HAS PREFERRED AN APPEAL BEFORE US SUBMITTING THAT THAT THERE WAS NO ERROR IN THE ORDER PASSED BY THE LD. ASSESSING OFFICER. THE FIRST CONTENTION WAS THAT THAT ASSESSEE HAS INFORMED THE LD. ASSESSING OFFICER AS PER LETTER DATED 12/8/2013 ABOUT THE ISSUE OF VALUATION OF WORK IN PROGRESS PENDING BEFORE THE COORDINATE BENC H. SECONDLY, IT WAS FURTHER STATED THAT ASSESSEE WAS FURTHER ASKED TO SUBMIT THE DETAIL ON THIS ISSUE FOR ASSESSMENT YEAR 2011 12 IN RESPONSE TO WHICH THE ASSESSEE SUBMITTED A DETAILED REPLY AS PER LETTER DATED 28/11/2013. THE LD. AUTHORIZED REPRESENTATIVE RED ICE PRODUCTIONS PVT. LTD VS. PR. CIT, ITA NO. 5351/DEL/2016 (ASSESSMENT YEAR: 2011 - 12) PAGE | 5 FURTHER STATED THAT THE METHOD OF VALUATION OF WORK IN PROGRESS WAS ACCEPTED BY THE LD. ASSESSING OFFICER AFTER DUE VERIFICATION AND APPLICATION OF MIND. HE THEREFORE SUBMITTED THAT THE LD. PRINCIPAL CIT WAS IN ERROR IN HOLDING THAT THE LD. ASSESSING OFFICER HAS NOT APPLIED HIS MIND . H ENCE IT WAS SUBMITTED THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WAS NEITHER ERRONEOUS AND NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE FURTHER REFERRED TO THE DECISION OF THE COORDINATE BE NCH IN CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2009 10 WHEREIN IN PARA NO. 13 THE COORDINATE BENCH HAS REJECTED THE ALLOCATION OF THE ADMINISTRATIVE EXPENSES OF PROPORTIONATE ON SALES TO WORK IN PROGRESS AND RESTORED THE MATTER TO THE FILE OF THE LD . ASSESSING OFFICER WITH A DIRECTION TO EXAMINE ALL THE EXPENSES UNDER ADMINISTRATIVE EXPENSES OTHER THAN DIRECTORS REMUNERATION ON CASE TO CASE BASIS, TO FIND OUT WHETHER THE SAME ARE DIRECTLY RELATED TO ANY OF THE THREE PROJECTS IN REFERENCE AND THEN INC LUDE THE SPECIFIC EXPENSES WHICH ARE DIRECTLY RELATED TO THE PROJECT TO THE WORK IN PROGRESS. HE THEREFORE SUBMITTED THAT AS ASSESSEE HAS ALREADY INCLUDED THE DIRECT COST THEREFORE, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND THEREFORE IT C ANNOT BE SAID THAT THE ORDER OF THE LD. ASSESSING OFFICER IS ERRONEOUS. HE FURTHER REFERRED TO THE QUESTIONNAIRE ISSUED BY THE LD. ASSESSING OFFICER DATED 5/6/2013 WHEREIN AS PER SERIAL NO. 16 THE LD. ASSESSING OFFICER HAS ASKED FOR THE DETAILS OF THE CLOS ING STOCK AND ALSO THE BASIS OF THE VALUATION OF THE CLOSING STOCK. HE FURTHER REFERRED TO THE LETTER DATED 12/8/2013 SUBMITTED BEFORE THE LD. ASSESSING OFFICER WHEREIN AT SERIAL NO. 4 OF THE ASSESSEE HAS SHOWN THE DETAILS OF THE PENDING DISPUTES BETWEEN T HE REVENUE AND THE ASSESSEE WITH RESPECT TO THE VALUATION OF WORK IN PROGRESS PENDING FOR ASSESSMENT YEAR 2009 10 BEFORE THE COORDINATE BENCH. HE FURTHER REFERRED TO LETTER DATED 28/11/2013 WHEREIN THE CALCULATION OF THE WORK IN PROGRESS OWNING THE BALAN CE SHEET IS STATED TO BE THE SAME IS WERE RED ICE PRODUCTIONS PVT. LTD VS. PR. CIT, ITA NO. 5351/DEL/2016 (ASSESSMENT YEAR: 2011 - 12) PAGE | 6 NOT ON THE BASIS OF THE ACTUAL PAYMENTS MADE FOR THE PROJECTS WHICH ARE NOT BEEN COMPLETED AT THE END OF THE ACCOUNTING YEAR AND ARE SHOWN IN THE BALANCE SHEET UNDER THE HEAD WERE IN PROGRESS. IT WAS FURTHER STATED THAT IT IS CLEAR FROM THE LIST OF EXPENSES DEBITED UNDER THE HEAD WORK IN PROGRESS THAT IT INCLUDES THE INDIRECT EXPENSES ALSO IF THEY ARE RELATED TO THE SPECIFIC PROJECT HE THEREFORE SUBMITTED THAT THAT THERE IS NO ERROR EVEN OTHERWISE IN THE WORKING OF THE WORK IN PROGRESS. 7. HE FURTHER RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CASE OF CIT VERSUS GABRIEL INDIA LTD 203 ITR 108 TO SUBMIT THAT POWERS UNDER SECTION 263 OF THE ACT IS TO BE EXERCISE D IN THE CASE OF NO INQUIRY AND NOT IN THE CA SE OF INADEQUATE INQUIRY WHEREAS THE CASE OF THE ASSESSEE IS NOT EVEN A CASE OF LACK OF INQUIRY. HE FURTHER RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT VERSUS SUNBEAM AUTO LIMITED [ 332 ITR 167 ] WHEREIN HONBLE DELHI HIGH COURT H AS HELD THAT IF THERE WAS ANY INQUIRY , EVEN INADEQUATE, THAT WOULD NOT BY ITSELF, GIVE OCCASION TO THE COMMISSIONER TO PASS ORDER UNDER SECTION 263 OF THE ACT. . HE FURTHER RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT VERSUS ANILKU MAR SHARMA 335 ITR 83. FURTHER WITH RESPECT TO THE AMENDMENT IN THE PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT BY WHICH EXPLANATION 2 IS INSERTED W.E.F. 1/6/2015 , IT WAS SUBMITTED THAT IT DOES NOT GIVE UNFETTERED POWERS TO THE COMMISSIONER TO ASSUME JURISDICTION UNDER SECTION 263 OF THE INCOME TAX ACT TO REVISE EVERY ORDER OF THE AO TO EXAMINE THE ISSUE ALREADY EXAMINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HE FURTHER REFERRED TO THE DECISION OF COORDINATE BENCH MUMBAI IN NARAYAN TATU RANE V ITO [2016] 70 TAXMANN.COM 227 WHEREIN IT HAS BEEN HELD THAT THE SAID EXP LANATION CANNOT BE SAID TO HAVE OVERRIDDEN THE LAW AS INTERPRETED BY THE HONBLE DELHI HIGH COURT ACCORDING TO WHICH THE COMMISSIONER HAS TO CONDUCT ENQUIRY AND VERIFICATION TO ESTAB LISH AND RED ICE PRODUCTIONS PVT. LTD VS. PR. CIT, ITA NO. 5351/DEL/2016 (ASSESSMENT YEAR: 2011 - 12) PAGE | 7 SHOW THAT THE ASSESSMENT ORDER IS UNSUSTAINABLE IN LAW. HE THEREFORE SUBMITTED THAT THE ORDER PASSED BY THE LD. CIT IS NOT SUSTAINABLE. 8. THE LD. CIT DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUBMITTED THAT EXPLANATION 2 INSERTED IN SECTION 263 OF THE INCOME TAX ACT BY FINANCE ACT 2015 W.E.F. 1/6/2015 CLEARLY COVERS THE ISSUE IN FAVOUR OF THE REVENUE AS ORDER IS PASSED WITHOUT MAKING ANY INQUIRY AND VERIFICATIONS WHICH SHOULD HAVE BEEN MADE IN VIEW OF THE EARLIER ORDERS OF THE AO. EVEN OTHERWISE, S HE SUBMITTED THAT THE COORDINATE BENCH ITSELF HAS HELD THAT EACH EXPENDITURE IS REQUIRED TO BE CONSIDERED OUT OF THE ADMINISTRATIVE EXPENSES INCURRED BY THE ASSESSEE FOR VALUATION OF WIP. IN THE PRESENT THE CASE ACCORDING TO THE EXPLANATION GIVEN BY THE ASSESSEE BEFORE THE LD. P CIT V IDE PAGE NO. 4 WHEN THE LD PCIT HAS GIVEN THE PROPORTIONATE EXPENSES TO BE ADDED TO THE WORK IN PROGRESS AMOUNTING TO RS. 1714 686/ . THEREFORE , IT WAS SUBMITTED THAT THERE IS AN ERROR IN THE ORDER PASSED BY THE LD. ASSESSING OFFICER ORIGINALLY FOR THE REASON THAT IT IS NOT ALSO IN CONFORMITY WITH THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 10 . FURTHER THE LD AO HAS NOT APPLIED HIS MIND TO THE VALUATION OF THE WORK IN PROGRESS MADE BY T HE ASSESSEE. THE LD. CIT D R ARE ALSO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF MALABAR INDUSTRIAL CO LTD VERSUS CIT 243 ITR 83 (SC), R AJMANDIR ESTATE PRIVATE LTD VERSUS PCIT 386 ITR 162 WHEREIN THE SPECIAL LEAVE PETITION OF THE ASSESSE E HAS BEEN DISMISSED BY THE HONBLE SUPREME COURT IN 77 TAXMANN.COM 285, AND SH. MANJUNATH PACKING PRODUCTS & CAMPHOR WORKS SC 231 ITR 53 (SC). THEREFORE IT WAS SUBMITTED THAT THE LD. CIT HAS CORRECTLY ASSUME D THE JURISDICTION UNDER SECTION 263 OF THE INCOME TAX ACT. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND ALSO PERUSED THE ORDERS OF THE LD. PRINCIPAL CIT PASSED UNDER SECTION 263 WHEREIN HE HELD THAT THE ORDER PASSED BY THE LD. ASSESSING OFFICER UNDER SECTION RED ICE PRODUCTIONS PVT. LTD VS. PR. CIT, ITA NO. 5351/DEL/2016 (ASSESSMENT YEAR: 2011 - 12) PAGE | 8 143 (3) OF THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE HAVE ALSO PERUSED THE VARIOUS CASE LAWS CITED BEFORE US BY THE PARTIES. ACCORDING TO SECTION 263 OF THE ACT, COMMISSIONER OF INCOME TAX CAN RESORT TO CORREC TIVE MEASURES BY REVISING THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER, IF AFTER EXAMINING RECORDS , SUCH ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER, HE (THE COMMISSIONER OF INCOME - TAX) FOUND THAT SUCH AN ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IN MALABAR INDUSTRIAL CO LTD VERSUS CIT 243 ITR 83 (SC) HONBLE SUPREME COURT HELD THE COMMISSIONER HAS TO SATISFY TWIN CONDITIONS NAMELY (I) THAT THE ORDER IS ERRONEOUS, (II) THAT IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. AS HELD IN SEVERAL JUDICIAL PRECEDENTS THAT COMMISSIONER DOES NOT HAVE POWER TO REVISE THE ORDER OF THE LD. ASSESSING OFFICER WHERE THERE ARE TWO VIEWS POSSIBLE AND THE LD. ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEW. IT IS FURTHER HELD BY JURISDICTIONAL HIGH COURT THAT IN CASE OF LACK OF INQUIRY , THE CIT CAN ASSUME JURISDICTION U/S 263 OF THE ACT BUT NOT IN CASE OF INADEQUATE INQUIRY. ON THE ISSUE OF ADEQUACY OF INQUIRY THERE IS CHANGE IN LAW W .E.F. 1/6/2015. T HERE IS AN AMENDMENT IN SECTION 263 OF THE INCOME TAX ACT BY THE FINANCE ACT 2015 WHEREIN W.E.F. 1/6/2015 EXPLANATION (2) HAS BEEN INSERTED . IT PROVIDES THAT THE ORDER PASSED BY THE LD. ASSESSING OFFICER SHALL BE DEEMED TO BE ERRONEO US IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IF, IN THE OPINION OF THE PRINCIPLE COMMISSIONER OR COMMISSIONER , THE ORDER IS PASSED WITHOUT MAKING I NQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE . IN THE PRESENT CASE, THE ONLY ISSUE INVOLVED IS THAT THE LD. ASSESSING OFFICER SHOULD HAVE EXAMINED VALUATION OF WORK IN PROGRESS OF THE ASSESSEE IN A PARTICULAR MANNER TO INCLUDE PART OF THE INDIRECT EXPENDITURE, WHICH ARE ATTRIBUTABLE RED ICE PRODUCTIONS PVT. LTD VS. PR. CIT, ITA NO. 5351/DEL/2016 (ASSESSMENT YEAR: 2011 - 12) PAGE | 9 TO THE PARTICULAR PROJECTS. IN THE PRESENT CASE, IT IS APPARENT THAT LD. ASSESSING OFFICER HAS NOT CONSIDERED THE ISSUE IN AY 2009 10 WHEREIN IT WAS CONSIDERED. IN THAT PARTICULAR YEAR THE ASSESSEE HAS INCURRED ADMINISTRATIVE EXPENSES AND OUT OF WHICH ONLY TRAVELLING EXPENSES AND PROFESSIONAL FEES WERE CONSIDERED AS THE FIXED EXPENDITURE RELATED TO THE SPECIFIC PROJECT AND THE BALANCE EXPENDITURE WAS CONSIDERED AS EXPENDITURE UNDER THE PROFIT AND LOSS ACCOUNT AND THEREFORE THEY WERE NOT LOADED TO THE COST OF THE WORK IN PROGRESS. THE MATTER REACHED TO TH E LEVEL OF THE COORDINATE BENCH AND WHEREIN THE ISSUE WAS SET ASIDE TO THE FILE OF THE LD. ASSESSING OFFICER WITH A DIRECTION TO EXAMINE ALL EXPENSES UNDER ADMINISTRATIVE HEAD WHETHER THEY ARE RELATED TO THE SPECIFIC PROJECTS OR NOT. IN THE PRESENT CASE ALSO THE TOTAL ADMINISTRATIVE EXPENDITURE INCURRED BY THE ASSESSEE OF RS . 3038 3018/ . HOWVERE ASSESSEE HAS ALOS TRANSFERRED SOME OF THE EXPENDITURE TO WIP. HOWEVER STILL ASSESSEE HAS DEBITED THE UNALLOCATED EXPENDITURE OF RS. 30383018 / - IN THE PROFIT AND LOSS ACCOUNT. THE CIT HAS ALSO STATED THAT A SUM OF RS. 2761586/ IS REQUIRED TO BE FURTHER ALLOCATED ACCORDING TO THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2009 10 BASED ON PAST ORDER AND RELIEF GIVEN BY THE LD. CIT (A). FURTHER , THE COORDINAT E BENCHE HAS ALSO GIVEN A DIRECTION TO THE LD. ASSESSING OFFICER TO PROPORTIONATELY ALLOCATE THE ADMINISTRATIVE EXPENSES WITH A DIRECTION TO EXAMINE ALL THE EXPENSES UNDER ADMINISTRATIVE EXPENSES HEAD AND TO FIND OUT WHETHER THE SAME ARE DIRECTLY RELATE D TO ANY OF THE 3 PROJECTS IN REFERENCE AND THAN INCLUDE THE SPECIFIC EXPENSES WHICH ARE DIRECTLY RELATED TO THE PROJECTS TO THE WORK IN PROGRESS. IN THAT PARTICULAR CASE THE COORDINATE BENCH HAS HELD THE ALLOCATION OF ONLY DIRECT EXPENSES TO THE WORK IN PROGRESS , HOWEVER , NOTHING IS SAID ABOUT THE INDIRECT EXPENDITURE TO BE LOCATED TO THE WORK IN PROGRESS. THE ISSUE BEFORE US IN THIS APPEAL IS NOT WHETHER THE W ORK IN PROGRESS HAS BEEN CORRECTLY VALUED OR NOT BUT WHETHER THE LD. ASSESSING OFFICER HAS MADE THE ADEQUATE ENQUIRIES AS RED ICE PRODUCTIONS PVT. LTD VS. PR. CIT, ITA NO. 5351/DEL/2016 (ASSESSMENT YEAR: 2011 - 12) PAGE | 10 REQUIRED TO BE MADE IN THIS PARTICULAR CASE ITH RESPECT TO VALUATION OF WORK IN PROGRESS . ACCORDING TO US THE ASSESSING OFFICER HAS NOT CONSIDERED THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2009 10. T HEREFORE IT IS APPARENT THAT THE NECESSARY ENQUIRIES THAT SHOULD HAVE BEEN MADE BY THE ASSESSING OFFICER HA S NOT BEEN MADE IN THE PRESENT CASE. AS THE ORDER UNDER SECTION 263 OF THE INCOME TAX ACT HAS BEEN PASSED ON 8/3/2016 WHICH IS AFTER THE INTRODUCTION OF EXPLANATION 2 TO SE CTIO N 263 OF THE INCOME TAX ACT, WE ARE IN AGREEMENT WITH THE ARGUMENT OF THE LD. CIT DEPARTMENTAL REPRESENTATIVE THAT THE ORDER PASSED BY THE LD. ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AS REQUISITES INQUIRY WHICH ARE REQ UIRED TO BE MADE FOR VERIFICATION HAS NOT BEEN MADE BY THE LD. ASSESSING OFFICER. WE ARE ALSO FORTIFIED BY THE REASON THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LD. ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY ABOUT THE VALUATION OF THE CLOSING STO CK AND HAS MERELY ASKED WHAT IS THE BASIS OF THE VALUATION OF CLOSING STOCK. THERE IS A SUBTLE DISTINCTION BETWEEN THE BASIS OF THE VALUATION OF THE CLOSING STOCK AND THE ITEMS, WHICH HAVE GONE INTO THE VALUATION OF THE CLOSING STOCK. FURTHERMORE THE ASSES SEE HAS ONLY STATED THAT IN ASSESSMENT YEAR 2009 10 THE ISSUE IS PENDING BEFORE THE COORDINATE BENCH WHERE THE ISSUE INVOLVED IS THE VALUATION OF THE CLOSING STOCK OF WORK IN PROGRESS. EVEN THAT DOES NOT SHOW THAT THE ASSESSING OFFICER HAS APPLIED IS MIN D ON TO DETERMINE THE COST OF THE WORK IN PROGRESS ACCORDING TO THE EARLIER HISTORY OF THE CASE OF THE ASSESSEE. THEREFORE, ACCORDING TO US THERE IS NO INQUIRY MADE BY THE LD. ASSESSING OFFICER ABOUT THE VALUATION OF THE CLOSING STOCK OF WORK IN PROGRESS . THEREFORE, ACCORDING TO US THE CASE OF THE ASSESSEE FALLS UNDER THE CATEGORY OF LACK OF INQUIRY AND NOT EVEN THE CASE OF INADEQUATE INQUIRY. THE LD. AUTHORIZED REPRESENTATIVE HAS CITED BEFORE US THE DECISION OF THE MUMBAI BENCH IN CASE OF NARAY A N TATU RA NE IN 70 RED ICE PRODUCTIONS PVT. LTD VS. PR. CIT, ITA NO. 5351/DEL/2016 (ASSESSMENT YEAR: 2011 - 12) PAGE | 11 TAXMANN.COM 227 WHEREIN THE RECENTLY INTRODUCED EXPLANATION HAS BEEN CONSIDERED IN PARA NO. 20 AS UNDER: - 20. FURTHER CLAUSE (A) OF EXPLANATION STATES THAT AN ORDER SHALL BE DEEMED TO BE ERRONEOUS, IF IT HAS BEEN PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION, WHICH SHOULD HAVE BEEN MADE. IN OUR CONSIDERED VIEW, THIS PROVISION SHALL APPLY, IF THE ORDER HAS BEEN PASSED W ITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH A REASONABLE AND PRUDENT OFFICER SHALL HAVE CARRIED OUT IN SUCH CASES, WHICH MEANS THAT THE OPINION FORMED BY LD PR. CIT CANNOT BE TAKEN AS FINAL ONE, WITHOUT SCRUTINISING THE NATURE OF ENQUIRY OR VERIFICATION CARRIED OUT BY THE AO VIS - - VIS ITS REASONABLENESS IN THE FACTS AND CIRCUMSTANCES OF THE CASE. HENCE, IN OUR CONSIDERED VIEW, WHAT IS RELEVANT FOR CLAUSE (A) OF EXPLANATION 2 TO SEC. 263 IS WHETHER THE AO HAS PASSED THE ORDER AFTER CARRYING OUR ENQUIRIES O R VERIFICATION, WHICH A REASONABLE AND PRUDENT OFFICER WOULD HAVE CARRIED OUT OR NOT. IT DOES NOT AUTHORISE OR GIVE UNFETTERED POWERS TO THE LD PR. CIT TO REVISE EACH AND EVERY ORDER, IF IN HIS OPINION, THE SAME HAS BEEN PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE. IN OUR VIEW, IT IS THE RESPONSIBILITY OF THE LD PR. CIT TO SHOW THAT THE ENQUIRIES OR VERIFICATION CONDUCTED BY THE AO WAS NOT IN ACCORDANCE WITH THE ENQURIES OR VERIFICATION THAT WOULD HAVE BEEN CARRIED OUT BY A P RUDENT OFFICER. HENCE, IN OUR VIEW, THE QUESTION AS TO WHETHER THE AMENDMENT BROUGHT IN BY WAY OF EXPLANATION 2(A) SHALL HAVE RETROSPECTIVE OR PROSPECTIVE APPLICATION SHALL NOT BE RELEVANT. 10. ACCORDING TO INTERPRETATION PROVIDED BY THE COORDINATE BENCH IT ALSO TALKS ABOUT THE DILIGENT ENQUIRIES OF THE ASSESSING OFFICER WHICH WILL PREVENT THE LD. PRINCIPAL CIT TO REVISE THE SAME ON THE GROUND OF NOT MAKING ENQUIRIES IS OR VERIFICATION WHICH SHOULD HAVE BEEN MADE. AS WEVE ALREADY HELD THAT IN THE PRESENT CAS E THE LD. ASSESSING OFFICER HAS NOT EXAMINED THE VALUATION OF THE WORK IN PROGRESS WITH RESPECT TO THE COMPONENTS OF THE VALUE OF THE STOCK, ACCORDING TO US THAT ENQUIRY HAS NOT BEEN MADE BY THE LD. ASSESSING OFFICER WHICH ARE DILIGENT ASSESSING OFFICER SH OULD HAVE MADE MORE SPECIFICALLY WHEN THE IDENTICAL ISSUE IS LITIGATED BY THE REVENUE. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT IN ASSUMING JURISDICTION UNDER SECTION 263 OF RED ICE PRODUCTIONS PVT. LTD VS. PR. CIT, ITA NO. 5351/DEL/2016 (ASSESSMENT YEAR: 2011 - 12) PAGE | 12 THE INCOME TAX ACT AND HOLDING THAT THE ORDER PASS ED BY THE LD. ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY, BOTH THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE DISMISSED. 11. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS DISMISSED ORDER PRONOUNCED IN OPEN COURT ON 0 3 / 04/2018 . - S D / - - S D / - ( SUDHANSHU SRIVASTAVA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 3 / 04 / 2018 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI