Knowledge Infrastructure System Pvt Ltd., New Delhi V. DCIT Circle 13(1), New Delhi

ITA 635/DEL/2023

AI Insights

The case involves Knowledge Infrastructure Systems Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) - National Faceless Appeal Centre, Delhi. The appeal arose from an intimation order passed by the Assessing Officer under Section 143(1) of the Income Tax Act, 1961, concerning the Assessment Year 2020-21. The primary contention was the adjustment of Rs. 448,56,87,589 on account of 'contingent liabilities', which included corporate guarantees, letters of credit, and disputed indirect tax matters, resulting in a tax demand of Rs.195,53,40,510. The assessee argued that these contingent liabilities were incorrectly reported as debited to the Profit & Loss account by the tax auditor, which led to an erroneous adjustment by the Centralized Processing Center (CPC). The Tribunal found merit in the assessee's arguments and noted the lack of opportunity given to the assessee to contest the adjustments, which violated the principles of natural justice.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 121571 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 31-07-2023
• Assessment Year: 2020-2021
• Appeal Filed On: 06-03-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 154; 201; 44AB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C” DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A. No.635/DEL/2023 Assessment Year 2020-21 Knowledge Infrastructure Systems Pvt. Ltd. G-02, Salcon Aurum Complex, 4, Commercial Centre Jasola, New Delhi. Vs. DCIT Circle-13(1) Delhi TAN/PAN: AACCK4380L (Appellant) (Respondent) Appellant by: Shri R.S. Singhvi, CA Shri Satyjeet Goel, CA Respondent by: Mr. Waseem Arshad, CIT (DR) Date of hearing: 01 08 2023 Date of pronouncement: 01 08 2023 O R D E R PER PRADIP KUMAR KEDIA, A.M.: The capt ioned appeal has been fi led b y t he assessee agai nst t he order of t he ld. Commi ssioner of I nco me Tax (Appeal s) - Nat iona l Faceless Appe al Cent re (NF A C), Delhi (‘CI T(A) ’ i n shor t ) date d 30. 01. 2023 ar isi ng fr o m the i nti mati on or der dat ed 20. 12. 2021 passed b y the Assessing Off icer ( AO) under Secti on 143( 1) of t he I nc ome Ta x Act , 1961 ( the Act ) con cer nin g AY 2020-21. 2. As per t he grounds of appe al , t he assessee has chal l enged the adjust me nt of Rs. 448, 56, 87, 589/ - on acc ount of ‘ conti ngent li abil it i es’ mai nl y i n the nat ure of corp orat e guarant ee ( issued t o I.T.A. No.635/Del/2023 2 the ba nk on beh al f of the subsi diar y) , lett er of credi t and di sputed indi rect t ax mat ter et c. result ing i n tax de ma nd of Rs.195, 53, 40, 510/ -. 3. When t he mat t er was call ed for hear ing, t he l d. c ouns el for the assessee sub mi tt ed at t he out set that t he afor esai d adj ust ment i s on account of ‘c ont inge nt li abil it i es’ st at ed to be debit ed t o Pr of it & Loss account as per row N o. 21( g) of t he Tax Au dit Report e- f il ed b y t he assessee. The ld. counsel t hus poi nted out t hat t he Tax Audi t or commi t ted i nadverte nt err or i n report ing the ‘cont i ngent li abi l it ies’ t o have been deb it ed in t he P&L account w hi ch i s fact ual l y incor rect . The ld . counsel refer red t o th e ‘audi t ed fi nancial state me nt ’ f or F.Y . 201 9-20 (A.Y. 2020- 21) whi ch was al so si mult aneousl y u pl oaded t o de monstr at e that i mpugned ‘conti ngent l iabi li ti es’ wer e rep ort ed as separ at e i t e ms for mi ng pa rt of t he ‘Not es to Account s ’ wherein i t has be en clear l y r epor te d that such l iabi li t ies are of conti ngent nat ure whi ch has not been pr ovi ded for, i n the audit ed fi nanci al account . T he l d. counsel al so r efer red to t he pr of it and loss account t o assert t hat the l i abi li ties wer e conti ngent i n nat u re and t her ef ore n ei ther has been pr ovi ded i n the P& L ac count nor c oul d ha ve been provi ded an d t he CPC carri ed out t he a dj ust ment on account of i nadvert ent l y wr ong report ing i n the Tax Audit Report . 3. 1 The l d. counsel t hereaft er sub mit te d that whil e fr a mi ng the inti mati on unde r Sect io n 1 43( 1) date d 20. 12. 2021, no oppor tuni t y has been given t o the assessee f or making adj ust ment t owar ds such st aggeri ng a mount i n de parture wit h I.T.A. No.635/Del/2023 3 the stat utor y man dat e of law as per Sect ion 14 3( 1) of t he Act. On receipt of i nt i mat ion dated 21. 12. 2021, t he assessee r eali zed the mi stake a nd appr oached t he T ax Audi tor and obt ai ne d a revised Tax Audi t Report whic h w a s upl oade d i n the e-por tal of the Inc o me T ax Depart ment on 23.12.20 21. The r evi sed Tax Au dit Report t hus depi ct s t he cor r ect posi ti on t hat cont i ngent li abil it i es have not been cl ai med as expe nses f or det er mi ni ng taxable inc o me. 3. 2 The l d. counsel t hereaf ter sub mit s t hat the assessee moved a pet it i on date d 24. 12.20 21 for re ct if icat ion of such a ppar ent mi stake unde r Sect i on 154 of the Ac t before the CPC Bengal ur u. Howe ver, t he or der under Se ct ion 154 passed t her eon b y t he Assessi ng Of ficer i s not avai l abl e in t he sit e of the Depart me nt. The assessee ha s per suade d t he matt er an d fi l ed an RTI Ap pli cati on dated 03. 07. 2023 seeki ng t he r ecti fi cati on or der i n pursua nce of t he recti fi cati on appl i cati on. I n res ponse, as per the or der date d 03. 07. 2023 di sposing off t he af or esai d RTI appli cati on fi l ed under RTI Act , 2 005, t he desi gnated PI O has cl earl y st at ed t hat rect ifi cat ion under Se ct i on 154 dat ed 24. 12. 2021 has been pr ocessed wi th no de mand and no ref und. Ho we ver, no f or ma l r ecti fi cati on or der i s avail able on I TBA port al and t hus not provi ded t o assessee unde r RTI . 3. 3 I n thi s bac kdrop, t he l d. counsel for t he assessee submi ts that he i s handi capped b y t he present sit uati on where t he rect if icat ion orde r under Sect i on 154 i s not avai l abl e but at the same ti me i t i s appare nt t hat t he de mand ari si ng fro m such adj ust ment st ands cancel le d. The ld. counsel thus seeks sui tabl e I.T.A. No.635/Del/2023 4 remed y f ro m t he Tr ibunal i n t he pres ent appeal . 4. The ld. CI T-DR f or t he Revenue on t he ot her ha nd sub mi ts that no f aul t can be fo und wit h t he i mpugned i nt i mat ion draw n under Sect i on 14 3(1) which i s in conso nance wit h the Tax A udi t Report fi l ed a nd placed bef ore t he Reven ue A uthori ti es b y t he assessee hi msel f. The ld. CIT- DR referred to t he Tax Audi t Report dat ed 05. 11. 2020 f ur ni she d b y the Assessee under Secti on 44AB of t he Act and a dverte d our att ent i on to r ow No.21( g) of the Report to conte nd that such r epor t states t hat such l i abi li t y has been act uall y de bit ed in t he P& L accou nt. Consequent l y, i t was not the conc er n of the Reve nue t o look int o the audi ted financial state me nt and t he R eve nue i s enti t led t o base adj ust me nts under S ecti on 143( 1) havi ng r egar d t o w hat was report ed i n t he statut or y Ta x A udi t Repor t fil ed bef ore T ax Aut hor it ies. It wa s sub mit t ed that no fa ul t ca n be f ound wit h the acti on of s ys t e m dr iven CPC. 5. We have car eful l y consi dered t he ri val s ub mi ssions and per used t he mat eri al place d on recor d. The corr ect ness of upwar d adj ust ment on acc ount of ‘c ont i ngent l iabil iti es’ on t he basi s of Tax A udi t Re port for t he purposes of drawing inti mati on under Sect i on 143( 1) is i n cont r overs y. It i s t he case of t he assessee that the ‘conti nge nt l i abi l it ies’ di sal lowe d as exp endi ture b y t he CPC under Sect i on 143( 1) wer e neve r pr ovi ded for in the Pr of it & L oss Account and was never cl ai me d as expendi t ure f or t he purposes of det er mi ning t he taxable inco me r etur ned b y t he assessee. The adj u stment has bee n ca rri ed out b y re venue solel y on t he basis of ‘Tax A udi t I.T.A. No.635/Del/2023 5 Report ’ wher e t he Tax Audi t or has co mmi tt ed i nadvertent er r or and wr ongl y r eported t he cont ingent li abil i ti es as expe nses actual l y de bi ted to P&L acc ount whi ch i s unt r ue and inconsi stent wi th t he audi ted fi nanci al state me nt. It is t hus the case of the assessee t hat an expendi ture ca nnot be disall owed where it has not been clai med a t t he f ir st inst ance whi l e det er mi ni ng t he t axabl e i nco me. On real izat i on of apparent hu ma n err or, t he Tax Audi t Rep ort has bee n sui t abl y revised a nd a n ote t o t hi s effe ct has been giv en i n st at ut or y re port i n For m 3CA, an int egr al part of the Ta x Audi t Repor t under Secti on 44AB of the Act. 6. Cou ple d wi th t hi s, a r ecti fi cati on appli cati on under Secti on 154 was pr o mptl y fil ed bef ore t he co ncer ne d aut horit y, i .e., CPC Bengal ur u a nd as per t he inf or mati on ma de avail able under t he RTI Act , 2005, it is cl earl y assert ed t hat the r ecti fi cati on has bee n sui t abl y car ried o ut and the de ma nd r ai sed on behal f of such a dj ust me nt has bee n ca ncel led. Not wi t hstandi ng, i t is furt her over whelmi ng case of t he assessee that no opp ort unit y has been gi ven t o t he assessee w hi le car r yi ng out the adj ust ment result ing in vi ol at ion of expr ess pr ovi s o to Sect ion 143( 1) a nd al so the sacrosanc t pr inci ples of nat ural j usti ce. 7. The assess me nt unde r Secti on 143( 1) as it st ands at the relevant t i me enables the CPC ar m of de par t me nt to make cert ai n adj ust ment s in t he ret urne d i nco me as e numer at ed i n cl ause (a) t o sub-secti on ( 1) t hereof , subj ect however t o an oppor tuni t y t o the assessee be for e e mbarki ng on such adj ust ment s. I.T.A. No.635/Del/2023 6 8. Whil e we ap preci at e t he def ense on behal f of t he Re venue in i t s perspect ive that t he i nt i mat ion has bee n drawn on t he basis of Ta x A udi t Rep ort ma de a vai labl e b y Assessee, we are also si mult aneousl y h ave t o bear i n mi nd the f act that the exp endi ture not clai med at t he f ir st inst ance cannot be di sall owed w hil e det er mini ng the t axable i nc o me. B esi des, the rect if icat ion or der under Secti on 154 i s also not avail able befor e us a nd t her efor e, we ar e not i n a posi ti on t o ascert ai n t he exact out co me of t he r e ct if icat ion appli ca ti on. H ow eve r, we fi nd t hat the st at ement made on behal f of t he assessee t o assai l the adj ust ment s are qui te convi nci ng. 9. I t i s common knowl edge that exerci se of power t o r ect i f y an er ror apparent fro m r ec ord i s confer red u pon t he reve nue i n ai d of enf orc e me nt of a right. De ni al of opport uni ty e xpressl y enact ed under S ecti on 143( 1) i s cl earl y a gai nst the nor ms of pr opr iet y. We can not count ena nce the acti on of r evenue w her e the assessee has been subj ect ed ve xat i ous li t igati on by r obbi ng the assessee of i ts ri ght of oppor tuni t y t o defen d it s st ance. 10. I n t he f act ual backdr op, we t hus consi der it expe di ent t o remit the mat ter back t o t he fi l e of t he Assessing Offi cer f or taki ng i nt o acc ount t he sub missi ons made on behalf of the assessee. Wher e it is found as a mat ter of fa ct t hat t he conti ngent l i abi li t y i n quest i on do not f or m part of t he P& L account a nd has not bee n t ake n int o account whil e de t er mi ni ng the inco me c har gea ble t o tax, i t wil l be i ncu mbent upon Assessi ng Of f icer to reverse t he disall owance carried out in t he inti mati on under Sect ion 143( 1) i n quest io n. Needl ess t o sa y, a I.T.A. No.635/Del/2023 7 reasonable op port uni t y s hal l be gi ven t o t he assessee whi l e det er mi ni ng t he issue. It shal l be open t o t he assessee t o adduce doc u ment s and expl a nat ions bef or e t he Assessing Of fi cer i n support of it s cont ent i ons. Hence, in t er ms of suc h obs ervat ions, the i nt i mati on f or Assess ment Year 2020- 21 i s set asi de and issue t owar ds di sal l owa nce of cont i ngent li abil it i es is rest ored bac k to the f il e of the Assessi ng Of fi cer for fres h det er mi nati on in accor da nce wi t h l aw. 11. I n the result , the appeal of t he assessee i s allowed f or stati sti cal purpose s. Order dictated and pronounced in the open Court on 01/08/2023 Sd/- Sd/- [CHANDRA MOHAN GARG] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /08/2023 Prabhat