M/s. Lilanand Magnesites Pvt. Ltd., Porbandar V. The Pr. CIT, Jamnagar, Jamnagar

ITA 65/RJT/2021

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 2486 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-03-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 03-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; TDS
• Section: 263; 143(3); 142(1)

Judgement Text

ITA No.65/RJT/2021 Assessment Year: 2016-17 1 IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted through E-Court at Ahmedabad) BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA No.65/RJT/2021 Assessment Year: 2016-17 M/s. Lilanand Magnesites Pvt. Ltd., Tribhu Terrance, Wadia Road, Porbandar – 360 575. [PAN – AAACL 3622 L] Vs. Principal Commissioner of Income Tax, Jamnagar. (Appellant) (Respondent) Assessee by Shri Tushar Hemani, AR Revenue by Shri Shramdeep Sinha, CIT(DR) D a t e o f H e a ri n g 14.03.2024 D a t e o f P ro n o u n c e m e n t 08.05.2024 O R D E R PER SUCHITRA KAMBLE, JUDICIAL MEMBER : This appeal is filed by the Assessee against the order dated 19.03.2021 passed by the PCIT, Jamnagar for the Assessment Year 2016-17. 2. The Assessee has raised the following grounds of appeal:- 1. The order u/s.263 of the Act has been passed beyond the period of limitation prescribed u/s.263(2) of the Act and is thus illegal and bad in law. 2. The Id. PCIT has grossly erred in law and on facts in assuming jurisdiction u/s.263 of the Act on the erroneous ground that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue. 3. Ld. PCIT grossly erred in not appreciating that in order to invoke s.263, two conditions must be fulfilled viz. the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, Id. AO has passed the reasoned assessment order after analysing all details and therefore there was no ITA No.65/RJT/2021 Assessment Year: 2016-17 2 error in the impugned assessment order so as to justify action u/s.263 of the Act. Under the circumstances, the very assumption of power u/s.263 of the Act is unjustified and bad in law and therefore, order u/s.263 of the Act deserved to be quashed. 4. The subject order u/s. 263 passed by ld. PCIT is illegal and bad in law in absence of any finding of ld. PCIT how the alleged error of AO has resulted in loss of revenue particularly when depreciation was justly claimed. 5. The subject order u/s. 263 passed by Id. PCIT is illegal and bad in law in absence of any finding of ld. PCIT how the alleged error of AO has resulted in loss of revenue particularly when the identity, genuineness and creditworthiness of the directors advancing unsecured loans has been established. 6. The subject order u/s. 263 passed by ld. PCIT is illegal and bad in law in absence of any finding of ld. PCIT how the alleged error of AO has resulted in loss oof revenue particularly when expenses have been incurred for business purposes. 7. The ld. PCIT has further erred in law and on facts in tot appreciating that the view taken by the AO is a possible view and hence the proceedings are illegal and bad in law. 8. The Id. PCTT has further erred in law in not coming to any concrete conclusion and without conducting any inquiry or investigating the issue, merely directed the AO to frame the assessment order afresh. Without there being any positive finding about order being erroneous and prejudicial to the interest of the revenue, the action of id. PCIT is without jurisdiction and illegal and hence deserves to be deleted. 9. Ld. PCIT has erred in not considering various facts, submissions, explanations and clarifications as given by the appellant and further erred in not appreciating the facts and law in their proper perspective.” 3. The assessee company filed return of income declaring total income of Rs.15,52,00,250/- on 19.09.2016. Subsequently, the case was selected for complete scrutiny and the assessment was finalised under Section 143(3) of the Income Tax Act, 1961 vide order dated 17.12.2018 by accepting the returned income. The PCIT observed that during the course of assessment proceedings, the Assessing Officer had not mentioned anything in the Assessment Order nor in the Office Note whether he had examined all the details submitted by the assessee and whether satisfied with the correctness of the income declared or not. The PCIT specifically noted that the Assessment Order was silent on the following aspects:- ITA No.65/RJT/2021 Assessment Year: 2016-17 3 “a) The AO has not verified the correctness of the depreciation on account of additions made to the assets of Rs.48,34,855/- b) The source of unsecured loans accepted during the year has not been examined. c) The AO has not verified the major expenses debited to P&L Account in respect of Travelling Expenses of Rs.55,13,026/-, Misc. Expenses of Rs.12,96,498/- etc.” 4. Accordingly, show cause notice under Section 263 of the Act was issued to the assessee on 01.03.2021. The assessee filed written submission. After taking into account the written submission the PCIT held that the Assessment Order dated 17.12.2018 is erroneous and prejudicial to the interest of the Revenue within the meaning of Section 263 of the Act and set aside the said order. The PCIT further directed the Assessing Officer to make fresh assessment after giving an opportunity of being heard to the assessee. 5. Being aggrieved by the Order under Section 263 of the Act, the assessee filed the present appeal before us. 6. The Ld. AR submitted that the assessee filed return of income for the Assessment Year 2016-17 on 19.09.2016 declaring total income at Rs.15,52,00,250/- The Assessing Officer issued notice dated 08.09.2018 under Section 142(1) thereby calling upon the assessee to furnish various details. Vide letter dated 30.12.2018 the assessee submitted various details before the Assessing Officer. The Ld. AR submitted that the assessee has given the details related to parties specified under Section 40A(2) of the Act which specifically contained the details of interest paid to the particular three Directors, details of TDS on various expenses which included the details of TDS on interest other than securities of Rs.5,61,064/-, ledgers of all the expenses exceeding Rs.1,00,000/-, justification of payment made to related parties prescribed under Section 40A(2) of the Act including justification as regards interest paid on unsecured loan to the Directors at 12% and also the relevant ledgers in respect of purchase of fixed assets along with invoices in respect of such fixed assets. The Ld. AR submitted that in respect of depreciation on fixed assets the assessee has given details of additions to fixed assets to the Assessing Officer during the assessment proceedings and in fact has given the explanation as to how the said ITA No.65/RJT/2021 Assessment Year: 2016-17 4 assets have been put to use in A.Y. 2016-17 and was transferred from Factory WIP (i.e. Work In Progress) to the depreciable block of assets. The assessee has claimed the depreciation which is allowable as per Income Tax Act and has demonstrated the same before the Assessing Officer. The Ld. AR further submitted that regrading unsecured loans the assessee has given all the details related to the entire amount and unsecured loans which was advanced by the Directors out of their personal source of income including the evidences related to credit worthiness of the Directors from their return of income. In fact, the assessee has demonstrated that the Directors from their own source has provided unsecured loans and at no point of time the same was from borrowed funds. The Ld. AR further submitted that the entire interest income earned by the Directors on such unsecured loan was offered for tax by the Directors in the return of income. The Ld. AR submitted that all these details were verified by the Assessing Officer during the assessment proceedings. As regards various expenses, especially that of travelling expenses, the assessee has demonstrated through various documents as regards to traveling expenses incurred solely for the assessee’s business which also increased the turnover of the assessee. As regards to miscellaneous expenses, the assessee has given the details to the Assessing Officer. Thus, the Ld. AR submitted that the PCIT has totally ignored the aspect which was verified duly as per the Income Tax Act at the time of assessment proceedings by the Assessing Officer. Thus, invocation of Section 263 of the Act is not justified. 7. The ld. DR submitted that the depreciation expenses on account of transfer of Factory WIP when actual asset was not demonstrated before the Assessing Officer. The Ld. DR also pointed out that the assessee has failed to show the unsecured loans and its source during the assessment proceedings as well as expenses incurred by the assessee was also not verified by the Assessing Officer. The Ld. DR relied upon the order of the PCIT passed under Section 263 of the Act. 8. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee during the assessment proceedings has given the details as to how the assets have been put to use in A.Y. 2016-17 and, therefore, the demonstration before the Assessing Officer as to how such asset was transferred from Factory WIP to the depreciable block of assets. These details were verified by the Assessing Officer during the assessment proceedings and, therefore, ITA No.65/RJT/2021 Assessment Year: 2016-17 5 the observations made by the PCIT that the same was not verified by the Assessing Officer is not justifiable. As regards to source of unsecured loans, from the perusal of the records it appears that the assessee has demonstrated the source of income of the Directors who have advanced the loans to the assessee and, therefore, this observation of the PCIT is also not justifiable which is contrary to what is produced by the assessee and verified by the Assessing Officer. As regards Travelling Expenses and Miscellaneous Expenses, the same was also verified by the Assessing Officer during the proceedings which was totally overlooked by the PCIT while observing the contrary view under Section 263 of the Act. In fact, the PCIT is taking a different view which is not permissible under the provisions of Section 263 of the Act and at no point of time the PCIT has pointed out that there is an escapement of income and the Assessment Order is prejudicial to the interest Revenue. Thus, the invocation of Section 263 of the Act in the present case is not justified. Hence, the appeal of the assessee is allowed. 9. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on this 8 th May, 2024 . Sd/- Sd/- (WASEEM AHMED) (SUCHITRA KAMBLE) Accountant Member Judicial Member Ahmedabad, the 8 th day of May, 2024 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Rajkot Bench, Rajkot