Top Notch Foods LLP., Anand V. The Pr. CIT-1, Vadodara

ITA 82/AHD/2022

AI Insights

The case revolves around the appeal by Top Notch Foods LLP against the order of the PCIT, Vadodara, which set aside the assessment order passed by the AO under section 143(3) of the Income Tax Act, 1961. The PCIT's order was based on the grounds that the AO had not made proper inquiries regarding unaccounted sales discovered during a GST department search and that the revised return should not have been accepted. The Tribunal, however, found that the AO had indeed made the necessary inquiries and that the assessee had declared the additional income from unaccounted sales in the revised return filed within the statutory time limit. The Tribunal also noted that the PCIT had not specified the nature and manner of the inquiries that should have been conducted, leading to the conclusion that the PCIT's order was not sustainable.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135694 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-04-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 05-04-2022
• Other Referred Cases: Malabar Industrial Co. Ltd vs. CIT, CIT vs. President Industries
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Initiation of penalty proceedings; Assessment record; Revised return; Set aside
• Section: 263; 2; 139; 143(3); 142(1); 139(5); 143(2); 139(1); 43

Judgement Text

आयकरअपील यअ धकरण, अहमदाबाद यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ A’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI T.R. SENTHIL KUMAR,JUDICIAL MEMBER आयकरअपीलसं./ITA No.82/AHD/2022 नधा रणवष /Asstt. Year: 2017-2018 Top Notch Foods LLP Plot No. 2221, Pghase-IV, GIDC, Near ADIT College, Vithal Udyognagar, Anand-388121 PAN: AAGFT9558G Vs. PCIT Vadodara-1 (Applicant) (Respondent) Assessee by : Shri Tej Shah, A.R. Revenueby : Shri Vijay Kumar Jaiswal, CIT D.R. स ु नवाईक तार ख/Date of Hearing : 06/04/2023 घोषणाक तार ख/Date of Pronouncement: 19/04/2023 आदेश/O R D E R PER WASEEM AHMED ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the assessee against the order of the Learned Principal Commissioner of Income Tax-1, Vadodara (in short “Ld.PCIT”) arising in the matter of assessment order passed under s. 143(3)of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2017-2018. 2. The only issue raised by the assessee is that the learned Principal CIT erred in holding the assessment framed under section 143(3) of the Act as erroneous in so far prejudicial to the interest of Revenue. ITA no.82/AHD/2022 Asstt. Year 2017-18 2 3. The brief facts are that the assessee is a partnership firm and engaged in the business of Manufacturing of Wafer Rolled Sugar Cones. A search was conducted by the GST department on 10 th May 2018 at the assessee wherein unaccounted sale of Rs. 77,91,455/- was found and accepted by assessee. Subsequently, the case of the assessee was selected for complete scrutiny under CASS vide notice dated 9 th August 2018 issued under section 143(2) of the Act. Thereafter, the assessee revised its return of income dated 29 th September 2018 wherein the assessee declared additional income of 20,14,390/- being gross profit @26.86% on unaccounted sale found by GST Department. However, the AO worked out the GP on impugned unaccounted sales at Rs. 20,93,052/- and made addition of difference amount of Rs. 78,662/- only. Accordingly, the assessment was finalized vide order dated 19 th December 2019 wherein the AO also initiated penalty proceedings under section 270A of the Act. 4. The PCIT on examination of the assessment records of the assessee found that the assessee revised its return only after unaccounted sales unearthed by GST and thereafter, the case was selected for complete assessment. Therefore, the revised return filed under section 149(5) of the Act should not have been accepted for the reason that the revision of return is only allowed in cases where there has been some omission or wrong statement in original return of income which is not the case in the present facts. Further, the books of account of the assessee were already closed before the detection of unaccounted sales which means the corresponding expenses might have already been claimed, hence, entire unaccounted sales were liable to be added and considered for penalty proceedings under section 270A of the Act. However, the AO without making inquiry regarding above crucial fact accepted the revised return and finalized the assessment wherein the initiated penalty proceeding under section 270A of Act for Rs. 78,662/-only. ITA no.82/AHD/2022 Asstt. Year 2017-18 3 5. Thus, the learned PCIT initiated the proceedings under section 263 of the Act vide show cause notice dated 10 th March 2022 for not making proper inquiries which should have been made regarding the facts as discussed above. 6. The assessee, in response to such show cause notice submitted that it revised the return of income and declared additional income being gross profit on impugned unaccounted sale @ equal to the gross declared in earlier year i.e. 26.86% on suo-moto without being any query raised with regard to the unaccounted sales. As such the selection of scrutiny assessment was not based on search carried out by GST team. Thus, the income on the unaccounted sale was offered suo-moto in the revised return. The AO during the assessment proceeding made detailed enquiry regarding the unaccounted cash sale and all necessary details as well as the details of finding of GST team was also made available to him. Thereafter, the AO after verifying all these details and application of mind made further addition of Rs. 78,662/-on account of impugned unaccounted sale to the total income as declared in revised return and initiated penalty proceedings for under reporting of income by Rs. 78,662/- only. Thus, the assessment order does not suffer from any error on this count and observation of learned PCIT is factually wrong that no verification/ enquirywas made by the AO. 7. Without prejudice to the above facts of the case, the powers conferred under section 263 are only with reference to revision of assessment order for enhancing or modifying the assessment. Such powers cannot be extended to pass an order to initiate fresh penalty proceedings. Assessment proceedings and penalty proceedings are two distinct proceedings and Learned PCIT cannot set aside the assessment order for the purpose of initiation of penalty proceedings. 8. However, the ld. PCIT disagreed with the submission of the assessee and held that the notice under section 143(2) of the Act was issued based on original return under section 139 of the Act whereas finalized the assessment based on ITA no.82/AHD/2022 Asstt. Year 2017-18 4 revised return of income dated 29 th September 2018 which is filed after issuing notice under section 143(2) of the Act. 9. The impugned unaccounted sales of Rs. 77,91,455/- was unearthed in the search proceedings under GST Act carried after finalization of the books of account. Therefore, the corresponding expenses must have already been incorporated in the books. Hence, the entire unaccounted sale was liable to be added and accordingly the penalty proceedings under section 270A of the Act would have attracted on the same. But this fact has never been verified or enquired by the AO. 10. Thus, learned PCIT in view of the above held that the AO without making proper inquiry which should have been made framed the assessment. The learned PCIT in this regard also referred to the provision of the explanation 2 to section 263 of the Act. Accordingly, the learned PCIT by exercising the power conferred under section 263 of the Act set aside the assessment order passed under section 143(3) of the Act being erroneous insofar prejudicial to the interest of the Revenue. 11. Being aggrieved by the order of the learned PCIT, the assessee is in appeal before us. 12. The learned AR before us filed a paper book running from pages 1 to 43 and contended that the assessment has been framed by the AO under section 143(3) of the Act after proper enquiries and therefore, the assessment cannot be made subject to revision under section 263 of the Act. 13. On the contrary, the learned DR vehemently supported the order of the ld. PCIT. 14. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that, there was unaccounted sales discovered by the GST department which was not ITA no.82/AHD/2022 Asstt. Year 2017-18 5 disclosed in original return filed under the provisions of section 139(1) of the Act dated 29 th October 2017. The original return of the assessee was selected for scrutiny and thereafter the assessee revised its return wherein, it offered additional income being gross profit embedded in impugned unaccounted sales. The AO while finalizing the assessment assessed the income as per the revised return. The action of the AO might be held as erroneous since it was the original return which was selected for scrutiny and accordingly income should have been assessed as per the original return of income dated 29 th October 2017 and not as per the revised return dated 29 th September 2018. But it is also pertinent to highlight that the assessee revised its return within the time limit prescribed under section 139(5) of the Act i.e. within period of 1 year from the end or relevant assessment year or before the completion of assessment. Thus, the AO during the assessment proceeding accepted the revised return filed before the completion of the assessment as well as within the prescribed time limit and accordingly assessed the income. Thus, the AO has taken one of the possible views either to assess income as per original return or to assess as per revised return. Therefore, in our considered opinion, no error was committed by the AO in assessing the income as per revised return of income. 14.1 Be that as it maybe,the provision of section 263 of the can be applied where the twin condition i.e. error as well prejudicial. There might be situation where AO made error in assessment order, but no prejudice caused to the Revenue and vice versa, there may be prejudice caused to the revenue by the action of the AO but such action of the AO may not be erroneous. In both the situation the provision of section 263 of the Act cannot be invoked. In holding so we draw support and guidance from the judgment of Hon’ble Supreme court in the case of Malabar Industrial Co. Ltd vs. CIT reported in 243 ITR 83 wherein it was held as under: “A bare reading of section 263(1) makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of ITA no.82/AHD/2022 Asstt. Year 2017-18 6 them is absent - if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1).” 14.2 In the case of the present assessee, the unaccounted sales of Rs. 77,91,455/- was found. In this regard, we note that it settled position of law by the several judicial pronouncements of judicial authority including the jurisdictional high court that, in the case of unaccounted sales or purchases only profit embedded in such unaccounted transaction can be brought to tax. At this stage we pertinent to refer the judgment of Hon’ble Gujarat High court in case of CIT vs. President Industries reported in 258 ITR 654 where it was held as under: “The amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that the investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question whether entire sum of undisclosed sales proceeds can be treated as income, answers by itself in the negative.” 14.3 As such the unaccounted sales cannot be made without incurring corresponding expenses on account of purchases or other direct expenses. The assessee in the revised return of the income declared gross profit on account of unaccounted sales @ 26.86%. If assuming, the AO should not have accepted the revised income then he should have added the GP on impugned unaccounted sales to the total income declared in original return. However, the AO accepted the gross profit offered in revised return over and above the income offered originally. Thus, in either of the case, the basis of total income to be assessed by the AO would have been the same. Therefore, in our considered opinion there is no prejudice to the revenue as far as the amount of income needs to be assessed in the hand of the assessee. Accordingly, the requirement of twin condition in the provision of section 263(1) of the Act i.e. erroneous as well prejudicial is not fulfilled in the case on hand. 14.4. As far as the issue of enquiry or verification carried out by the AO, we note that the AO during assessment proceedings, made enquiries on the issue of unaccounted cash sale and after consideration of written submissions filed by the ITA no.82/AHD/2022 Asstt. Year 2017-18 7 assessee and documents / evidence placed on record, then framed the assessment under section 143(3) accepting the gross profit @ 28.85% of unaccounted cash sale. This fact can be verified from the notice issued under section 142(1) of the Act by the AO and submission in reply of the assessee against such notice. i. Notice dated 11-11-2019: “3) Note on Gross Profit on unaccounted sales.” i. Reply dated 28-11-2019 “3. With reference to gross profit declared in the revised return on unaccounted sales, please note that a survey was conducted by the team of GST department. During such survey operations, details of some unaccounted sales were found and the assessee firm also accepted such sales and paid duty on such sales. A detailed party wise date wise list of such unaccounted sales was prepared by the team of Indirect tax department and the same was provided to the assessee firm as part of show cause notice. The main purpose ol survey was to determine rate of duty applicable on the product under excise rules and the same is a matter of further interpretation. Such unaccounted sale as detailed out in show cause notice included the period of assessment and relevant part of show cause noticeis also attached herewith. The assessee firm had filed return of income before such survey operations was carried out and hence to declare correct income earned by the firm, the assessee firm voluntarily revised its return of income declaring gross profits earned on such sales which is the same rate for which the firm has earned gross profit for year under assessment which is 26.86 %. We enclose herewith working of G.P. as well as working of additional income offered. The working of G.P. for year under assessment was on the sales net of duty. Hence the additional income on the basis of G.P. is also offered on the assessable value as worked out by the GST department with comes to Rs 77,91,455. On the said value the G.P. amount tomes to Rs, 20,93,052 While making calculation during revising return, it seems that there was some error and as against correct additional income now worked oa to be Rs. 20,93,052 the sum included in revised return was Rs 20,14,390. Therefore, additional income of Rs. 7S662/- is now offered and accordingly a revised computation is also enclosed, we request your honor to increase our income further by Rs 78,662/- to tnc income as per revised return filed.We shall pay additional tax with interest on sucn additional income. This mistake was only because of some calculation error and was without any intention of underreporting. In this matter, please note that the assessee firm has not incorporated any entries in the books of accounts by revising the accounts. But only additional income is declared and due tax is paid as per revised income. Additional tax will also be paid by us as submitted above on the differential income of Rs.78,662/-now worked out by us. No credit is availed in books for such profits on which tax is paid and even partners capital accounts are not credited even in subsequent year for such profits. Thus, having paid the tax, the firm or partners have not availed any further credits in the books From the details submitted, your honor will observe that the such sales up to 31/3/2017 includes a very nominal amount for the period February 2015 to March 2015 and applying same G.P., the net amount, comes to a very nominal profits, which are also offered as incpj: of the year under assessment and taxes are paid on the same.” ITA no.82/AHD/2022 Asstt. Year 2017-18 8 14.5 From the above it is revealed it is not the case that the AO has not made any enquiry. Indeed the Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of unaccounted cash sale. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the AO had made enquiries and after consideration of material placed on record accepted the genuineness of the claim of the assessee. 14.6 At this juncture, it is also important to note that the learned PCIT in his order passed under section 263 of the Act has referred to the explanation 2 of section 263 of the Act. It was attempted by the learned PCIT to hold that there were certain necessary enquiries which should have been made by the AO during the assessment proceedings but not conducted by him. Therefore, on this reasoning the order of the AO is also erroneous insofar prejudicial to the interest of revenue. In this regard, we make our observation that the learned PCIT has not invoked the explanation 2 of section 263 of the Act in the show cause notice dated 10 March 2022 about the same. Therefore, the opportunity with respect to the explanation 2 of section 263 of the Act was not afforded to the assessee. Thus, on this count the learned PCIT erred in taking the re-course of such provision while deciding the issue against the assessee. Secondly, the learned PCIT has also not specified the nature and the manner in which the enquiries which should have been conducted by the AO in the assessment proceedings. Thus, in the absence of any specific finding of the learned PCIT with respect to the enquiries which should have been made, we are not convinced by his order passed under section 263 of the Act. 14.7 In view of the above and after considering the facts in totality, we hold that there is no error in the assessment framed by the AO under section 143(3) causing prejudice to the interest of revenue. Thus, the revisional order passed by ITA no.82/AHD/2022 Asstt. Year 2017-18 9 the learned PCIT is not sustainable and therefore we quash the same. Hence the ground of appeal of the assessee is allowed. 15. In the result, the appeal filed by the assessee is allowed. Order pronounced in the Court on 19/04/2023 at Ahmedabad Sd/- Sd/- (T.R SENTHIL KUMAR) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 19/04/2023 Tanmay आदेशक त ल प े षत/Copy of the Order forwarded to : आदेशान ु सार/BY ORDER, उप/सहायकपंजीकार (Dy./Asstt.Registrar) आयकरअपील यअ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation :17/04/2023(Dictated in his dragon software) 2. Date on which the typed draft is placed before the Dictating Member 17/04/2023 3. Date on which the approved draft comes to the Sr.P.S./P.S. - 18/04/2023 4. Date on which the fair order is placed before the Dictating Member for Pronouncement /04/2023 5. Date on which the file goes to the Bench Clerk .. : 19/04/2023 6. Date on which the file goes to the Head Clerk.................................. 7. The date on which the file goes to the Assistant Registrar for signature on the order.......................... Date of Despatch of the Order.................. 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धतआयकरआय ु त/ Concerned CIT 4. आयकरआय ु त(अपील) / The CIT(A) 5. !वभागीय $त$न ध, आयकरअपील यअ धकरण/ DR, ITAT, 6. गाड&फाईल / Guard file.