M/S. JAGDISH MACHINERY STORE,JAMNAGAR V. THE PR. CIT, JAMNAGAR, JAMNAGAR

ITA 445/RJT/2023

AI Insights

The case involves M/s Jagdish Machinery Store, which appealed against the order of the Principal Commissioner of Income-tax (PCIT) under section 263 of the Income-tax Act, 1961, for the assessment year 2018-19. The PCIT had found that the assessee made cash payments exceeding Rs. 10,000 in a day for certain expenses, which should have been disallowed under section 40A(3) of the Act. The Tribunal examined the documents and found that the individual payments were below the threshold, and the total amounts appeared higher due to the accountant's error in consolidating multiple entries. The Tribunal referenced several similar cases where additions were deleted under similar circumstances and concluded that the PCIT's order was not sustainable in law.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 473467 (ITAT-RAJKOT)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-09-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 22-12-2023
• Other Referred Cases: CIT v. M/s. K.P. Agarwal, ITA No. 1223/Del/2011, AY 2008-09, ACIT v. M/s. Sai Industries, ITA No. 1199/Hyd/2014, AY 2009-10, PCIT v. M/s. Shri Ram Jiwan Ram Sugar Mills Co. Ltd., ITA No.922/Del/2015, AY 2010-11
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAMDEEP SINHA
• Assessee Lawyers: CHETAN AGARWAL
• Keywords: Set aside; Principle of natural justice; Revision of order
• Section: 143(3); 142(1); 263; 40A(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER AND SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER आयकर अपील सं./ITA No.445/RJT/2023 (Ǔनधा[रण वष[ / Assessment Year: (2018-19) (Hybrid Hearing) M/s Jagdish Machinery Store, Opp. Telephone Exchange, K. V. Road, Jamnagar - 361001 Vs. The PCIT - 1, Jamnagar èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AABFJ7263R (Appellant) (Respondent) Appellant by : Shri Chetan Agarwal, AR Respondent by : Shri Shramdeep Sinha, CIT-DR Date of Hearing : 04/09/2024 Date of Pronouncement : 27/11/2024 आदेश / O R D E R PER DR. A. L. SAINI, AM: By way of this appeal, the assessee has challenged the correctness of the order dated 31.10.2023 passed by the Learned Principal Commissioner of Income-tax (in short “Ld PCIT”) under section 263 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 2018-19. 2. Grievances raised by the assessee, are as follows: “1. Ld. PCIT erred in law as well as on fact in assuming jurisdiction u/s 263 of the Act. 2. Learned PCIT, Jamanagar has erred in law as well as on facts by not examining issue on the basis of material available on record and holding assessment as erroneous and in remitting matter to ld. AO for verification.” Page | 2 ITA Nos.445/RJT/2023/AY.2018-19 M/s Jagdish Machinery Store 3. Succinctly, the factual panorama of the case is that assessee before us is a Firm, and has filed return of income for the assessment year (AY), 2018-19, on 05/09/2018, declaring total income of Rs. Nil. The assessee`s case was selected for complete scrutiny through CASS and assessment finalized u/s 143(3) of the Act, vide order dated 12/04/2021, accepting returned income. 4. Later on, Learned Principal Commissioner of Income-tax (in short “Ld PCIT”) exercised his jurisdiction under section 263 of the Income-tax Act, 1961.On perusal of details available on record, it was noticed by ld.PCIT that the assessee has made cash payment of site expenses, Bonus expenses wherein cash payments exceed to Rs.10,000/- in a day. The ld PCIT observed that as per the provisions of section 40A(3) of the Act, any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure. However, in assessee`s case, the assessing officer has not called for any details of persons to whom such payment has been made. Therefore, the expenditure exceeding Rs.10,000/- is not allowable u/s 40A(3) of the Act without any verification of such details. The ld PCIT observed that no addition in this respect was also made in the assessment order passed by the assessing officer u/s 143(3) of the Act, dated 12/04/2021. Such failure on the part of the assessing officer rendered the assessment order erroneous in so far as it is prejudicial to the interest of the revenue within the meaning of the provisions of section 263 of the Act. 5.Accordingly, ld PCIT, issued a show- cause notice for initiation of proceedings u/s 263 of Act, dated 11/10/2023, to the assessee. The ld Page | 3 ITA Nos.445/RJT/2023/AY.2018-19 M/s Jagdish Machinery Store PCIT, in his notice stated that assessee had claimed following expenses as deduction wherein cash payment exceeds to Rs.70,000/- in a day. Nature of Expense Total amount of expense as per ledger account (in Rs.) Payments exceeds Rs. 70,000/- as per ledger account (in Rs.) Site expenses 2,66,275/- 2,39,890/- Bonus expenses 2,52,000/- 2,52,000/- Conveyance expenses 3,75,000/- 3,75,000/- Miscellaneous expenses 1,32, 935/- 70,230/- Total 8,77,120/- Therefore, ld. PCIT stated in his notice that the order passed by the Assessing officer, is prima facie erroneous and prejudicial to the interest of the revenue within the meaning of the provisions of section 263 of the I. T. Act 1961. 6. In response to the above notice of the Ld. PCIT, the assessee submitted its reply, before the ld. PCIT, stating that due to clerical error in the accounting entries, that is, in actual sense, expense were incurred below Rs. 10,000/-, but the accountant has made single entry for multiple vouchers/ expenses. That is, the bunch of several expenses, were passed by the accountant in the books of accounts, as one entry, however, individual expense voucher, is below Rs.10,000/- therefore, section 40A(3) of the Act, does not attract and hence jurisdiction under section 263 of the Act, may not be exercised, as the order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue. 7. However, ld. PCIT rejected the above contention of the assessee, and held that cash payment of site expenses, Bonus expenses wherein cash payments exceed to Rs. 10,000/- in a day, therefore, various expenses of Rs.8,77,120/-, as listed above, remained unexplained and the same was required to be disallowed by the assessing officer. This has rendered the Page | 4 ITA Nos.445/RJT/2023/AY.2018-19 M/s Jagdish Machinery Store assessment order passed u/s 143(3) of the Act, dated 12/04/2021 erroneous which resulted in the loss of revenue, hence prejudicial to the interest of revenue. Therefore, ld. PCIT, has set aside, the assessment order and directed the assessing officer to the extent of the issue mentioned, to frame the assessment order afresh. 8. Aggrieved by the order of Ld. PCIT, the assessee is in appeal before us. 9. Shri Chetan Agarwal, Learned Counsel for the assessee, argued before the Bench that none of the payment of expense, exceeds the threshold limit of Rs.10,000/- per day. The accountant while passing the entry in the books of account, made the entry in the books of account in a consolidated way, therefore amount appears more than Rs.10,000/- and this was the reason the Ld. PCIT has exercised his jurisdiction. The Ld. Counsel submitted that assessee had furnished entire details and documents, before the assessing officer, during the assessment proceedings, in response to notice u/s 142(1) of the Act. The assessing officer, after having examined, all the documents and evidences, submitted by the assessee, framed the assessment order, which is neither erroneous nor prejudicial to the interest of the revenue, therefore, the jurisdiction exercised by the ld. PCIT, may be quashed. 10. On the other hand, the Learned Commissioner of Income-tax – Departmental Representative (Ld. CIT-DR) for the Revenue, has primarily reiterated the stand taken by the Ld. PCIT, which we have already noted in our earlier para and is not being repeated for the sake of brevity. Page | 5 ITA Nos.445/RJT/2023/AY.2018-19 M/s Jagdish Machinery Store 11. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. PCIT and other material brought on record. The solitary issue in this lis is that, cash payment of site expenses and bonus expenses, were paid in cash by the assessee, which exceed Rs. 10,000/- in a day, (as per Ld. PCIT), therefore, total of these various expenses of Rs.8,77,120/-, remained unexplained and the same was required to be disallowed by the assessing officer. We have examined the paper book submitted by the assessee, and noticed that actual expenses incurred were consistently below the stipulated threshold of Rs.10,000/-, under section 40A(3) of the Act. We have also examined that the payments made to the respective counter parties were also within the prescribed limit, under section 40A(3) of the Act. The discrepancy lies in the accounting entries, where the accountant inadvertently combined multiple entries, resulting in a total that appears to exceed the permissible limit. The documents and evidences, submitted by the assessee, during the assessment proceedings, before the assessing officer, are also submitted by the assessee, by way of a paper book, before the Bench, which we have examined, and noticed that none of the individual payment exceeds Rs.10,000/-. Therefore, provisions of section 40A(3) of the Act, do not attract in the assessee`s case under consideration. 12. We have examined the ledger account of the assessee along with theirs individual vouchers, and find that individual, actual payment, is below Rs.10,000/-. We also note that various Coordinate Benches of ITAT, on the bases of similar and identical facts deleted the addition, in the following cases: 1. CIT v. M/s. K.P. Agarwal, ITA No. 1223/Del/2011, AY 2008-09. Page | 6 ITA Nos.445/RJT/2023/AY.2018-19 M/s Jagdish Machinery Store 2. ACIT v. M/s. Sai Industries, ITA No. 1199/Hyd/2014, AY 2009- 10. 3. PCIT v. M/s. Shri Ram Jiwan Ram Sugar Mills Co. Ltd., ITA No.922/Del/2015, AY 2010-11. We have also examined the paper book of the assessee, and we find that assessee had furnished entire details and documents, before the assessing officer, during the assessment proceedings, in response to notice u/s 142(1) of the Act. The assessing officer, after having examined, all the documents and evidences, submitted by the assessee, framed the assessment order.Thus, we find that all the documents, details and the explanations required by the Assessing Officer were submitted by the assessee. In fact, assessing officer has applied his mind. Let us take the guidance of judicial precedents laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the PCIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the Page | 7 ITA Nos.445/RJT/2023/AY.2018-19 M/s Jagdish Machinery Store second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined, one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interest of the revenue’’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”. 13.Therefore, we are of the considered opinion that AO’s order cannot be termed as erroneous as well as prejudicial to the interest of the revenue and therefore, jurisdictional condition precedent as prescribed by statute for invoking revisional jurisdiction is absent in the assessee`s case under consideration, and therefore, we are inclined to quash the impugned order, under section 263 of the Act, dated 31-10-2023 of the ld. PCIT. 14.In the result, appeal filed by the assessee, is allowed. Order is pronounced in the open court on 27/11/2024 Sd/- Sd/- (DINESH MOHAN SINHA) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Rajkot TRUE COPY Ǒदनांक/ Date: 27/11/2024 Page | 8 ITA Nos.445/RJT/2023/AY.2018-19 M/s Jagdish Machinery Store Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr. CIT 5. DR/AR, ITAT, Rajkot 6. Guard File By order Assistant Registrar/Sr. PS/PS ITAT, Rajkot Date Initial 1. Draft dictated on (dictation sheet is enclosed with main file.) 04.09.2024 } PS 2. Draft placed before author 05.09.2024 PS 3. Draft proposed & placed before the second member 4. Draft discussed/approved by Second Member. 5. Approved Draft comes to the Sr.PS/PS 6. Kept for pronouncement on 7. File sent to the Bench Clerk 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Draft dictation sheets are attached PS "