ACIT, CHENNAI V. M/s. SGP Exim Pvt. Ltd., CHENNAI

MA 51/CHNY/2020

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9771 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 7 month(s) 28 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 25-10-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 25-08-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 27-02-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Audit objection; Tax effect; Tax effect
• Section: 147; 263; 50C

Judgement Text

आयकर अपीलीय अिधकरण ‘सी’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI माननीय +ी महावीर िसंह, उपा01 एवं माननीय +ी मनोज कु मार अ6वाल ,लेखा सद9 के सम1। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM M.A No.51/Chny/2020 (Arising out of ITA No.2005/Chny/2019) (िनधाBरण वषB / Assessment Years: 2012-13) DCIT Corporate Circle-6(1), Chennai. बनाम / Vs . M/s. SGP Exim Pvt. Ltd. No.68, Cathedral Road, Gopalapuram, Chennai – 600 086. थायी लेखा सं. /जीआइ आर सं. /P AN / G I R No . AAB C S -0 551-Q (अ पीलाथ /Appellant) : ( थ / Respondent) अपीलाथ की ओरसे/ Appellant by : Shri I. Dinesh (Advocate) – Ld. AR थ की ओरसे/Respondent by : Shri P Sajit Kumar (JCIT) –Ld. DR सुनवाई की तारीख/Date of Hearing : 26-08-2022 घोषणा की तारीख /Date of Pronouncement : 26-10-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. By way of this application, the revenue seeks recall of Tribunal order passed in captioned appeal vide common order dated 22.08.2019. The bench has dismissed the bunch of appeals in terms of low tax effect circular issued by CBDT vide Circular No. 17/2019 dated 08.08.2019. 2. Drawing attention to the application, Ld. DR submitted that the appeal is covered by exception clause 10(c) of Circular No. 03 of 2018 since the case was reopened accepting revenue audit objections. The M.A No.51/Chny/2020 - 2 - Ld. AR, on the other hand, submitted that it should be shown by the revenue that the audit objections were accepted since clause 10(c) of Circular dated 11.07.2018 provide an exception only in case revenue audit objection has been accepted by the department. Both sides have filed written submissions elaborating the process of revenue audit objections. 3. The Ld. Sr. DR has filed written submissions and explained the workflow as under: - Workflow involved in Revenue Audit Party (RAP) objection Stage-l An Audit party, as and when detects mistakes, while conduct of audit of an assessment record, the same is intimated to the Assessing Officer (AO) through a memo called 'Half Margin note'. Generally they are in handwritten manuscript format. The Assessing Officer (AO) is expected to provide his/her initial comment on the audit observation on its acceptability or reasons for non-acceptability. This reply is expected to be provided within three working days of the receipt of the half margin note. At the end of the audit, the observations made by the audit party in the form of half margin note along with the initial replies obtained from the AO are submitted by the audit party to their local office for further follow-up. Till this stage, observations made by the Audit party is treated as only an 'Audit Observation' and Audit Party interaction is with the level of AO. Stage-2 A team of experts within the local wing of Comptroller Auditor General's office (Local CAG office), reviews on the merit of each of the observation vis-a-vis the initial reply obtained and decides on the observations that need to form a part of the Local Audit Report (LAR). Only those meritorious observations which are found fit will finally form a part of the LAR. The LAR so compiled is forwarded to the Principal Commissioner of Income Tax (PCIT) incharge of the AO for further follow-up and initiation of necessary remedial action. The Audit observations that form part of the Local Audit Report (LAR) is treated as an 'Audit Objection' and the respective wings within the Department are expected to take these objections into its registers for necessary follow-up action. At this stage, the communication between the Department and the local CAG office shifts to the PCIT level. The PCIT, in consultations with the AO decides on the acceptability or non-acceptability of such Audit Objections. Remedial actions are initiated on objections which are accepted and on those which are not accepted by the Department, the PCIT M.A No.51/Chny/2020 - 3 - communicates to the relevant wing of the CAG office the detail reasons for which the objections raised are not acceptable. Stage-3 Based on the quantum of tax effect involved, the office of the CAG expresses their intent to include certain objections as a part of their final Audit Report to be submitted to the Parliament. Such objections which form part of their initial Draft report are called as 'Draft Para". It may include cases which have been accepted and not accepted by the Department at the PCIT level. Once an audit objections form a part of the Draft Para, irrespective whether the objection is acceptable or not, the Department is compelled to take remedial action. At this stage, the communication between the Department and the CAG office shifts to the CBDT level. 4. The Ld. AR has also filed written submissions and explained the workflow as under: - MEMO FILED ON BEHALF OF THE RESPONDENT/ ASSESSEE The Audit team viz. local audit party (LAP) visit different units for the purpose of compliance audit. The initial step of LAP is called "Entry conference" wherein mistake detected by LAP in the audit process is intimated to the AO in the form of Audit Memo (Half margin note) and an initial response is sought. After audit is over a discussion is conducted with AO which is called "Exit conference". The LAR is forwarded to PCIT containing audit observations in respect of errors noticed. Half Margin note (HMN) stage (a) On receipt of HMN, AO shall initiate remedial action within 5 days and inform LAP, if such audit objection is accepted; (b) If not accepted, AO shall give reply to the audit specifying corrected facts and send a status report to PCIT; Local Audit Report (LAR) stage (a) If mistake pointed out by audit is found to be correct at LAR stage; • PCIT may initiate action u/s.263; if not inform AO to proceed as per law after according approval from respective range head(s); • Remedial action shall be taken within 3 months and complete within 6 months from initiation. (b) If found not acceptable; • Within 2 months from receipt of LAR, PCIT shall file a reply to CAG officer specifying such non-acceptance within 2 months of receiving LAR. If the view of PCIT is accepted, the objection will be dropped with no further action. • CAG shall file a rejoinder if the view of PCIT is not accepted. PCIT shall review his decision in the light of the rejoinder and decide further. • If PCIT still doesn't object, he can call for an inter-departmental meeting with DG (Audit) / PG Audit (Central) / CIT(Audit) to resolve the difference of opinion. Detailed "minutes of the meeting" shall be recorded. If PCIT still objects to the audit objection, no remedial action shall be initiated. All the details are to be uploaded in ITBA by PCIT. • ADG (Audit) acting on behalf of CBDT generates summary of such objection M.A No.51/Chny/2020 - 4 - from the ITBA and forward it to headquarter office of C&AG. • ADG (Audit) shall hold meeting with PD Audit (Direct Taxes) along with a team of CIT(A&J), CBDT & officers from Directorate of L & R. No remedial action shall be initiated if the objection raised by GAG is not found acceptable in such meeting. Draft Para stage On receipt of proposal to include objection as draft para, Director (ITRA) sends particulars of objections of PCIT through 'statement of fact'. On receipt of SOF from the O/o. CAG, A&J division of the board calls for report from PCIT in proforma A & B. (a) PCIT shall send reply to CAG officer within a fortnight of receipt of draft para. CCIT shall insert comments in ITBA in revised proforma within 6 weeks to enable C&AG to submit reply (b) In case draft para relates to objection that has been accepted, ADG (Audit) shall prepare Action Taken Note (ATN). (c) After receipt of Audit report presented to parliament, ADG(Audit) shall give shape to ATNs on audit paras through PDGIT(admin) for consideration of the board. From the above it is very clear that the objection to revenue audit can be in 3 different stages. In all these 3 stages, non-acceptance of audit objection would make the assessment fatal. The Department has to prove in which stage the objections fall to ascertain the nature of objection. It is pertinent to note that the Chennai ITAT in the case of DCIT Vs Prabha Dixit in M.P.No.61 of 2016 in ITA No.2207 of 2015 clearly held that mere production of audit objection doesn't exclude the appeals to fall within the purview of exceptions carved out in the circular. The Department has to prove that such audit objection has been accepted by the Department to fall in the exceptions. This decision has been approved by the jurisdictional high court in TCA No.641 of 2017. Similar view has been taken by the Bombay High Court in 98 Taxmann.com 294 - PCIT Vs Nawany construction. In the light of the above, the Department having not produced the acceptance of audit objection by the Income Tax department, the revenue cannot contest this appeal and the same has to be dismissed in limine. To support the same, a copy of instruction No.7/2017 [F.No.240/08/2015-A & PAC-II] dated 21.07.2017 has been placed on record which supersedes instruction no. 9 of 2006 dated 07.11.2006 as supplemented by Instruction No.16 of 2013 dated 31.10.2013 and Circular No.08/2016 dated 17.03.2016. Our Adjudication 5.1 To put it simply, the broad process of audit objection could be broken into three stages. In the first stage, whenever an audit party M.A No.51/Chny/2020 - 5 - detects mistake while conducting the audit of an assessment record, the same is intimated to the Assessing Officer (AO) through a memo called 'Half Margin Note' (HMN) which is generally in handwritten manuscript format. The Ld. AO is expected to provide initial comment within specified time on the audit observation on its acceptability or reasons for non-acceptability. Thereafter, the observation of Audit Party in Half Margin Note along with initial replies obtained from the AO is submitted by Audit Party to their local office for further follow-up. Till this stage, the observations made by the Audit party are treated only as an 'Audit Observation' and Audit Party’s interaction is with the level of AO. 5.2 The second stage is known as Local Audit Report (LAR) stage. A team of experts within the local wing of Comptroller Auditor General's office (Local CAG office) reviews on the merit of each of the observation vis-a-vis the initial reply obtained and decides on the observations that need to form a part of the Local Audit Report (LAR). Only those meritorious observations which are found fit will finally form a part of the LAR. It could thus be seen that Audit observation in ‘Half Margin Note’ may be dropped by Local CAG office itself and the same may not form part of Local Audit Report. The LAR thus compiled is then forwarded to the administrative authority of Income Tax Department which is Principal Commissioner of Income Tax (PCIT) in- charge of the AO for further follow-up and initiation of necessary remedial action. The Audit observations that form part of the Local Audit Report (LAR) is treated as an 'Audit Objection' and the respective wings within the Department are expected to take these objections into its registers for necessary follow-up action. At this stage, the M.A No.51/Chny/2020 - 6 - communication between the Department and the local CAG office shifts to the PCIT level. Thus, the issues forming part of LAR would only be treated as ‘Audit objection’ which may or may not be accepted by administrative authority. Therefore, this stage could be termed as stage of acceptance or rejection of audit objections. Once the objection has been accepted by administrative authority at this stage then it could be said that audit objections have been accepted by the department. Remedial actions are initiated on objections which are accepted. The Audit objections which are not accepted by the Department, the same are communicated to the relevant wing of the CAG office with detailed reasons as to why the objections are not acceptable. 5.3 In the last stage, based on the quantum of tax effect involved, the office of the CAG expresses their intent to include certain objections as a part of their final Audit Report to be submitted to the Parliament. Such objections which form part of their initial Draft report are called as 'Draft Para". It may include cases which have been accepted and not accepted by the Department at the PCIT level. Once an audit objection forms a part of the Draft Para, irrespective whether the objection is accepted or not, the Department is compelled to take remedial action. At this stage, the communication between the Department and the CAG office shifts to the CBDT level. 5.4 Considering the above stages, it could be said that the stage of acceptance could be at different level. At Half-margin note stage (HMN), the objection may be accepted by Ld. AO whereas at LAR stage, Ld. PCIT may initiate action u/s 263 or may direct Ld. AO to M.A No.51/Chny/2020 - 7 - proceed as per law after obtaining requisite approvals. The objection may also be accepted at Draft para Stage. 5.5 In the light of above observations, we find that revenue has placed on record letter dated 15.11.2019 from Assistant Commissioner of Income Tax, Corporate Circle 6(1), Chennai, the relevant extract of which read as under: It is seen from our records that in the instant case, appeal was filed by the department in Appellate Tribunal on the issues of disallowance of interest expenses of Rs.6,29.504/- and the addition u/s 50C of Rs.85,36,200/-. The Hon’ble ITAT has dismissed this appeal filed by the revenue merely on the basis of low tax effect (Rs.20,60,23/-) without going into the merits of the case and exceptional clause. However, this issue of addition u/s 50C arises out of audit objection which was accepted by the department. Thus, this case squarely falls under Para 10(c) of exceptions laid down in CBDT’s Circular 3 of 2018 dt. 11/12/2018. Since the issue arises out of audit objection and is covered by the exceptions, it is prayed that restoration of appeal in this case be filed if deem fit. The letter is accompanied by ‘Form for recording the reasons for initiating proceeding u/s 147 and for obtaining the approval of the Addl. Commissioner of Income Tax’. The reasons for reopening are stated to be the same as pointed out by revenue audit party. Upon perusal of these documents, it could fairly be concluded that the reassessment proceedings have been initiated by the department by accepting the Revenue Audit Objections. We do not find any discrepancy in this regard. Also, no material has been shown by Ld. AR which would prove that the department was not in agreement with Revenue Audit Objections. 5.6 The decision of Chennai Tribunal in DCIT vs. Prabha Dixit (MP No.61/Mds/2016 dated 09.09.2016) as referred to by Ld. AR is a case wherein the bench observed that no material was produced by revenue to indicate that the audit objection was accepted by the department. M.A No.51/Chny/2020 - 8 - Furthermore, the bench delved into merits of the case and ultimately held that the assessee was eligible to claim exemption u/s 54EC. Accordingly, the bench declined to recall the order. Clearly, the bench had more than one reason to dismiss the plea of the revenue which is not the case here. 5.7 Accordingly, accepting the submissions of revenue, we would hold that the case was covered under exception clause 10(c) of low tax effect Circular No.3 of 2018 dated 11/12/2018 as issued by CBDT. Therefore, we recall this order out of bunch of appeals dismissed by the Tribunal and restore the appeal back to its original position. The registry is directed to place the appeal for regular hearing in due course before regular bench after due intimation to both the sides. 6. The application stand allowed. Order pronounced on 26 th October, 2022 Sd/- (MAHAVIR SINGH) उपा01 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद9 / ACCOUNTANT MEMBER चे+ई / Chennai; िदनांक / Dated : 26.10.2022 EDN/- आदेश की Vितिलिप अ6ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आय ु त (अपील)/CIT(A) 4. आयकर आय ु त/CIT 5. वभागीय त न ध/DR 6. गाड फाईल/GF