Pinkcity Jewelhouse Pvt. Ltd. Vs PCIT (ITAT Jaipur)
In the realm of tax disputes and legal battles, the case of Pinkcity Jewelhouse Pvt. Ltd. vs. PCIT (ITAT Jaipur) stands out as a notable example of the intricate web of tax laws and procedural intricacies. The case, heard by the Income Tax Appellate Tribunal (ITAT) in Jaipur, revolves around the assessment of income tax and the validity of proceedings initiated under Section 263 of the Income-tax Act.
The crux of the matter lies in the assessment of income and the subsequent reopening of the case by the Assessing Officer (AO) under Section 147/148 of the Income-tax Act. The AO determined the income at a higher amount than the returned income, citing various reasons, including alleged attempts by the assessee to avoid legitimate taxes.
One of the significant points of contention raised during the proceedings was the transfer of assets and resources between different entities under the same management umbrella. The survey conducted under Section 133A revealed a transfer of profits and assets from M/s. Pinkcity Colorstone Pvt. Ltd. to M/s. Pinkcity Jewelhouse Pvt. Ltd., allegedly for the purpose of tax avoidance.
The AO, in his assessment, made certain additions to the income of the assessee, primarily focusing on the allocation of expenses and profits between different units of the company. The AO argued that certain expenses were unfairly loaded onto one unit to shift maximum profits to another unit, thus avoiding taxes.
However, the validity of the assessment and the subsequent proceedings under Section 263 came under scrutiny by the ITAT. It was argued that the AO failed to conduct thorough inquiries and examinations regarding the eligibility of deductions claimed under Section 10AA of the Income-tax Act. The PCIT, in his order under Section 263, held that the AO’s actions were erroneous and prejudicial to the interests of revenue.
The ITAT, in its deliberation, examined the procedural aspects of the case, including the basis of the proceedings initiated under Section 263. It was noted that the action was primarily based on revenue audit objections, which raised questions about the independence and validity of the PCIT’s decision.
Furthermore, the ITAT highlighted the principle of consistency in tax assessments and legal proceedings. Citing relevant case law, including the decision of the Hon’ble Supreme Court in Radha Soami Satsang v. CIT, the ITAT emphasized the importance of maintaining a consistent approach in tax matters, especially when there is no material change to justify a different view.
Ultimately, the ITAT quashed the order passed by the PCIT, Central, Jaipur, concluding that the proceedings initiated under Section 263 were merely based on audit objections and lacked an independent assessment of the facts. The decision underscores the need for fair and thorough investigations in tax matters and the importance of adhering to legal principles to ensure justice and integrity in tax assessments.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal filed by assessee is arising out of the order of the Principal Commissioner of Income Tax (Central), Jaipur dated 17/03/2021 [here in after ld. PCIT ] for assessment year 2015-16 which in turn arise from the order dated 17.12.2018 passed under section 147 r.w.s 143(3) of the Income Tax Act, by ACIT, Circle-2, Jaipur.
2. In this appeal, the assessee has raised following grounds: –
“1. That on the facts and in the circumstances of the case, the ld. Principal Commissioner of Income-tax grossly erred in passing an order u/s 263 of the Act and in holding that the reassessment order passed by the Id. Assessing Officer u / s 147 r.w.s. 143(3) of the Act is found to be erroneous in so far as it is prejudicial to the interest of the revenue.
1.1. That on the facts and in the circumstances of the case, the Id. Principal Commissioner of Income-tax grossly erred in passing the impugned order u/s. 263 of the Income-tax Act and in holding that “the Id. AO has failed to make necessary inquiries regarding eligibility & allowability of the deductions u/s. 10AA of the IT Act, 1961″ which is wholly unjustified, bad in law and deserve to be quashed.
1.2. That the Id. Principal Commissioner of Income-tax failed to appreciate that the Id. Assessing Officer had passed the assessment order after appreciating all supporting documents and evidences and past history of the assessee and therefore the assessment order passed by the Id. Assessing Officer is neither erroneous nor is prejudicial to the interest of the revenue.
1.3. That the Id. Principal Commissioner of Income-tax grossly erred in ignoring the detailed submissions made by the assessee in response to notice u/s. 263 and in passing the impugned order on assumptions, presumptions, conjectures and surmises which is bad in law.
1.4. That the Id. Principal Commissioner of Income-tax grossly erred in ignoring that the assessee’s appeal was pending with Commissioner of Income-tax (Appeals) on account of additions made by the Id. Assessing Officer, thus the initiation of proceedings is wholly barred beyond jurisdiction.
2. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing.”
3. At the outset of hearing, the Bench observed that there is delay of 58 days in filing of the present appeal by the assessee for which the ld. AR of the assessee filed an application for condonation of delay with following prayers:
Application for condonation of delay u/s 253(5) of the I.T. Act, 1961 read with section 5 of Limitation Act in filing of appeal
Hon’ble Sir(s),
The humble assessee appellant applicant respectfully prays for the condonation of delay in the filling of Appeal for the following reason:
1. That the Id. PCIT (Central), Jaipur passed his order on 17.03.2021 which was served upon the assessee appellant applicant 20.03.2021.
2. That due to COVID-19 Pandemic, the said appeal is within limitation of 120 days as prescribed by the Act read with order passed by the Hon’ble Supreme Court in Suo Moto Writ Petition (Civil) No.(s) 3/2020 dated 27.04.2021.
3. An Affidavit duly sworn in this regard is also enclosed herewith.
With this background, we request your honour to take stock of the situation in totality, take a lenient and human approach towards the humble assessee appellant as the delay was not intentional and due to unavoidable circumstances.
That in these circumstances we request your honour’s to kindly condone the delay and oblige.”
4. During the course of hearing, the ld. DR not objected to assessee’s application for condonation of delay and prayed that Court may decide the issue as deem fit in the interest of justice as delay is of 58 days and that too pertains in the covid period.
5. We have heard the contention of the parties and perused the materials available on record. The prayer by the assessee for condonation of delay of 58 days has merit and we concur with the submission of the assessee that due to Covid-19 Pandemci, the said appeal is withing the limitation for 120 days as prescribed by the Act read with order passed by the Hon’ble apex court in suo moto Write petition (Civil) no. 3/2020 dated 27.04.2021. Thus the delay of 58 days filing the appeal by the assessee is condoned as the assessee is prevented by sufficient cause.
6. Succinctly, the fact as culled out from the records is that the assessee filed his income tax return for A.Y. 2015-16 on 30.11.2015 declaring total income of Rs. 4,68,02,540/-. The assessee company claimed deduction of Rs. 3,90,12,873/- u/s. 10AA. The assessment u/s. 143(1) was completed on 05.08.2016 at total income of Rs. 4,68,02,540/-.
6.1 A survey u/s. 133A of the Income-tax Act was carried out at the business premises of the assessee on 1 7th & 1 8th August, 2017. During the course of survey proceedings, it was gathered that another group concern of the assessee i.e. M/s. Pinkcity Colorstone Pvt. Ltd. was having strong profits but later on the same was closed and the Plant and Machinery as well as building was rented over to the assessed company i.e. M/s. Pinkcity Jewelhouse Pvt. Ltd. The management and shareholders of both the companies were/are same. This arrangement has been done for only motive to avoid legitimate taxes. Accordingly, the case was reopened u/s. 147/148 after recording reasons and getting necessary approval of the Addl.CIT, Range-2, Jaipur.
6.2 A notice u/s. 148 was issued to the assessee on 29/12/2017, which was duly served upon the assessee through e-file portal as well as through personal service on same day by the notice server. The assessee made no compliance as per the time provided in the notice for furnishing of return of income. The assessee filed his income tax return on 31/03/2018 declaring income of Rs. 4,68,02,540/- . The assessee through the submission dated 25.04.2018 submitted a copy of acknowledgement of return of income filed on 31.03.2018 and requested to provide copy of reasons along with necessary approval.
6.3 The assessment pursuant to the notice u/s. 148 was completed on 17.12.2018 determining the income at Rs. 7,05,65,857/- as against the returned income of Rs. 4,68,02,540/-. The assessment order dated 1712.2018 was further rectified u/s. 154 on 25.02.2019 and the income was determined at Rs. 5,86,84,200/-.
6.4 On culmination of the assessment proceeding the ld. PCIT(Central), Jaipur called for the assessment record for examination and he noted that among other thing that the AO has not made any inquiries regarding the specific information mentioned in the reasons recorded being para 2 on page 2 of the reasons recorded wherein it was noted that M/s Pinkcity Color stone Pvt. Ltd. was having strong profits but later on the same was closed and the plant & Machinery as well as building was rented over to the assessee company i.e. Pinkcity Jewel House Pvt. Ltd. The employees of M/s Pinkcity Colour Stones Pvt Ltd. were also absorbed in M/s Pinkcity Jewel House Pvt. Ltd. The management and shareholders of both the companies were/are same. This arrangement has been done for only motive to avoid due legitimate taxes. It is pertinent to state that the buyers as well as sellers of manufactured/ semi finished/ raw material goods of assessee company i.e. M/s Pinkcity Jewelhouse Pvt Ltd remained same as the items were transferred from its Mahapura Unit to the Sitapura SEZ unit. It was found that assessee is transferring semi-finished goods from the Mahapura Unit (Non-deduction claiming unit) to Sitapura Unit(SEZ Unit deduction claiming u/s.10AA) for onwards sale/exports from SEZ Unit. During survey proceedings it was learnt that SEZ Unit did not make any value addition on the same. This fact was clearly admitted by the General Manager Shri Rajeev Gupta at the survey premises located at Sitapura SEZ Unit and further accepted by Shri Manuj Goyal, Director of assessee company. It was also admitted by the Sr. Employee of the assessee Shri Hanuman Prasad Sharma in his statements recorded at Sitapura SEZ Unit that during the F.Y. 2010-11 and 2011-12 there was no casting facility at Sitapura Unit and the finished goods were transferred From Mahapura Unit.” Thus, ld. PCIT noted that the AO has failed to make necessary inquiries regarding eligibility & allowability of the deduction u/s 10AA of the IT Act, 1961. Therefore, a Show Cause Notice u/s 263 dated 12.03.2021 was issued and hearing fixed on 15.03.2021. In reply of the above Show Cause Notice u/s 263 of the IT Act, 1961 the AR of the Assessee submitted his written submission on 15.03.2021. The ld. PCIT based on the written submission held that ;
I have examined the facts at hand. I have studied the reply of the assessee. From the matrix of facts and events, it is noted that the case was reopened under section 148 based upon information gathered specifically in a survey carried out under section 133A, whereby it was found that the assessee is not eligible for claiming, and being granted, benefit under section 10AA of the Income Tax Act 1961. In the assessment order dated 17.12.201 8, pursuant to this reopening, it is noted that the Assessing Officer has not given any finding with regard to this specific state of affairs, whether the assessee is eligible for benefit of exemption under section 10AA or not?. This lack of inquiry and consequent non-deriving of inference by the Assessing Officer, has prima facie caused prejudice to the interests of revenue. Accordingly, I hereby set aside the assessment carried out under section 147/143(3) dated 17.12.2018, and the merged order dated 25.02.2019 u/s 154 of IT Act, 1961 and direct a fresh assessment to be made in accordance with provisions of law.”
7. Feeling dissatisfied with the finding recorded by the ld. PCIT, Central, Jaipur in an order passed u/s. 263 of the Act, the assessee preferred the present appeal challenging the order of the PCIT. Apropos to the ground so taken by the assessee the ld. AR of the assessee submitted the following written submission :
“Ground of Appeal No. 1 to 1.4 LD. PCIT grossly erred in passing the order u/s 263 of the Act and in holding that he ld. AO failed to make necessary enquiry, without appreciating the past history of the assessee appellant.
1. That the assessee appellant M/s. Pinkcity Jewelhouse Pvt. Ltd. is a Private Limited Company engaged in the business of export of Gemstones & Jewellery and is regularly filing its Income-tax return from time to time.
2. That assessee company is having two-manufacturing units, i.e., Sitapura Industrial Area Unit (SEZ unit), which is inside Special Economic Zone and is involved in manufacturing of Jewellery and Mahapura Unit which is a DTA Unit and is involved in manufacturing & trading of Jewellery & Gemstones.
3. That at the Mahapura Unit earlier the manufacturing work was being undertaken by M/s. Pink City Colorstones Pvt. Ltd. The existing Building and Plant & Machinery owned by M/s. Pink City Colorstones Pvt. Ltd. was given on lease to M/s. Pinkcity Jewelhouse Pvt. Ltd. (Mahapura Unit).
4. That Letter of Permission was granted to Sitapura SEZ Unit on 01.2006. The manufacturing facility commenced thereafter during assessment year 201 0-2011. The assessee appellant has claimed deduction u/s 1 0AA of the Act with regards to income earned from the said SEZ unit only from assessment year 201 0-2011 till 2019-2020. NO part of Building and Plant & Machinery owned by M/s. Pink City Colorstones Pvt. Ltd. was given on lease/sold to M/s. Pinkcity Jewelhouse Pvt. Ltd. (SEZ Unit). SEZ Unit constructed its own Building on land owned by it and purchased the necessary Plant & Machinery required for the purpose of manufacturing.
5. That scrutiny assessment u/s. 143(3) of the Act for assessment year 2010-2011 to 2014-2015 was consistently carried out of the assessee appellant. That reassessment for assessment year 2011-2012 was initiated and assessed. Benefit of deduction u/s.1 0AA was granted.
6. That during the year under consideration assessee appellant had filed its income tax return on 30.11.2015 at Rs 4,68,02,540/- PB-I, Pg. 165-202.
7. That survey proceeding u/s 1 33A of the Act was carried out against the assessee appellant on 17-18.08.2017 and in consequence, reassessment proceedings u/s. 148 of the Act was initiated for the Assessment Years 2012- 2013 to 2015-2016. That scrutiny assessment u/s. 143(3) of the Act for assessment year 2016-2017 & 2017-2018 was also initiated.
8. That in the reasons recorded for initiating reassessment proceedings initiated for the Assessment Years 2012-2013 to 2015-2016 it was alleged that assessee is transferring semi-finished goods from the Mahapura Unit (DTA unit) to SEZ unit and that SEZ unit did not make any addition on the goods, ratio of expenses incurred at DTA unit is more than SEZ Unit, etc. That disallowance was made by the Assessing Officer as per reasons recorded for initiating 148 The assessment/re-assessment proceeding were decided vide assessment orders dated 17/19.12.2018 passed for A.Y. 2012-2013 to 2016- 2017. The assessment proceeding u/s 143(3) was decided vide assessment order dated 30.12.2019 for A.Y. 2017-2018.
9. That in the assessment/re-assessment orders dated 17/19.12.2018 & 12.2019 passed for A.Y. 2012-2013 to 2017-2018, the ld. Assessing Officer after considering the facts and circumstances of the case, the past history, the provision of law and the reasons for which reassessment proceedings were initiated, has allowed the claim of deduction u/s 10AA as claimed by the assessee appellant, however, by allowing the expenses claimed on proportionate basis between DTA (Mahapura unit) and SEZ (Sitapura unit). The assessee appellant is in appeal before the CIT(A) for the disallowance of deduction u/s 1 0AA made. The said appeals are pending.
10. That the following chart will clarify the position of assessment / reassessment undertaken against the assessee appellant pre-survey and post survey.
