Case Law Details
Masani Engineering Company Pvt Ltd Vs PCIT (ITAT Mumbai)
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) in Mumbai has set aside an order by the Principal Commissioner of Income Tax (PCIT), against Masani Engineering Company Pvt Ltd. This decision pertains to the assessment year 2018-2019 and involves allegations of understatement of revenue in the Profit and Loss account. We delve into the intricate details of the case, the grounds for the appeal, and the ultimate ruling by ITAT.
Background of the Case
Masani Engineering Company Pvt Ltd had filed its income tax returns for the assessment year 2018-2019, declaring a total income of Rs. 13,65,900. The case had been selected for scrutiny for various reasons, including low net profit shown by construction contractors and claims of large refunds.
Controversial Points Raised by PCIT
- The PCIT invoked Section 263 to alter the case merely based on a change of opinion, without identifying any explicit error in the Assessing Officer (AO)’s original order.
- The PCIT alleged a discrepancy in the figures of receipts in 26AS and the Profit and Loss account, amounting to Rs. 22,82,138.
- PCIT also disregarded Masani Engineering’s request for adjournment in reply to the show cause notice, thus passing an order not tenable in law.
ITAT’s Scrutiny
The ITAT scrutinized the notices and responses during the assessment proceedings and found the allegations to be baseless. The Tribunal emphasized that the Assessing Officer had already examined these issues in detail.
Reasons for ITAT Overturning PCIT’s Decision
- No New Facts: No new evidence or facts were presented by PCIT that could justify the invocation of Section 263.
- Detailed Enquiry: ITAT found that the AO had already made a detailed inquiry into the relevant issues, and the response of Masani Engineering was in order.
- Difference Explained: The difference in the 26AS and P&L accounts arose due to various acceptable reasons such as TDS deducted on VAT amounts, credit notes not reversed by the customer, etc.
- No Legal Infirmity: ITAT observed that the order of the Assessing Officer was correct and not erroneous insofar as it was prejudicial to the interests of the revenue.
Conclusion
The ITAT Mumbai ruling in favor of Masani Engineering serves as a significant precedent for similar cases involving allegations of understated revenue. The Tribunal meticulously examined the facts and established that the allegations were baseless. This decision reaffirms the importance of a detailed and correct assessment by the Assessing Officer and puts a check on arbitrary actions by higher tax authorities. In the end, justice was served, and the appeal of Masani Engineering Company Pvt Ltd was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by assessee is directed against the order of PCIT, Mumbai dated 29.03.2023 u/s. 263 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 201819. The assessee has raised the following grounds (revised) of appeal:-
1. In the facts of the case and in Law, the learned PCIT erred in invoking Section 263 to the case of the Appellant only by way of change of opinion, without pointing out any error in the order of the A.O. and also by disregarding detailed submissions made to him from time to time.
2. In the facts of the case and in Law, the Show Cause Notice & or order u/s 263 alleging errors and prejudice, itself is erroneous on one count as follows.
a. In the facts of the case and in Law, the learned PCIT has erred in invoking the provision of sec. 263 merely because he wants to take a view different from the one taken by the Assessing Officer and thereby changing the opinion of the Assessing Officer by his opinion and even though this specific query was duly answered during the course of assessment proceedings.
b. In the facts of the case and in Law, the learned PCIT has erred in holding that the Assessing Officer failed to examine and verify as to why there is a difference of receipts amounting to Rs. 22,82,138/- between for 26AS and Profit and loss a/c.
c. In the facts of the case and in Law, the learned PCIT has erred in passing the order u/s. 263 by disregarding the adjournment request in reply to show cause notice and thereby passing the order not tenable in law.
[B] Relief Prayed:
The appellant therefore prays as follows,
1. To quash the order u/s. 263 because PCIT had no proper jurisdiction to invoke provisions of revision.
[C] General:-
The appellant reserve rights to add alter or delete any portion of this appeal before its conclusion.
This appeal is filed in time and be fully allowed.
A Detailed paper book along with case laws will be submitted at the time of hearing.
2. The brief facts of the case are that assessee filed its return of income for the year under consideration on 31.10.2018 declaring total income of Rs. 13,65,900/-. Subsequently the case was selected for scrutiny under CASS for the reason of High Ratio of refund to TDS, Low net profit shown by construction contractors and claim of large refund. Notices u/s. 143(2) and 142(1) were served upon assessee. In response, assessee furnished various details and submissions to the AO. Accordingly, assessment u/s. 143(3) finalized on return income of Rs. 13, 65,900/- was made by the AO.
3. Thereafter Ld. PCIT, Mumbai-2 called for case records and examined the records. In his examination, he found that there is mismatch in total receipts as per 26AS i.e. Rs. 23, 38, 48,997/- vis-a-vis receipts shown in P & L a/c. i.e. Rs. 23, 15, 66,859/-. This resulted into a difference in receipts of Rs. 22, 82,138/-. On this ground, Ld. PCIT issued notice u/s. 263 vide dated 21.03.2023. Copy of notice issued is reproduced herein below:-
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4. To verify the concern of Ld. PCIT i.e. whether assessee has under stated its receipts or otherwise, we need to examine the notices issued during assessment proceedings and response of the assessee thereon. In this regard, we are reproducing the notice issued u/s. 142(1) vide dated 23.12.2020 alongwith its annexure wherein relevant issue has been enquired:-
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9. In the annexure reproduced (supra) in point no. 4 & 5 of para B, the relevant issue has already been enquired by the AO. Assessee’s response to the same is furnished vide page no. 64 and 72 of the paper book.
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10. We have gone through the response of the assessee and found the same to be in order. It is pertinent to mention here that the documents /replies furnished to us are available on the record of the AO and Ld. PCIT also. This fact is not under challenge but the same has been ignored by the Ld. PCIT while passing order u/s. 263, dated 29.03.2023. It is observed that issues relating to revenue of the assessee for the relevant financial year were duly examined with reference to the books of accounts and response of the assessee during assessment proceedings. The allegation of the Ld. PCIT that revenue has been under stated is found to be baseless as the difference in the figure of TDS claimed vis-à-vis amount of receipts declared in the P & L account is arisen because sometime TDS is deducted on VAT amount also, credit notes not reversed by the customer, but TDS amount is still there, TDS deducted applying extra rate and TDS deducted on advance received which assessee disclosed in next year etc. Resultantly, the order of AO is found to be correct and not an erroneous order in so far as prejudicial to the interest of revenue for the purposes of section 263 of the Act. In the result, grounds raised by the assessee are allowed and order of Ld. PCIT is set aside.
11. In the result appeal of the assessee is allowed.
Order pronounced in the open court on 7TH day of August, 2023.
