Case Law Details
Kute Sons Dairys Ltd Vs PCIT (ITAT Ahmedabad)
The appellant, Kute Sons Dairys Ltd, a company engaged in manufacturing and trading dairy products, was assessed by the Assistant Commissioner of Income Tax, who accepted their returned income for the assessment year 2017-18. However, upon review, the ld. PCIT identified certain errors and deemed the assessment order as erroneous and prejudicial to the interests of Revenue.
This led to the initiation of revision u/s 263, despite protests from the appellant who claimed the initiation to be unjust, citing reasons such as violation of Principles of Natural Justice and more. Central to the appeal were two significant items – the genuineness of the sundry creditors and the eligibility of the appellant to additional depreciation.
Despite the appellant’s plea, the case ended in favor of the PCIT, validating the assumption of jurisdiction u/s 263. The court ruled that the initial assessment was conducted without proper inquiry, providing legal grounds for the PCIT to invoke the revisional jurisdiction and direct the Assessing Officer to issue a fresh assessment order. This ruling reinforces the necessity for thorough inquiry during assessment and compliance with all requisite tax procedures.
FULL TEXT OF THE ORDER OF ITAT PUNE
This is an appeal filed by the assessee directed against the order of ld. Pr. Commissioner of Income Tax-3, Pune (‘the PCIT’) dated 30.03.2022 passed u/s 263 of the Income Tax Act, 1961 (‘the Act’) for the assessment year 2017-18.
2. The appellant raised the following grounds of appeal :-
“1. Pr. Commissioner of Income Tax has erred in initiating proceedings U/s. 263 and passing the order without proper jurisdiction. Appellant prays to declare proceedings and order Bad in Law.
2. Commissioner of Income Tax has erred in passing the Order U/s.263 without providing as to what enquiries and with whom were made before issue of notice, when Assessee has asked for the same. Appellant therefore prays to cancel the Order being violating Principles of Natural Justice.
3. Commissioner has erred in setting aside the issue of additional depreciation on New Plant & Machinery purchased which is accepted by Assessing Officer after full application of mind. Therefore, appellant prays to cancel the Pr. CIT’s Order on the issue.
4. Commissioner has erred in setting aside case for applicability of Section 41(1). Appellant prays to cancel the Pr. CIT’s Order on the issue.
5. Appellant prays to add, alter, amend, modify, clarify the grounds and / or withdraw the Ground/s as the occasion may demand during appellate proceedings.”
3. Briefly, the facts of the case are as under :
The appellant is a company formed under the provisions of the Companies Act. It is engaged in the business of manufacturing of homogenized and pasteurized milk and milk products and trading in cattle feed. The Return of Income for the assessment year 2017-18 was filed on 29.10.2017 declaring total income of Rs.12,12,19,770/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Circle, Satara (the Assessing Officer’) vide order dated 27.12.20 19 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) accepting the returned income.
4. Subsequently, on review of the assessment records, the ld. PCIT formed an opinion that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue for the reason that the Assessing Officer had failed to verify the genuineness of sundry creditors outstanding of Rs.71,97,038/- and also held that the Assessing Officer had allowed the additional depreciation of Rs.1,32,91,038/- without verifying whether the activities of the assessee company amounts to manufacture or not in view of the decision of the ITAT, Special Bench, Pune in the case of B. G. Chitale vs. DCIT, 115 ITD 97 and, accordingly, issued a show-cause notice u/s 263 of the Act. In response to the said show-cause notice, the appellant filed a detailed explanation. On considering the explanation, the ld. PCIT held that non-verification of these two items rendered the assessment order erroneous and prejudicial to the interests of the Revenue. Accordingly, the ld. PCIT set-aside the assessment order as erroneous and prejudicial to the interests of the Revenue and directed the Assessing Officer to pass a fresh order after affording a reasonable opportunity of being heard to the assessee.
5. Being aggrieved by the revision order of the ld. PCIT passed u/s 263, the appellant is in appeal before us in the present appeal.
6. The ld. AR submits that the very basis of the revision order passed by the ld. PCIT is bad in law, inasmuch as, even for a moment, the contention of the ld. PCIT is accepted that the sundry creditors are bogus, the same cannot be brought to tax u/s 41(1) of the Act, but can be brought to tax u/s 68 only in the year in which the credit was made. He further submits that the ld. PCIT has not applied his mind. He submits that every error does not render the assessment order erroneous. He also placed reliance on the plethora of decisions in support of his contention.
7. On the other hand, ld. CIT-DR placing reliance on the order of the ld. PCIT submits that the order of revision should be sustained.
8. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the validity of assumption of jurisdiction u/s 263 by the ld. PCIT. The Parliament had conferred the power of revision on the Commissioner of Income Tax u/s 263 of the Act in case the assessment order passed is erroneous and prejudicial to the interests of revenue. In order to invoke the power of revision, the above two conditions are required to be satisfied cumulatively. References in this regard can be made to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and in the case of CIT Max India Ltd., 295 ITR 282 (SC). The error in the assessment order should be one that it is not debatable or plausible view. In a case where the Assessing Officer examined the claim took one of the plausible views, the assessment order cannot be termed as an “erroneous”.
9. Now, we proceed to examine where the Assessing Officer had examined the issues sought to be revised by the ld. PCIT. There is no dispute that the Assessing Officer had not enquired into the issue of genuineness of the sundry creditors as well as eligibility of the appellant to additional depreciation. This was also not the case where the ld. PCIT had failed to make enquiry during the course of exercise of revisional jurisdiction. It was only pursuant to such enquiry that the ld. PCIT had recorded a categorical finding that the Assessing Officer had not enquired into the genuineness of the sundry creditors of Rs.71,97,038/- and eligibility of the assessee to additional depreciation. Since the assessment was completed without proper enquiry, it is settled position of law that where the assessment was completed without proper enquiry, it would competent for the ld. PCIT to invoke the revisional jurisdiction and direct the Assessing Officer to pass a fresh assessment order. Reliance in this regard can be placed on the decision of the Hon’ble Bombay High Court in the case of Vedanta Ltd. vs. CIT, 279 Taxman 358 (Bom.), PCIT vs. Zuari Maroc Phosphates Ltd., 432 ITR 316 (Bom.) and Sesa Starlite Ltd. vs. CIT, 430 ITR 121 (Bom.). In the light of the above discussion, we affirm the revision order passed by the ld. PCIT u/s 263 of the Act and, therefore, we do not find any merit in the appeal filed by the assessee.
10. In the result, the appeal filed by the assessee stands dismissed.
Order pronounced on this 15th day of May, 2023.
