Case Law Details
Aggarwal Promoters Vs PCIT (ITAT Chandigarh)
Introduction: This article delves into the case of “Aggarwal Promoters Vs PCIT” heard by the Income Tax Appellate Tribunal (ITAT) in Chandigarh. The central focus of this case is the application of Section 263 of the Income Tax Act, emphasizing the restriction of jurisdiction when dealing with issues that do not form part of a limited scrutiny assessment.
Detailed Analysis:
1. Background of the Case: Aggarwal Promoters filed an appeal against the Principal Commissioner of Income Tax-2, Chandigarh (PCIT), who had set aside an assessment order by the Assessing Officer (AO) using his revision powers under Section 263 of the Income Tax Act. The PCIT had cited errors in the assessment and sought to establish whether the jurisdiction of Section 263 can extend beyond the issues that were part of the limited scrutiny.
2. Delay and Condonation: The appeal faced a delay of 265 days in filing, and an application for the condonation of this delay was submitted. The delay was attributed to incorrect professional advice provided by the previous counsel, who did not advise the taxpayer on the appeal’s maintainability. The delay was not deliberate but due to a reasonable and bonafide cause.
3. Counsel’s Argument: The current counsel argued that the earlier counsel did not appear before the PCIT during the Section 263 proceedings, which resulted in an ex-parte order. Similar cases were cited from Kolkata and Mumbai Benches of the ITAT, where delays were condoned in comparable circumstances based on the belief of the assesses that the appeal was not maintainable due to their counsel’s advice.
4. PCIT’s Allegations: The PCIT’s objections were based on the claim of land cost in the trading account and certain cash payments made by the assessee. The PCIT pointed out that these payments could lead to disallowances under Section 40A(3), which pertains to cash payments exceeding a certain limit. The PCIT held that the AO should have applied disallowances but failed to do so, rendering the assessment order erroneous.
5. Limited Scrutiny Assessment: The appellant argued that the assessment by the AO was based on limited scrutiny, which was initiated to verify the genuineness of unsecured loans. Consequently, the scope of the investigation was confined to this issue. The AO found no issues with this limited scrutiny, and the order was not erroneous in this context.
6. Jurisdiction of Section 263: The article highlights that the exercise of jurisdiction under Section 263 requires that two conditions be met: the order by the AO must be erroneous, and this error should be prejudicial to the interest of revenue. It is emphasized that both these conditions must be satisfied for the Commissioner to invoke the powers under Section 263.
Conclusion:
In the “Aggarwal Promoters Vs PCIT” case, the ITAT ruled in favor of the assessee. The delay in filing the appeal was condoned due to erroneous advice from the previous counsel. The primary argument revolved around the limited scrutiny assessment and whether the AO’s order was erroneous. The ITAT concluded that the AO’s order was not erroneous, as the investigation was limited to specific issues. Furthermore, the disallowance of expenditure under Section 40A(3) was not applicable as the assessee did not claim any expenditure. Consequently, the PCIT’s order was quashed.
This case emphasizes the importance of adhering to the principles of limited scrutiny and ensuring that the exercise of jurisdiction under Section 263 is based on a genuine error prejudicial to the revenue, in accordance with the provisions of the Income Tax Act.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
The present appeal has been preferred by the assessee against the order dated 01.2.2017 of the Pr. Commissioner of Income Tax-2, Chandigarh [herein referred to as ‘PCIT’].
2. The assessee in this appeal has agitated the action of the PCIT in setting aside the assessment order passed by the Assessing officer exercising his revision powers u/s 263 of the Income-tax Act, 1961 (in short ‘the Act’).
3. There is a delay of 265 days in filing the present appeal. A separate application has been moved for Condonation of Delay which has also been supported with the affidavit of Shri Amarjit Garg, partner of the assessee firm. It has been explained in the application that the tax matters of the assessee firm were looked into by his counsel namely Shri Varinder Garg, Advocate. That the partners of the assessee firm were not well-versed with the procedure and technicalities of the tax matters and were dependent on the counsel, Shri Varinder Garg. That when the notice of the proceedings u/s 263 was received by the assessee, the same was supplied to Shri Varinder Garg, Advocate for further action. Thereafter, the assessee received the impugned order passed by the Ld. PCIT u/s 263 of the Act which was also supplied to their counsel Shri Varinder Garg. However, Shri Varinder Garg, did not take any action in this respect and never advised the assessee about the maintainability of the appeal against the order u/s 263 of the Act. Even thereafter a fresh assessment order was passed by the Assessing officer which was again supplied to Shri Varinder Garg, counsel for the assessee for further action. However, at this stage, Shri Varinder Garg surrendered and suggested that he had no experience of appearance before the Appellate Authorities and that the assessee should engage some other counsel to pursue the matter before the Appellate authority. When the assessee sought advise of some other counsels, then it was pointed out by them that assessee was not properly advised by the earlier counsel about the maintainability of the appeal against the order passed u/s 263 of the Act. The assessee thereafter engaged the present counsel and immediately filed the appeal against the order passed by the Ld. PCIT u/s 263 of the Act. That the delay in filing the appeal was neither intentional nor deliberate but solely due to wrong professional advice given by their earlier counsel. That there was a reasonable and bonafide cause for the delay in filling the appeal, therefore, the delay deserves to be condoned.
4. The Ld. Counsel has also invited our attention to the impugned order passed u/s 263 of the Act to submit that even the earlier counsel did not the appear before the PCIT in the proceedings carried out u/s 263 of the Act and that the said order passed by the Ld. PCIT u/s 263 of the Act was an ex-parte order. The averments made in the application have been further corroborated with the affidavit of Shri Amarjit Garg, partner of the assessee firm. The Ld. Counsel for the assessee has further relied on the two decisions of the Coordinate Bench of the Tribunal, firstly, the decision of Kolkata Bench of the Tribunal dated 22.11.2018 in the case of ‘Sahalbuddin Quadiri Vs. DCIT’ ITA No. 1617/Kol//2016 and secondly on the decision dated 3.12.2018 of the Mumbai Bench of the Tribunal in the case of ‘Ashte Logistics Pvt Ltd, Mumbai Vs. Pr. CIT-1’, ITA No. 229/Mum/2018, wherein, in somewhat similar circumstances, the respective counsels for the assessee did give wrong advise about the maintainability of the appeal against order passed u/s 263 of the Act, and the Coordinate Benches of the Tribunal taking into consideration the bonafide belief of the assessees which was based on the advise of the counsel that appeal against the order passed u/s 263 of the Act was not maintainable, have held that the assessee should not suffer on account of wrong advise of the consultant and, therefore, have condoned the delay of 409 days and 214 days respectively in filling the appeals against the orders passed u/s 263 of the Act.
5. The Ld. DR has strongly opposed the application for condonation of delay.
6. Considering the explanation given in the application which is further corroborated with the affidavit of Shri Amarjit Singh, partner of the assessee firm and also considering the rival submissions and also taking note of the fact that the earlier counsel of the assessee even did not appear before the PCIT in the proceedings carried out u/s 263 of the Act and also in the light of the decision of the Coordinate Koklata Bench in ‘Sahalbuddin Quadiri Vs. DCIT’ (supra) and Mumbai Bench of the Tribunal ‘Ashte Logistics Pvt Ltd, Mumbai Vs. Pr. CIT-1’ (supra), in our view, interest of justice will be served, if the delay in filing the present appeal is condoned. We order accordingly.
7. Now coming to the merits of the case. The Ld. PCIT noted from the assessment order that the assessee had claimed expenditure of ₹ 1,59,45,020/- in the trading account as ‘land cost’. He further noted that while purchasing the said land, out of total consideration, the assessee had made cash payment of ₹ 73,68,000/- twice vide receipt Nos. 2065 & 2066 respectively on 9.8.2011 to the seller. Further, from the perusal of the ledger account, the Ld. PCIT noted that the assessee had made cash payment of ₹ 62,762/- on account of expenditure in respect of ‘Job Work charges’ to M/s Dhiman Aluminum and Interior Decorator on 3.3.2012 and Building Material to other two parties. He, therefore, held that as per the provisions of section 40A(3), where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by account pay cheques / bank draft, exceeds ₹ 20,000/- rupees, no deduction shall be allowed in respect of such expenditure. The Ld. PCIT, therefore, noted that since the aforesaid payments were made in cash, hence, the provisions of section 40A(3) were attracted and the disallowance of aforesaid amount was warranted which the Assessing officer failed to do so. He, therefore, held that the assessment order passed by the Assessing officer dated 30.12.2014 was erroneous and prejudicial to the interest of Revenue. The Ld. PCIT, therefore, set aside the assessment order dated 30.12.2014 passed u/s 143(3) of the Act for the assessment year under consideration with a direction to the Assessing officer to pass the assessment order afresh in accordance with law keeping in view of the aforesaid observations of the Ld. PCIT regarding disallowance u/s 40A(3) of the Act after allowing opportunity of being heard to the assessee.
8. Aggrieved by the said order of the PCIT passed u/s 263 of the Act, the assessee has come in appeal before us.
9. At the outset, Ld. Counsel for the assessee has invited our attention to the assessment order in question of the Assessing officer dated 30.12.2014 passed u/s 143(3) of the Act and has submitted that the return filed by the assessee was originally processed u/s 143(1) of the Act, however, the case was later selected for limited scrutiny under the CASS to verify the large increase in unsecured loans raised during the year. The enquiries of the Ld. Assessing officer were, therefore, limited to the aspect of the genuineness and verification of unsecured loans, the details and explanation regarding which were duly supplied to the Assessing officer and the Assessing officer being satisfied with the evidences given by the assessee competed the assessment at the returned loss of ₹ 10,21,815/-That neither the Assessing officer was authorised nor there was any occasion to the Assessing officer to scrutinize and make enquiries, about the other factors of the case as it was a limited scrutiny assessment case, hence, the enquiry, if any, was restricted to the limited issue of unsecured loans which was duly done by the Assessing officer and no fault has been found by the Ld. CIT(A) in that respect. Under the circumstances, the order passed by the Assessing officer cannot be said to be erroneous.
10. As per the provisions of section 263 of the Act, the CIT / PCIT on exerciser jurisdiction u/s 263 of the Act, if he consider that the order passed by the Assessing officer is erroneous in so far as it is prejudicial to the interest of Revenue. It has been held time and again by various Courts of law including the Hon’ble Apex Court of the country that for exercise of jurisdiction u/s 263 of the Act, the twin conditions must be satisfied i.e. (i) the order passed by the Assessing officer is erroneous, and; (ii) it must be prejudicial to the interest of Revenue. If any of the twin conditions is absent, the Commissioner cannot exercise jurisdiction u/s 263 of the Act. Reliance in this respect is placed on the decision of the Hon’ble Supreme Court in the case of ‘Malabar Industrial Co Ltd Vs. CIT’ (2008) 109 Taxman 66 (SC).
In view of the above discussion, the order passed by the Assessing officer since cannot be said to be erroneous, hence, the Ld. PCIT was not authorised to invoke his powers u/s 263 of the Act and cancel the assessment order. Therefore, the order passed by the Ld. PCIT is quashed on this score alone.
11. Even on merits, the Ld. Counsel for the assessee has invited our attention to the trading account of the assessee for the year ended on 31.3.2012 i.e. for the assessment year under consideration to show that the assessee during the year did not make any sales. That all the payments / expenditure during the year was part of the closing stock (work in progress). That since there was no sales made during the year, hence, there was no question of booking any expenditure against any profit or loss against any sales. That since the assessee has not claimed any expenditure during the year, hence, there was no question of disallowance of any expenditure under the provisions of section 40A(3) of the I.T. Act.
12. The Ld. DR could not rebut the aforesaid contention also of the assessee.
13. Since the assessee did not claim any expenditure during the year, no disallowance of expenditure can be made even under the provisions of section 40A(3) of the Act. Therefore, the order passed by the Assessing officer even on merit cannot be said to be prejudicial to the interest of Revenue. In view of the above discussion, the order passed by the Ld. PCIT u/s 263 of the Act is not sustainable in the eyes of law and the same is accordingly quashed.
In the result, the appeal of the assessee is hereby allowed.
Order pronounced in the Open Court on 16.04.2019
