2020 (9) TMI 816 - AT - Income Tax

ITAT rules in favor of assessee, rejects Revenue's Section 263 challenge

The ITAT held that the assessment order was neither erroneous nor prejudicial to the revenue's interest for invoking Section 263 of the Income Tax Act. ... Revision u/s 263 - survey u/s 133A on 19/02/2015 wherein the assessee company has surrendered amount - addition u/s 40A (3) - HELD THAT:- Karnataka High Court after considering various judicial pronouncement in the case of CIT Vs. Gokul Das Exports [2008 (7) TMI 595 - KARNATAKA HIGH COURT] has held that assessing officer taking one out of two views the assessment order is not prejudicial to interest of revenue. In view of the above judicial pronouncements and various other judgements on the issue the assessment order passed by A.O. cannot be treated as an erroneous and prejudicial to the interest of revenue. In the case of CIT Vs. Vodafone Essar South Ltd. ( [2012 (12) TMI 70 - DELHI HIGH COURT] held that assessing officer before passing assessment order made an enquiry and directed his mind on all aspects. View adopted by him was clearly one among two plausible views that could have been taken. Commissioner did not specifically furnish any reasons to say why original order was unsupportable in law. Commissioner could not have validity exercised his revisionary power u/s 263 in instant case. The assessee’s return was subject to complete scrutiny and after making detailed enquiry and verification of the impounded documents/records seized during the course of survey u/s 133A A.O. determined total income after making addition u/s 40A(3) and lump sum addition for personal element of use in various expenses claimed in P&L account. During the course of assessment, the assessee has produced books of accounts, cash book, bills/vouchers etc. Given these undisputed facts as apparent from the assessment order, it is clearly apparent that the assessee has undergone through two detailed proceedings - survey proceedings under section 133A and thereafter assessment proceedings under section 143(3) of the Act where its books of accounts were examined not just once but twice by the departmental authorities and accepted after considering the surrendered amount except for certain additions as made under section 143(3) of the Act. AO has made sufficient enquiries, considered the survey records and the surrender made by the assessee and after considering the submissions of the assessee and due application of mind completed the assessment proceedings under section 143(3) of the Act. It is thus evident that A.O. made enquiries on the issue and assessee complied to the enquiries and filed all the required details. Thus, it is not a case where that A.O. made no enquiry or verification which should have been made. It is clear from reading of notice u/s 263 of the Act, that the proceedings u/s 263 has been started on the same issue which have already been considered and examined by the then A.O. As during the year under assessment advertisement expenses of ₹ 1.93 crore were incurred in comparison to ₹ 2.12 crore in the preceding assessment year. During the year under assessment the advertisement expenses have reduced from 2.12 crore to ₹ 1.93 crore due to better rate negotiations with advertising agency. Assessee company has filed advertising agency wise detail of advertisement expenses and copy of confirmations of Mahesh Advertising Agency and Sai Advertising Agency along with 1st reply letter to the questionnaire dated 20-12-2017. Thus, there is no merit in the ld. Pr.CIT’s allegation that at this stage, expenses were not verified by the A.O. Addition to furniture were made during the year and the bills/vouchers of each addition to furniture were filed alongwith copy of its ledger account before the A.O. CIT has also alleged that Vehicle running expenses have been allowed as claimed in the return of income without any verification. Referring details and documentary evidences filed during the course of assessment proceedings it is grossly wrong and bad in law and far away from the facts emanating from the questionnaire (s) issued, note sheet of assessment proceedings and detailed reply and documentary evidences filed as well as books of accounts along with bills/vouchers produced during the course of assessment proceedings, that AO has not verified the foregoing issues warranting invocation of proceedings u/s 263. Revision order set aside. Issues Involved:1. Invocation of Section 263 of the Income Tax Act, 1961.2. Alleged short offer of coaching fee revenue.3. Alleged abnormal increase in salary, celebration, legal, and rent expenses.4. Alleged expenses in violation of Section 40A(3).5. Alleged non-verification of depreciation claims and other expenses.6. Abnormal increase in cash in hand post-survey.7. Outstanding liabilities in sundry creditors.8. Alleged non-verification of construction expenses and trial balance reconciliation.9. Alleged non-application of provisions of Section 68 to 69D read with Section 115BBE.Detailed Analysis:1. Invocation of Section 263 of the Income Tax Act, 1961:The Principal Commissioner of Income Tax (Pr. CIT) invoked Section 263, arguing that the assessment order dated 29.12.2017 was erroneous and prejudicial to the interest of the revenue. The assessee contended that the assessment order was not erroneous nor prejudicial to the interest of the revenue. The ITAT held that for invoking Section 263, both conditions must co-exist, and in this case, the assessment order was neither erroneous nor prejudicial to the revenue's interest.2. Alleged Short Offer of Coaching Fee Revenue:The Pr. CIT alleged that the assessee offered only Rs. 20,09,434 out of the surrendered Rs. 3.00 crore. The assessee clarified that Rs. 2.20 crore was recorded as coaching fee advance under revenue from operation, and Rs. 59,90,566 as coaching fees (JEE-surrendered). The ITAT found that the assessee had duly declared the entire Rs. 3.00 crore and paid taxes thereon.3. Alleged Abnormal Increase in Salary, Celebration, Legal, and Rent Expenses:The Pr. CIT noted abnormal increases in these expenses. The assessee provided detailed explanations and evidence for each expense category, including salary details, celebration expenses, legal and professional charges, and rent expenses. The ITAT concluded that the AO had made sufficient inquiries and verifications during the assessment proceedings.4. Alleged Expenses in Violation of Section 40A(3):The Pr. CIT pointed out specific expenses allegedly violating Section 40A(3). The assessee demonstrated that no payment exceeding Rs. 20,000 in cash was made in violation of the provisions. The ITAT found the AO had verified these expenses and made necessary additions where applicable.5. Alleged Non-Verification of Depreciation Claims and Other Expenses:The Pr. CIT alleged non-verification of depreciation on furniture, computers, vehicle running expenses, and advertisement expenses. The assessee provided detailed records and evidence of these expenses, including bills, vouchers, and ledger accounts. The ITAT observed that the AO had examined these details during the assessment.6. Abnormal Increase in Cash in Hand Post-Survey:The Pr. CIT noted an abnormal increase in cash in hand from Rs. 81,43,641 on the survey date to Rs. 2.17 crore as of 31.03.2015. The assessee explained that the increase was due to the amount offered and accounted for in the books post-survey. The ITAT found the AO had verified the cash book and found no merit in the Pr. CIT’s observation.7. Outstanding Liabilities in Sundry Creditors:The Pr. CIT alleged non-verification of outstanding liabilities in sundry creditors for advertisement, rent expenses, and staff payable. The assessee provided detailed explanations and evidence for each creditor, which the AO had verified during the assessment. The ITAT concluded that the AO had made sufficient inquiries.8. Alleged Non-Verification of Construction Expenses and Trial Balance Reconciliation:The Pr. CIT alleged non-verification of construction expenses and trial balance reconciliation. The assessee provided detailed records of construction expenses and explanations for the trial balance differences, which were verified by the AO. The ITAT found that the AO had examined these issues during the assessment.9. Alleged Non-Application of Provisions of Section 68 to 69D Read with Section 115BBE:The Pr. CIT alleged that the AO failed to tax the head-wise undisclosed surrendered income as per the applicable provisions. The ITAT noted that the assessable income had been taxed at the applicable rate under Section 115BBE for the relevant assessment year, and the provisions for a higher rate of tax were introduced later.Conclusion:The ITAT concluded that the AO had made sufficient inquiries and verifications during the assessment proceedings. The order passed by the Pr. CIT under Section 263 was set aside, and the appeal of the assessee was allowed. The ITAT emphasized that the AO’s assessment should not be interfered with merely because another view is possible, and the AO had exercised quasi-judicial power in accordance with the law.