AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2025 (5) TMI 807
X X X X Extracts X X X X
X X X X Extracts X X X X
....erest of the revenue on the premise that the learned Assessing Officer ('AO') has passed the aforesaid assessment order without making inquiries or verification on the issues which were required to be made. 2. On the facts and in the circumstances of the case, the learned PCIT has erred in law by holding that the learned AO has failed to carry out adequate enquiries/verification while passing the assessment order without appreciating the fact that the case of the Appellant had been selected under Computer Aided Scrutiny Selection (CASS) for verification of "Real Estate business with high closing stock (Large cash deposits in Bank Accounts)" and the learned AO had undertaken all the relevant and meaningful enquiry and verification and had called for specific details/information after perusing the said details/information during the course of assessment proceedings. 3. The learned PCIT erred in section 263 of the Act without finding an error causing prejudice to the interest of revenue, since verification precedes the finding of error the setting aside of assessment order for doing verification makes it evident that error is not found to initiate the proceed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the assessee, we shall now adjudicate the present appeal, taking up each issue identified by the ld. Pr. CIT to have caused error in the assessment order . 7. First issue, noted by the ld. Pr. CIT related to TDS not deducted on the rent paid by the assessee in terms of section 194-I of the Act. 8. As noted in the order of the ld. Pr. CIT, he found from the assessment records that the assessee had paid total rent of Rs. 10,65,941/-, but TDS under section 194-I was deducted only on payment of Rs. 6,00,000/-. 9. The ld.counsel for the assessee stated the issue to have been adjudicated during the assessment proceedings. In this regard, he drew our attention to the reply filed to the ld. Pr. CIT placed before us at PB Page No.598 and 599, the contents of which are reproduced in the order of the ld. Pr. CIT also. The same is reproduced hereunder: "Issue 1: Assessee firm has paid a total rent of Rs. 10,65,941/-, whereas TDS u/s 1941 of the Act is deducted against payment made of Rs. 6,00,000/- only, accordingly assessee firm had failed to deduct TDS on balance rental payment amounting to Rs. 4,65,941/-, hence Rs. 1,39,782 (30% of Rs. 4.65,941/-) should be disallowed. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....otice and response to the same is attached herewith as Annexure-3). The learned AO during the assessment proceedings has therefore verified total rent paid by the assessee firm and the IDS deducted on the same for the year under consideration. Since the above issue has been specifically looked upon during the assessment proceedings, the proposed addition by initiating proceedings u/s 263 of the Act is not tenable and be dropped. 10. He also drew our attention to the documents filed to the ld. Pr. CIT evidencing the fact of the issue having been examined during assessment proceedings, placed at PB Page No.617, which is the copy of the notice issued by the AO under section 142(1) of the Act dated 01.03.2021 during assessment proceedings, asking the assessee to give details of parties to whom the rent of Rs. 25,90,941/- was paid during the year, and page no.618 to 622, which is the reply filed by the assessee in response to the said notice,dated 6.3.2021, giving details of rent expenses as comprising of the rent for equipment of Rs. 21,25,000/- and rent for office of Rs. 4,65,941/-, as also submitting copy of the relevant ledger accounts of both the rent expenses and copy ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e was that "applicable TDS was deducted." There is no clarity in the submissions of the assessee to the AO as well as the Ld.PCIT as to how applicable TDS was deducted by the assessee. Except for a general statement made by the assessee in this regard that too to the AO, no evidence / substantiation/explanation with regard to the same was filed furnished by the assessee. It is amply clear therefore that the issue of TDS on rent was not inquired into by the AO more particularly, when the facts revealed that the assessee has not deducted TDS on all rent paid during the year. Nor was any explanation on merits furnished to the Ld.PCIT as to why no TDS was deducted. 15. The finding of the ld. Pr. CIT therefore that the assessee has not submitted anything on merits of the issue, we find, is correct. The ld. Pr. CIT has rightly noted that the AO has not verified the issue of TDS on rent totaling to Rs. 31,90,941/-. The ld.Pr.CIT's order, therefore, on the aspect of the assessment order being erroneous for not having verified the TDS on rent under section 194-I of the Act, is upheld. 16. Second issue taken by the ld. Pr. CIT relates to TDS on a sum of Rs. 22,02,000/- under section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plication of mind by the learned AO. Hence, the assessment order passed cannot be held as erroneous, so the addition proposed by your honour by initiating proceedings u/s 263 of the Act should be dropped. 18. The finding of the ld. Pr. CIT on this issue are at para 5.2 of his order are as under: "5.2 TDS on professional and technical service u/s 194J: The assessee contended that its total expenditure on expenses incurred towards professional, consultancy and technical service u/s 194J is Rs. 17,79,500/- instead of Rs. 22,02,000/- mentioned in the notice of hearing u/s 263 of the Act. The assessee has also argued that the issue has already been considered by AO during the assessment proceedings and has made addition of Rs. 9,750/- being 30% of Rs. 32,500/- paid to M/s Baladeep Law Associated. The assessee further argued that proposed addition in the present proceedings u/s 263 is not tenable. The contentions of the assessee are considered. The assessee has not submitted anything on merit of the issue, rather it went ahead in questioning the proceedings u/s 263 of the Act. The contention of the assessee is prima facie found correct that it has debited consultancy expenses....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... find error in the order of the AO u/s 263 of the Act. In the absence of the same the power exercised by the Ld.PCIT on the impugned issue is clearly not in accordance with law. 23. The order of the Ld.PCIT finding the assessment order erroneous on the issue of TDS under section 194J is, therefore, found to be not sustainable in law, and is therefore set aside. 24. Third issue taken for consideration by the ld. Pr. CIT related to valuation of closing stock under percentage control method (PCM). 25. As per the ld.Pr.CIT, the assessee was noted to have been recognizing revenue as per the percentage control method (PCM). But the closing stock was found to be undervalued by Rs. 5,62,21,161/-. The reply furnished by the assessee in this regard to the ld. Pr. CIT is as under: It is submitted that, the formula given in the guidance note for accounting of real estate transactions of work in progress to be carried forward is as mentioned below: Value of Closing Stock (WIP) = Difference between total cost of the work in case of Real Estate Transaction as on reporting date and proportionate cost of area sold. (total area sold / total saleable ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he A.O. has verified issue in partial manner, therefore, in view of clause (a) to Explanation 2 of section 263 of the Act. Accordingly, in view of Explanation 2 of section 263 of the Act, the order of the A.O. is deemed to be erroneous in so far as it is prejudicial to the interest of the revenue. The order of the A.O. is set aside and the A.O. is directed to verify the issue and ascertain closing stock of WIP in accordance with ICDS, and, draw appropriate inference including addition on account of difference in closing stock." 27. On going through the above, we are unable to concur with the ld.Pr.CIT's finding of the assessment order being erroneous on account of under-valuation of the closing stock. We have noted that the ld.counsel for the assessee had pointed out that the assessee had followed Guidance Note for Accounting of Real Estate Transaction, adopting formula given therein for valuation of its work-in-progress, and had given complete working of the same to the ld. Pr. CIT for arriving at the value of closing stock debited by it. The assessee had also pointed out the issue to have been examined by the AO during the assessment proceedings. Further, we have noted that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m amounting to Rs. 8,10,423/- in the income tax return filed for the year, the transaction with Anmol & Sons is not genuine, credible or creditworthy. In regard to the above, it is submitted that the responsibility of filing of income tax returns and disclosing all the incomes earned lies with the concerned person, non-disclosure of interest income in the Income tax return by Anmol & Sons is non-compliance at their end and the assessee firm cannot be held liable for the same. Further, the ledger of assessee firm company in the books of Anmol & Sons for the year under consideration is attached herewith as Annexure-5, wherein it can be determined by your honour that the interest income and proportionate TDS receivable against the interest income is booked in their books of accounts. Considering the above, assessee firm cannot be held liable for the non-compliance at the part of lender, therefore the said loan cannot be considered as income of the assessee firm." 32. The finding of the ld. Pr. CIT are as under: 5.4.1 Firstly, the assessee has received unsecured loan of Rs. 1,67,55,443/- from Anmol & Sons. The assessee has contended that it has deducted TD....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... noted that the AO had not verified the issue, and therefore, the assessment was erroneous causing prejudice to the Revenue. 35. We are in agreement with the ld. Pr. CIT on this aspect. Undoubtedly, the issue was not examined during the assessment proceedings despite the records revealing that no interest income was returned to tax by the said party who had given loan to the assessee. It is not the case of the Ld.Counsel for the assessee that the issue was examined during assessment proceedings. In the light of the same, we are in agreement with the ld. Pr. CIT that non-examination of this issue by the AO had rendered the assessment order erroneous causing prejudice to the Revenue. 36. The contentions made by the Ld.Counsel for the assessee are in relation to the merits of the issue alone, having made an attempt to establish the genuineness of the transaction/loan to the Ld.PCIT by filing copy of ledger account of the said party showing interest paid to it that too after deducting TDS. But the fact remains that the genuineness of the loan taken by the assessee was not examined by the AO despite the records revealing that no interest income was returned to tax by the said p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y is sold Year in which income offered to tax 1. Kaushalkumar Naranyanbhai Patel AKYPP5943H 15,00,000 18.01.2021 AY 2021- 22 2. Jaykrishna G. Patel AJAPP7004L 1,51,000 11.11.2020 AY 2021-22 3. Bhartiben Bipinkumar Shah ADKPS5681C 20,00,000 05.08.2023 AY 2024-25 4. Rohitkumar Jivanbhai Patel Not Available 1,25,000 Property not sold; advance returned back Accordingly, as the impugned amount of Rs. 37,76,000/- represent advance received from the buyer, the question of proving the credibility and creditworthiness of the parties does not arise and the therefore, the said advances cannot be considered as income of the assessee firm as the same would result in double taxation of the same amount. b) Without prejudice to the above, the assessee firm further submits that the tax auditor had duly examined the records relating to the impugned advance for purchase of property of Rs. 37,76,000/- while conducting the tax audit for the year under consideration. Further, the PAN of the parties was reported as such due to non-availability of the PAN at the time of tax audit and therefore, the aforesaid PAN was ....