TaxTMI 
TaxTMI 
2025 (3) TMI 2134
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....as neither erroneous nor prejudicial to the interests of the revenue. 2. Hon'ble Pr. CIT, Jamnagar has erred in law and in facts in setting-aside the order passed by the assessing officer under section 143(3) of the Income- tax Act, 1961 even when the assessment order was passed by the assessing officer under section 143(3) of the Act, after conducting necessary enquiries and after due application of mind. 3. Hon'ble Pr. CIT, Jamnagar has erred in law and in facts by passing order u/s. 263 where assessing officer has accepted claim by assessee where assessee has considered labour, wages u/s 192 for salary. However, Hon'ble PCIT has considered payment to labour wages u/s 194C of Income Tax Act, 1961, by considering threshold Rs. 1,00,000/- p.a. 2. Succinctly, the factual panorama of the case is that assessee before us is a Private Limited Company and has filed return of income for assessment year (AY) 2018-19, on 27/02/2019, declaring total income of Rs. 28,36,344/-. The assessee`s case was selected for complete scrutiny, through CASS and assessment was finalized u/s 143(3) of the Income-tax Act, 1961, vide order dated 03/06/2021, by determining total income at ....
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....hin the meaning of the provisions of section 263 of the Act. 5. Accordingly, a show cause notice, for initiation of proceedings u/s. 263 of the Act dated 20.10.2023 was issued by ld. PCIT, to the assessee, through ITBA, which is reproduced by the ld. PCIT on page nos. 2 to 4 of his order. 6. In response to the above, the assessee has submitted online reply on 23.11.2023, before the ld. PCIT, which are summarized as under: "With reference to above mentioned notice u/s 263 dated 20.10.2023 where in your honour intend to revise the order of the assessing officer passed u/s 143(3) of the Act dated 03.06.2021, by making addition on account of reasons that assessing officer has neither inquired nor verified in this regard which has resulted into an erroneous order prejudicial to the interest of the revenue. With respect to above, we would like to submit as under: (A) Proposed Addition for Rs. 1,47,96,637/- on account of TDS not deducted on Labour wages of Rs. 4,93,22,122/- Your honour has issued notice for initiation of action u/s 263 of I.T. Act, 1961, stating that on perusal of total labour wages of Rs. 9,29,67,709/-, out of that TDS of Rs. 10,10,408/-,....
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....ion as threshold limit was not exceeding, as per TDS provisions. In list provided in support of claim, assessee- company has paid/credited to various person above Rs. 1,00,000/- during the year which are as under: Name of labour Amount Anil samani 2,18,000 Bind Komalprasad Meghaprasad 1,03,650 Devayat Bhura Odedra 1,45,500 Deviram Jog/ Labor 1,42,250 Jeinesh Rajpal 1,42,200 Keshu Parbat 1,17,329 Malde Samat 2,35,800 Meena MangelalGenaji 1,92,000 Menand Jivan Khant 1,21,861 RajujiHarbhamjiodedra 2,48,500 Raspal Labor 1,59,280 Shah JayshreebhaiRajkishor 1,12,900 SinghShardanandTilakdhari 1,37,000 Sudarshan Mandal 1,07,871 Total 21,84,141 Our Submission: In this regard, we would like to submit that your honour has taken Outstanding Balance of above labour instead of Expenses debited in Profit & Loss A/c, during the year under consideration. Assessee- company has provided labour-wise details in Annuxure-B point No. 5 of submission -5, dated 10.04.2021, whereas your honour has considered. Annuxure - A for outstanding Balance of labour as on 31.03.2018 for threshold limit. De....
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....is no such case that we have concealed the details or have not furnished the details. The Ld. assessing officer has verified the details and kept on the records during the assessment proceedings. So, there is not such case that the Ld. assessing officer has neither verified nor asked for the details as stated by your honour in the show- cause notice. * It is to be noted that sec. 263 can be invoked where two conditions are satisfied i.e. a. When assessing officer has passed erroneous order AND b. It is prejudicial to interest of revenue. Therefore, looking to scope of section 263, issue of non-deposit of TDS, on Labour expenses, should not be reviewed again for proposed addition in assessment. Since there is no failure on part of assessee- company to section 201, assessee-company should not be penalized for non-deposit of TDS since all due taxes have been paid. Kindly accede to us request and oblige us. If your honour do not wish to accede to our request then kindly grant us personal opportunity of hearing to present the case." 7. However, the Pr. CIT has rejected the above contention of the assessee and held that since the a....
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..../-. However, wages of any mentioned laborer does not exceed the basic exemption limit during the year under consideration. Hence, TDS was not deducted for the selabourers, whose payment does not exceed the maximum amount, which is not chargeable to tax. Therefore, ld. Counsel contended that order passed by the assessing officer is neither erroneous nor prejudicial to the interest of the revenue. Therefore, order passed by the learned PCIT may be quashed. 10. On the other hand, Learned DR for the revenue, argued that during the assessment proceedings, the assessing officer did not conduct sufficient inquiry. Infact, the order passed by the assessing officer is very cryptic wherein he did not discuss the issue raised by the Pr. CIT. The labour payments in Annexure was shown at Rs. 9,29,67,709/-. Out of said amount Rs. 4,93,22,122/-, tax was deductible at source and claimed to have deducted an amount of Rs. 10,10,408/-, as TDS. However, as per 3CD report, no TDS was deducted from the bills or shown outstanding for payment therefore it results in under assessment of Rs. 1,47,96,637- (30% of Rs. 4,93,22,122/-). The assessee has made payment, which exceeds the threshold limit, as per ....
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.... the assessment order, should be communicated to the assessing officer. The documents submitted before the learned PCIT, by the assessee, were available in the file of the assessing officer. However, the ld. PCIT remitted these documents back to the file of the assessing officer to verify the same. It means ld. PCIT has failed to point out the specific defects and errors in the documents of the assessee, however, he delegated his authority to the assessing officer to examine the documents submitted by the assessee, during the revision proceedings and make a fresh assessment order. Such direction is not tenable in the eye of law. It is necessary for the ld PCIT to point out the exact error in the order which he proposes to revise, so that the assessee would have an adequate opportunity of meeting that error before the final order is made-CIT v. G.K. Kabra (1995) 211 ITR 336(AP). Where ld. PCIT has not applied his mind to relevant material on record and has not given reasons for his orders u/s 263, his order is not valid - CIT v. Kashi Nath & Co. (1987) 33 Taxman 577.(1988) 170 ITR 28 (All).Therefore, the ld PCIT has to pass a speaking order. It is necessary for the Commissioner to s....
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....licable. 14. The PCIT has alleged that there existed employer-employee relationship between the assessee and labourers, there would have been PF / ESI registration. However, the construction workers working at a construction site are not covered under ESI Act, 1948. It is applicable to workers working within a factory and that too is limited for a period during which they are working within a factory. None of the State Governments have extended the scheme to construction workers since they are mostly migratory. To support his contentions, the assessee relied on following case laws: (1) Dy. CIT v. Laxmi Protein Products (P) Ltd. [2010] 195 Taxman 32 (Ahd.) (2) CIT v. Mrinalini Biri Mfgg. Co. Ltd. [1992] 105 CTR 327 (Kol.) (3) Samanwaya v. Asstt. CIT [2009] 34 SOT 332 (Kol.) (4) CIT v. Bhagwati Steels [2010] 326 ITR 108. (5) CIT v. United Rice Land Ltd. [2010] 322 ITR 594. The ld. Counsel also submitted that that mere non-compliance of PF/ESI Act does not result in a change in nature of the payment made to Casual workers, as contractual payment, so as to attract TDS u/s. 194C of the Act. Section 194C of the Act is attracted when any ....
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....of party wise direct expenses with supporting documents. TDS if applicable. Notice u/s. 142(1) dated 08.12.2020. (Question No. 5) Labour expenses party wise along with TDS deducted in Annexure - A. Submission- 2 dated 03.02.2021 Details for Refund claimed Notice u/s. 142(1) dated 08.12.2020. (Question No. 6) Justification regarding refund claimed & Comparative details for last three year for Refund claimed Submission- 1 dated 12.01.2021 Details of labour expenses of Rs. 4,35,38,841/-. Notice u/s. 142(1) dated 16.03.2021. (Question No. 5) Details of labour expenses of Rs. 4,35,38,841/- in Annexure - B Submission-5 dated 10.04.2021 Copy of notices issued during assessment proceeding and reply filed by appellant is attached herewith for your kind reference. (Page No. 1-26 of Paper Book). 16. From the above chart, it is abundantly clear that assessee has submitted every kind of detail and documents during the assessment proceedings. Having examined these documents and details, the assessing officer, took plausible view. That is, in the case of the assessee- company, the Assessing officers has made detailed scrutiny regarding Labour wages and....
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....ome Tax Officer in the case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the Income Tax Officer on being satisfied with the explanation of the assessee. This decision of the Income Tax Officer could not be held to the "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the income tax officer to re examine the matter. That was not permissible. The Tribunal was justified in setting aside the order passed by the Commissioner of Income Tax under Section 263" 19. From the above facts of the assessee`s case, we note that assessee during the assessment stage has submitted all the documents, details and the explanations required ....
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....#39;erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. [See: Parashuram Pottery Works ....
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....erroneous" simply because in his order he did not make an elaborate discussion in that regard . . ." (pp. 113-117) 13. When we examine the matter in the light of the aforesaid principle, we find that the Assessing Officer had called for explanation on this very items, from the assessee and the assessee had furnished his explanation vide letter dated 26-9-2002. This fact is even taken note of by the Commissioner himself in Para 3 of his order dated 3-11-2004. This order also reproduces the reply of the respondent in Para 3 of the order in the following manner : "The tools and dies have a very short life and can produce up to maximum 1 lakh permissible shorts and have to be replaced thereafter to retain the accuracy. Most of the parts manufactured are for the automobile industries which have to work on complete accuracy at high speed for a longer period. Since it is an ongoing procedure, a company had produced 10,75,000 sets whose selling rates is inclusive of the reimbursement of the dies cost. The purchase orders indicating the costing includes the reimbursement of dies cost are being produced before your honour. Since the sale rate includes the reimbursement of d....
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....ven for future assessment years, the same very accounting practice is accepted. 17. It is in this context the question that assumes importance is as to whether powers could be exercised under section 263 of the Act when two views are possible and following observations of the Tribunal, in this backdrop, become relevant : "38. Still further, the Hon'ble Supreme Court in Malabar Industrial Co. Ltd.'s case (supra) has held that when two views are possible and the Assessing Officer has taken one of the possible view, then the order cannot be held to be prejudicial to the interest of the Revenue. Since the CIT could not come to a definite finding that the expenditure in question was a capital expenditure in the proceedings under section 263, in our opinion, the order of the Assessing Officer could not be held to be erroneous." 18. Let us look into the matter from another angel. What was the material/information available with the Assessing Officer on the basis of which he allowed the expenditure as revenue? It was disclosed to him that the assessee is a manufacturer of car parts. In the manufacturing process, dyes are fitted in machines by which the ca....
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....chine capable of independent and specific function and, therefore, the expenditure incurred for replacement of the new machine would not come within the meaning of the words "current repairs". In the present case it is not the case of the assessee that a part of the machine (out of 25 machines) needed repairs. The entire machine had been replaced. Therefore, the expenditure incurred by the assessee did not fall within the meaning of "current repairs" in section." In the present case, finding is just the opposite, viz., dyes and tools are part of the machines. Replacing these dyes the purpose is to maintain the existing assets, viz., machine and not to bring a new asset. Moreover, case at hand is not a case of "repairs of machinery" which was the situation is in Saravana Spg. Mills (P.) Ltd.'s case (supra). The present case proceeded on the controversy right from the order of Assessing Officer till ITAT as to whether this expenditure was revenue or capital in nature. Even before us, arguments rested on this aspect. 20. Likewise, whether the Commissioner should have recorded definite finding or not, may not be very relevant factor in the present case where on th....