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2020 (6) TMI 633 - AT - Income TaxRevision u/s 263 - mistake of entry in the books of account made by the assessee - addition on account of repurchase of flat debited in P L A/c considering it as a correction entry for sales return on account of cancellation of booking of flat whereas it was repurchase not properly accounted for it the relevant F.Y. 2009-10 - HELD THAT - Pr.CIT has not given a concluding finding on the issue which was taken up in the proceedings u/s 263 of the Act. CIT in the revision proceedings u/s 263 of the Act has taken up an issue of allowability of claim of sales return of ₹ 13.00 lacs and has observed in the order passed u/s 263 that the A.O. did not make enquiry regarding the allowability of the claim which should have been made by him. Thus, making a reference to the explanation to Section 263 of the Act, he has held that the order passed by the A.O. without conducting enquiry regarding the claim of deduction on account of sales return of ₹ 13.00 lacs are erroneous and prejudicial to the interests of the revenue. The ld. Pr.CIT, accordingly, set aside the original assessment order passed U/s 143(3) of the Act dated 30/10/2013 and directed the A.O. to make fresh assessment after conducting a proper enquiry regarding the allowability of claim of expenses of ₹ 13.00 lacs. Thus, it is manifest from the record that there was no concluding finding given by the ld. Pr.CIT on the issue of allowability of claim of ₹ 13.00 lacs on account of sales return. Hence, when the A.O. has to take a decision based on the outcome of the enquiry conducted in the proceedings pursuant to the revision order U/s 263 of the Act then the said finding of the A.O. is subjected to challenge in the appeal and non-challenge of the revision order passed U/s 263 of the Act, will not operate as a bar for filing the appeal against the order passed by the A.O. As regard the allowability of claim of deduction on account of sales return for the year under consideration instead of the said claim made in the A.Y. 2010-11 when the transactions of sales return was completed - Even if the assessee would have made correct entry and claimed sales return for the A.Y. 2010-11 then the same would have been part of the closing stock of the said year ending on 31/03/2010 and consequently part of the opening stock of the assessment year under consideration as on 01/04/2010. For the year under consideration instead of taking the said amount as part of the opening stock, the assessee has first time claimed this amount under the head sales return. However, correspondingly the same is claimed to have been part of the closing stock of the year under consideration. Therefore, it is only contra entry in the books and there will be no effect in the P L account as the assessee has debited amount under the head sales return and at the same time, this is also part of the closing stock as on 31/03/2011. Thus, we find that except the element of profit which would have been claimed as loss in the A.Y. 2010-11, there is no significant or substantial revenue effect for the year under consideration. Even otherwise, if the assessee is paying tax at the maximum marginal rate for the preceeding year as well as for the year under consideration then it shall have no revenue effect and in case as there is no taxable income for the preceeding year then the said claim of business loss on account of sales return is otherwise eligible for carry forward and is an allowable deduction for the year under consideration. Therefore, in these facts and circumstances of the case, we do not find any error or illegality in the order of the ld. CIT(A), accordingly, we uphold the same. - Decided against revenue.
Issues Involved:
1. Justification of CIT(A) in allowing the appeal of the assessee and deleting the addition of ?13,00,000/- made on account of repurchase of flat debited in P&L A/c. 2. Applicability of the revenue audit objection falling under exception clause 10(c) of Circular 03 of 2018. Issue-Wise Detailed Analysis: Issue 1: Justification of CIT(A) in Allowing the Appeal of the Assessee and Deleting the Addition of ?13,00,000/- The primary issue revolves around the allowability of a deduction of ?13,00,000/- claimed by the assessee as a sales return due to the repurchase of a flat initially sold to Ms. Divya Goyal. The revenue contended that this transaction was incorrectly accounted for in the financial year 2010-11 instead of 2009-10. The Assessing Officer (A.O.) disallowed this claim based on the revision order under Section 263 of the Income Tax Act, 1961, which found the original assessment erroneous and prejudicial to the revenue's interest due to the lack of proper enquiry. The CIT(A) allowed the appeal, stating that the entry was a correction for the subsequent financial year and did not affect the profit or income of the assessee. It was argued that the repurchase and the corresponding sales return increased the stock without impacting the profit. The Tribunal upheld CIT(A)'s decision, noting that the transaction was correctly recorded as a sales return and part of the closing stock, thus having no substantial revenue effect for the year under consideration. Issue 2: Applicability of Revenue Audit Objection Falling Under Exception Clause 10(c) of Circular 03 of 2018 The revenue argued that the audit objection was accepted, thus falling under exception clause 10(c) of Circular 03 of 2018. The Tribunal noted that the Principal Commissioner of Income Tax (Pr.CIT) did not provide a conclusive finding but remanded the matter to the A.O. for fresh assessment after proper enquiry. The Tribunal distinguished this case from the precedent set by the Hon'ble Bombay High Court in Herdillia Chemicals Ltd. Vs CIT, where the CIT had given a definite finding. The Tribunal concluded that since the Pr.CIT had not conclusively determined the issue in the revision order, the assessee was entitled to challenge the A.O.'s assessment order resulting from the revision order. The Tribunal found no error in the CIT(A)'s decision to delete the addition, as the assessee's entry was a correction that did not affect the profit or income. Conclusion: The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the addition of ?13,00,000/- made on account of the repurchase of the flat. The Tribunal found that the entry was a correction that did not impact the profit or income of the assessee, and the Pr.CIT's revision order did not provide a conclusive finding, allowing the assessee to challenge the assessment order. The appeal was dismissed, and the order was pronounced in the open court on 25th June 2020.
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