2022 (4) TMI 545 - AT - Income Tax

Revision u/s 263 by CIT - service tax and VAT were not routed through profit and loss account as mentioned in item no. 21 (ii) of Form No. 3CD, the sales shown the assessee were exclusive of these items - HELD THAT - Such method is regularly followed by the assessee. This fact is not disputed by ld Pr CIT, despite bringing this fact to his notice that assessment order for AY 2010-11 2012-13 was passed under section 143(3) and inclusive method was accepted by assessing officer in those years. Even otherwise, inclusive method and exclusive method both are revenue neutral. We further find that the ld. Pr.CIT in his order has not made any comment over the reply furnished by the assessee. Thus, we are of the view that reference in the audit report was a clerical mistake by the auditor of the assessee which was admitted by the auditor by giving his certificate in writing and on verification. As noted above that indirect taxes are routed through profit and loss account and in accordance with inclusive method of accounting. Therefore, the assessment order on second issue is not erroneous or prejudicial to the interests of the revenue. Difference in receipt vis a vis TDS reflected in 26AS - sales were exceeding ₹ 10.00 lacs as reflected in Form 26AS which was not shown in the list of the details of the sales exceeding ₹ 10 lacs during the assessment proceedings - Assessee furnished reconciliation of Form No. 26AS and sales in tabular form, even during the course of assessment proceedings, the assessee reconciled the same with reference to the credit in the bank accounts. The assessee again explained in respect of first three parties viz. Weal Developers, Synergy Developers and Sar Infracon, the advances were received on which the TDS was made for which the sales was accounted in succeeding years in respect of the advances. For the fourth party i.e. Gaurang Yogeshbhai Shah, it was submitted that no advances were received and therefore the sales were shown in the list of sales exceeding ₹ 10 lacs. The fourth party i.e Gaurang Yogeshbhai Shah, who is the proprietor of Tejasvi Construction and the sales were shown in the name of Tejasvi Construction (Gaurang Shah) in the list. The allegation of the ld. Pr.CIT that the sales in respect of Gaurang Yogeshbhai Shah were not shown in the list was wrong. For fifth party i.e. Hazira Lng Pvt. Ltd. the assessee stated that the sales were less than ₹ 10 lacs and therefore were not shown in the list. The amount of ₹ 6,45,286/- as referred by the ld. Pr.CIT in his show cause notice was in respect of Adani Hazira Port Pvt. Ltd. and therefore it was a clerical mistake committed by the ld. Pr.CIT. We find that the assessee has also explained the facts before assessing officer. In our view, the assessing officer after considering the reply of assessee has adopted a reasonable, plausible and legally sustainable view. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic some. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and, secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with. In view of the aforesaid factual and legal discussion, we are of the view that the assessment order passed by the AO on the first issue identified by the ld. Pr.CIT is reasonable, plausible and legally sustainable order. In our view, the twin condition as prescribed under Section 263 of the Act has not meet out on the first issue. - Assessee appeal allowed.

Issues Involved:
1. Whether the Principal Commissioner of Income Tax (Pr. CIT) erred in issuing a notice on grounds already verified by the Assessing Officer (AO) during scrutiny proceedings.
2. Whether the Pr. CIT erred in setting aside the assessment with directions to frame the assessment de novo.
3. Whether the AO properly considered the issues related to TDS reconciliation and indirect taxes (service tax and VAT) in the assessment order.

Issue-wise Detailed Analysis:

1. Issuance of Notice by Pr. CIT on Grounds Already Verified:

The assessee argued that the Pr. CIT issued a notice on grounds that were already scrutinized by the AO during the original assessment proceedings. The AO had made various inquiries and disallowances, including those related to delayed EPF and ESI contributions, interest under section 40A(ia), and disallowance under section 14A. The Pr. CIT, however, noted discrepancies in sales and TDS credits that were not adequately addressed by the AO, leading to the issuance of a show cause notice under section 263. The Tribunal found that the AO had indeed made specific inquiries regarding sales exceeding ?10 lakhs and TDS credits, and the assessee had provided detailed reconciliations and explanations. Therefore, the Tribunal concluded that the AO had conducted a proper inquiry, and the issuance of notice by the Pr. CIT was unwarranted.

2. Setting Aside Assessment for De Novo Framing:

The Pr. CIT set aside the assessment order, directing a de novo assessment, citing that the AO did not verify certain sales receipts and indirect tax treatments adequately. The Tribunal observed that the AO had issued detailed questionnaires and received comprehensive replies from the assessee, including reconciliations of sales and TDS credits. The Tribunal emphasized that the AO had adopted a reasonable and legally sustainable view based on the information provided. Citing various judicial precedents, including the Supreme Court’s decision in Malabar Industrial Co. Ltd. vs. CIT, the Tribunal held that the AO’s order was neither erroneous nor prejudicial to the interests of the revenue. Therefore, the direction for a de novo assessment was deemed inappropriate.

3. Consideration of TDS Reconciliation and Indirect Taxes:

The Pr. CIT identified discrepancies in the reconciliation of TDS credits and sales, and in the treatment of service tax and VAT in the profit and loss account. The Tribunal noted that the assessee had provided reconciliations and explanations for the differences in TDS credits, including instances where advances received were not immediately recognized as sales. The Tribunal found that the AO had accepted these explanations after due verification. Regarding indirect taxes, the Tribunal acknowledged that the assessee followed an inclusive method of accounting for VAT and service tax, which was consistent with section 145A of the Income Tax Act. The AO had accepted this method in previous assessments, and the auditor’s clerical error in the audit report was rectified with a certificate. The Tribunal concluded that the AO had duly considered these issues, and the assessment order was neither erroneous nor prejudicial to the revenue.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the AO had conducted a proper inquiry and adopted a reasonable view. The Pr. CIT’s actions to set aside the assessment and direct a de novo assessment were found to be unjustified. The Tribunal emphasized that an assessment order cannot be deemed erroneous or prejudicial to the interests of the revenue merely because the Pr. CIT holds a different view. The appeal was allowed, and the assessment order was upheld.

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