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TMI Blog2018 (2) TMI 1589X X X X Extracts X X X X X X X X Extracts X X X X ..... Per Waseem Ahmed, Accountant Member The assessee has filed this appeal dispute the order of Pr. Commissioner of Income Tax-3, Kolkata passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 12.01.2017 set aside the assessment order date30.03.2015 for assessment year 2012-13 with a direction to re-do the assessment in respect of issue therein. Shri Akkal Dudhwewala, Ld. Authorized Representative appeared on behalf of assessee and Md. Usman, Ld. Departmental Representative appeared on behalf of Revenue. 2. The assessee has raised the following grounds:- 1. For that on the facts and in the circumstances of the case, the CIT was unjustified in law in holding the assessment order u/s 143(3) passed for the A.Y. 2012-13 to be erroneous in so far as it was prejudicial to the interest of the revenue even though the assessment order was neither erroneous nor prejudicial to the interest of the revenue. 2. For that on the facts and in the circumstances of the case, the CIT was unjustified in law in revising the assessment order on the ground of lack of enquiry with regard to issue of allowability of prior period expense even though in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(1) to the assessee. The assessment was framed by the AO u/s 143(3) of the Act after making certain additions / disallowances to the total income of the assessee at Rs. (-) 1,010,98,86,395/- vide order dated 30/03/2015. 5. Subsequently, the Ld. Pr. CIT u/s 263 of the Act observed that the assessee has claimed prior period expenses of ₹ 39,34,86,241/- which was allowed by the AO during assessment proceedings. However, the ld. Pr.CIT was of the view that the allowance of the prior period expenses by the AO has resulted under assessment of income. Accordingly, Ld Pr. CIT issued notice under section 263 of the Act dated 09/09/2016 which is reproduced below:- 3. During the course of assessment it was noticed that a sum of ₹ 849,15,30,993/- had been debited to arrive at net loss of ₹ 858,06,62073/- and the computation had been initiated with the same net loss to arrive at the total loss of ₹ 1035,72,53,747/- for the AY 2012-13. It was observed from the submission made by the assessee in course of assessment proceedings that prior period expenditure comprised contribution to pension and gratuity fund (past year) of ₹ 733,00,00,000/- past year consume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the coal to various plants of DVC. Since CIL enjoys almost monopoly status in coal mining and supply business in India like any other consumer; DVC has to make advance payments to subsidiaries of CIL based on the estimated monthly supply of coal. Since the assessee's power plans critically depend on the regular supply of quality coal the assessee has to make payment to CIL on advance basis. The fuel section of DVC's power plants undertake regular review of the coal supplies made by the subsidiaries of CIL. Based on their assessment of Coal requirement of DVC is intimated to CIL on monthly basis and based thereon advances are also paid by DVC's Head Office at Kolkata to CIL or to its subsidiaries. At the time when the advances are paid individual account of CIL is debited in the books maintained at Kolkata head office. The amounts so paid appear in the HO's books under the category Advance . On receipt of advance the supply orders are released and accordingly the subsidiaries of Coal India despatch the coal to different plant locations of DVC. At the relevant time the subsidiaries of CIL raise invoices on DVC's concerned power project. In the books of the respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of resolving the disputes and claims teams comprising of departmental heads is formed which vets the claims of the respective parties after obtaining internal reports. Thereafter in the joint sitting of the representatives parties the reconciliation statement is drawn up by both sides. The unsettled issues are then carried and placed before Senior Hierarchy of both the companies and ultimately in high level joint reconciliatory meeting the disputes and claims between the 2 companies stand resolved. Since the dispute Resolution mechanism requires involvement of senor functionaries of both public sector companies, the settlement procedure spills over or stretches more than one accounting year. During FY 2010-11 a joint reconciliation of claims and counter claims was arrived at between representative of Bharat Coking Coal Ltd (BCCL) and the assessee in respect of coal supplies made by BCCL to assessee's Mejia Thermal Power Plant (MTPP). The joint reconciliation was carried out in the month of December 2010 in meeting attended by the representatives of BCCL DVC. A copy of the Joint reconciliation Statement signed and executed in December 2010 is enclosed for you ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of liability to pay in which liability is created in its books. Similar view was expressed by other coordinate Benches of Calcutta High Court in the cases of CIT vs. ShewbuxJahurilal (46 ITR 688) CIT vs. Roberts McLean Co. Ltd. (111 ITR 489). Applying the ratio laid down in the above cited judicial precedents to the facts of the assessee's case, it is submitted that thought the settlement between the assessee and BCCL was in respect of supplies made in the earlier years such fact by itself did not mean that the expenditure was crystallized in the earlier years when supply of coal was received. Even though the supplies were made and received in the prior years, there were unresolved disputes between the two parties on several counts. There were claims and counter claims by each party which required resolution in joint consultation. It is material to submit that assessee as well as BCCL had continuous and ongoing trading transactions between them. Resolution of disputes arising from the trading transactions is therefore an on ongoing process and it is not a one time phenomenon. The disputes arising in the ordinary course of business need to be settled periodically. In r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and held the order of the AO as erroneous and prejudicial to the interest of Revenue by observing as under:- 5. I have carefully and dispassionately considered the facts and circumstances of the case. During the course of scrutiny assessment proceedings, the AO has not made any inquiry on the issue of prior period expenses of ₹ 39,34,86,241/-. The AO has erroneously allowed prior period expenses of ₹ 39,34,86,241/-, pertaining to BCCL for past years dues inspite of the fact that a joint reconciliation between DVC and BCCL for the FY 2009- 10 was completed in December, 2010 and as such the same should have been accounted for in the FY 2011-12. Such prior period expenditure pertained to FYrs. 2008-09 and 2009-10.Durig the assessment proceedings, the AO has failed to conduct inquiries ad no such relevant details were called by the Assessing Officer. The impugned assessment order has been passed allowing prior period expenses of ₹ 39,34,86,241/- without inquiring into the claim and without verification. 6. Hon'ble Delhi High Court in the case of GEE VEE Enterprise Vs. Addl. CIT reported in 99 ITR 375, 386 (Del). Has held that the CIT may consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of civil court. The statements made in the pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which come before it. The Income- tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make su9ch an inquiry prudent that the word erroneous in section 263 includes the failure to make such an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running from Pages 1 to 48 and submitted that Ld. Pr.CIT held the order of AO as erroneous and prejudicial to the interest of revenue on the ground that the AO has failed to verify details of the prior period items as claimed by it in its financial statement. But there was no allegation in the notice issued by Ld. Pr.CIT that there was no verification of the prior period items done by the AO during assessment proceedings. Thus the ld. Pr. CIT erred in holding the order of AO as erroneous and prejudicial to the interest of revenue on account of non- verification of the prior period expenses. He requested the Bench to confirm the assessment order. On the other hand, The Ld DR submitted that prior period items are not allowable as deduction but the AO without verifying the same has allowed during assessment proceeding. The ld. DR vehemently relied on the order of ld. Pr.CIT and requested the Bench to decide the issue on merit. 7. We have considered the rival submissions and also perused the relevant material available. We have also given careful thought to the case laws and relevant statutory provisions referred to and relied upon by both the sides in support of their arguments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te other issues other than what is mentioned in the original show cause notice. But the same could be done only after affording opportunity of being heard to the assessee to address on the new issue taken up by the ld CIT. The relevant extract of the order is reproduced below : What is contemplated by section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice It is undisputed fact that no opportunity was afforded to the assessee in the instant case by the ld CIT to address on the aspect of 'lack of enquiry' on the allowability of prior period expenses. We hold that the ld CIT erred in concluding that lack of enquiry with regard to allowability of prior period expenses on the part of the ld AO would automatically make the order of ld AO erroneous and prejudicial to the interest of the revenue in the facts and circumstances of the case in as much as no opportunity of hearing was given to the assessee in that regard. 7.3 We also find that the Hon ble Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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