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2015 (11) TMI 859 - ITAT CHANDIGARH

2015 (11) TMI 859 - ITAT CHANDIGARH - TMI - Revision u/s 263(1) - Held that:- In the instant case the Revenue has accepted the return filed by the assessee as perfectly valid and, therefore, there is no occasion to held that the return was in derogation to sub section (4) of section 184 of the Act. Thus we find that order of the CIT on this issue is not tenable and accordingly we hold that the assessment order cannot be held erroneous in as much as prejudicial to the interest of Revenue on this .....

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rest, salary etc. paid to the partners. In our considered view, remanding the matter to the Assessing officer is of no consequence, particularly when the CIT himself has reframed the assessment. In the facts and circumstances of the present case the CIT has not left any scope for the Assessing officer to redo the assessment or pass a fresh assessment order. It is also observed that Ld. CIT has directed the Assessing officer to give an opportunity of being heard to the assessee before passing the .....

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the controversial points. - Decided in favour of assessee. - ITA No. 573/Chd/2015 - Dated:- 3-11-2015 - SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER For The Appellant : Sh. Ashwani Kumar For The Respondent : Sh. S.K.Mi t tal ORDER PER H.L.KARWA, VP This appeal filed by the assessee is directed against the order of CIT, Patiala dated 27.3.2015 passed u/s 263 of the Income-tax Act, 1961 (in short the Act ) for assessment year 2010-11. 2. In this appeal, .....

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5,970/- on account of understatement of closing stock. b) Disallowance of interest us/ 36(1)(iii) in respect of investment in land and mixing plant. c) Disallowance of depreciation in respect of the mixing plant d) Disallowance of deduction on account of interest and salary paid to the partners. 3. Briefly stated the facts of the case are than on an examination of the assessment record of the assessee for the assessment year under consideration, the CIT observed that the assessment order dated 2 .....

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while framing the assessment order and the Assessing officer was fully satisfied with the record produced before him and the contention put forth before him by the assessee with regard to the points raised by the Ld. Commissioner. The next contention of the assessee was that it is the prerogative of the Assessing officer to make entries in the noting sheet of the record he verified and it is also his preoperative to write the wording of the assessment order as per his choice, but this does not m .....

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der as erroneous and prejudicial to the interest of Revenue. 4. The Ld. CIT observed that on some of the issues raised in the show cause notice u/s 263(1) of the Act, the Assessing officer had also raised queries and reply / explanation was filed by the assessee to those queries. He has also stated that the Assessing officer had noted that on 24.1.2013, the assessee had produced books of account, bills and vouchers which were verified and certain discrepancies were noted and certain disallowance .....

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970/- on account of understatement of closing stock, disallowance of interest u/s 36(1)(iii) in respect of investments in land and mixing plant and depreciation in respect of mixing plant and disallowance of deduction on account of interest and salary paid to the partners. 5. We have heard the rival submissions. It is observed that Commissioner has directed the Assessing officer to make an addition of ₹ 5,95,970/- on account of understatement of closing stock. According to Ld. CIT, out of .....

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the year figuring in the closing stock of the assessee. The Ld. CIT held that the assessee has understated its closing stock on account of payments to M/s Jay Building Material Supplier and Rakesh Yadav to the extent of ₹ 5,95,970/- (Rs. 6,95,970/- ₹ 1,00,000 shown). The Ld. Commissioner took the view that the order of the Assessing officer is erroneous since he did not examine the value of the closing stock with reference to the purchases made at the end of the year and is prejudic .....

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and after 15 days they raised the bill against us. So, the bills of Diesel, Dust, Rori, Bricks & Reta/Sand etc. debited in our accounts on 31.03.2010 does not means that goods supplied to us on 31.03.2010 only. These goods were supplied to us from 16.03.2010 to 31.03.2010 tentatively. As a matter of proof we are hereby producing before you the bills of the above said material of the suppliers for your reference. Copy of Mitti purchased account also enclosed for your reference. So,. Valuation .....

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31.3.2010 did not mean that the goods were supplied to the assessee from 16.3.2010 to 31.3.2010. It appears that Ld. Commissioner has not properly appreciated the explanation of the assessee. Shri Ashwani Kumar, Ld. Counsel for the assessee vehemently argued that the points / query raised by the Ld. Commissioner have been duly looked into by the Assessing officer during the assessment proceedings. The Assessing officer was satisfied with the record produced before him and explanation given to h .....

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red. Similarly, the Assessing officer vide his questionnaire dated 10.12.2010 asked the assessee to furnish details regarding valuation of opening and closing stock. In response to the above query, the assessee submitted his reply on 17.12.2012 and the relevant para of the reply is reproduced herein below:- Reply to Point No. 7 of your questionnaire: There was Opening Stock of ₹ 10 Lacs as on 1.4.2009. This Opening Stock mainly consists of Material lying at sites, Work done but not certifi .....

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estionnaire dated 8.11.2012 (para 5) required the assessee to furnish the details of month wise purchase and sales of each item separately. The Assessing officer also required the assessee to submit the list of the purchaser / seller exceeding to ₹ 20,000/- alongwith complete postal address. The assessee along with its reply dated 3.12.2012 submitted the copy of the account of all purchases made during the assessment year 2010-11. In our opinion, the Ld. Commissioner has wrongly presumed t .....

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e assessee submitted it reply and also furnished the requisite information or details to substantiate its claim during the assessment proceedings. The Assessing officer having considered all these issues on which the assessment order is revised u/s 263, the exercise of powers u/s 263 is bad in law. It is also true that if an enquiry is made by the Assessing officer and then objection of the CIT is that such inquiry is not adequate, the CIT would have no jurisdiction u/s 263 of the Act to revise .....

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The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. The Hon ble High Court further observed that the claim was allowed by the Assessing officer on being satisfied with the explanation of the assessee. The Hon ble High Court opined that such decision of the ITO cannot be held to be erroneous simply because in his order he did not make any elaborate discussion in that regard. In the instant case also, the assessee had fu .....

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use in his order he did not make any elaborate discussion in that regard. In the case of CIT v Sunbeam Auto Ltd. (2011) 332 ITR 167(Delhi), the Hon ble High Court held that where the Assessing officer allowed the claim on being satisfied with the explanation of the assessee, such decision of the Assessing officer could not be held to be erroneous simply because in his orders he did not make an elaborate discussion in that regard. 8. The Ld. CIT also directed the Assessing officer to pass a fresh .....

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that alternatively since the asset was not used for business purpose during the year, interest expenditure should have been disallowed. He further observed that the same was the position in respect to the bills bearing Nos. 1 & 2 dated 10.04.2009 for purchase of mixing plant. The Ld. CIT pointed out that machinery was purchased from Ahmadabad. However, no transportation charges had been debited and / or capitalized. In this regard, it was submitted that the assessee is doing the business of .....

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hase of the machinery for ₹ 20 lakhs from M/s Bhawani Engineers, Ahmedabad it was contended that these plants have been purchased F.o.R at Gurgaon work site, so no transport charges etc. were paid by the assessee. It was also stated that plant runs on diesel and diesel expenses amounting to ₹ 56.83 lakhs were incurred during the year under consideration. The Ld. Commissioner observed that the details of the purchase of land must have been submitted during the course of assessment pro .....

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, the assessee has incurred substantial interest expenditure on account of loan taken from bank and others and also paid to partners. According to Ld. CIT, the Assessing officer did not raise any query in this regard nor examined the issue, he did not apply the provisions of section 36(1)(iii) of the Act or the proviso to section 36(1)(iii) of the Act. Accordingly, the Ld. Commissioner has directed the Assessing officer to disallow interest u/s 36(i)(iii) in respect of land and mixing plant and .....

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2. Vide Para 4 of the questionnaire dated 8.11.2012, the Assessing officer asked the assessee to file the details of list of items mentioned under the head fixed assets alongwith the source of investment in acquisition of the same. Similarly, vide para 9 of the questionnaire dated 10.12.2012, the Assessing officer required the assessee to furnish copies of the bills with respect to the addition to fixed assets. In response to the said query, the assessee submitted a detailed reply on 3.12.2012 a .....

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s / queries. In the instant case, the Ld. Commissioner initiated the proceedings by pointing out what he saw as glaring illegalities in the assessment order which was subjected to revision proceedings, but what he concluded was that the such assessment order was passed without making proper inquires. The Commissioner finally revised the order for want of proper and desired inquires then shifted the stand, which is not permissible under the provisions of law. As we have already observed hereinabo .....

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essment order cannot be held erroneous and prejudicial to the interest of Revenue in respect of issues mentioned in ground No. 2(b) and (c) of the appeal. 10. In the impugned order, the Ld. Commissioner has also directed the Assessing officer to disallow deduction on account of interest, salary etc. paid to the partners. The Ld. Commissioner observed that during ghe year under consideration, there was a change in the partnership deed. The Ld. CIT observed that the assessee submitted a copy of th .....

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assessee was that the partnership deed was re-written on 1.4.2009 and the copy of the same was produced before the Assessing officer during the course of assessment proceedings. The original copy of the deed at the time of filing of photocopy of the deed was shown to the Assessing officer. Accordingly, it was submitted that the assessee has fully complied with terms and conditions of furnishing the partnership deed dated 1.4.2009. Interest & salary paid to the partners as per the clause of .....

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ended that original partnership deed dated 1.4.2009 was shown to the Assessing officer. The Assessing officer was satisfied with the documents produced before him and he has allowed interest and salary paid to the partners as per the clause of the partnership deed dated 1.4.2009. Similarly, profits have also been distributed amongst the partners as per the profit sharing ratio written in the aforesaid partnership deed. In our opinion, the conclusion drawn by the CIT on this issue is erroneous. T .....

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e Tax Appellate Tribunal was justified in upholding the deletion of the disallowance amounting to a sum of ₹ 4,49,60,000/- on account of remuneration of the partners under section 185 of the Income Tax Act when the instrument of change in partnership was not filed along with the return? 11. In the above case, the Tribunal has made the following observations:- We observe that there was a change in partnership deed with effect from 1st August, 2004 and the assessee was required to file a cer .....

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ess or profession . There is no dispute to the fact that the assessee filed the certified copy of the deed during the course of assessment proceedings. The question arises as to whether non filing of the copy of the changes in partnership deed along with the return is a violation of substantive provision and make the return invalid or it is only a procedural default and is an irregularity in filing the return. We are of the considered view that non-filing of the copy of the changes in partnershi .....

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shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income if it is in substance and effect in conformity with or according to the intent and purpose of the Act. It is further observed that section 139 also throws some light on the question, if there is any defect, the A.O. is required to give an opportunity to the assessee to rectify the defect within a stipulated time. We are of the considered view that the purpose of filing .....

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uired by the A.O. as mentioned hereinabove to ascertain the genuineness of the existence of the partnership and to ascertain the share of each of the partner as to whether the remuneration being paid is in accordance with the deed of partnership deed and is also in accordance with the limit prescribed under section 40 (b) of the Act. The defect in not filing the copy of the change in instrument of partnership deed along with the return is a curable defect only through section 184(4) provides tha .....

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remuneration being paid is in accordance with the limit prescribed u/s 40(b) of the Act. In this case the Tribunal observed that the filing of the revised/changed instrument of partnership deed along with the return is directory in nature and it can be filed at any time before completion of the assessment by the A.O. The Tribunal further observed that we do not agree with the contention of the Revenue that after amendment by the Finance Act 2003, non filing of instrument of partnership deed alo .....

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the appellant reiterated the submissions advanced before the learned Tribunal that section 185 is emphatic and also starts with a non-obstante clause. Therefore, omission on part of the assessee to comply with the requirement of sub-section 4 of section 184 precludes the assessee from claiming any deduction by way of salary paid to the partners. She contended that the learned Tribunal erred in taking a view which is plainly contrary to the section namely Section 185. We have not been impressed b .....

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permits an assessee to file a return at any time before the expiry of one year from the end of relevant assessment year or even before the completion of the assessment whichever is earlier. The Apex Court in the case of CIT, Punjab v. Kulu Valley Transport Co.P.Ltd., reported in 77 ITR 518 held that sub-section 3 of section 22 is to be read as a proviso to sub- section 1 of section 22. Sub-section 1 of section 22 is in pari materia with sub-section 1 of section 139. The relevant portion of the s .....

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pecified in section 22(3). In other words if section 22(3) is complied with section 22(1) must also be held to have been complied with. If compliance has been made with the latter provision the requirements of section 22(2A) would stand satisfied. Mrs. Das De has not disputed before us that the assessee could have filed his return along with the certified copy of the instrument of change within the period prescribed by sub- section 4 of section 139. In that case, the return would have been perfe .....

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e partnership deed was not annexed to the return. In that case, the assessee would be entitled to an opportunity to cure the defect. The assessing officer refused to treat the return as a defective return. Once herefused to treat the return as a defective one he could not have also held that the return was in derogation of sub-section 4 of section 184 of the Act nor could he in that case have refused to allow the deductions. If, on the contrary, he had held that the return was defective, then un .....

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py of the partnership deed. According to him, the assessee has not complied with the provisions of section 184(2) and 184(4) of the Act and therefore, assessment order was erroneous in as much as prejudicial to the interest of Revenue. The Ld. CIT presumed that the above provisions of the Act are mandatory. This observation of the Ld. CIT is contrary to the decision of the Hon ble Calcutta Hon ble High Court (supra), wherein the Hon ble High Court has categorically held that Section 185 read wit .....

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rder cannot be held erroneous in as much as prejudicial to the interest of Revenue on this issue. 15. In view of the above discussion, we set aside the order of the CIT in toto and hold that the assessment order dated 28.01.2013 passed u/s 143(3) of the Act cannot be held erroneous in as such as prejudicial to the interest of the Revenue. 16. At his stage, we may also mention yet another aspect of the matter. The Ld. CIT has finally held as under:- 7. In light of the discussion above, the assess .....

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hall be provided to the assessee before passing the fresh assessment order. 17. From the above, it is abundantly clear that CIT has exceeded its jurisdiction in virtually reassessing the case. It is true that the revisional authority itself has wide power to examine the case whether the decision has been erroneous and prejudicial to the interest of Revenue and in exercise of these power modifications are permissible, and furthermore that if the Commissioner comes to this conclusion that the asse .....

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time, the Ld. Commissioner has directed the Assessing officer to make the addition of ₹ 5,95,970/- on account of understatement of closing stock, disallow interest u/s / 36(1)(iii) in respect of mixing plant and depreciation in respect of mixing pant and disallow of deduction on account of interest, salary etc. paid to the partners. In our considered view, remanding the matter to the Assessing officer is of no consequence, particularly when the CIT himself has reframed the assessment. In t .....

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order. The directions given by the Ld. CIT in para 7 of the impugned order are also contrary to the settled position of law. When the Ld. CIT directs the Assessing officer to pass a fresh assessment order, the only proper course for the Commissioner was not to express any final opinion as regards to the controversial points. While taking such a view, we are fortified by the decision of Hon ble Gujrat Hon ble High Court in the case of Addl. CIT v Mukur Corporation (1978) 111 ITR 312 (Gujarat). I .....

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