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TMI Blog2025 (5) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... d Assessing Officer ('AO') has passed the aforesaid assessment order without making inquiries or verification on the issues which were required to be made. 2. On the facts and in the circumstances of the case, the learned PCIT has erred in law by holding that the learned AO has failed to carry out adequate enquiries/verification while passing the assessment order without appreciating the fact that the case of the Appellant had been selected under Computer Aided Scrutiny Selection (CASS) for verification of "Real Estate business with high closing stock (Large cash deposits in Bank Accounts)" and the learned AO had undertaken all the relevant and meaningful enquiry and verification and had called for specific details/information after perusing the said details/information during the course of assessment proceedings. 3. The learned PCIT erred in section 263 of the Act without finding an error causing prejudice to the interest of revenue, since verification precedes the finding of error the setting aside of assessment order for doing verification makes it evident that error is not found to initiate the proceedings u/s 263 of the Act. The learned PCIT has directed learned AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT to have caused error in the assessment order . 7. First issue, noted by the ld. Pr. CIT related to TDS not deducted on the rent paid by the assessee in terms of section 194-I of the Act. 8. As noted in the order of the ld. Pr. CIT, he found from the assessment records that the assessee had paid total rent of Rs. 10,65,941/-, but TDS under section 194-I was deducted only on payment of Rs. 6,00,000/-. 9. The ld.counsel for the assessee stated the issue to have been adjudicated during the assessment proceedings. In this regard, he drew our attention to the reply filed to the ld. Pr. CIT placed before us at PB Page No.598 and 599, the contents of which are reproduced in the order of the ld. Pr. CIT also. The same is reproduced hereunder: "Issue 1: Assessee firm has paid a total rent of Rs. 10,65,941/-, whereas TDS u/s 1941 of the Act is deducted against payment made of Rs. 6,00,000/- only, accordingly assessee firm had failed to deduct TDS on balance rental payment amounting to Rs. 4,65,941/-, hence Rs. 1,39,782 (30% of Rs. 4.65,941/-) should be disallowed. In this regard, assessee firm would like to submit that, the total amount of rent expense debited to the Profit & Loss S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment proceedings, the proposed addition by initiating proceedings u/s 263 of the Act is not tenable and be dropped. 10. He also drew our attention to the documents filed to the ld. Pr. CIT evidencing the fact of the issue having been examined during assessment proceedings, placed at PB Page No.617, which is the copy of the notice issued by the AO under section 142(1) of the Act dated 01.03.2021 during assessment proceedings, asking the assessee to give details of parties to whom the rent of Rs. 25,90,941/- was paid during the year, and page no.618 to 622, which is the reply filed by the assessee in response to the said notice,dated 6.3.2021, giving details of rent expenses as comprising of the rent for equipment of Rs. 21,25,000/- and rent for office of Rs. 4,65,941/-, as also submitting copy of the relevant ledger accounts of both the rent expenses and copy of invoices of the same. 11. The ld. Pr. CIT on considering the above reply filed by the assessee has given his finding at para 5.1 of his order as under: "5.1 TDS on Rent u/s 1941: The assessee contended that its total expenditure on Rent is Rs. 31,90,941/-. The assessee has also argued that the issue has already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame was filed furnished by the assessee. It is amply clear therefore that the issue of TDS on rent was not inquired into by the AO more particularly, when the facts revealed that the assessee has not deducted TDS on all rent paid during the year. Nor was any explanation on merits furnished to the Ld.PCIT as to why no TDS was deducted. 15. The finding of the ld. Pr. CIT therefore that the assessee has not submitted anything on merits of the issue, we find, is correct. The ld. Pr. CIT has rightly noted that the AO has not verified the issue of TDS on rent totaling to Rs. 31,90,941/-. The ld.Pr.CIT's order, therefore, on the aspect of the assessment order being erroneous for not having verified the TDS on rent under section 194-I of the Act, is upheld. 16. Second issue taken by the ld. Pr. CIT relates to TDS on a sum of Rs. 22,02,000/- under section 194J of the Act, which was noted by the ld. Pr. CIT to have been deducted on payment of Rs. 17,34,150/- only. 17. The contention of the ld.counsel for the assessee before the ld. Pr. CIT in this regard are reproduced hereunder: "Issue 2: Assessee firm has made payments towards professional and technical services of Rs. 22,02,000/- u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t its total expenditure on expenses incurred towards professional, consultancy and technical service u/s 194J is Rs. 17,79,500/- instead of Rs. 22,02,000/- mentioned in the notice of hearing u/s 263 of the Act. The assessee has also argued that the issue has already been considered by AO during the assessment proceedings and has made addition of Rs. 9,750/- being 30% of Rs. 32,500/- paid to M/s Baladeep Law Associated. The assessee further argued that proposed addition in the present proceedings u/s 263 is not tenable. The contentions of the assessee are considered. The assessee has not submitted anything on merit of the issue, rather it went ahead in questioning the proceedings u/s 263 of the Act. The contention of the assessee is prima facie found correct that it has debited consultancy expenses of Rs. 17,79,500/-. This issue is restored to the file of the A.O. only for the purpose of verification as to whether the expenses on professional and technical service is Rs. 17,79,500/- or Rs. 22,02,000/-. If A.O. finds that the amount of expenditure is Rs. 22,02,000/-, then only the A.O. is directed to verify each such payment within the ambit of provisions of section 194J of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion by the ld. Pr. CIT related to valuation of closing stock under percentage control method (PCM). 25. As per the ld.Pr.CIT, the assessee was noted to have been recognizing revenue as per the percentage control method (PCM). But the closing stock was found to be undervalued by Rs. 5,62,21,161/-. The reply furnished by the assessee in this regard to the ld. Pr. CIT is as under: It is submitted that, the formula given in the guidance note for accounting of real estate transactions of work in progress to be carried forward is as mentioned below: Value of Closing Stock (WIP) = Difference between total cost of the work in case of Real Estate Transaction as on reporting date and proportionate cost of area sold. (total area sold / total saleable area X cost incurred till reporting period). Further, your honour has erred in calculating the value of Closing Stock (WIP) as on 31.03.2018, as you have considered Cost incurred till 31.07.2018 instead of Cost incurred till 31.03.2018 being the end of reporting period in case of assessee firm. Extract of the notice where your honour has wrongly considered cost incurred till 31.07.2018 is reproduced below for your ready ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of difference in closing stock." 27. On going through the above, we are unable to concur with the ld.Pr.CIT's finding of the assessment order being erroneous on account of under-valuation of the closing stock. We have noted that the ld.counsel for the assessee had pointed out that the assessee had followed Guidance Note for Accounting of Real Estate Transaction, adopting formula given therein for valuation of its work-in-progress, and had given complete working of the same to the ld. Pr. CIT for arriving at the value of closing stock debited by it. The assessee had also pointed out the issue to have been examined by the AO during the assessment proceedings. Further, we have noted that the assessee had pointed out that the ld. Pr. CIT had incorrectly taken the cost incurred till the end of the reporting period as on 31.7.2018 instead of 31.3.2018, and therefore, had arrived at a different figure of closing stock. 28. In sum and substance, the assessee had pointed out to the ld. Pr. CIT that for the valuation of closing stock, it had adopted formula prescribed by the Guidance Note for Accounting of Real Estate Transaction. The assessee had also pointed out the mistake bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irm company in the books of Anmol & Sons for the year under consideration is attached herewith as Annexure-5, wherein it can be determined by your honour that the interest income and proportionate TDS receivable against the interest income is booked in their books of accounts. Considering the above, assessee firm cannot be held liable for the non-compliance at the part of lender, therefore the said loan cannot be considered as income of the assessee firm." 32. The finding of the ld. Pr. CIT are as under: 5.4.1 Firstly, the assessee has received unsecured loan of Rs. 1,67,55,443/- from Anmol & Sons. The assessee has contended that it has deducted TDS on such interest payment. The assessee further contended that it has nothing to do with a situation wherein, the recipient has not offered interest income in its return of income. In this connection, it is to highlight that the recipient of interest is not aware about a situation where considerable amount of income is received by it. The assessee has questioned the proceedings u/s 263 of the Act. The legal aspects of the present proceedings are dealt in detail in succeeding paragraphs. However, on merits of the case, the A.O. has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with the ld. Pr. CIT that non-examination of this issue by the AO had rendered the assessment order erroneous causing prejudice to the Revenue. 36. The contentions made by the Ld.Counsel for the assessee are in relation to the merits of the issue alone, having made an attempt to establish the genuineness of the transaction/loan to the Ld.PCIT by filing copy of ledger account of the said party showing interest paid to it that too after deducting TDS. But the fact remains that the genuineness of the loan taken by the assessee was not examined by the AO despite the records revealing that no interest income was returned to tax by the said party who had given loan to the assessee. Further even the documents submitted by the assessee to the Ld.PCIT do not establish the genuineness of the loan being only copy of ledger account of the said party in its Books of accounts. The said document needed to be verified and further inquiry needed to be conducted to establish the genuineness of the loan taken by the assessee. 37. The AO having not done so during the assessment proceedings, despite the fact on record prompting an inquiry on the issue, in the light of the fact that the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cannot be considered as income of the assessee firm as the same would result in double taxation of the same amount. b) Without prejudice to the above, the assessee firm further submits that the tax auditor had duly examined the records relating to the impugned advance for purchase of property of Rs. 37,76,000/- while conducting the tax audit for the year under consideration. Further, the PAN of the parties was reported as such due to non-availability of the PAN at the time of tax audit and therefore, the aforesaid PAN was reported merely for avoiding error at the time of uploading the tax audit report. Accordingly, mere non-reporting of PAN of the buyers of properly cannot be construed as failure on part of the assessee firm to prove the genuineness, credibility and creditworthiness of the transaction of Rs. 37,76,000/-. However, for your honour's reference, the assessee firm submits the copies acknowledgements of the return of income filed by the parties from whom it has received the impugned advances and ledger of the concerned parties in the books of assessee firm as Annexure-6. However, the fourth party to whom the advance of Rs. 1,25,000/- was returned, did not pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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