Pushpak Steel Industries Pvt. Ltd. v. CIT-V, Pune
[Citation -2016-LL-0916-111]

Citation 2016-LL-0916-111
Appellant Name Pushpak Steel Industries Pvt. Ltd.
Respondent Name CIT-V, Pune
Court ITAT-Pune
Relevant Act Income-tax
Date of Order 16/09/2016
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags change in method of valuation • deferred revenue expenditure • valuation of closing stock • repairs and maintenance • unexplained expenditure • value of closing stock • interest of revenue • capital expenditure • additional payment • physical inventory • surrendered income • cost of production • additional income • revisionary order • audited accounts • work in progress • further inquiry • opening stock • survey action • deemed income • raw material • market price • market value • advance tax • cash credit
Bot Summary: Referring to the reply given to the AO vide letter dated 31-08-2009 which was filed before the AO on 02-09-2009 and a copy of which is placed at pages 55 and 56 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to page 2 of the said letter wherein it was clarified before the AO that the disclosure given by the assessee firm of Rs.2,86,46,600/- is attributable to only change in the valuation of stock. Referring to page 11 of the supplementary paper book the Ld. Counsel for the assessee drew the attention of the Bench to the specific query raised by the AO. Referring to the notice issued by the AO vide questionnaire dated 11-07-2010 the Ld. Counsel for the assessee drew the attention of the Bench to the query No.9 wherein the AO has asked the assessee go give details of bank accounts including Fixed Deposits in the specified format. Referring to the reply given by the assessee vide letter dated 12-08-2011, copy of which is placed at pages 10 to 15 of the supplementary paper book the Ld. Counsel for the assessee drew the attention of the Bench to the reply as per clause 8 wherein the assessee has given full details including reconciliation of the bank statements. We find the assessee before the CIT has given elaborate submissions justifying that there is no error in the order passed u/s.143(3) by the AO since the assessee has replied to all the queries raised by the AO and the AO after due application of mind has passed the order and therefore the order is neither erroneous nor prejudicial to the interest of the revenue. The assessee is registered with ISI. It may also please be noted that at the time of survey no actual weight was taken of the goods possessed by the assessee. Further, the submission of the assessee before the Ld.CIT that the very foundation of 19 ITA No.763/PN/2014 comparison by the Ld.CIT is misplaced because all the figures are given correctly has not been commented upon by the Ld.CIT. The assessee has categorically stated before him that it is having balance of Rs.8.50 crores with Mumbai Branch. The respondent assessee had responded to the same and on consideration of response of the respondent assessee, the Assessing Officer held that of an amount of Rs.17.98 lakhs incurred on account of repairs and maintenance out of Rs.2.94 crores is capital expenditure.


IN INCOME TAX APPELLATE TRIBUNAL PUNE BENCH , PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM ITA No.763/PN/2014 Assessment Year : 2009-10 Pushpak Steel Industries Pvt. Ltd., MZSK & Associates, Appellant Level 3, Riverside Business Bay, Near RTO,Pune 411001 PAN : AABCP0081C v/s CIT-V, Pune Respondent Appellant by : Shri R.G. Nahar Respondent by : Shri Rajeev Kumar Date of Hearing :23.08.2016 Date of Pronouncement:16.09.2016 ORDER PER R.K. PANDA, AM : This appeal filed by Assessee is directed against order dated 26-03-2014 passed u/s.263 of I.T. Act, 1961 by CIT-V, Pune relating to Assessment Year 2009-10. 2. Facts of case, in brief, are that assessee is company engaged in business of manufacturing of re-rollers of structural steel and TMT bars and dealing in steel products. It filed its return of income on 29-09-2009 declaring total income of Rs.12,18,67,730/-. AO completed assessment u/s.143(3) on 18-11-2011 accepting returned income. Subsequently, Ld.CIT on examination of assessment records was of 2 ITA No.763/PN/2014 opinion that order passed by AO is erroneous in so far as it is prejudicial to interest of revenue within meaning of section 263 of Act for following reasons : additional income disclosed of Rs.2,86,46,600/- in form of stock during course of survey, being unaccounted should have been assessed as deemed income u/s.69/69C of Act, instead of crediting to P&L account. By doing so assessee is eligible for claiming additional unexplained expenditure added to closing stock as opening stock in A.Y. 2010-11 and take back tax paid along with interest on account of reduction in profit. amount of Rs.26,80,591/- is deducted from sales of finished goods on ground same is sale of raw material, which should have been offered in P&L account as sale of raw material separately. AO has without verification accepted reconciliation statements even though in bank balances shown in schedule 9 of balance sheet differs from balances as per reconciliations submitted by assessee as under : S.No. Name of Bank Bank balance as Bank balance as per balance per reconciliation sheet statement 1 Cosmos Mumbai Rs.8,50,00,000/- 5,65,63,336.26 Branch 2 HDFC Account No.9 Rs.44,24,579.62 Rs.1,46,49,385.82 2. As above issues have not been verified by Assessing Officer while completing assessment proceedings for A.Y. 2009-10, action of Assessing Officer appears to be erroneous in so far as prejudicial to interest of revenue. 3. In view of above, you are hereby given opportunity of being heard either in person or through your Authorised Representative. For this purpose you case is fixed for hearing in income-tax Office at Akurdi, Pune on 14-03-2014 at 3.30 pm. If you do not wish to be heard in person, written submission should be made on or before aforesaid date, which will be duly considered before taking decision in matter. 3. He therefore asked assessee to explain as to why order passed by AO should not be set aside. 4. assessee in his submission stated that the survey took place on 7th & 8th August 2009 and not on 31st March 2009. There was no difference found in physical stock as compared to 3 ITA No.763/PN/2014 book stock, as on date of survey, considering tolerance limits prescribed by ISI standards. It was brought to notice of CIT letter dated 02-09-2009 addressed to AO wherein assessee had reiterated that there was no difference in physical stocks and additional income offered was only on account of change in valuation of stock. attention of Ld.CIT(A) was brought to note M-Schedule-18 appended to annual accounts. 5. It was submitted that there was nothing unaccounted found in respect of Stocks of company. stocks incorporated as on 31st March 2009 were on basis of regular excise records maintained by assessee company. Not even single gram of steel stock was unaccounted as is alleged in notice issued to assessee under section 263. 6. It was submitted that assessee has not made any investment which are not recorded in books of accounts maintained by him for any source of income. assessee clarified that it has not incurred any expenditure for which he is required to offer any explanation. assessee stated that very basis of declaration was additional payment of advance tax rather than any excess stock found, unaccounted investment made or any expenditure incurred for which there is no explanation. It was submitted that Question no 26 and answer to such question, recorded at time of survey of Shri. Arun Kumar Poddar would make this point clear. 4 ITA No.763/PN/2014 7. So far as second issue is concerned, i.e., about deduction of Rs.26,80,591/- from Raw material account it was submitted that this issue is self explanatory as per "Schedule No 15" of Balance sheet Grouping. It was argued that assessee is manufacturer/re-roller of steel products such as angles, channels, bars etc. assessee is required to work out consumption of raw material for purpose of stating same in Annual accounts. If any Raw material is sold then same is deducted from purchase account so as to reduce consumption so as to reveal correct figure of consumption in annual accounts. This method is regularly being followed by assessee Year after year. Even in earlier year there was sale of Raw material of Rs.4,31,633/- which was treated in similar manner. This is only manner of presentation of accounts and it will not have any impact on profits of company. 8. So far as third issue is concerned, i.e. reconciliation of certain bank accounts, it was argued that in books of accounts balance of bank account is taken as per books only. In order to establish correctness of same reconciliation of same was done with bank Statement. It was stated that assessee is having balance of Rs.8.50 Crores with Mumbai Branch and stated same in Schedule no 9 of Balance sheet under heading Cash and Bank Balances . This is nothing to do with reconciliation. overdrawn balance (Cash Credit A/c) with Cosmos Bank Chinchwad Branch is appearing in Schedule no 3 of Balance Sheet. Cash credit account as per books as on 31st march 2009 is Rs.6,90,33,428/ - whereas after considering 5 ITA No.763/PN/2014 cheques deposited but not credited and Cheques issued but not credited same comes to Rs. 5,65,63,336/-. balance of HDFC Bank as per books is Rs.44,24,579/- which is correctly stated in Schedule no 9 of Balance Sheet. There were certain cheques issued but not cleared in month of march 2009 totalling to Rs.1,02,24,806/-. After taking these cheques which are appearing in reconciliation statements bank balance as per Bank Statements correctly works out to Rs.1,46,49,385/-. This is self explanatory reconciliation statement. It was accordingly submitted that proposed action under section 263 not being in accordance with provisions may pleased be dropped. 9. However, CIT was not satisfied with arguments advanced by assessee and held that order passed by AO u/s.143(3) is erroneous in so far it was prejudicial to interest of revenue. He, therefore, set aside order passed by AO with direction to redo same after examining all aspects including errors pointed out by him. While doing so, he observed that detailed submissions by assessee during this proceeding was examined and discussed wherein AR has justified treatment shown in return in respect of additional income declared during survey. He noted that in respect of declaration of Rs.2,86,46,600/- made during survey for A.Y. 2009-10 same was based on profit and loss account and computation of income found during survey for this assessment year wherein taxable income was determined at Rs.12,28,32,258/-. Shri Arun Ramkumar Potdar declared sum of Rs.2,86,46,600/- for this assessment year as additional income in answer to Q.No.26. 6 ITA No.763/PN/2014 10. He observed that AO while completing assessment has not carried out necessary verification which was important for revenue. From copy of profit and loss account submitted by assessee, which were admitted to have been found during survey and formed basis of declaration, it is clearly noted that it is computer printout having all particulars of opening stock, purchases, sales, direct expenses, indirect expenses, etc. and therefore it was incumbent on AO to have accepted inclusion of declaration as part of closing stock only after proper verification and examination, more so when same was at variance from declaration made during survey. It was also necessary for him to have examined each item of debit and credit side of manufacturing and profit and loss account appearing in document found during survey and finally enclosed in return subsequently filed. In view of above he held that AO has committed error of atleast not examining materials properly and therefore such assessment has to be declared as erroneous and prejudicial to interest of revenue. 11. In respect of other issues raised in show cause notice, i.e. sale of finished goods and reconciliation of various bank statements, he noted that assessee has tried to explain same with various evidences and details. However same can only be accepted after proper verification. Since on primary and first issue assessment has already been held as erroneous and prejudicial to interest of revenue, he held that end of justice can still be made if AO is directed to verify these aspects also while examining first issue. He referred to 7 ITA No.763/PN/2014 decision in case of CIT vs. Himachal Pradesh Financial Corporation reported in (2010) 186 Taxman 105 (HP) wherein it is held that incorrect assumption of fact or incorrect application of law would satisfy requirement of order being erroneous u/s 263. It has also been held that expression "prejudicial to interest of revenue" is of wide import and cannot be confined to loss of tax alone. He also relied on decision in case of Thalibai S. Jain vs. ITO reported in (1975) 105 ITR 1 Karnataka wherein it was held that assessments made in undue haste or without inquiry are erroneous and prejudicial to interest of revenue. Similarly, in case of Gee Vee Enterprises vs. Addl. CIT (1975) 99 ITR 375 (Del) it was held that omission to make further inquiry is error which is prejudicial to revenue. Similarly, in case of CIT vs Emery Stone Manufacturing Company (1995) 213 ITR 843 (Rajasthan) it was held that allowing unproved deduction is erroneous and prejudicial to revenue. In view of above judicial pronouncements and facts and circumstances available on record, he held that assessment completed by AO u/s 143(3) was erroneous in so far as it was prejudicial to interest of revenue. He accordingly set aside order passed u/s.143(3) with direction to redo same after examining all aspects including errors pointed out above. 12. Aggrieved with such order of CIT, assessee is in appeal before us with following grounds : 1. On facts and circumstances prevailing in case and as per provisions & scheme of Act, it be held that, order passed by Ld.CIT u/s.263 is without satisfying requirements of said section and without properly resuming jurisdiction of said section. order passed u/s.263 be held to be unwarranted, unjustified, and contrary to provisions of Act. order so passed be cancelled. 8 ITA No.763/PN/2014 2. appellant prays to be allowed to add, amend, modify, rectify, delete, raise any grounds of appeal at time of hearing. 13. Ld. Counsel for assessee strongly objected to order of CIT assuming jurisdiction u/s.263 of I.T. Act. Referring to reply given to AO vide letter dated 31-08-2009 which was filed before AO on 02-09-2009 and copy of which is placed at pages 55 and 56 of paper book, Ld. Counsel for assessee drew attention of Bench to page 2 of said letter wherein it was clarified before AO that disclosure given by assessee firm of Rs.2,86,46,600/- is attributable to only change in valuation of stock. It has been mentioned therein that value adopted for purpose of declaration is attributable to change in method of valuation from cost of production to market price of finished goods. 14. So far as observation of Ld.CIT that additional income disclosed at Rs.2,86,46,600/- in form of stock during course of survey should have been assessed as deemed income u/s.69/69C of Act and that assessee has enhanced its closing stock in A.Y. 2010-11 is concerned he submitted that assessee has not enhanced his opening stock in subsequent year. He submitted that quantity of stock found tallies and only due to change in method of valuation declaration was made. There is absolutely no expenditure incurred by assessee for valuation of closing stock. Further, taxable income of assessee does not change. He submitted that there is no loss of revenue to department for A.Y. 2009-10. He submitted that although assessee has given detailed submission before 9 ITA No.763/PN/2014 Ld.CIT, however, he has not considered submissions filed before him. He submitted that department has not reopened assessment for A.Y, 2010-11 nor any proceedings u/s.263 has been initiated. He submitted that assessee has given detailed submissions before Ld.CIT as to why provisions of section 69/69C are not applicable to facts of present case. There is no loss of revenue to department, therefore no prejudice is caused to revenue. 15. So far as second issue is concerned, i.e. deduction of Rs.26,80,591/- from raw material account Ld. Counsel for assessee drew attention of Bench to clause 2 of reply given to Ld.CIT wherein following details as per schedule 15 was filed : 31-03-2009 (Rs.) 31-03-2008 (Rs.) Opening stock 2,95,08,584.95 1,93,13,286.30 Add : Purchases 1,63,31,44,683.44 1,21,09,43,289.83 1,66,26,53,268.39 1,23,02,56,576.13 Less : Sale of raw material 26,80,590.00 4,31,633.36 Less : Closing Stock 1,60,80,810.10 2,95,08,584.95 Consumed 1,64,39,63,868.29 1,20,03,16,357.82 He submitted that instead of showing sale of raw material in credit side of profit and loss account, assessee has reduced same from consumption of material. It is only method of presentation and it does not alter net results. Therefore, CIT was not justified in invoking jurisdiction u/s.263 on this issue. 16. So far as 3rd issue is concerned, i.e. reconciliation of bank accounts, Ld. Counsel for assessee referring to page 23 of paper book drew attention of Bench to Schedule 3 wherein CC account with Cosmos Cooperative Bank Ltd. has been shown at Rs.6,90,33,428.26 against hypothecation of raw 10 ITA No.763/PN/2014 material, work in progress, and receivables and personal guarantee by directors. Referring to page 31 of paper book Ld. Counsel for assessee drew attention of Bench to Schedule 9 which shows balance with Cosmos Cooperative Bank Ltd. Mumbai Branch at Rs.8,50,00,000/-. 17. Referring to page 11 of supplementary paper book Ld. Counsel for assessee drew attention of Bench to specific query raised by AO. Referring to notice issued by AO vide questionnaire dated 11-07-2010 Ld. Counsel for assessee drew attention of Bench to query No.9 wherein AO has asked assessee go give details of bank accounts including Fixed Deposits in specified format. Referring to reply given by assessee vide letter dated 12-08-2011, copy of which is placed at pages 10 to 15 of supplementary paper book Ld. Counsel for assessee drew attention of Bench to reply as per clause 8 wherein assessee has given full details including reconciliation of bank statements. He submitted that mere saying that order is erroneous is not sufficient. Referring to order passed by AO subsequent to 263 proceedings he submitted that AO has not made any addition on this issue. 18. Referring to decision of Hon ble Delhi High Court in case of Director of Income Tax Vs. Jyoti Foundation reported in 357 ITR 388 (Delhi) he submitted that Hon ble High Court in said decision has held that where revisionary authority opined that further enquiry was required such enquiry should have been conducted by revisionary authority himself to record finding that assessment order passed by AO was erroneous and prejudicial 11 ITA No.763/PN/2014 to interest of revenue. Referring to decision of Hon ble Allahabad High Court in case of CIT Vs. Krishna Capbox Pvt. Ltd. reported in 60 taxmann.com 243 he submitted that Hon ble High Court in said decision has held that where AO has passed assessment order after certain queries from assessee, mere non-discussion or non-mention thereof in assessment order could not lead to assumption that AO did not apply his mind. Accordingly, it was held that invoking of revision proceedings u/s. 263 on said ground was unjustified. Referring to decision of Hon ble Bombay High Court in case of CIT Vs. Fine Jewellery India Ltd. vide ITA No.296/2013 order dated 03- 02-2015 he submitted that Hon ble High Court in said decision has held that where AO during course of assessment proceedings had raised specific queries with regard to details of expenditure claimed under head Miscellaneous expenses aggregating to Rs.2.94 crores and after considering submission of assessee AO held that amount of Rs.17.98 lakhs incurred on account of repairs and maintenance out of Rs.2.94 crores is capital expenditure, this itself would be indication of application of mind by AO while passing assessment order. fact that assessment order itself does not contain any discussion with regard to balance amount of expenditure of Rs.1.76 crores as revenue expenditure would not by itself indicate non application of mind to this issue by AO in view of specific queries made during assessment proceedings. In said decision Hon ble High Court has relied on its earlier decision in case of Idea Cellular Ltd. Vs. DCIT reported in 301 ITR 407 where it has been held that if query is raised during 12 ITA No.763/PN/2014 assessment proceedings and responded by assessee mere fact that it is not dealt with in assessment order would not lead to conclusion that no mind had been applied to it. He also relied on decision of Mumbai Bench of Tribunal in case of Narayan Tatu Rane Vs. ITO vide ITA No.2690/Mum/2016 and 2691/Mum/2016 order dated 06-05-2016 wherein under somewhat similar facts revisionary order passed u/s.263 by Principal CIT has been quashed by Tribunal. He accordingly submitted that since assessee has given full details before AO during course of assessment proceedings, therefore, merely because Ld.CIT does not agree with manner in which AO has conducted enquiry and passed order same cannot be held as erroneous and prejudicial to interest of revenue merely because Ld.CIT does not agree with conclusion arrived at by AO. 19. Ld. Departmental Representative on other hand heavily relied on order of CIT. He submitted that Ld.CIT has given justifiable reasons as to how order passed by AO has become erroneous as well as prejudicial to interest of revenue. Referring to decision of Hon ble Rajasthan High Court in case of Smt. Renu Gupta Vs. CIT reported in 301 ITR 45 he submitted that Hon ble High Court in said decision has held that where AO had accepted submission of assessee without obtaining details required and without making enquiry as suggested by him while selecting case for scrutiny completed assessment in hasty manner without applying his mind and without conducting proper enquiry order was improper and has become erroneous as well as prejudicial to 13 ITA No.763/PN/2014 interest of revenue. Referring to decision of Hon ble Kerala High Court in case of Geosoft Technologies (Trivendrum) Ltd. Vs. CIT reported in 221 taxmann 178 he submitted that Hon ble High Court in said decision has held that where AO allowed assessee s claim of deduction in respect of deferred revenue expenditure without recording reasons for same, order so passed was erroneous and prejudicial to interest of revenue and thus CIT was justified in revising said order u/s.263 of I.T. Act. Referring to decision of Hon ble Gauhati High Court in case of CIT Vs. Jawahar Bhattacharjee reported in 342 ITR 74 he submitted that Hon ble High Court in said decision has held that where there was non-application of mind by AO on issue of allowing exemption u/s.54F inference by CIT u/s.263 was valid. Referring to decision of Chandigarh Bench of Tribunal in case of Bassera Realtors Pvt. Ltd. Vs. CIT reported in 163 TTJ 736 he submitted that Tribunal in said decision has held that where AO accepted surrendered income without making proper enquiry, order passed by him would be treated as erroneous and prejudicial to interest of revenue. Referring to decision of Pune Bench of Tribunal in case of Gopisons Developers Pvt. Ltd. Vs. ACIT vide ITA No.356/PN/2013 order dated 03-07-2013 he submitted that Tribunal in said decision has held that lack of enquiry or no enquiry by AO while framing assessment order makes order both erroneous as well as prejudicial to interest of revenue and under such circumstances CIT is fully justified in invoking jurisdiction u/s.263 of I.T. Act. He also relied on decision of Pune Bench of Tribunal in case of M/s. Jagdamba Sahakari 14 ITA No.763/PN/2014 Sakhar Karkhana Ltd. Vs. CIT vide ITA No.991/PN/2013 order dated 06-01 2015 where under somewhat similar circumstances Tribunal has upheld order passed u/s.263 by Ld.CIT holding that there was complete lack of enquiry and total lack of application of mind. He accordingly submitted that order of CIT be upheld and ground raised by assessee should be dismissed. 20. We have considered rival arguments made by both sides, perused orders of AO and CIT(A) and paper book filed on behalf of assessee. We have also considered various decisions cited before us. We find assessment in instant case was completed u/s.143(3) on 18-11-2011 accepting returned income of Rs.12,18,67,730/-. We find Ld.CIT invoked jurisdiction u/s.263 on three issues (a) additional income disclosed amounting to Rs.2,86,46,600/- in form of stock during course of survey being unaccounted should have been assessed as deemed income u/s.69/69C of Act instead of crediting same to profit and loss account (b) amount of Rs.26,80,591/- has been deducted from sale of finished goods instead of offering same in credit side of profit and loss account as sale of raw material separately and (c) AO without verification has accepted reconciliation statement of Cosmos Bank and HDFC bank. We find assessee before CIT has given elaborate submissions justifying that there is no error in order passed u/s.143(3) by AO since assessee has replied to all queries raised by AO and AO after due application of mind has passed order and therefore order is neither erroneous nor prejudicial to interest of revenue. However, 15 ITA No.763/PN/2014 we find Ld.CIT without appreciating submissions made before him set aside order passed u/s.143(3) to file of AO with direction to redo same after examining all aspects including errors pointed out by him. 21. It is submission of Ld. Counsel for assessee that order passed u/s.263 by Ld.CIT is in gross violation of powers conferred on him since assessee has submitted all details before AO. AO after due application of mind has accepted such submissions and completed assessment by accepting returned income. 22. We find merit in above submission of Ld. Counsel for assessee. So far as first issue is concerned, i.e. additional income disclosed of Rs.2,86,46,600/- in form of stock it is admitted fact that assessee in its schedule M-18 valuation of finished goods has given note in audited accounts which read as under : On 08-08-2009 Income Tax Department carried out Survey u/s.133A of Income Tax Act at company s factory premises. company has agreed to disclose so much of additional income, so as to declare total taxable profit (Before provision of tax) at Rs.12.28 crores. additional income so offered has been added to valuation of closing stock of finished goods in Profit & Loss A/c as well as Balance Sheet as on 31.03.2009. This additional income so offered represents difference between valuation of closing stock of Finished goods which is valued at 'Cost or market price whichever is less'. (In accordance with provisions of company's act as well as requirements of AS-2 Published by ICAI.) & valuation considered for purpose of incorporating valuation of closing stock in Profit & Loss A/c & Balance Sheet as on 31.03.2009. valuation of closing stock on basis of method regularly followed which is 'Cost or market value whichever is less' by company is Rs.6,30,72,884.80/- difference of Rs.1,46,72,951.80/- is offered as additional value of closing stock of finished goods & same is added to value of closing stock of finished goods so as to make total value of closing stock of finished goods as on 31.03.2009 Rs.7,77,45,836.60/-. 16 ITA No.763/PN/2014 difference so offered due to additional valuation of stock of finished goods is not arising due to any difference in quantity of stock of finished goods. There is also no change in method of valuation of closing stock of finished goods as compared to earlier year." 23. Further we find during course of survey assessee in his reply to Question No.26 has submitted as under : "Q: You have paid advance tax for assessment year 2009-10 (FY 2008-09) at Rs.3,20,00,000/- and there are prepaid taxes at Rs.80,140/-, estimating your taxable income at Rs. 9,43,53,352/- (approx), but in survey action we found copy of P & L account, according to which your net taxable income is worked out at Rs.12,30,51,737.52/- and hence you have paid advance tax less by Rs.96,67,543/- approx. What do you want to say? Ans: I offer sum of Rs.2,86,46,600/- for assessment year 2009-10 (FY 2008-09) and we are ready to pay tax liability of Rs.96,67,543/- plus interest thereon before filing return of income. 24. We find assessee vide letter dated 31-08-2009 received by AO on 02-09-2009 has given following reply to AO on issue of disclosure of Rs.2,8,46,600/- on account of income during course of survey : Enclosed please find all information pertaining to question 33, 32,29,28,15,34,31 of statement recorded which we hope you will find in order. Vide question No.37 difference in physical inventory & inventory as per books was required to be explained. position of physical inventory & inventory as per books is summarized hereinbelow : Physical As per Difference % (MT) Books (MT) (MT) Raw material 1073.033 1030.025 43.080 4.17 Finished Goods 2567.978 2513.240 54.738 2.17 As explained by director stocks at time of survey were taken on theoretical basis, i.e. by applying conversion table which converts length into weight as per ISI standards. Whereas books are maintained on basis of actual quantity such as raw material inwards are taken on basis of actual weight, dispatches (sales) are recorded on actual weight basis & not theoretical one. There is 17 ITA No.763/PN/2014 bound to be difference between stocks arrived at by applying two different methods & this concept is recognized by ISI standards as well. assessee is registered with ISI. It may also please be noted that at time of survey no actual weight was taken of goods possessed by assessee. We invite your attention to portion highlighted which recognizes that as per ISI standard itself there could be difference measuring from +/- 2.5% to +/-5% depending upon nature of product & its thickness. difference observed during course of survey is well within ISI tolerance limits. It is therefore respectfully submitted that there is no difference whatsoever considering ISI standards between stocks physically taken & stocks as per books in weight. disclosures given by assessee firm of Rs.2,86,46,600/- therefore is attributable only change in valuation of stock. value adopted for purpose of declaration therefore is attributable partly to change in method of valuation from cost of production to market price of finished goods which may kindly be noted. 25. We find assessee has clarified before Ld.CIT on this issue as under : From position revealed in question no 26 following facts becomes clear. 1. On basis of advance tax paid till time of survey income of Rs.9,43,53,352/- got covered. tentative profit & loss account found at time of survey revealed profit of Rs.12.30 crores. difference between income revealed by tentative profit & loss account and hypothetical income computed with reference to advance tax paid worked out to Rs.2,86,46,600/-. Assessee agreed to pay advance tax of Rs.96,67,543/- so as to cover this gap. There was no un-explained/excess stock found. There was no unaccounted investment and there was no unexplained expenditure. order passed under Section 143(3) therefore is not erroneous and not prejudicial to interest of revenue as far as this issue is concerned. 26. We therefore find merit in submission of Ld. Counsel for assessee that on basis of advance tax paid till time of survey income of Rs.9,43,53,352/- got covered. tentative profit and loss account found at time of survey revealed profit of Rs.12.30 crores. assessee had agreed to pay advance tax on difference of Rs.2,86,46,600/- so as to cover this gap and therefore there was no unexplained/excess stock 18 ITA No.763/PN/2014 found and therefore there was no unaccounted investment and unexplained expenditure. Further, AO after due application of mind has accepted reply of assessee on this issue. Therefore, it cannot be said that AO has not applied his mind on first issue or that his decision is erroneous. 27. So far as second issue is concerned, it is grievance of Ld.CIT that amount of Rs.26,80,591/- deducted from sales of finished goods should have been offered in profit and loss account as sale of raw material separately. In our opinion, this is only one form of presentation in accounts and instead of showing it in credit side of profit and loss account as sale of raw material assessee has reduced same from consumption of raw material. Therefore, net result remains same and there is no prejudice to interest of revenue. Therefore, merely because CIT does not agree with order of AO in accepting same, it cannot be said to be erroneous and prejudicial to interest of revenue. 28. So far as third issue is concerned, i.e. reconciliation of bank accounts we find AO in his questionnaire dated 11-07- 2010 vide Question No.8 has asked assessee to give details of bank accounts including FDs and furnish bank statements along with reconciliation of same. We find assessee vide reply dated 12-08-2011 had given details of all bank accounts along with reconciliation. AO after verifying submissions made by assessee from time to time including reconciliation has accepted same. Further, submission of assessee before Ld.CIT that very foundation of 19 ITA No.763/PN/2014 comparison by Ld.CIT is misplaced because all figures are given correctly has not been commented upon by Ld.CIT. assessee has categorically stated before him that it is having balance of Rs.8.50 crores with Mumbai Branch. 29. perusal of audited accounts reveal that assessee has shown cash credit loan of Cosmos Cooperative Bank Ltd., Chinchwad Branch at Rs.6,90,33,428.26 as per schedule No.3, FD with Cosmos Cooperative Bank Ltd. under head cash and bank balance in Schedule No.9 has been shown at Rs.89,67,524/-. Similarly, assessee has disclosed balance with Cosmos Cooperative Bank Ltd., Mumbai Branch at Rs.8,50,00,000/- in Schedule No.9. assessee has also declared bank balance of Rs.44,24,579.62 with HDFC bank, Account No.19. After considering cheques deposited and cheques issued assessee has reconciled account before AO who has accepted same. Further, AO in order passed u/s.143 r.w.s. 263 has also not made any addition on this issue. Thus, all 3 issues raised by Ld.CIT has adequately been replied by assessee before AO during course of assessment proceedings. Merely because Ld.CIT does not agree with conclusion drawn by AO as AO has not followed particular procedure as per liking of CIT cannot be ground for invoking jurisdiction u/s.263. 30. It is settled proposition of law that for assuming jurisdiction u/s.263 twin conditions, i.e. (a) order must be erroneous and (b) order must be prejudicial to interest of revenue must be fulfilled. Absence of either of one 20 ITA No.763/PN/2014 precludes CIT from assuming jurisdiction u/s.263 of I.T. Act. In instant case assessee has clarified all issues raised by AO during course of assessment proceedings including 3 issues raised by CIT in 263 proceedings. AO after verification of same and due application of mind has accepted reply given by assessee and completed assessment by accepting returned income. Under these circumstances, we are of considered opinion that CIT was not justified in invoking jurisdiction u/s.263 of I.T. Act. 31. We find Hon ble Supreme Court in case of CIT Vs. Max India Ltd. reported in 295 ITR 282 has held as under (Short notes): phrase prejudicial to interests of Revenue in section 263 of Income-tax Act, 1961, has to be read in conjunction with expression erroneous order passed by Assessing Officer. Every loss of revenue as consequence of order of Assessing Officer cannot be treated as prejudicial to interests of Revenue. For example, when Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and Assessing Officer has taken one view with which Commissioner does not agree, it cannot be treated as erroneous order prejudicial to Revenue, unless view taken by Assessing Officer is unsustainable in law. 32. We find following above decision Hon ble Bombay High Court in case of CIT Vs. Fine Jewellery India Ltd. (Supra) has observed as under : 8. We find that impugned order of Tribunal does record fact that specific queries made during Assessment proceedings with regard to details of expenditure claimed under head miscellaneous expenses aggregating to Rs.2.94 crores. respondent assessee had responded to same and on consideration of response of respondent assessee, Assessing Officer held that of amount of Rs.17.98 lakhs incurred on account of repairs and maintenance out of Rs.2.94 crores is capital expenditure. This itself would be indication of application of kind by Assessing Officer while passing impugned order. fact that assessment order itself does not contain any discussion with regard to balance 21 ITA No.763/PN/2014 amount of expenditure of Rs.1.76 crores, i.e. Rs.2.94 crores less Rs.17.98 lakhs claimed as revenue expenditure would not by itself indicate non application of kind to this issue by Assessing Officer in view of specific queries made during assessment proceedings and Respondent assessee s response to it. In fact this Court in case of Idea Cellular Ltd. Vs. Deputy Commissioner of Income Tax & Ors. [(2008) 301 ITR 407 (Bom.)] has held that if query is raised during assessment proceedings and responded to by Assessee, mere fact that it is not dealt with in Assessment order would not lead to conclusion that no mind had been applied to it. 9. Moreover, from nature of expenditure as explained by petitioner to Assessing Officer during assessment proceedings itself indicates that view that same were in realm of revenue expenditure, is possible view. Therefore, we find no fault in impugned order having followed binding decision of Supreme Court in case of Max India Ltd. (Supra), while allowing appeal before it. 33. We find Hon ble Allahabad High Court in case of CIT Vs. Krishna Capbox Pvt. Ltd. (Supra) following decision of Hon ble Bombay High Court in case of Fine Jewellery India Ltd. (Supra) has held that where AO passed assessment order after certain queries from assessee, mere non discussion or non mention thereof in assessment order could not lead to assumption that AO did not apply his mind. Invoking of revision proceedings u/s.263 on said ground was held to be unjustified. 34. various other decisions relied on by Ld. Counsel for assessee supports his case. So far as various decisions relied on by Ld. Departmental Representative are concerned we find those decisions are of non-jurisdictional High Court and further they are distinguishable and not applicable to facts of present case. As mentioned earlier, AO in instant case has raised specific queries and assessee has replied to such queries. So far as first issue is concerned, assessee has made adequate disclosure in audited accounts and given detailed explanation during assessment proceedings. assessee 22 ITA No.763/PN/2014 has also given details of 2nd and 3rd issue. So far as 2nd issue is concerned, it is only matter of presentation and does not affect profitability in any manner. reconciliation of bank accounts has been accepted by AO in subsequent order passed u/s.143(3)/263. Therefore, it is neither case of lack of enquiry or no enquiry and AO after due application of mind has accepted submissions made by assessee during course of assessment proceedings. In view of above discussion, we are of considered opinion that Ld.CIT was not at all justified in invoking jurisdiction u/s.263 of I.T. Act. We therefore set aside same and grounds raised by assessee are allowed. 35. In result, appeal filed by assessee is allowed. Order pronounced in open court on 16-09-2016. Sd/- Sd/- (SUSHMA CHOWLA) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER iq.ks Pune; Dated :16th September, 2016.Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT-V, Pune 4. JCIT, Range-10, Pune 5. DR, ITAT, Pune; 6. Guard file. BY ORDER, //True Copy// Sr. Private Secretary ITAT, Pune Pushpak Steel Industries Pvt. Ltd. v. CIT-V, Pune
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