Anchal Agro Chillers Pvt. Ltd., Meerut vs Assessee

M/s Anchal Agro Chillers Vs. Commissioner of Income Tax, Pvt.Ltd., Meerut. 272, Prabhat Nagar, Meerut. Meerut. PAN : AAFCA1036L. (Appellant) (Respondent)

Appellant by : Shri P.S. Kashyap, CA. Respondent by : Smt. A. Mishra, CIT-DR.

ORDER

PER G.D. AGRAWAL, VP :

This appeal by the assessee is directed against the order of learned Commissioner of Income Tax, Meerut dated 21st March, 2013 for the AY 2008-09.

2. Ground No.1 of the assessee's appeal reads as under:-

"That on facts and in law order passed under section 263 is illegal and unwarranted. The ld.CIT has not met the basic conditions for passing order under section 263 i.e. original assessment order should be erroneous and prejudicial to the interest of revenue. The assessment order passed is neither erroneous nor prejudicial to the interest of revenue. Therefore, the order passed by the ld.CIT is illegal and void ab initio."

3. The other grounds raised by the assessee are only arguments in support of above ground No.1

4. At the time of hearing before us, the limited request of the learned counsel for the assessee was to modify the order of the learned CIT(A) to the extent of his direction with regard to 2 ITA-3627/D/2013

disallowance of expenses. He pointed out that in the original assessment order, the Assessing Officer has already noticed that the assessee has not done any business activity during the year and accordingly disallowed 25% of the expenses. On appeal, learned CIT(A) vide his order dated 18th March,2013 sustained the disallowance to 15% of the expenses claimed by the assessee. The order of learned CIT(A) has become final as no party had filed the appeal against the order of learned CIT(A). That in the order under Section 263 dated 21st March, 2013, the learned CIT observed for 100% disallowance of the expenses claimed by the assessee. That since this issue has already been adjudicated by the CIT(A), the CIT was not empowered to pass order under Section 263 with regard to disallowance of expenses. In support of his contention, he referred to Explanation (c) to Section 263. With regard to the other part of the order of learned CIT passed under Section 263, the learned counsel did not make any submission.

5. Learned DR, on the other hand, relied upon the order of the learned CIT passed under Section 263 and pointed out that the difference between the order of learned CIT(A) and learned CIT is only three days and probably, on the date on which the CIT passed the order, it was not brought to his knowledge that the CIT(A) has already adjudicated this issue. She, therefore, submitted that the order of learned CIT passed under Section 263 should be sustained.

6. We have carefully considered the submissions of both the sides and perused relevant material placed before us. Explanation (c) to Section 263(1) reads as under:-

"(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the [Principal Commissioner or] Commissioner under this sub-section 3 ITA-3627/D/2013

shall extend [and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.]."

7. From the above, it is evident that the powers of the CIT under Section 263 are extended to the matters as had not been considered and decided in appeal. In the case under consideration before us, we find that the CIT(A) in the order dated 18th March, 2013 decided the issue of disallowance of expenses with the following finding:-

"Ground No.1 : In the course of assessment proceedings the A.O. found that the assessee had not done any business activities though had claimed certain expenses in the profit & loss accounts. The A.O. specifically asked the assessee to justify these expenses as claimed in the profit and loss accounts. In response the assessee stated that despite best efforts no shop could be sold and that the expenses were minimum possible to run the business. The assessee was asked to produce books of accounts along with supporting bills/vouchers. In response the books of accounts were produced by the assessee but the assessee failed to produce supporting bills and vouchers. In the above circumstances, the A.O. did not find it possible to verify the genuineness of the expenses without bills and vouchers or any other evidences in support of various items of expenses by the assessee in the profit and loss accounts. Accordingly 25% of the total expenses claimed by the assessee in profit and loss accounts was disallowed on estimate basis by the A.O. to prevent any possible leakage of revenue.

I have carefully considered the submission of the appellant in this regard. Vide its written submission dated 15/3/2013 the appellant has tried to justify the genuineness of various items of expenditure claimed by the appellant. However, on being specifically asked by me, the AR of the appellant expressed his inability to produce bills and vouchers or any other supporting evidences to justify the various items of expenses so claimed by the appellant as deduction. Therefore, in the absence of proper bills/vouchers or other evidences in support of various items of expenses, I agree with the A.O.'s contention that it was not possible to verify the 4 ITA-3627/D/2013

genuineness of expenses. As such, in my considered view A.O. was justified in making lump sum disallowance on estimate basis. However, in view of submissions made by the appellant and on consideration of facts and circumstances of the case I believe that disallowance @ 25% made by A.O. on estimate basis certainly appears to be on higher side, whereas in the light of facts and circumstances of the case A.O.'s concern for possible leakage of revenue cannot also be ignored altogether. Therefore, I restrict the estimated disallowance to 15% of the expenses as claimed by the assessee which works out to Rs.2,98,412/-. As such assessee gets a relief of Rs.1,98,942/- (i.e. Rs.4,97,354/- minus Rs.2,98,412/-.)."

8. Learned CIT in the order passed under Section 263 dated 21st March, 2013 made the observation that the total expenditure of `19,89,416/- was disallowable but the Assessing Officer disallowed mere 25% of the expenses. Since this issue has already been adjudicated by the learned CIT(A) before the order under Section 263 was passed, in our opinion, the CIT was precluded from making any observation or issuing any direction under Section 263 with regard to disallowance out of expenses. Whether the order of the CIT(A) was brought to the knowledge of the CIT or not would be irrelevant because the fact remains that the CIT(A) had already passed the order adjudicating the issue of disallowance of expenses before the order of the CIT passed under Section 263. We, therefore, partly modify the order of the CIT passed under Section 263 and his observations/directions with regard to disallowance out of expenses are cancelled.

9. In the result, the appeal of the assessee is partly allowed.

Decision pronounced in the open Court on 30th January, 2015.

Sd/- Sd/- (H.S. SIDHU) SIDHU) (G.D. AGRAWAL) AGRAWAL) JUDICIAL MEMBER VICE PRESIDENT

Dated : 30.01.2015 VK. 5 ITA-3627/D/2013

Copy forwarded to: -

1. Appellant : M/s Anchal Agro Chillers Pvt.Ltd., 272, Prabhat Nagar, Meerut.

2. Respondent : Commissioner of Income Tax, Meerut.

3. CIT 4. CIT(A) 5. DR, ITAT

Assistant Registrar