Remand of Issue to AO for Re-adjudication by PCIT without Determining Profit Declared by Assessee is Erroneous: ITAT sets aside Revision Order u/s 263 of Income Tax Act [Supreme Court]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that that the PCIT has merely remitted the issue back to the file of the AO to redo the assessment without giving a finding that the profit declared by the assessee is erroneous in so far as it is prejudicial to the interest of the Revenue.

The assessee Polygel Industries Pvt. Ltd. , engaged in the business of manufacturing of adhesive, sealant and construction chemical etc. The Return of Income for the Assessment Year (A.Y) 2018-19 was filed declaring total income of ₹.Nil. The return was processed under Section 143(1) of the Income Tax Act,1961 and income was assessed at ₹.Nil. Subsequently, the case was selected for scrutiny under Faceless E-Assessment Scheme, 2019

Accordingly, notices under Section 143(2) and 142(1) of the Income Tax Act were issued and in response the Authorised Representative of the assessee (AR) submitted relevant information as called for.

The assessment under Section 143(3) read with Section 143(3A) & 143(3B) of the Income Tax Act was passed assessing total income at ₹.50,67,670/- by making addition of ₹.55,301/- on account of disallowance under Section 14A of the Income Tax Act, disallowance of ₹.4,37,499/- under Section 43B of the Income Tax Act and disallowance of ₹.45,74,868/- under Section 36(1)(vii) of the Income Tax Act.

The Principal Commissioner of Income Tax (PCIT), Mumbai while verifying the assessment records observed certain errors in AO rendering the same as erroneous in so far as it is prejudicial to the interest of the Revenue. Accordingly issued notice under Section 263 of the Income Tax Act.

The PCIT observed that assessee has contended that computation under Section 115JB of the Income Tax Act is correctly made and there is no error in it.

The PCIT explained that the figure of ₹.1,80,91,596/- is, in fact, the figure of book profits of the Consolidated Financial Statements of Polygel Industries Pvt. Ltd., and the amount which the assessee was speaking of, pertains to the Standalone Financial Statements of Polygel Industries Pvt. Ltd.

He further observed that AO has failed in examining the impugned issue by way of enquiries/verification that were required in this case, has rendered the assessment order erroneous in so far as, it is a prejudicial to the interests of the revenue. Accordingly, he directed the AO to conduct the requisite enquiries along the lines discussed above and frame the Assessment Order denovo.

Aggrieved by the order assessee filed an appeal before the Tribunal.

The AR  submitted that the book profit adopted by the AO is proper book profit adopted from the Profit and Loss Account of the company declared as per the financial statements prepared under Companies Act.

He further explained that shareholding of the assessee company and its subsidiaries and associate companies wherein assessee declared consolidated profit for the period at ₹.1,80,36,295/-.

It was contended that PCIT has considered the consolidated profit declared by the assessee which is not proper and he has to adopt the profit declared by the assessee in its standalone Profit and Loss Account as per the provisions of Section 115JB of the Income Tax Act.

Thus the AR prayed that the profit declared by the assessee in its standalone balance sheet which is adopted by the Assessing Officer is just and proper. Therefore, there is no mistake apparent on record and also there is no prejudicial to the interest of the Revenue.

The Departmental Representative (DR) relied on the order passed by the PCIT under Section 263 of the Income Tax Act.

The Bench comprising of Kuldip Singh, Judicial Member and S.Rifaur Rahman, Accountant Member observed that while examining the assessment records PCIT has observed that the profit declared by the assessee in its standalone financial statements is ₹.68,53,323/- whereas the profit declared in the consolidated financial statements is ₹.1,80,91,596/-, since he is not convinced with the submissions of the assessee and the profit adopted by the AO for the purpose of Section 115JB of the Income Tax is not proper.

Therefore, the observation of the PCIT to reassess the declared profit by the subsidiaries and other associates in the hands of the assessee is not proper.

The Tribunal held that the PCIT has merely remitted the issue back to the file of the AO to redo the assessment without giving a finding that the profit declared by the assessee is erroneous in so far as it is prejudicial to the interest of the Revenue.

Accordingly, order passed under Section 263 of the Income Tax Act was set-aside and the grounds raised by the assessee was accordingly allowed.

To Read the full text of the Order CLICK HERE

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