TMI Blog2020 (3) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under consideration, after taking note of the fact that there is large number of difference in certain expenses claimed in two set of financial statements. We find that first and foremost the PCIT has exceeded his jurisdiction conferred upon by him u/s 263 because the show cause notice is very clearly stated that the assessment order is erroneous, insofar as, it is prejudicial to the interest of the revenue, in respect of the issue of suppression of turnover. Once the Ld.PCIT having found that the issue of suppression of turnover was considered by the Ld. AO, at the time of assessment proceedings, he should have confined its scope of revisional powers to the issue of suppression of turnover instead of going to the issue of expenses claimed by the assessee and profit declared for the year under consideration. Because, the issue of various expenses claimed in two set of financial statements was neither, subject matter of reassessment proceedings u/s 147 of the Act, nor find place in show cause notice issued by the Ld.PCIT u/s 263 of the Act, 1961. PCIT having accepted the fact that the Ld.AO has examined the issue of suppression of turnover should have confined the scop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd liable to be quashed. 2. That on the facts circumstances of the case, the impugned order passed by the Ld. CIT u/s 263 is time barred as per the ratio laid down by the Hon'ble Apex Court in Alagendran Finance Limited [(2007) 293 ITR 1] in so far as the Ld. Pr. CIT set-aside the order for fresh enquiry with respect expenses and unsecured loan, which was the subject matter of original scrutiny assessment proceedings and not re-assessment proceeding, as such, the order u/s 263 is bad-in4aw and liable to be quashed. 3. That in the facts and circumstances of the case and in law, the impugned order is bad in law in so far as the Ld. Pr. CIT seeks to revise the reassessment order u/s 147 of the Act which is itself bad in law and liable to be quashed. 4. That in the facts and circumstances of the case and in law, the re-assessment order passed u/s 147 r.w.s 143(3) of the Act is bad in law in so far as the notice u/s 148 had been issued without the appropriate approval u/s 151 of the Act, as such, the revisionary proceedings with respect to the reassessment order which is itself non-est in law is not sustainable and is liable to be quashed. That the approval is taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble net profit after rejecting the books of accounts, so no item of books can be examined after the income is to be computed on estimated net profit basis. 10. Your appellant prays for leave to add, alter and amend all or any of the above grounds of appeal 3. The brief facts of the case are that the assessee is engaged in the business of Civil construction work, filed its return of income for AY 2014-15 on 29/11/2014, declaring total income of ₹ 7,47,37,490/-. The assessment was completed u/s 143(3) of the I.T.Act, 1961 on 30/12/2016, determining the total income at ₹ 9,82,62,750/-. Subsequently, a survey action u/s 133A of the I.T.Act, 1961 was carried out at the business premise of the assessee on 30/08/2016. During the course of survey proceedings, a copy of the balance sheet for AY 2014-15 certified by the auditors on 31/08/2014 was found and as per the said balance sheet the turnover was found declared at ₹ 219,25,42,121/-. Consequent to survey u/s 133A of the Act, the assessment has been reopened u/s 147 of the I.T.Act, 1961 by issuing notice u/s 148 of the Act, dated 02/02/2018. In response to notice u/s 148 of the Act, the assessee has filed retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the assessment, which resulted in erroneous order passed, insofar as, it is prejudicial to the interest of revenue. The Ld.PCIT, further noted that although, there is a discrepancy in unsecured loans, which has been shown at ₹ 45.58 lacs in the financial statements filed before the department, but the same have been shown at ₹ 2.62 cores in the parallel financial statements, however no enquiry has been made regarding said discrepancy in unsecured loans, as per two set of financial statements. Therefore, he opined that the assessment order passed by the Ld. AO is erroneous, insofar as, it is prejudicial to the interest of the revenue and accordingly, issued a show cause notice. 5. In response to show cause notice, the assessee, vide letter dated 18/07/2019, 17/09/2019, 09/10/2019 and 22/10/2019 has submitted that the assessment order passed by the Ld. AO is neither erroneous, nor it is prejudicial to the interest of the revenue, because the issue of suppression of turnover has been thoroughly examined by the Ld. AO in reassessment proceedings, which is clearly evident from the fact that the assessment has been reopened for the purpose of verification of suppression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue. 6. The Ld.PCIT after considering relevant submissions of the assessee and also taken note of various facts, including the survey proceedings conducted u/s 133A of the Act, and consequent evidences in form of parallel set of financial statements, opined that the assessment order passed by the Ld. AO is erroneous, insofar as, it is prejudicial to the interest of the revenue. He, further noted that although, the Ld. AO seems to have been verified issue of suppression of turnover, but, fact remains that the Ld. AO never ever has made any attempt to call for necessary details, even though there are large differences in expenditure claim to have incurred for payment to contractor and sub-contractor, power and fuel expenses, tender expenses and staff welfare expenses, which is evident from the fact that he has simply accepted the story of a mistake given by the assessee, in respect of parallel set of financial statements prepared for 17 months and concluded assessment u/s 143(3) r.w.s. 147 of the I.T.Act, 1961. The Ld.PCIT, further noted that the Ld. AO not even verified two set of financial statements with reference to unsecured loans, where there is a huge difference, in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudicial to the interest of the revenue. 8. The Ld. AR, further submitted that insofar as difference in turnover, as per two set of financial statements, the assesee has filed various details, including TDS certificates and reconciled turnover reported in financial statements to Form 26AS available in ITS data base and explained that the assessee has executed works contracts for government agencies, like BMC etc. The assessee has also filed various details, in respect of labour contract expenses incurred for the year. The Ld. AO after verification of necessary details filed by the assessee has completed the reassessment proceedings initiated u/s 147 of the Act, without making any addition/adjustments to total income declared for the year. He, further submitted that it is a settled position of law that once, the reasons recorded for reopening of assessment is fails and no addition is made on this aspect, then the Ld. AO is precluded from making any other additions, even though he has come across certain issues during the assessment proceedings. Once, the Ld. AO himself is precluded from making any additions, and then directing the Ld. AO to make enquiry/addition on other issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et of documents. The Ld. DR, further submitted that it is a settled position of law that there is a vast difference between the reassessment and revision, where in cases of revision, if the commissioner satisfied that the assessment order passed by the Ld. AO is erroneous, insofar as , it is prejudicial to the interest of the revenue, then he is very much within his powers to invoke jurisdiction to ascertain correct facts with regard to the proceedings to known, whether the Ld. AO has carried out required enquiries to be conducted in accordance with law. In this case, it is very clear from the facts brought out by the Ld.PCIT that the Ld. AO had committed an error in not making any further enquiry into details as regards difference in turnover reported, as per two set of audited financial statements and also, various expenses claimed in those set of financial statements, but simply accepted the arguments of the assessee and concluded the assessment, which resulted in erroneous order passed, which caused prejudice to the interest of the revenue. Therefore, the Ld.PCIT was right in invoking jurisdiction u/s 263 of the I.T.Act, 1961 and there is no reason to interfere in the findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evise the assessment order, if he considers that any order passed by the Ld. AO is erroneous, insofar as, it is prejudicial to the interest of the revenue. The language used by the Legislature in s. 263 is to the effect that the CIT may interfere in revision if he considers that the order passed by the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue. It is quite clear that two things must co-exist in order to give jurisdiction to the CIT to interfere in revision. The order of the ITO in question must not only be erroneous but also the error in the ITO's order must be of such a kind that it can be said of it that it is prejudicial to the interests of the Revenue. In other words, merely because the officer's order is erroneous, the CIT cannot interfere. Again, merely because the order of the officer is prejudicial to the interests of the Revenue, then again, that is not enough to confer jurisdiction on the CIT to interfere in revision. These two elements must co-exist. This is because, the first of the two requirements namely, (i) the order is erroneous and (ii) the same is also prejudicial to the interests of the Revenue, is not satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Admittedly, the assessment in question was originally completed u/s 143(3) of the I.T.Act, 1961, where the Ld. AO has made additions towards labour charges incurred by the assessee under the head labour contact expenses and made additions of ₹ 2,35,25,258/-, in respect of payments made to six parties as listed by the Ld. AO in the reasons recorded for reopening of assessment. It is also not in dispute that the assessment has been reopened u/s 147 of the Act, for the reasons recorded, as per which the impugned assessment has been reopened, in respect of issues related to suppression of gross receipts on the basis of two parallel set of financial statements prepared by the assessee, which was found during the course of survey conducted u/s 133A of the Act. As per said two set of financial statements, the assessee has reported turnover of ₹ 219.25 crores in one set of financial statements prepared for a period of 17 months 01/04/2013 to 31/08/2014 and in another set of financial statements prepared for period of 12 months from 01/04/2013 to 31/03/2014, which was also part of return filed for the year, the turnover has been shown at ₹ 132.11 crores. The assesee has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erify the issue of turnover declared in two set of financial statements and also, examine various expenses claimed in two set of financial statements. 13. In this factual background, if you examine revision order passed by the PCIT u/s 263 of the Act, one needs to understand, whether the exercise of powers by the Ld.PCIT is within the scope of provision of section 263 of the I.T.Act, 1961. It is a settled position of law that if, no addition is made on the issue, for which reasons were recorded for reopening, no other additions can be made with respect to issues for which no reasons were recorded. The Hon ble Bombay High Court in the case of CIT vs Jet Airways India Ltd. (2011) 331 ITR 236 has categorically held that if, the Ld. AO accepts the contention of the assessee and holds that the income for which, he had initially formed a reason to believe that it had escaped assessment, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income and if, he intends do so, a fresh notice u/s 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. A similar view has been expressed by the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s questioned in his show cause notice, but he cannot proceed to enlarge the scope of proceedings to any other issues, which is not find place in show cause notice issued for this purpose. This view is fortified by the decision of Hon ble Bombay High court in case of Hindustan Lever Limited (137 Taxmann 479) where it has been held that the reasons are required to be read as they were recorded by the Assessing Officer, and no substitution or deletion is permissible. In this case, the Ld.PCIT had taken up proceedings u/s 263 of the Act, for the purpose of examining the issue of difference in turnover reported in two set of financial statement and also, difference in unsecured loans reported in two set of financial statement prepared by the assessee. Admittedly, the issue of suppression of turnover was a subject matter of reassessment proceedings and the genisis of issue orginated from survey proceedings conducted u/s 133A and which was followed by reasons recorded for reopening of assessment. However, in reassessment proceedings, there is no addition was made, in respect of suppression of turnover. It is also a matter of fact that it is not a case of the Ld.PCIT that the Ld. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment proceedings, he should have confined its scope of revisional powers to the issue of suppression of turnover instead of going to the issue of expenses claimed by the assessee and profit declared for the year under consideration. Because, the issue of various expenses claimed in two set of financial statements was neither, subject matter of reassessment proceedings u/s 147 of the Act, nor find place in show cause notice issued by the Ld.PCIT u/s 263 of the Act, 1961. Therefore, we are of the considered view that the Ld.PCIT having accepted the fact that the Ld.AO has examined the issue of suppression of turnover should have confined the scope of his revisional powers to the issue, which he had questioned in his show cause notice, rather than going to the issue of various expenditure, which is not at all a subject matter of proceedings u/s 147 of the I.T.Act, 1961. As, we have already stated in earlier paragraph, when AO himself is precluded from making any other additions in reassessment proceedings, when he failed to make additions on the issues on which reasons for reopening of assessment was recorded, then certainly in our consider view the Ld.PCIT is also preclud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income in his hands on his so offering me order passed by the Assessing Officer accepting the same as such will be erroneous and prejudice to the interests of the Revenue. Rarnpyari Devi Saraogi v. ClT [1968] 67 ITR 84(SC) and in Smt. Tara Devi Aggarwal v. CIT[1973] 88ITR 323(SC). In the instant, the Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding That the income-Tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was no! placed before the Assessing Officer Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of me account filed by the appellant in the absence of any supporting material and without making any inquiry On these facts the conclusion that the order of the Income-lax Officer was erroneous is irresistible We are, therefore, of the opinion that the High Court has rightly held that the exercise of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses and unsecured loans, which were subject matter of reopening. Therefore, the case law cited by the ld. DR is clerely not applicable to present case. Further, the Ld. DR has relied upon plethora of decisions in which it was stated that in case of proper enquiry is not done by the Ld. AO, then revisionary jurisdicitonal can be excercised u/s 263 of the I.T.Act, 1961. The case laws cited by the Ld. DR are clearly distiguishiable, firstly by the fact that the issue of suppressed turnover for reopening of assessment has been accepted as no suppression of turnover by the Ld. AO, as well as Ld.CIT(A) in view of judgments relied by the assessee, as stated above, in which it is clearly held that , when reason for reopening does not stand, then no other addition can be made. The issue is not of inadequte enquiry in present case as the Ld.CIT(A) hereself does not disagree with the findings of Ld. AO with respect to issue of supressed turnover, but issue is whether when no addition to taxable income is contemplated on issue of reopening, whether Ld.AO order can be held to be erroneous for his not holding enquiry on issues which were not subject matter of reasons to believe for reopening o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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