TMI Blog2020 (7) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... No.3 Large other expenses claimed in the Profit Loss Account and reason No.5 i.e. Mismatch between income/receipt credited to P L A/c considered under other heads of income and income from heads to income other than business/ profession , are concerned we find that the Ld. A.O has clearly observed in the assessment order that he has checked the books of accounts, bills and vouchers and has conducted sufficient enquiry and had made some disallowance of expenses. Once enquiry has been conducted with specific observation of having checked the books of accounts, bills and vouchers then in these circumstances Ld. PCIT was not justified in invoking the provisions u/s 263 of the Act and holding that the assessment needs to be set aside since the Ld. A.O has not examined properly the reasons No. 3 5 mentioned herein above which were also the reasons for selecting the case of limited scrutiny. High ratio of refund to TDS and low net profit or loss from large gross receipts - The details of sales made in the preceding and current year and the details for increase in purchase cost were the bare minimum details which the Ld. A.O could have gone through to form an opinion. Merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view that such payments are neither excessive nor unreasonable with regard to fair market value and goods and services, may infer that no disallowance is called for. This examination of the transaction of payment made to relatives u/s 40A(2)(b) of the Act should be well documented and assessment records should speak by itself about the enquiries conducted by the Ld. A.O. The records of the instant case speaks that no details were filed by the assessee before the Ld. A.O to prove the reasonableness of payments made to relatives nor any indication is there on behalf of the Ld. A.O to call for specific details relating to payment to relatives u/s 40A(2)(b) of the Act. Thus in our considered view there is no enquiry about the reasons No.4 i.e mismatch in amount paid to related persons u/s 40A(2)(b) and therefore Ld. PCITT has rightly invoked his power u/s 263 of the Act setting aside the order of Ld. A.O with regard to these reasons. We are of the considered view that the action of Ld. PCIT of invoking the provisions of Section 263 of the Act and setting aside the assessment order is partly held to be justified. Appeal of the assessee is partly allowed - ITA No.742/Ind/2018 (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal challenging the order u/s 263 of the Act passed by Pr. CIT raising following grounds of appeal:- 1.That in the facts and under the circumstances of the case the Ld Principal CIT-2, Bhopal erred in facts and also in law in invoking the provisions of s. 263 of the Income Tax Act and directing setting aside of the assessment order passed u/s 143(3) of the Act by the DCIT-5(l), Bhopal dt. 02.05.2017. 2. That the proceedings u/s 263 of the Act by the Principal CIT -2, Bhopal has been initiated on account of change of opinion which is not permitted by law. 3. That in the facts and under the circumstances of the case the Ld Principal CIT-2, Bhopal erred in facts and also in law in invoking the provisions of s. 263 of the Act as the AO after scrutinizing all the details, making proper enquiries, proper verification of the records has disallowed certain expenses after due application of mind. . 4. That the Ld Principal CIT-2, Bhopal has initiated proceedings u/s 263 of the Act on the ground that AO has not verified some specific documents which PCIT think necessary in her opinion, for assessment which is not permitted by law as it is the discretionary pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;other expenses' which were not verified and examined by the assessing officer during the assessment proceedings. Trading results accepted by the assessing officer without making thorough inquiry/investigation and genuineness of sales/purchases/expenses and further without enquiring or investigating independently. The assessing officer vide notice u/s l42( I) dt. 06/03/2017 asked the assessee to give clarification with regards to reasons for the selection of the case for scrutiny mentioning only the reasons ill the notice. no further queries were made. the assessee submitted single reply on 24.03.2017 during the entire assessment proceedings which was accepted by the assessing officer without making any specific enquiry and further no independent enquiry has been made. I 2. Regarding the mismatch in amount paid to related persons .the assessee vide its written reply dt. 24.03.2017 submitted payment to related persons is genuine hence these were not disallowed in the audit report which was not examined during-the assessment as no. further queries were made regarding genuineness of the payment to related person u/s 40A(2)(b). A.O has accepted the reply of assessee dt.. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the detailed reasons given and discussions made herein above, the assessment order u/s 143(3) dated 02.05.2017 made by the DCIT 5(1), Bhopal for the AY 2015-16 is hereby set aside u/s 263 with the direction to the AO to make it de novo on after giving reasonable opportunity to the assessee of being heard and after bringing on records the relevant supporting material and evidences in support of the action of the AO. In this regard, the amendment made to Clause (a) to explanation 2 (inserted by finance act 2015 w.e.f. 1.6.2015 of section 263 (I) of I.T. Act which is reproduced here below may also be kept in mind for guidance by the AO while passing the fresh assessment order pursuant to this order u/s 263. 5. Ld. Counsel for the assessee referred to the following written submissions and various judgments and decisions contending that necessary enquiry was conducted by the Ld. A.O with regard to the reasons for the limited scrutiny and additions have also been made in the assessment order:- 2.1 Ground No. 1,2 3 The assessee company's case was selected for Limited Scrutiny for AY 2015-16 as mentioned in para 1 of assessment order and para 9 of ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chers of Salary Wages of ~19532623/- and Staff Welfare Exp. ₹ 2383483/- as mentioned in para 6 of assessment order. After verification of records, assessing officer has disallowed ₹ 350000/-- in these heads. Assessee has acquired many updated plant and machineries which are capable to achieve more turnover but during the year it could obtain the business of~ 27.87 crores only as against ₹ 39.85 in last year. Certain expenses of fixed nature cannot be reduced in the same ratio of turnover. Depreciation of ₹ 3,60,89,084/- has been provided during the year which is major expenditure. During this year, Companies Act has changed method of calculating depreciation; hence depreciation has increased so much. It is also a reason for loss during the year. There are many expenditures in the Profit Loss Account but Id. Pr.CIT has chosen only one head Salary Wages in which she found that this account has not been verified properly. Inadequate enquiry for verification of one account cannot be considered as non- application of mind by assessing officer in the whole assessment. Hence profit has reduced during the year. Large Other Expenses claimed in Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and due diligence in passing the assessment order with disallowance of ₹ 610586/-.. Assessing officer has made full enquiries and verifications on the issues on the basis of which case was selected for limited scrutiny during assessment proceedings and applied his mind properly to assess the case. This case was selected for limited scrutiny and Central Board of Direct Taxes has issued Instruction No. 20/2015 [F.N 0.225/269/2015_IT A -Ill dt. 29.12.2015 regarding important issues and Scope of scrutiny. Procedure for handling Limited Scrutiny has been specified in this instruction at Para 3. CBDT has confined assessing officer only to the specific issues for which case has been picked up for scrutiny. Assessing officer cannot go beyond it. 2.3 Thus this order u/s 143(3) of the Act dt. 02.05.2017 passed by DCIT-5(l) Bhopal for AY 2015- 16 is not erroneous as well as prejudicial to the interest of revenue as decided in the following cases- Recently in the case of Satya Prakash Sharma vs PrCIT (2019) 77 CCH 0296 Kol Trib it was held that where enquiry was conducted by AO even if inadequate that would not by itself give an occasion to the Pr. CIT to interdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te or specify the documents and manner of verification of expenses. Income Tax Act has bestowed discretionary power to assessing officer for verification of expenses to his satisfaction. Negligence of assessing officer is not allowed in the law and he should apply his mind. Hence this order u/s 263 of the Act is illegal. 4. Ground no. 5 One of the reason for selection of case for scrutiny and also the reason for passing order u/s 263 of the Act is as under- Mismatch in amount paid to related persons u/s 40A (2)(b) reported in audit report and ITR Ld Pr.CIT has mentioned in para 7 of order u/s 263 of the Act regarding this matter as under- However the assessing officer has not examined nor commented in assessment order about the reasonableness of these payments or whether these payments were made at arm's length price. Reason for selection of Case for scrutiny is mismatch and not verification of payment to related persons. Assessee has replied to the assessing officer that there is no mismatch of payment to related person between audit report and ITR. L d Pr. CIT has misinterpreted this reason that payment to related persons should be examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carefully gone through the judgments and decisions relied by Ld. Counsel for the assessee. The sole grievance of the assessee is against the legality of order issued u/s 263 of the Act and the same being without jurisdiction since initiation of proceedings u/s 263 of the Act is on account of change of opinion which is not permitted by law. 9. Provisions of Section 263 reads as under :- 263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.-In computing the period of limitation for the purposes of subsection (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. 10. Section 263 of the Income Tax Act seeks to remove the prejudice to the revenue by the erroneous assessment orders passed by the A.O. Section 263 of the Act empowers the Pr.CIT/CIT to initiate suo moto proceedings either where the A.O takes a wrong decision without considering the materials available on record or he takes a decision without making any enquiry into the matters, where such enquiry was prima facie warranted. The PCIT/CIT is well within his powers to treat an order erroneous if he/she observes that the A.O should have made further enquiries before accepting the wrong claim made by the assessee. The Assessing Officer canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y itself give an occasion to the Pr. CIT to interdict and interfere by exercising his revisional jurisdiction merely because he is of the opinion that some more enquiries should have been conducted in the matter. 14. Reliance was also placed on the decision of the Co-ordinate Bench in the assessee s own case vide ITA No.289/Ind/2017 order dated 19.7.2018 wherein Tribunal observed as under:- 8. We have heard the rival contentions and perused material on going through the orders of the authorities below. There is no dispute with regard to the fact that the Ld. CIT(A) is empowered to invoke the provisions of section 263 where he considers that any orders passed by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue. The law is well settled that in absence of any of this condition would make the order invalid. It is also a settled position of law that where the AO has applied his mind and made inquiries and after making such inquiry, he adopts one of the possible views in that event order u/s 263 would not be justified. 9. Admittedly, in the present case reopening was also based on the same ground on which the Ld. CIT(A) preceded to exercise u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Amitabh Bacchan Civil Petition No.5009 of 2016 is also relevant wherein the Hon'ble Court held as under ; There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. However, the above is not the situation in the present case in view of the reasons stated by the learned CIT on the 3(2000) 243 ITR 83 (Hon'ble Supreme Court) 4 (2007) 295 ITR 282 (SC) 22 basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/ withdrawing the same gives rise to the necessity of further enquiry in the interest of revenue. The notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was made giving point wise reply to the reasons for selecting the case for scrutiny and this letter has been scanned in the assessment order also. The Assistant Commissioner of Income Tax - 5(1) Bhopal. Dear Sir, Re.: Sanee Infrastructure Pvt. Ltd., D- 19, Machna Colony, Bhopal. PAN: AAGCS8307M Ref. Notice u/s 142(1) of the Act vide No. DCIT- 5(1)/BPLlI42(1)/206-17/411 dt. 06.03.2017 for AY 2015-16 Sub. : Submissions for assessment proceedings for AY 2015-16 I hereby submit point wise information as under: _ 1. Clarification of reasons to select case in limited scrutiny is as under (a) High ratio of refund to TDS As per return of income filed for AY 2015-16, TDS is ~ 6988150/- and refund claimed is ₹ 5586610/-. Turnover of the year is ₹ 27.87 crores and returned income is ₹ 46.98 lakhs which is 1.68. Reason for this lower profit is decrease in turnover certified by the contractee but the expenditure could not be reduced due to their nature. Lower turnover with set up of higher turnover is the reason of lower profit. Due to lower profit, tax liability is less hence refund is more. (b) Low net profit or loss shown from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c No. 11084739951 IDBI Bank, current A/c No. 03012000010867 Central Bank of India, current A/c No. 3431456632 State Bank of India, current A/C No. 63010127926 23. The above three replies submitted by the assessee shows that except these three submissions which were in reply to the information asked in the notice issued u/s 142(1) of the Act, Ld. A.O has examined the books of accounts on test basis but there is no further questioning to the assessee which could show that Ld. A.O has tried to investigate/examine all the reasons for which limited scrutiny was taken up by the department 24. It is also noteworthy to note that when the case is selected for normal scrutiny the area of examining the records is much larger than the one required in the case of limited scrutiny case. Because when the case is selected for normal scrutiny each and every aspect of the financial statement is to be looked into and A.O may resort to some test check basis examination theory so as to complete the assessment but the situation is little different for limited scrutiny case. The reasons mentioned in the limited purpose scrutiny cases are not been prepared by the Ld. A.O examining the recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which relates to High ratio of refund to TDS and Low net profit or loss shown from large gross receipts and the reason No.4 relates to mismatch in amount paid to related persons u/s 40A(2)(b) reported in the audit report and ITR . 28. As regards the high ratio of refund to TDS and low net profit or loss from large gross receipts the assessee has submitted the financial statement and mentioned few lines in his reply mentioning that reasons for these low profit is decrease in turnover certified by the contractee but the expenditure could not be reduced due to their nature. Lower turnover with set up of higher turnover is the reason of lower profit. Due to lower profit, tax liability is less hence refund is more . 29. Only on the basis of above reply which is not reaching to any end the Ld. A.O seems to be fully satisfied and has not taken any step further to examine the reasons for low net profit rate. As we mentioned earlier that in limited scrutiny case the focus of the Ld. A.O should be more sharp but in the instant case it does not seems so. On referring to audited financial statement, Profit and Loss Account and Balance sheet we observe that in the preceding assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared u/s 44AB of the Act auditor submits the annexure to the report in Form 3CD wherein various information need to be punched in by the auditor. One of the information relates to payment to related persons u/s 40A(2)(b). The auditor take information from the assessee and gives the details of the relatives with the amount of payment and the nature of such expenditure in the format provided in Form 3CD. These details may help the Assessing Officer to examine the payment related persons if the case is selected for scrutiny. We can say that these details assist the Assessing Officer to frame a correct assessment and energy is saved to gather related information from the huge financial data maintained by the assessee. There is hardly any occasion that such payment to relatives is disallowed by the Tax Auditor in his report by way of qualification of Audit Report and the same amount is mentioned in the ITR. Since no disallowance is made by the Tax Auditor the details of payment made to the relatives is mentioned in Report but the amount in ITR is NIL there occurs mismatch. 31. Now when the case has been selected for limited scrutiny u/s 143(2) of the Act with one of the reasons rel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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