TMI Blog2021 (7) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned about any such credible material or information available on record to take the opposite view. So when there is no such material or information available on records, the AO could not have formed a reasonable view of under assessment of income on the issue of drop in G.P. Therefore since there is no credible information or material available on record to form a reasonable view that there is a possibility of under assessment, the Ld. PCIT s allegation on this issue is noted to have been based on surmises and conjectures, so we are to the opinion that AO ought not to have taken up this issue (drop in G.P) for expanding the scope of limited scrutiny as per the CBDT Instruction No. 5/2016 dated 14.07.2016. So the fault pointed out by the Ld. PCIT on this score is erroneous. Receipts which assessee received from IOCL relating to tanker lorry - This issue was enquired into and considered by the AO; and thereafter, the AO had proceeded to tax separately the income by estimating as the income from tanker u/s 44AE of the Act. So therefore it is noted that the AO had enquired about the issue and even though the AO s view of adopting the percentage of profit u/s 44AE of the Act, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vincent D. Longstich, CIT DR ORDER PER SHRI A. T. VARKEY, JM: This is an appeal filed by the Assessee against the order of Ld. PCIT-9, Kolkata dated 21.02.2019 passed u/s 263 of Income Tax Act, 1961 ( hereinafter referred to as the Act) for Assessment year 2014-15. 2. The assessee has challenged the invocation of revisionary jurisdiction u/s 263 of the Act by the Ld. PCIT without satisfying the condition precedent as prescribed by Section 263 of the Act i.e. without making out a case that the AO s order was erroneous as well as prejudicial to the revenue . Therefore, according to the Ld. A.R. Shri Subash Agarwal the very invocation of the revisionary jurisdiction by the Ld. PCIT is bad in law and therefore need to be quashed. 3. Brief facts of the case is that the assessee had filed return of income for AY 2014- 15 on 30.11.2014 showing total income at ₹ 11,50,200/-. The AO noted that the return was duly processed u/s 143(1) of the Act. Thereafter, the case was selected for scrutiny and notice u/s 143(2) and 143(1) were issued to the assessee to produce/submit certain details/documents to substantiate her return of income. The AO noted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion precedent as prescribed in section 263 of the Act i.e. AO s order should have been held by Ld. PCIT to be erroneous as well as prejudicial to the revenue in accordance to law . 6. We have heard both the parties and perused the records. Before we advert to the facts and law involved in this lis before us, let us revise the law governing the legal issue raised before us. The assessee has challenged in the first place, the very usurpation of jurisdiction by Ld. Principal CIT to invoke his revisional powers enjoyed u/s 263 of the Act. Therefore, first we have to see whether the requisite jurisdiction necessary to assume revisional jurisdiction is there existing before the Pr. CIT to exercise his power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst paragraph as well as corroborated by the order sheet entry made by AO during the assessment proceedings, which is found placed at page 1 of PB. The issue on which the limited scrutiny was pointed out by the CASS was in respect of the alleged mismatch in the sales turnover reported in audit report and ITR. This issue was enquired into by the AO by issuing notice u/s 142(1) of the Act dated 14.01.2016 wherein the AO had asked the pertinent question no. 4 which is reproduced as under: 4. Your disclosed sales turnover in your return of income for the relevant period under consideration is found to the in variance with your audit report. You are requested to submit a justificatory clarification towards the said variance supported by documents as per below: 5. Party-wise details of purchase in the following format during the corresponding: Name Address of Vendor Opening balance, if any Total Bill received Total payment made Closing balance 8. For the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T which is reproduced as under: Instruction No. 5/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 14th of July, 2016 Subject: Direction regarding scope of enquiry in cases under Limited Scrutiny selected through Cass 2015 2016- regd.- Vide Instruction No. 20/2015 dated 29.12.2015 in File of even number, Board has laid Standard Operating Procedure for handling of cases under Limited Scrutiny which were selected through Computer Aided Scrutiny Selection in CASS Cycle 2015 . In these cases, it was stated that the general scope of enquiry in scrutiny proceedings should be restricted to the relevant parameters which formed the basis for selecting the case for scrutiny. However, in revenue potential cases, it was further provided that Complete Scrutiny could be conducted. If there was potential escapement of income above a prescribed monetary limit, subject to the approval of administrative Pr. CIT/CIT/Pr. DIT/DIT. 2. In order to ensure that maximum objectivity is maintained in converting a case falling under Limited Scrutiny into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s selected under CASS 2015 which are pending scrutiny cases as well as cases selected /being selected under the CASS 2016. 8. The contents of this Instruction may be brought to the notice of all for necessary compliance. 9. Hindi version to follow. 11. From a perusal of the aforesaid circular it is vivid that this circular has narrowed down the play in the joints/discretion which the AO had earlier enjoyed as per the earlier CBDT Instruction No. 20/2015 dated 29.12.2015, wherein the condition precedent to take up the case for complete scrutiny from Limited Scrutiny was in potential escapement of income of ₹ 10 lakhs in metro city. Thus AO could have taken up the case seeking approval for complete scrutiny, if there was potential escapement of income of ₹ 10 Lakh. However, it is noted that by issuing the Instruction No. 5/2016 date 14.07.2016(supra) [which CBDT Circular the Ld. Pr. CIT is relying upon to find fault with the AO in not seeking approval for enlarging the scope of scrutiny], the CBDT has narrowed down the discretion/scope/power of AO to do so and it has spelled out the condition precedent before the AO seeks approval in this regard by o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utiny to complete scrutiny. So we have to test whether the three issues raised by the Ld. PCIT, satisfies the requirement of law as prescribed by the CBDT Circular No. 5/2016 and then only the AO could have taken up the case for further scrutiny as envisaged in the ibid circular. 12. First of all let us examine the issue raised by Ld. PCIT in respect of sharp drop in the GP rate. In this regard, it was pointed out by the Ld. A.R of the assessee that in the instant case the turnover of the assessee s business went up from ₹ 9.84 crore to ₹ 15.03 crore, but GP ratio has fallen down from 3.62% to 1.61%. According to Ld. A.R it is common knowledge that the turnover increases with the reduction in price, which in turn affect the profit i.e. reduction in profit; and so when there was in this case substantial increase in sale, corresponding G.P. dropped. Further according to Ld. AR, the Hon ble Calcutta High Court in the case of Ashoka Refractories (P) Ltd. vs. CIT 279 ITR 457 (Cal), while approving the decision of the Hon ble Punjab and Haryana High Court in the case of Pandit Brothers 26 ITR 159 (Punj), has held that books of account cannot be rejected merely due to lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol/diesel pump it was told to us that the assessee had given incentives/discounts which would had brought down the profit margin or as observed by the Hon ble High Court s observation supra, may be the assessee is incompetent or her method of business may be uneconomic. Moreover, it is noted that the assessee s books of account are statutorily audited and the AO had acknowledged to have gone through it and has accepted the same. So in such circumstances, we can safely infer that AO after going through the books of account of the assessee was of the opinion that assessee s books discloses true profit and loss of the business. In such a scenario, we have to examine the Ld. PCIT s observation that since there was drop in G.P, he (the AO) should have taken up the case for complete scrutiny and failure to do so, makes the order erroneous. When we examine such a contention of Ld. PCIT, first we have to examine whether the AO could have taken up this issue for complete scrutiny as per the CBDT Circular No. 5/2016. We are afraid the AO could not have done so, because for doing so he should have credible material or information from the records before him for forming such a reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness receipt from the tanker lorry. It is noted that on this issue the assessee had categorically asserted that her tanker lorry was not given to any other person on hire and that assessee did not receive any income from running of the tanker lorry. Therefore it is noted that this issue was enquired into and considered by the AO; and thereafter, the AO had proceeded to tax separately the income by estimating at ₹ 54,000/- as the income from tanker u/s 44AE of the Act. So therefore it is noted that the AO had enquired about the issue and even though the AO s view of adopting the percentage of profit u/s 44AE of the Act, strictly doesn t fall in its ken, however adoption of percentage of profit/estimate for the purpose of taxation on the facts of the case cannot be ground on which the Ld. PCIT can exercise his revisional jurisdiction because, assessee s case is that there is no business income from the tanker lorry. However, the AO made addition of ₹ 54,000/-. So there is no prejudice caused to the Revenue; and moreover it is not the case of the Ld. PCIT that despite there was credible information or material to suggest that the assessee s tanker lorry was used for tran ..... X X X X Extracts X X X X X X X X Extracts X X X X
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