TMI Blog2021 (10) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... and should point out as to how where the AO has gone wrong in his enquiry and should return a finding as to how the view of the AO was unsustainable in law. Therefore, the case law relied upon by the Ld. A.R is not applicable to the facts of the case. A.R. thereafter made a feeble attempt to show that para 2.3 on CBDT s instruction NO. 2/2016 dated 10.03.2016 was not applicable in this case for AY 2014-15. We note that instruction of such nature is procedural in nature i.e. when there is a transfer pricing issue before the AO, he is duty bound to examine as to whether the criteria spelled out in the CBDT circular/instruction is fulfilled or not and then to take a decision whether to refer the same to TPO or not and therefore it would take immediate effect from 10.03.2016 onwards. We note that AO has passed the assessment order on 26.12.2016 and it is not the case of the assessee that the CBDT instruction no. 3/2016 has been passed after 26.12.2016. Therefore we do not find any merit in the contention of the assessee. Whether PCIT erred in taking the aid of Explanation 2(c) below section 263(1) of the Act which is applicable only from AY 2015-16? - Even if we agrees to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed its return of income dated 29.11.2014 declaring total income of ₹ 9,14,26,540/-. Later the case was selected for scrutiny through CASS and thereafter assessment was framed u/s 143(3) of the Act 26.12.2016 determining the total income at ₹ 10,09,57,307/-. According to the Ld. PCIT on verification of the assessment records he found that the order of the assessment was erroneous so far as it is prejudicial to the interest of the revenue for the following grounds: (a) It is seen that as per 26AS statement total interest income of the assessee was ₹ 8,10,93,121/-. However, as per accounts and computation of income total interest income was to the tune of ₹ 8,00,14,210/-. Hence, the AO failed to reconcile or add the difference during the course of assessment proceedings. (b) It further appears from 26AS statement that there were other incomes in the nature of contractual, commission, technical etc. Though no separate heads of incomes are available in the P L accounts, it appears that all such incomes were clubbed under Miscellaneous income under Sch. 16. However, as per 26AS total receipts were of ₹ 1,32,40,556/- as against disclosed income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue in accordance with the Explanation 2(c ) below section 263(1) of the Act. The AO is directed to provide reasonable opportunity to the assessee company to produce documents and evidences which it may choose to rely upon for substantiating its own claim. Thereafter a fresh assessment order may be passed in accordance with the relevant provisions of law. 5. . 5.1. 5.2. .. 5.3. In view of the facts and the legal position stated above, I am of the view that the order passed on an incorrect assumption of facts or incorrect application of law and without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning and scope of Section 253 of the Act. The aforesaid decisions postulate that when the officer is expected to make an inquiry of a particular item of income and if he does not make an inquiry as expected, that would be a ground for the Commissioner to interfere with the order passed by the Officer since such an order passed by the Officer is erroneous and prejudicial to the interests of the Re (K. A. Ramaswamy Chettiar vs. CIT (1996) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer was without application of mind; (v) if the AO has not investigated the issue before him; [because AO has to discharge dual role of an investigator as well as that of an adjudicator] then in aforesaid any event the order passed by the Assessing Officer can be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T , when the issue of transfer pricing is arising there in the return of income, and once the AO is conducting scrutiny assessment as per CBDT binding instructions on the same should have been examined by the AO. Therefore he concluded that on the five (5) issues pointed out by him in the SCN, this was a case of lack of enquiry on the part of the AO therefore he held at para 5.3 that he was of the view that AO s order was erroneous and prejudicial to the interest of revenue within the meaning of section 263 of the Act. Therefore he set aside the order for de-novo assessment on the five (5) issues as outlined in para 2 (SCN) with the direction to the AO to conduct effective enquiry after giving opportunity to the assessee. 8. Assailing the aforesaid action of Ld PCIT, the Ld. A.R. of the assessee Shri Ravi Sharma submitted that the AO had gone through the tax audit report, therefore the faults pointed out by the Ld. PCIT in his SCN numbered as (a), (b) and (c) and which are emanating from a perusal of the Form 26AS, have been looked into by the AO and therefore it can be presumed that the AO has gone through the issues raised by the Ld. PCIT and since AO being satisfied, has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot to take any adverse view) in respect of five (5) issues were not dealt by the Ld. PCIT by giving specific findings as to whether the AO s action is erroneous and prejudicial to the revenue and for that he cited the decision of Hon ble Delhi High Court in the case of ITO vs. D.G. Housing Projects Ltd. reported in (2012) 343 ITR 329 (Del) and drew our attention to para 17 to 19 of the order which reads as under: 17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of Jurisdiction under the said section is not sustainable. In most cases of alleged inadequate investigation , it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when' the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order-passed by the Assessing Officer-was erroneous. He came-to-the-conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is erroneous . The said finding will be correct. If the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the AO does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the AO conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the AO on merits or the decision taken by the AO on merits and then hold and form an opinion on merits t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and is distinguishable. According to Ld. CITDR s the observations of the Hon ble High Court was made in that case in the light of the fact that it was a case wherein AO had enquired into the issues and therefore it was not a case of lack of enquiry but it was a case of inadequate enquiry, which is not what happened in assessee s case. In assessee s case there was no enquiry by the AO, so it is not a case of inadequate enquiry. So the observations made by the Hon ble Delhi High Court is not applicable to the case of the present assessee. So the Ld. CITDR does not want us to interfere with the order of Ld. PCIT. 11. Having heard both sides and after perusal of the records we find that on the five (5) issues pointed out by the Ld. PCIT in his SCN supra (a, b, c, d e) at para 3 of this order, the AO in his scrutiny assessment order has not made any enquiry as rightly pointed out by the Ld. CITDR. It is settled position of law that the AO while assessing an assessee has to discharge the dual role of an investigator as well as that of an adjudicator, and if he fails in any one of this issue it will make the order on these issues erroneous as well as prejudicial to the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction is fulfilled or not and then to take a decision whether to refer the same to TPO or not and therefore it would take immediate effect from 10.03.2016 onwards. We note that AO has passed the assessment order on 26.12.2016 and it is not the case of the assessee that the CBDT instruction no. 3/2016 has been passed after 26.12.2016. Therefore we do not find any merit in the contention of the assessee. 13. The only other issue which has been pointed by the Ld. A.R. is that the Ld. PCIT erred in taking the aid of Explanation 2(c) below section 263(1) of the Act which is applicable only from AY 2015-16. Even if we agrees to the contention of the Ld. A.R. of the assessee that Explanation 2(c ) below section 263(1) of the Act is not applicable for AY 2014-15, still it does not in any way make any impact on the finding made by the Ld. PCIT that the AO has not enquired into the five (5) issues raised by him in the SCN and since we have concurred with the same, even if we discard explanation 2 (c) below section 263 of the Act it does not help the assessee s contention. Therefore, in the light of the aforesaid discussion we uphold the action of the Ld. PCIT to have invoked Section 263 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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