TMI Blog2022 (3) TMI 1456X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be sustained under the facts and circumstances of the present case. We find that Ld. PCIT has taken note of the amendment made in section 263 w.e.f. 01.06.2015. This amendment relates to Explanation 2 inserted in section 263 of the Act. The co-ordinate bench has dealt with Explanation 2 as inserted by the Finance Act, 2015 in the case of Narayan Tatu Rane v. Income Tax Officer [ 2016 (5) TMI 1162 - ITAT MUMBAI] to hold that the said Explanation cannot be said to have overridden the law as interpreted by the Hon'ble Delhi High Court in DG Housing Projects Ltd (supra), according to which the Ld. PCIT has to conduct an enquiry and verification to establish and show that the assessment order is unsustainable in law. Also further held that the intention of the legislature could not have been to enable the Ld. PCIT to find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law, since such an interpretation will lead to unending litigation and there would not be any point of finality in the legal proceedings. The opinion of the Ld. PCIT referred to in section 263 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing already followed one of the course permissible in law, the Ld. Pr. CIT was unjustified in setting aside the assessment on the issue of prior period expense on Advertisement of Rs.9,89,485/- debited to P L A/c and directing the AO to re-adjudicate the same issue after reexamination of the facts. 5. For that on the facts and in the circumstances of the case, the order of the CIT passed u/s 263 be cancelled since the assessment order u/s 143(3) dated 30.12.2018 was neither erroneous nor prejudicial to the interest of the revenue. 3. Brief facts as culled out from records are that the assessee filed its return of income on 30.11.2016 showing total income at Rs. 1062,44,65,120/-. This return was subsequently revised on 27.03.2018 at total income of Rs. 1054,14,38,420/-. The case of the assessee was selected for scrutiny assessment and statutory notices u/s 143(2) 142(1) of the Act were issued and served which were complied upon by the assessee. During the course of assessment, Ld. AO examined various issues and made additions / disallowances including the claim of deduction made by the assessee u/s 35(2AB) of the Act. Ld. AO issued a show cause notice dated 23.12.2018 on var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11,598/- only. In the computation of total income, excess debited amount of Rs. 1,34,45,166/- (i.e. Rs. 21.95,56,764/- - Rs. 20,61,11,598/-) has not been added back to total income. Further, the assessee company debited an amount of Rs. 9,89,485/- on account of advertisement to the profit loss account. The expenditure is related to F.Y 2014-15, i.e. Prior period expenses as per the Tax Audit Report. As this expense does not relate to current year and therefore the same deserves to be disallowed. But it is noticed that neither the assessee company has considered the same as current year income nor the assessing officer disallowed in his assessment order. The A.O. has passed the assessment order without making enquiries or verification which should have been made in the instant case. Clause (a) of Explanation-2 to section 263(1) is attracted in this case. Accordingly, it is held that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. With the aforesaid observations, Ld. PCIT concluded the revisionary proceedings u/s 263 of the Act by giving a direction to the Ld. AO in Para 11 and 12 as under: 11. Having regard to the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT is justified in assuming the jurisdiction u/s 263 of the Act setting aside the order of the Ld. AO to pass a fresh assessment order. Ld. Counsel placed reliance on various judgments including in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66 (SC) by Hon ble Supreme Court and DG Housing Projects Ltd [2012] 343 ITR 329 (Del) by Hon ble Delhi High Court. Relevant extracts from the decision of DG Housing Projects Ltd. (supra) are reproduced as under 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing Products Camphor Works [1998] 231 ITR 53 / 98 Taxman 1 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 19. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that order passed by the Assessing Officer may be erroneous . The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G Amount allowable u/s. 35 (Schedule 19 of TAR) 20,61,11,598 H Difference [B+C+D+E] 1,34,45,166 *SR= Scientific Research * FS= Financial Statements Ld. Counsel pointed out that items B, C, D E in the above table were debited in the Profit Loss A/c under the respective Heads, viz., Depreciation, Assets Written off, Profit/Loss on Sale of Assets. The relevant extracts of the Financial Statements for the FY 2015-16 highlighting the same was enclosed and marked as Annexure-1. He further stated that location wise break up of these items of expenses as reflected in the Profit Loss A/c are given in Table-2 as below:- Location Depreciation Asset W/off Profit on Sale of Asset Loss on Sale of Asset Total Note No. (Statement of Profit and Loss Page 85) (Note 25 Page 110 (Note 25 Page 110 (Note 25 Page 110 Kolkata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he return of income evidencing the same is given in Table 3 as below:- 9. Ld. Counsel for the assessee stated that on the basis of the above submission on factual position reflected in the financial statements and computation of income, it is evident that sum of Rs.1,34,15,166/- was added back in the computation of income by the assessee itself which proves that the allegation mentioned in the show cause notice is factually incorrect and unsustainable both in facts and law. It was further submitted that on this issue the Ld. AO had made enquiry and after being satisfied that the excess sum had been added back to the total income the assessment was completed u/s. 143(3) of the Act. It was stated by the Ld. Counsel that the Ld. AO had issued notice u/s. 142(1) dated 08.10.2018 and required the assessee to furnish the complete details on any other amount allowed as deduction which inter alia included the claim of Scientific Research Expenditure. The Ld. AO had also required the assessee to furnish the details of expenditure claimed during the year along with opening and closing balances reconciliation of the earlier year and current year. All the details were furnished befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee could account and pay for all these invoices during FY 2015-16 only, relevant to the AY 2016-17. The Ld. Counsel submitted that the advertisement expenses pertaining to the preceding year were quantified and were allowable expenses. It was claimed by him that both in facts and as per judicial precedence, the amount of Rs.9,89,845/- was eligible for deduction in AY 2016-17 and therefore, there was no error in the order of the Ld. AO leading to invocation of provisions of section 263. It was further submitted that there was no revenue implication since the tax rate applicable to the assessee during A.Y. 2015-16 to which the invoices relate and the A.Y. 2016-17 in which the invoices were accounted and paid, was the same. The Ld. Counsel relied upon several judgment including the decision of the Hon ble Jurisdictional High Court of Calcutta in the case of CIT v. Todi Tea Co. Ltd [1999] 105 Taxman 697 (Cal). In the said decision, the assessee had entered into a supply agreement. The assessee subsequently violated the terms of the agreement and therefore the vendor raised a claim for compensation for breach of contract. The assessee disputed the claim of the vendor. The dispute was ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. From perusal of the aforesaid section, it is apparent that there are mainly four features / stages of the power for revision to be exercised u/s 263 of the Act by the Ld. PCIT i. The PCIT may call for and examine the records of any proceedings under the Act and for this purpose he/she need not show any reason or record any reason to believe as it is required u/s 147 or 143(2) of the Act. It is a part of his/her administrative control to call for the records and examine them. ii. The PCIT on an analysis of both, the records and the order passed by the Assessing Officer arrives at a consideration that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. This is exercised by calling for and examining the records relating to any proceeding under this Act available at the time of examination by the PCIT. Till this stage, assistance of the assessee is not required by the PCIT. iii. If after calling for and examining the records and the assessment order, the PCIT considers that the order of the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue, he/she is bound to give an opportunity of being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. (viii) The CIT, before exercising his jurisdiction under section 263 must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order, he does not make an elaborate discussion in that regard. 16. In the first place, the assessee company has challenged the very invocation of jurisdiction by Ld. PCIT of his revisionary powers u/s 263 of the Act. Therefore, let us first look at the rightful exercise of revisionary powers by the Ld. PCIT for which we have to examine whether the order of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. PCIT, the assessee had furnished the relevant details and explained the two issues supporting its contentions by various judicial precedents. It is well settled law that for invoking the provisions of section 263 of the Act, both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts. 17.1 The first issue on which the assessment order has been treated as erroneous which has caused prejudice to the interest of the revenue relates to claim of deduction towards scientific research expenditure by the assessee for which the Ld. PCIT noted in his SCN (supra) that in Schedule 19 of Tax Audit Report (TAR) it has been stated that the assessee debited an amount of Rs. 21,95,56,764/- in the Profit Loss Account. However, the amount admissible u/s 35 of the Act is Rs. 20,61,11,598/- only. In the computation of total income, excess debited amount of Rs. 1,34,45,166/- (i.e. Rs. 21,95,56,764 - Rs. 20,61,11,598) has not been added back to the total income. 17.2 The Ld. Counsel of the assessee made exhaustive submissions in the course of hearing before us and took us thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to examine all the documentary evidences including those which were before Ld. AO and submitted before him. We find that in the Table 1 above as submitted by the assessee, items B, C, D E in the said table were debited in the Profit Loss A/c under the respective Heads, viz., Depreciation, Assets Written off, Profit/Loss on Sale of Assets and to corroborate this, relevant extracts of the Financial Statements for the FY 2015-16 (relevant to A.Y. 2016-17) highlighting the same was mapped with Annexure placed in the Paper Book. We also find from the perusal of Computation of income from business reproduced above that these items were added to the net profit as per Profit Loss A/c to arrive at the income from business of the assessee for the year under consideration. Ld. PCIT erred in not bringing any material on record to controvert this verifiable factual position. For the above finding of ours, we find force from the decision of Hon ble Bombay High Court in the case Gabriel India Ltd. [1993] 203 ITR 108 (Bom) wherein it is observed as under (page 113) . . . From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 019 on a similar issue laid down the proposition that wherein enquiry was conducted by the assessing officer, even if inadequate, that would not by itself give occasion to the ld. 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. 17.4 The issue regarding whether the assessment order is erroneous or prejudicial on the ground of insufficiency of enquiry has been dealt by the Hon'ble Delhi High Court in the judgment of ITO v. DG Housing Projects Ltd. (supra), which has been followed by various co-ordinate benches of the ITAT in various cases. Hon ble High Court while adverting to the issue held that in cases of wrong opinion for finding on merit, the CIT has to come to the conclusion and himself decide that order is erroneous, by conducting necessary enquiry, if required and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the AO will be erroneous because the order passed is not sustainable in law and the said finding must be recorded by CIT who cannot remand the matter to the assessing officer to decide whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tands at the time when the order in question was passed by the AO but also records as it stands at the time of the examination by the CIT. Nothing prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the AO is erroneous. 17.5 We find that Ld. PCIT in the present case has not carried out any enquiry of his own and has merely set aside the assessment to the file of the AO to re-examine the issue of claim of scientific research expenditure on account of difference in the amount debited in the Profit and Loss A/c and the amount claimed as deduction in the Tax Audit Report not added back in the Computation of income from business of the assessee. Therefore, it is contrary to the guidelines as mandated in the Hon'ble Delhi High Court decision in the case of ITO v. DG Housing Projects Ltd. (supra) coupled with the fact that the assessee both, during the assessment proceedings and before the Ld. PCIT had submitted evidences in support of adding back the amount of Rs. 21,95,56,764/- debited by it in the Profit Loss A/c towards scientific research expenditure. Therefore, the consideration arrived at by the Ld. PCIT invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no examination and verification has been done by the Ld. PCIT before arriving at the consideration of holding assessment order being erroneous in so far as it is prejudicial to the interest of the revenue. We find that Ld. PCIT in the present case has not carried out any enquiry of his own and has merely set aside the assessment to the file of the AO to re-examine the issue of claim of advertisement expenses alleged to be held as prior period expenses. Therefore, it is contrary to the guidelines as mandated in the Hon'ble Delhi High Court decision in the case of ITO v. DG Housing Projects Ltd. (supra). Accordingly, the consideration arrived at by the Ld. PCIT invoking provisions of section 263 of the Act on the second issue also is not justified and cannot be sustained under the facts and circumstances of the present case. 19. We find that Ld. PCIT in Para 11 of the impugned order has taken note of the amendment made in section 263 w.e.f. 01.06.2015. This amendment relates to Explanation 2 inserted in section 263 of the Act. The co-ordinate bench of Mumbai ITAT has dealt with Explanation 2 as inserted by the Finance Act, 2015 in the case of Narayan Tatu Rane v. Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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