TMI Blog2023 (7) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... the due date of filing of the return of income u/s 139(1) of the Act and also the disallowance made by the assessee itself in respect of EPF. It was not a fit case for exercising powers u/s 263 as the learned Pr. CIT did not verify the correct facts from the records before embarking upon the issuance of notice u/s 263 of the Act and initiating the proceedings. We, therefore, set aside the impugned order and restore the original assessment order passed by the AO. Decided in favour of assessee. - ITA No. 1119/DEL/2022 - - - Dated:- 11-5-2023 - SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER For the Assessee : Sh. Lalit Mohan, CA For the Department : Sh. Mohd. Gayasuddin Ansari, CIT(DR) O R D E R PER KUL BHARAT, JM: This appeal, by the assessee, is directed against the order of the learned Principal Commissioner of Income-tax (PCIT), Delhi-4, New Delhi, dated 24.03.2022, passed u/s 263 of the Income-tax Act, 1961, hereinafter referred to as the Act , pertaining to the assessment year 2017-18. The assessee has raised following concise grounds of appeal: 1 That order dated 24.3.2022 u/s 263 of the Act by the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was not found acceptable and the learned PCIT held the assessment order dated 10.12.2019 as erroneous in as much as prejudicial to the interest of revenue. He, therefore, directed the assessing Officer to frame the assessment de novo. Aggrieved against this the assessee is in appeal before this Tribunal. 3. Apropos to the grounds of appeal the learned counsel for the assessee reiterated the submissions as made in the written submissions. For the sake of clarity the submissions of the assessee are reproduced as under: MAY IT PLEASE YOUR HONOURS: 1 The instant appeal arises from an order dated 24.3.2022 framed u/s 263 of the Act. 2 Issue No. 1 2.1 It is submitted that learned Pr. Commissioner of Income Tax in revision order has held that sum of Rs. 3,48,324/- has not been considered for disallowance in return of income by relying upon tax audit report (hereinafter referred to as TAR ) furnished by learned Auditor (para 9.1 - 9.2, page 8 and para 10(1) page 9 of impugned). Break-up of the aforesaid figure as also submitted to learned PCIT in reply dated 12.3.2022 (pages 77-100 at page 79 of Paper Book) is as under: S. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Issue 3.1 It is submitted that learned PCIT has next alleged (para 9.3, page 8 of impugned order) that as per TAR column no. 20(b) of FORM 3CD (page 23-24 of Paper Book), it has been reported by the learned Accountant that PF of sum of Rs. 87,924/- have not been paid before due date of relevant Act and was required to be disallowed u/s 36(l)(ia) of the Act. 3.2 It is submitted that aforesaid finding of learned PCIT is factually incorrect. It is submitted that as per Column 20(b) of TAR (page 23 of Paper Book) sum of Rs. 38,652/- (item 1 to 8 of said table) of PF has not been paid by appellant and detail of same was also explained before learned PCIT in tabular chart as extracted hereunder: (page 81 of Paper Book) Name of Liabilities Chandigarh Unit Delhi Unit Employee s Contribution to Provident fund For the Month Amount Date of Deposit For the Month Amount Date of Deposit Apr- 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's Contribution of PF ESI received by the assessee Company during the year under review. In this regard, we submit that during the year under review the assessee Company had recorded Rs. 30,841/- of ESIC's employees share Rs. 99,209/- being PF s employees share. The details ESIC PF shares is explained as under:- a. PF Contribution (Employees share) During the year under review the assessee Company was running 2 restaurants out of which Delhi restaurant was closed in Nov 2016. The assessee Company during the year under review had recovered PF contribution Employees share of Rs. 99,209/- out of which the company had deposited Rs. 60,557/- for Chandigarh Unit no amount was deposited for Delhi unit. Details of month wise contribution received from employees details of deposits are as under:- Name of Li abilities Chandigarh Unit Delhi Unit Employee s Contribution to Provident fund For the Month Amount Date of Deposit For the Mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the return of income u/s 139(1) and the same was disallowed in the Return of Income as explained in Table A above. However, as per section 43B(b) only employers share is disallowed if the same is not paid before due date of furnishing the return of income u/s 139(1), but the Company had wrongly disallowed the both employer and employees contribution u/s 43 B while filing return of Income instead of disallowing 36(l)(v). 3.4 It is submitted that learned PCIT has not disputed the aforesaid contention of appellant but has held that (page 9, para 10(2) of impugned order) the disallowance in PF and ESIC Employee contribution the plea of the assessee that part of it has been disallowed by the assessee u/s 43B of IT Act is not justified since disallowance was required to be made u/s 36(l)(va) of the Act. 3.5 It is thus submitted that in view of aforesaid fact that disallowance has already been made by appellant; there is noprejudice to revenue and In fact order is also not erroneous. It is further submitted that even the finding that assessee may claim it in next year on the basis of payment during the year is also misconceived. 4 It is next submitted that learned P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 Feb- 17 4089 Feb- 17 0 Mar- 17 3115 Mar- 17 0 Total 23048 7793 4.2 It is submitted that the sum of Rs. 25,925/- has already been disallowed by appellant as part of disallowance of Rs. 96,553/- (page 3 read with page 27 and 79-80 of Paper Book) and was also submitted before learned PCIT as under: ESIC Contribution (Employees share) During the year under review the assessee Company had received ESIC contribution Employees share of Rs. 30,841/- out of which the company had deposited Rs. 4916/-. Details of month wise contribution received from employees are as under:- Name of Liabilities Chandigarh Unit Delhi Unit Employee s Contribution to ESIC For the Month Amount Date of Deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since the assessee Company had itself disallowed the entire of Employer's and Employees Share u/s 43B(b) instead of disallowing Employees share u/s 36(l)(v), no disallowance is called for since the amount has been disallowed. 4.3 It is submitted that learned PCIT has not disputed the aforesaid contention of appellant but has held that (page 9, para 10(2) of impugned order) the disallowance in PF and ESIC Employee contribution the plea of the assessee that part of it has been disallowed by the assessee u/s 43B of IT Act is not justified since disallowance was required to be made u/s 36(l)(va) of the Act. 4.4 It is however submitted that in view of aforesaid fact that disallowance has already been made by appellant; there is no prejudice to revenue and infact order is also not erroneous. It is further submitted that even the finding that assessee may claim it in next year on the basis of payment during the year is also misconceived. 5 It is further submitted that finding of learned PCIT (page 9, para 10(3) of impunged order) that In this way entire amount of Rs. 99,209/- of PF (item 1 to 8 and item 17 to 28 of table at page 23-24 of paper book) and Rs. 30,84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on scrapped/disposed off assets in books of appellant (page 116 of Paper Book); d. details of fixed assets sold and loss details (pages 120-121 of Paper Book) e. Copy of computation of income, return of income and depreciation charts (pages 1,3 and 16 of Paper Book) ii) Reply dated 30.11.2019 (pages 53-58 at page 54 of Paper Book) Point No. 6. Comparative details of Total Sales, Gross Profit, Net Profit along with N.P. Ratio, G.P. ratios is explained as under: . . The main reasons for decline in PBT for the year under review are as follows :- . . e. Capital loss on dispose off/sale of fixed assets of Rs. 31,53,777/-. 6.3 It is further submitted that appellant during the course of proceedings u/s 263 of the Act in its reply dated 12.3.2022 (pages 77-100 at page 85 - 89 of Paper Book) has submitted as under: D. No disallowance of loss of sale of fixed assets of Rs. 24.860/- and loss on sale of scrapped/disposed off assets of Rs. 31.28.117/- has been claimed:- In this regard we respectfully submit here that the assessee Company incurred loss on sale of Fixed Assets of Rs. 24,860/- loss on sale of scrapped/dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings. It is on the basis of all the records and information furnished which were considered by the Learned Assessing officer using his understanding and discretionary powers in framing the assessment order. The order is neither erroneous nor prejudicial to the interest of the revenue and the all the points raised in notice u/s section 263 have been duly taken care of and there is nothing in the assessment order which is prejudicial to the interest of the revenue. In a bid do elaborate the issue raised, we submit as under:- Particulars Amount (in Rs. ) I Net Loss as per Audited Profit and loss Account 4,03,12,164 ii Add; Expenditure not allowable Depreciation as per Co s Act 37,99,001 Donation 9,000 Expenses Disallowed u/s 40(a)(ia) 70,32,228 Disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kign Oven 83,000 7,667 - b. Kitchen Equipment 18,000 5,859 c. Chocolate Modules 8,000 1,450 D Microwave Oven 10,000 1,978 e Mini Mixed 6,500 236 f Mixer Machine 11,000 3,046 g Packing Machine 8,000 4,128 h Sandwich Griller 9,000 66 i Waffel Machine 16,500 430 J Plant Machinery (at costs) 10,00,434 - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53-58 of Paper Book at page 58) that the reasons for decline. In profitability was loss on sale of assets/scrapping of asset. Thus it is evident from the above submission that the company suffered losses on scrapping of assets which were not feasible to be removed from the site for ex- Designing fee, Signboards, Furniture Fixture etc. the loss for the above assets of Rs. 31,28,117 has been rightly added in the computation along with the actual loss on assets which were sold. This loss on sale is apparent from the Computation of Income filed and the assessee on its own gave a detailed explanation with working for the losses from sale and scrapping of assets. A detailed working in the form of Annexure was also provided to the Learned Assessing Officer working out the loss on sale and scrapping of asset. The actual sale value of all the assets sold came under the 15% Depreciation bracket rate and the sale amount was thus rightly excluded from the Depreciation chart as per Income Tax Act. There was no realisation from other assets i.e. Furniture/Fixture, Building, Designing charges etc. and thus no sale value was rightly shown under the other assets in the Depreciation Chart as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of assessment cannot be alleged as erroneous and prejudicial to the interest of Revenue. Further in a case where two views are possible and the learned Assessing Officer has taken a view with which the PCIT does not agree, the said order cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Assessing Officer is unsustainable in law as held by Hon ble Delhi High Court in the case of CIT vs. DLF Ltd. reported in 350 ITR 555whereby Hon ble Court has held as under: 11. In this case, the record reveals that the AO had issued notice, and held proceedings on several dates (of hearing) before proceeding to frame the assessment. He added nearly Rs. 2 crores to the income at that time. The Commissioner took the view that the assessment order disclosed an error, in that the deduction under Section 14-A had not been made. Now, while the statutory direction to the Assessing Officer to calculate, proportionately, the expenditure which an assessee may incur to obtain dividend income, for purposes of disallowance, cannot be lost sight of, equally, such a requirement has to be viewed in the context and circumstances of each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings and also show cause notice u/s 263 of the Act, it is seen that there are no new fact that have emerged after assessment order or any fact that have been skipped by the learned Assessing Officer. All the facts and report of the investigation wing were available with the learned Assessing Officer at the time of assessment proceedings. Therefore, it is evident that the learned officer had conducted proper enquiries before framing the assessment. Infact, the learned Assessing Officer had made all necessary enquiries provided in law and thereafter alone had accepted claims of the assessee. Hence, by no justification, it could be alleged that, the order of assessment framed by the learned officer is erroneous within the meaning of Section 263 of the Act and as such, notice is without jurisdiction. Reliance is also placed on the following judicial pronouncements: i) 295 ITR 282 (SC) CIT v. Max India Ltd. the Hon ble Apex Court in the above case applied the ratio in the case of Malabar Industrial Co. Ltd. v. CIT reported in 243 ITR 83 wherein it has been held as under: A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. C/T [1968] 67ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. C/T [1973] 88 ITR 323 (SC). i) 437 IR 285 (Del) Pr. CIT v. Brahma Centre Development (P) Ltd. ii) 171 ITR 698 (All) CIT v. Goyal Private Family Specific Trust iii) 170 ITR 28 (All) CIT v. KashniNath Company iv) 171 ITR 141 (MP) CIT v. Ratlam Coal Asn. Co. v) 430 ITR 55 (Kar) CIT vs. Cyber Park Development Construction Ltd. vi) ITA No. 2519/Kol/2017 dated 18.4.2018 Garg Brothers (P) Ltd. vs. DCIT vi) ITA Nos. 3281-3284/D/2015 dated 11.10.2019 Smt. ShumanaSen vs. DCIT vii) ITA No. 5239/D/2019 dated 21.2.2020 M/s Sunrays Cotspin (P) Ltd. vs. PCIT viii) ITA No. 3207/Ahd/2009 Gujarat Laxmi Majur Kamgar Sahkari Mandi Ltd. vs. CIT ix) ITA No. 499/Chd/2016 dated 9.11.2016 Sh. Paramjit Singh vs. PCIT 7.3 Moreover, it is submitted, in any case, it is not a case where conditions for exercise of power u/s 263 of the Act stand satisfied since at best it is a case, where two view are possible (one view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.3 The Hon ble Delhi high Court in the case of CIT vs. Sunbeam Auto Ltd. reported in 332 ITR 16it has held as under: Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open. [Emphasis supplied] 8.4 Further in the case of ITO vs. D.G. Housing Projects Ltd. reported in 343 ITR 329to has held that in cases of wrong opinion or wrongfinding 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. It was held as under: 19. In the present case, the findings recorded by the Tribunal are corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CBDT and conclude that in the case of the Assessee company, the AO was duty bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular 9/2014 but the AO failed to do so. Therefore, the order of the AO is erroneous insofar as prejudicial to the interest of revenue . 11. In the considered view of the Court, this can hardly constitute the reasons required to be given by the PCIT to justify the exercise of jurisdiction under Section 263 of the Act. In the context of the present case if, as urged by the Revenue, the Assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the PCIT to undertake an inquiry as regards which of the assets were purchased and installed by the Assessee out of its own funds during the AY in question and, which were those assets that were handed over to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the PCIT. 13. Therefore, the Court is of the view that the ITAT was not in error in setting aside the impugned order of the PCIT under Section 263 of the Act. No substantial question of law arises. [Em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singh vs. PCIT 10 THAT FOR HOLDING THAT THE ASSESSMENT ORDER PASSED BY LEARNED ASSESSING OFFICER IS NOT ONLY PREJUDICIAL TO THE INTEREST OF REVENUE BUT IS ALSO ERRONEOUS LEARNED PCIT HAS TO BE PRECEDED BY SOME MINIMAL INQUIRY. 10.1 The burden is on the learned Commissioner of Income Tax to establish that there is an error in the order of assessment and in absence of an error invocation of section 263 of the Act is not in accordance with law. Reliance is placed on the judgment of Hon ble Delhi High Court in the case of PCIT vs. Delhi Airport Metro Express (P) Ltd. reported in 398 ITR 8 wherein it has been held as under: 10. For the purposes of exercising jurisdiction under Section 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. All that PCIT has done in the impugned order is to refer to the Circular of the CBDT and conclude that in the case of the Assessee company, the AO was duty bound to calculate and allow depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer to enquire into the source of source for the purpose of the present facts. This is a case where a view has been taken by the Assessing Officer on enquiry. Even if this view, in the opinion of the CIT is not correct, it would not permit him to exercise power under Section 263 of the Act. In fact, the Apex Court in Amitabh Bachchan {supra) has observed that there can be no doubt that where the view taken by the Assessing Officer is a possible view, interference under Section 263 of the Act, is not permissible. 10.4 Reliance is also placed on the following judgments i) ITA No. 3205/Del/2017 M/s Amira Pure Foods (P) Ltd. v. PCIT ii) ITA no. 574/Del/2018 dated 19.06.2018 M/s VidyaPrakashanMandir (P) Ltd. Vs Pr CIT iii) ITA No. 2539/Del/2018 dated 29.08.2018 Durgesh Autofin P Ltd vs Pr CIT 11. EXPLANATION 2 TO SECTION 263 OF THE ACT DOES NOT AUTHORISE OR GIVE UNFETTERED POWER TO COMMISSIONER TO REVISE EACH AND EVERY ORDER AND, IS NOT A SUBSTITUTE TO THE PRECONDITION U/S 263(1) OF THE ACT. 11.1 The Hon ble Mumbai Tribunal in the case of Narayan TatuRane vs. ITO reported in 70 taxmann.com 227has also held that in a case where learned PC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of CIT vs. NiravModi reported in 244 Taxman 194 (SC) (pages 137-146 of JPB) Income Tax Appellate Tribunal i) 51 CCH 0473 dated 29.11.2017 M/s Amira Pure Foods (P) Ltd. v. PCIT ii) 169 DTR 153 (Del) M/s VidyaPrakashanMandir Pvt. Ltd. vs. PCIT iii) ITA No. 3391/D/2018 Arun KumarGarg HUF vs. PCIT iv) ITA No. 2742/D/2017 dated 08.04.2019 Cotton Textiles Mills (P) Ltd. v. Pr. CIT v) ITA no. 3125/Mum/2017 dated 19.01.2018 M/s Indus Best Hospitality Realtors Pvt Ltd vsPr CIT. vi) ITA No. 3498/ Mum/2017 dated 02.01.2018, Shri Anil L. Todarwal. vii) ITA No. 1007/D/2019 dated 25.9.2019 Rekha Gupta v. Pr. CIT viii) ITA No. 456/D/2021 dated 4.4.2022 NarendraAggarwal vs. PCIT 25. As far as the invocation of Explanation 2 to Section 263 by PCIT in the present case is concerned, we are of the view that only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. 12 APART THEREOF APPELLANT SEEKS TO RELY UPON FOLLOWING PROPOSITION IN RESPE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO BE CONFINED TO FINDINGS RECORDED BY LEARNED ASSESSING OFFICER AND NOT BEYOND i) 140 ITR 490 (P H) Jagadhri Electric and Supply Co. vs. CIT ii) 192 ITR 547 (Kar) CIT vs. L.F.D. Silva iii) 192 ITR 50 (Mad) CIT vs. Late T.S. Srinivasalyer iv) 60 ITD 295 (Del) Jagjit Industries Ltd vs. ACIT v) 61 ITD 307 (Ahd) SatishbhaiJayantilal Shah vs. ACIT vi) 125 Taxation 188 (AP) CIT vs. G.K. Kabra Cooperative Ind. Estate vii) 61 ITD 317 (Mad) Sanco Trans Ltd. vs. ACIT 13. It is thus submitted that the conditions or the factors enabling the learned PCIT to invoke his jurisdiction u/s 263 have not been satisfied. It is submitted that there must be positive material for the Commissioner to consider objectively and not subjectively that the order of the Assessing Officer was erroneous, in so far as it was prejudicial to the interest of revenue. The Hon ble Bombay High Court in the case of CIT vs. Gabriel India Ltd., reported in 203 ITR 108 has held that there must be some prima facie material on record to show that the tax which was lawfully eligible has not been imposed or that by application of the relevant statute on an incorrect or an incomplet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48,324/- was incurred during the year under consideration and was duly deposited before the due date of furnishing of return of income u/s 139(1) of the Act, hence no disallowance was warranted u/s 43B of the Act. It was further stated that EPF of sum of Rs. 83,847/- was not paid before the relevant date and, therefore, was required to be disallowed. It was pointed out that the finding of learned Pr. CIT was factually incorrect. As per column no. 20b of tax audit report, a sum of Rs. 38,652/- was not paid by the assessee and this sum was already disallowed by the assessee itself. This was the part of disallowance of Rs. 83,850/-. Hence, he contended that the Ld. Pr. CIT did not verify the facts from records and he failed to appreciate the same in right perspective. 7. The law is well settled. The powers u/s 263 can be exercised if the order sought to be revised is erroneous inasmuch as prejudicial to the interests of the Revenue. Hence twin conditions are required to be satisfied one being that order should be erroneous and second, such order should be prejudicial to the interests of the Revenue. The basis of exercising the power by the learned Pr. CIT is that the AO failed to ..... 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