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TMI Blog2024 (2) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... tiated u/s 263 of the Act and the impugned order dated 29.03.2023 deserves to be quashed. 3. The ld. Pr. CIT seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act by wrongly and incorrectly invoking Explanation 2 to S. 263 as if the same conferred unbridled power upon the CIT even though the facts and circumstances of the case did not justify the application of the said Explanation. 4. The Id. Pr. CIT erred in law as well as on the facts of the case in wrongly setting aside the assessment order dated 23.11.2020 despite there being complete application of mind by the AO on the subjected issues and it was nothing but a case of change of opinion and/or suspicion, based on which, assumption of jurisdiction u/s 263 is not permissible. The impugned order dt. 29.03.2023 therefore, lacks valid jurisdiction u/s 263 of the Act and hence, the same kindly be quashed. 5.1 The ld. Pr. CIT seriously erred in law and on facts of the case in holding that the source of incentive on sales of Rs. 80,46,456/- could not be explained by the appellant which being completely contrary to the provisions of law and facts available on record, such findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit and debit note of the sales promotion expenses. The ld. PCIT considered the submission of the assessee but do not found tenable. He noted that the case was selected for limited scrutiny under the E assessment scheme 2019 on the issue of business expenses. The issued two notices u/s 142(1) calling for information on this specific issue, first on 22.01.2019 and the other on 31.01.2020. In the notice on 22.11.2019 specific information in relation to sales promotion have been called for. In response to the same the assessee provided details of sales promotion expenses of Rs. 3,90,158. Subsequently, on 31.01.2020 specific details after referring to Profit and Loss account it was queried that sales promotion and other expenses including publicity and was shown as Rs. 80,46,456 and sales promotion was of Rs. 3,90,158 and the assessee was asked to explain the difference amount of Rs. 76,56,298. However, the assessee did not file any details and the assessment order was passed on 23/11/2020. Thus, it is clear that the main issue of expenditure of Rs. 80,46,456 relating to incentive on sales remained unverified and only an expenditure of Rs. 3,90,158 relating to sales promotion were ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose and justification of the amounts paid. As per the details filed the amounts have been paid to Rs. 80,46,456/- and Rs. 3,90,158/- and thus needed to be verified and examined in depth. 6. From the above facts and circumstances of the case and having regard to the material available on record, the Assessing Officer failed to consider/apply his mind to the information available on record with regard to the unexplained sales promotion expenses relating to sales incentive to the tune of Rs.80,46,456/-. This in turn has resulted in passing of an erroneous order by the Assessing Officer in the case due to non-application of mind to relevant material, reflecting in non- appreciation of facts and incorrect application of mind to law which is prejudicial to the interest of the revenue. Thus, the order passed U/s 143(3) on 23.08.2018 is held to be erroneous and prejudicial to the interest of the revenuein terms of the judgement of the Hon'ble Supreme Court in the case of Malabar Industrial Limited V/S CIT 243 ITR wherein it has been held as under- "An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onferred on the undersigned under the provisions of section 263 of the Income Tax Act 1961, I hold that the order under Section 143 (3) of the IT Act dated 23.11.2020 for AY 2018-19 passed by the Assessing Officer is erroneous in so far as it prejudicial to the interest of revenue as the said order has been passed in a routine and perfunctory manner without examining the issue of incentive on Sales of an amount of Rs.80,46,456/-. The order of the Assessing Officer is therefore liable to revision under the clause (a), (b) & (c)of Explanation (2) to section 263 of the Income Tax Act. Hence, the assessment order is set aside on this issue and the AO is directed to examine the issue and pass suitable order after according opportunity of being heard to the assessee." 5. Feeling dissatisfied, the assessee filed the present on the various grounds as reproduced here in above. To support grounds so raised by the assessee the ld. AR of the assessee relied upon the following written submissions: "Brief General Facts: The assessee has E-filed his return of income for A.Y. 2018-19 on 26.10.2018 showing taxable income of Rs. 38,63,240/-. Thereafter, the case was selected for scrutiny by CASS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue, S. 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous as also prejudicial to revenue's interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion the details with respect to it. 6. Name and address, payment details of the parties to whom payments have been made. 7. Specify the details of any transaction with related parties if any in context of sales promotion expense. 8. Break up of sales promotion expenses month wise- cash/kind component in tabular format. 9. Details of TDS deducted and the % of TDS deducted on payments made for sales promotion expenses. 10. Submit the ledger for sales promotion expenses in excel format for the AY under consideration and Profit and Loss statement to ascertain the total Gross receipts 11. Please submit the details in the following manner AY 2017-18 AY 2018-19 Gross Receipts Net receipts Sales promotion Expenses Total Expenses Sales Promotion expenses: Total expenses (in %) Sales Promotion expenses: Gross receipts (in %) Sales Promotion expenses: Net receipts (in %) Thus, evidently and admittedly the ld. AO asked the assessee to supply all the necessary details w.r.t. each and every possible aspect and the assessee in response to the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the ld. PCIT concluded that "X X X the Assessing Officer failed to consider/apply his mind to the information available on record with regard to the unexplained sales promotion expenses X X X". However, a perusal of the Show Cause Notice u/s 263 of the Act dated 09.02.2023 (PB 22-23) nor in the Show Cause Notice u/s 263 of the Act dated 25.03.2023 (PB 33-34), shows that there is no mention of unexplained sales promotion expenses. What is referred is only the sales promotion expenses of Rs.76,56,298/- in the earlier notice and business expenses of Rs.80,46,456/- in the later one. None of these expenses thus, refers to unexplained sales promotion expenses. Thus, the issue now concluded for holding the assessment order erroneous was never made a ground in the show cause notices issued u/s 263 of the Act and therefore, the Ld. PCIT could not have adopted such reasoning in the impugned order for the first time which was not earlier confronted to the assessee. Reliance is placed on PCIT vs. ShreejiPrints (P.) Ltd. [2021] 130 taxmann.com 294 (SC) Surat-2 (DPB 16-20) held: "SLP dismissed against impugned order passed by High Court holding that where assessee-company had received unsecu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 taxmann.com 671 (Ahd. - Trib.). it is clear from the enquiries made by the Assessing Officer and submissions made by the assessee that the Assessing Officer has taken the plausible view which is valid in the eyes of law. The Assessing Officer was satisfied consequent to making enquiry and after examining the evidences produced by the assessee, he accepted the assessee's claim of loan similar view were also expressed by the Hon'ble Delhi High Court in the case of CIT v. Vodafone Essar South Ltd. [2013] 212 taxman 0184. We observe the Pr.CIT has drawn support from newly inserted Explanation 2 below section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 1-6-2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification 'which should have been made' will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well and we concur the same hence not applicable to present facts of the case. Therefore, in absence of the same, the ld. CIT ought to have not exercised his jurisdiction under section 263 of the Act. Therefore, we cancel the impugned order under section 263 of the Act, allowing all grounds of appeal of the Assessee." 4.2 Recently in the case of Tata Teleservices (Maharashtra) Ltd. vs. PCIT (2023) 225 TTJ (Mumbai) 137 (DPB 21-25), following Shree Ji Prints (Supra) has held as under: "11. As regards the finding of the learned Principal CIT that the AO has not verified whether MTM losses are speculative in nature under s. 43(5)(d) of the Act, we find that this allegation does not form part of the notice issued under s. 263 of the Act by the learned Principal CIT and therefore the opportunity was not granted to the assessee to rebut the same. Thus, it is contrary to the provisions of s. 263 of the Act, which specifically requires the grant of opportunity of being heard to the assessee. We find that the Hon'ble Supreme Court in CIT vs. Amitabh Bachchan (2016) 286 CTR (SC) 113: (2016) 135 DTR (SC) 73: (2016) 384 ITR 200 (SC) observed as under: "10 ...... What is contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it is difficult to expect him to examine unexplained expenditure incurred by assessee, if any, which is not at all case made out for limited scrutiny. 5.2. Supporting Case Laws: The law is well settled that in the limited scrutiny assessment, the AO can be expected to make enquiry only to the extent of the reason/ basis of selection of the case for the limited scrutiny and the CIT cannot invoke S. 263 on the issues which were not made basis for selection of the case. 5.2.1 Kindly refer Mahendra Singh Dhankar (HUF) vs. ACIT, (2021) 35 NYPTTJ 458 (Jp) (DPB 34-43) held that: "Revision-Erroneous and prejudicial order-Limited scrutiny assessment-Case of the assessee was selected for limited scrutiny under CASS on account of mismatch of sales turnover as reported in audit report, ITR, AIR and CIB data-AO issued notice under s. 143(2) and enquired about the issues under consideration-Being satisfied, the AO completed the assessment under s. 143(3) without any adverse finding regarding the issues for which the matter was selected for limited scrutiny-Scope of enquiry in case of limited scrutiny is limited to the extent of the issues for which case is selected for scrutiny under CA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as to what in the opinion of the Principal CIT is 'proper enquiry'- Further, merely because the guideline was higher than the sale consideration shown in the deed of conveyance, cannot be the sole reason for holding that the assessment is erroneous and prejudicial to the interest of revenue" 5.3.3 In Su-Raj Diamond Dealers (P) Ltd. v/s PCIT (2020) 203 TTJ (Mumbai) 137 it was held that: "Revision-Erroneous and prejudicial order-Lack of proper enquiry vis-a-vis case selected for limited scruting under CASS-As per CBDT Instruction No. 20 of 2015, dt. 29th Dec., 2015, scrutiny in cases selected through CASS is to be confined only to the specific reasons/issues for which the case has been picked up for scrutiny- However, the case may thereafter be taken up for complete scrutiny with the approval of the administrative Principal CIT/CIT, where it is felt that apart from the CASS information there is potential escapement of income of more than Rs.10,00,000-In this case, it is neither a fact nor the case of the Revenue that the case was taken up for complete scrutiny with the approval of the administrative CIT-Since the scope of the assessment framed by the AO under s.143(3) was cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... casion to the CIT to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open." In another case of Narain Singla v. PCIT [2015] 62 taxmann.com 255 (Chandigarh - Trib.) it was held that when AO was fully aware of matter, he had appraised evidences filed by assessee and then had formed a view to accept same, Commissioner was unjustified in invoking jurisdiction u/s 263 of the Act. Whether if there was an enquiry, even inadequate, that would not, by itself, give occasion to Commissioner to pass order u/s 263 of the Act, merely because he has a different opinion in matter; it is only in case of 'lack of inquiry' that such a cause of action can be open. However, the ld. CIT is completely silent on this aspect. Supporting Case laws: 6.1 In CIT v/s Rajasthan Financial Corporation (1996) 134 CTR 145 (Raj) held that: "Once Assessing Officer 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 Assessing Offer allowed the claim being satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see claimed sales promotion expenses or sales incentive for the first time but in the past also, similar expenses were claimed at least in the immediately preceding year as evident from the table given to the AO in reply dt. 09.12.2019 (PB 18-19 Pr.11) where the comparative figures of the sales promotion expenses and their percentage to the turnover etc. have been given. Even prior to A.Y.2017- 18 also, the assessee has been claiming similar type of expenditure and was allowed .Such information is already available online on the ITD Portal where from the AO was able to have a looked upon the comparative figures. 8. No unexplained expenditure: In Para 6 of the Impugned Order the ld. CIT alleged that the AO failed to consider/apply his mind with regard to unexplained sales promotion expenses of RS. 80,46,456/-, which is legally and factually incorrect in as much as all these expenses are duly recorded in the books of accounts and claimed in the P&L a/c and which is the starting point of proceedings u/s 263. The use of the word "unexplained" is legally improper as it gives an impression of some unrecorded expenditure were incurred out of the books requiring separate addition u/s 69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,46,456 /- and Rs. 3,90,158/-, he felt satisfied hence, there was no point still sending the matter back to the AO holding it to be erroneous. 10. Substitution of opinion, not Permissible-Possible view taken by the AO: Thus, the AO certainly did form an opinion by taking a conscious possible decision in view of the facts available on record, investigated by him and the available judicial guideline particularly those binding upon him. It is only after considering all the relevant aspects, facts and the binding decisions, the AO passed the subjected assessment order. However, in the impugned order, the ld. PCIT imposed his own opinion, which shows that it is a case of substitution of opinion and that too without any convincing, reason. Merely because the CIT didn't agree S 263 can't be invoked as held in Elder I.T. Solutions P. Ltd. vs. CIT (2015) 59 Taxmann.com.232(Mum). The revisionary power can be exercised only when there is an error of law or of facts in the subjected order, which must be "prejudicial to the revenue. However, in this case neither there was an error nor any prejudice caused to the revenue, hence, the CIT cannot invoke jurisdiction under S. 263 of the Act. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roprietaries or payment to self and not with a third party. Therefore, also, no TDS was required. The ld. Tax Auditor also did not recorded disqualification in TAR column 34 (PB 11 ) . Pertinently the AO also raised a specific query on this aspect vide Para 9 of its letter dated 22.12.2019 (PB15) which was duly replied by the assessee vide Para 9 of its letter dated 09.12.2019 (PB 19) stating that no TDS was required in these transactions. 13. No loss to Revenue: In view of the above facts, alternatively atleast to the extent of Rs. 36,32,750/- there was no loss to the revenue because virtually the appellant did not raise any claim to that extent in as much as in one hand it has claimed the outgoing in one prop. but at the same time it has credited the receipt in the other Prop. owned by the appellant in the same heads that is the appellant. 5.1. This Para in earlier Written Submission dated 02.10.2023 may please be treated as replaced by the following Para: Beyond the scope of enquiry contemplated u/s 263: The scope of enquiry in the present case was limited to the extent of the issues made a basis for selection of the case. The admitted fact was that the case was selected f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f total income. 1 2 Copy of Tax Audit Report P & L a/c for A.Y 2018-19 2-14 3 Copy of notice u/s 142(1) dated 22.11.2019 along with reply dated 09.12.2019 and annexures thereto 15-21 4 Copy of SCN dt. 09.02.2023 issued by PCIT, Jaipur-2 along with reply and annexures dated 09.02.2023 22-32 5 Copy of SCN dt. 25.03.2023 issued by PCIT, Jaipur-2 along with reply and annexures dated 27.03.2023 33-45 6. In addition, the ld. AR of the assessee vehemently argued that the assessee runs two proprietary concerns. The assessment for intended to verify the "Business Expenses". The first notice for 263 was issued on 09.02.2023 which was replied on 15.02.2023 and second notice was issued on 25.03.2023 which was replied on 27.03.2023 as he could not pinpoint on the enquiry conducted by the ld. AO. He has drawn our attention to questionnaire issued by the ld. AO dated 22.11.2019 (APB 16 & 17 ) wherein he has raised as many 9 various questions relating to sales promotions only. What else the ld. AO in limited scrutiny is suppose to ask and that too in Face less regime. Considering the reply of the assessee dated 09.12.2019 (APB18-19) on all the points ld. AO completed the assessment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s promotion expenses which is disputed by the ld. PCIT that the same has not been verified by the ld. AO. The bench noted that the assessment of the assessee completed in the faceless regime. On the specific issue the bench noted that the ld. AO has raised specific questions on the various facets of the case asking the assessee to submit the reply. The questions raised (Paper book page 16-17) such as to 3. Submit the Quantum and nature of the sales promotion expense, 4. Whether the sales promotion was out-sourced to any event management? If yes, please provide the agreement with respect to it., 5. If the sales promotion was done in-house, mention the details with respect to it., 6. Name and address, payment details of the parties to whom payments have been made. 7. Specify the details of any transaction with related parties if any in context of sales promotion expense. 8. Break up of sales promotion expenses month wise- cash/kind component in tabular format. 9. Details of TDS deducted and the % of TDS deducted on payments made for sales promotion expenses. 10. Submit the ledger for sales promotion expenses in excel format for the AY under consideration and Profit and Loss statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed a specific query on this aspect vide Para 9 of its letter dated 22.12.2019 (PB15) which was duly replied by the assessee vide Para 9 of its letter dated 09.12.2019 (PB 19) stating that no TDS was required in these transactions. Thus, when all the transactions are duly recorded in the books of account there is no need by the PCIT to consider the same as unexplained sales promotion expenses. Considering the overall facts of the case bench noted that the scope of revisionary jurisdiction u/s 263 is very specific, limited and different from appellate jurisdiction. The provision contained in section 263 does not allow PCIT to impose his view over judicious view adopted by the AO unless the view adopted by the ld. AO is established to be not at all sustainable in law. 10. In the present case the bench noted that the ld. AO has raised as many as 9 questions only on the sales promotion expenses and the ld. AO in the present case on appreciation of the facts and using his judicial wisdom allowed sales promotion expenses claimed by the assessee. On the view taken by the ld. AO the PCIT tried to impose his view that the ld. AO could not understand the exact claim of the assessee and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] 12. Thus, on careful perusal of above provision of the law it is very well clear that the order passed by assessing officer shall be "deemed to be erroneous and prejudicial to the interest of the revenue if (a) AO has passed such order without making inquiries or verification which should have been made and (b) AO has passed the order allowing any relief without inquiring into the claim. Thus, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y how and why the enquiry conducted by the Assessing Officer was not in accordance with law, the invocation of jurisdiction by the CIT was unsustainable. As the exercise of jurisdiction by the CIT is founded on no material, it was liable to be set aside. Jurisdiction under section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something. 12. The finding of the Tribunal that the ITO had passed assessment order after relevant enquiries and considering the aspects of the matter required by the CIT to be considered by him is a finding of fact and on the basis of which, the jurisdiction assumed by the CIT being non- existent must be held to be not sustainable. Consequently, the appeal fails and is hereby dismissed. On being consistent to the finding so recorded here in above and respectfully following the decision of the jurisdictional High Court we are of the considered view that the ld. FAO has passed the assessment order after relevant enquiries and considering the aspects of the matter the order passed by the PCIT is not accordance with the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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