Assessee wins appeal as assessment order deemed valid despite payee's non-compliance with tax requirements under section 263

The ITAT Indore-AT allowed the assessee's appeal against CIT's revision order u/s 263. The CIT had found the AO's assessment erroneous for not verifying expenses paid to M/s AD Enterprises for job work. The ITAT held that the AO took a plausible view after considering the assessee's complete replies, bank statements, TDS deductions, and valid PAN details. The assessee, engaged in real estate business, had legitimately claimed job work expenses and fulfilled all documentation requirements. The ITAT ruled that non-filing of returns by the payee and non-response to notices u/s 133(6) were beyond the assessee's control and could not render the assessment erroneous, thus section 263 was not applicable.

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Issues Involved:
1. Whether the assessment order passed by the AO was erroneous and prejudicial to the interest of revenue, thereby justifying the invocation of revisionary jurisdiction u/s 263 by the PCIT.

Summary:

Issue 1: Erroneous and Prejudicial Assessment Order
The assessee filed a return of income for AY 2018-19 declaring a total income of Rs. Nil, which was selected for scrutiny for "verification of genuineness of expenses." The AO completed the assessment u/s 143(3) accepting the returned income. The PCIT, upon examining the assessment record, found that the AO failed to verify the genuineness of payments amounting to Rs. 2,76,06,810/- made to M/s. AD Enterprises. The PCIT issued a show-cause notice and subsequently passed a revision-order u/s 263, deeming the assessment order erroneous and prejudicial to the interest of revenue due to lack of proper inquiries and verification.

Issue 2: Assessee's Defense Against Revisionary Action
The assessee argued that the AO, being part of the National e-assessment Centre, followed rigorous verification procedures. The AO issued multiple notices u/s 142(1), and the assessee provided comprehensive replies, including financial statements, details of payments, and services rendered by M/s. AD Enterprises. The assessee also submitted bank statements, TDS returns, and other relevant documents. The AO's assessment order explicitly stated that the issue of "Verification of Genuineness of Expenses" was examined, and no addition was made.

Issue 3: PCIT's Justification for Revisionary Action
The PCIT noted that M/s. AD Enterprises did not file an income-tax return for AY 2018-19 and did not respond to a notice u/s 133(6). The PCIT argued that the AO should have referred the matter for physical verification. The PCIT held that the AO's failure to make further inquiries rendered the assessment order erroneous and prejudicial to the interest of revenue.

Issue 4: Tribunal's Analysis and Conclusion
The Tribunal found that the AO made detailed inquiries and the assessee provided all necessary documents. The AO's acceptance of the assessee's submissions was deemed plausible and bona fide, especially given the assessment was conducted by the National e-assessment Centre. The Tribunal held that the non-filing of the income-tax return by M/s. AD Enterprises and the non-response to the notice u/s 133(6) were beyond the control of the assessee. The Tribunal concluded that the assessment order was not erroneous and the revision-order u/s 263 was invalid. Consequently, the Tribunal quashed the revision-order and restored the original assessment-order.

Conclusion:
The appeal of the assessee was allowed, and the revision-order passed by the PCIT was quashed. The original assessment-order was restored.

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