Tribunal quashes revisionary order, finds Assessing Officer's investigation adequate, COVID-19 lockdown period excluded

The Tribunal quashed the revisionary order passed by the Principal Commissioner of Income Tax under section 263 of the Act, finding that the Assessing Officer had adequately investigated the issues of payment of incentives, commission to related and unrelated persons, and introduction of capital. The Tribunal held that the revisionary order was without jurisdiction and the appeal of the assessee was allowed. Additionally, the Tribunal excluded the period of the COVID-19 lockdown from the 90-day time limit for pronouncement of orders.

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Issues Involved:
1. Justification of the order passed by the Pr. CIT under section 263 of the Act.
2. Payment of incentives and its verification.
3. Payment of commission to related and unrelated persons.
4. Introduction of capital during the relevant financial year.

Detailed Analysis:

1. Justification of the Order Passed by the Pr. CIT under Section 263 of the Act:
The primary grievance of the assessee was that the Pr. CIT, Cuttack, was not justified in holding the order of the AO as erroneous and prejudicial to the interest of revenue. The Pr. CIT invoked section 263 and called for the assessment records, finding discrepancies in the payment of incentives, commission, and the introduction of capital. However, the Tribunal found that the AO had conducted sufficient and adequate inquiries on all three issues, thus the revisionary order passed by the Pr. CIT was without jurisdiction and quashed on merit.

2. Payment of Incentives and Its Verification:
The Pr. CIT observed that the assessee claimed an expenditure of Rs. 5,87,407/- towards incentives paid to nine persons for procuring orders from Government Hospital and Municipal offices. The Pr. CIT noted that these payments were not correct as the recipients were not employees, and TDS was not deducted under section 194H. However, the Tribunal found that the AO had made inquiries into the payment of incentives and had even made a partial disallowance of Rs. 53,964/- due to the lack of supporting bills and vouchers. The Tribunal held that the AO’s inquiry was sufficient, and the Pr. CIT's action was not sustainable.

3. Payment of Commission to Related and Unrelated Persons:
The Pr. CIT found that the assessee had claimed Rs. 49,96,750/- towards commission, with Rs. 40,50,000/- paid to relatives under section 40A(2)(b) and the rest to unrelated persons. The AO had accepted these payments without verifying the nature of work done by the recipients. The Tribunal noted that the AO had issued a notice under section 142(1) and had received detailed replies from the assessee, including TDS deductions on the commission payments. The Tribunal concluded that the AO had conducted sufficient inquiries, and the Pr. CIT’s revisionary order on this issue was not justified.

4. Introduction of Capital During the Relevant Financial Year:
The Pr. CIT observed that the assessee introduced Rs. 28,00,000/- as capital, with Rs. 15,00,000/- received by cheque and Rs. 13,00,000/- in cash. The source of the cash was explained as withdrawals from savings and receipts of gifts. The Pr. CIT noted that the AO had not verified these claims. However, the Tribunal found that the AO had issued a show-cause notice and received a detailed reply from the assessee, including bank statements and balance sheets showing sufficient cash in hand and gifts received. The Tribunal held that the AO’s acceptance of the explanation was justified and not erroneous or prejudicial to the revenue.

Conclusion:
The Tribunal quashed the revisionary order passed by the Pr. CIT under section 263 of the Act, finding that the AO had conducted sufficient inquiries on all three issues. The appeal of the assessee was allowed. Additionally, the Tribunal addressed the procedural delay in pronouncing the order due to the COVID-19 lockdown, concluding that the period of lockdown should be excluded from the 90-day time limit for pronouncement of orders.

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