TaxTMI 
TaxTMI 
2017 (10) TMI 720
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..... The assessee had submitted complete required details in proceedings under section 263 of I.T. Act 1961 before Hon'ble CIT. Inspite of same learned CIT erred in setting aside assessment framed and directed to pass assessment order de novo. 4. Any other ground that shall be taken at the time of hearing. 2. Briefly stated, the facts of the case are that the assessee which is a Joint Venture (AOP) comprising of M/s Metakaps Engineering (a partnership firm) and M/s Mahindra Construction (a proprietary concern) as members, was engaged in the business of civil construction. The assessee had filed its return of income for AY: 200910 on 30.09.2009, declaring total income of Rs. 1,48,828/-. The case of the assessee was taken up for scrutiny assessment and vide order passed u/s 143(3), dated 29.11.2011, its income was assessed at Rs. 1,89,670/-. 3. That after the culmination of the assessment proceedings the Commissioner of Income Tax-18, Mumbai (for short 'CIT') called for the assessment records of the assessee. The CIT after perusing the records, being of the view that the assessment framed by the A.O u/s 143(3) was erroneous and prejudicial to the interest of the revenue, ....
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....passed by him u/s 143(3) was not erroneous and prejudicial to the interest of the revenue. The CIT however did not find favor with the submissions of the assessee, and held a conviction that the order passed by the A.O u/s 143(3) was found to be erroneous and prejudicial to the interest of the revenue, on the following counts:- (i). That without making any verification as regards the expenses of Rs. 1,30,22,495/- the A.O had wrongly allowed the same while computing the income of the assessee; (ii). That the A.O had failed to examine the basis of valuation of WIP at Rs. 60,00,000/- on 31.03.2009; (iii). The A.O had failed to examine/verify very low Net profit declared by the assessee as compared to the huge contractual receipts; (iv). The A.O had failed to examine/verify payment of Rs. 1,20,000/- on account of works VAT tax; (v). The A.O had failed to verify the genuineness of Sundry Creditors, huge expenses claimed and the system of accounting followed by the assessee; (vi). That the fact that the assessee and the sub-contractor concern, viz. M/s Urja Infrastructure were 'Sister concerns' within the meaning of Sec. 40A(2)(b) was....
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....e A.O to frame a de novo assessment, keeping in view his observations and after affording an opportunity of being heard to the assessee. 7. The assessee being aggrieved with the order passed by the CIT u/s 263, had carried the matter in appeal before us. The ld. Authorized representative (for short 'A.R') for the assessee took us through the facts of the case and submitted that the assessee is engaged in the business of civil construction and undertakes various government contracts, mainly from Irrigation Department, Government of Maharashtra. It was submitted by the ld. A.R that the assessee had undertaken contracts awarded by Ex. Engineer, Medium Project Division, Gondiaya, vide agreement No B-1/97/Divisional/2006-07, dated 7.11.2006. However, as the project was of medium size and the assessee was not equipped with sufficient capital and infrastructure required to handle such size of projects, therefore, it sub-contracted the said project to M/s Urja Infrastructure, a concern which had wide experience and infrastructure facility to handle various projects of the government, on back to back basis, as per pre agreed terms and conditions. It was submitted by ld. A.R that as per t....
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....ernment department in lieu of the aforesaid contract to the sub-contractor, after making statutory deductions, was continuing since the last two years preceding the year under consideration, viz. A.Y. 2007-08 and A.Y. 2008-09. The ld. A.R submitted that the aforesaid business arrangement of the assessee had been deliberated upon and accepted by the department in the respective assessments framed in the hands of the assessee for both of the aforesaid two years u/s 143(3). The ld. A.R in order to fortify his aforesaid contention drew our attention to the 'Profit & loss a/c' and the respective assessment orders passed under Sec. 143(3) by the A.O in the case of the assessee for A.Ys: 2007-08 and 2008-09 (Page 76-79) of his 'Paper book' (for short 'APB'). The ld. A.R taking us through the 'Balance sheet' of the assessee for the year under consideration submitted that the assessee did not own any asset. The ld. A.R drew our attention to the findings recorded by the CIT in his order passed u/s 263. The ld. A.R submitted that all the queries and the doubts raised by the CIT were clarified during the course of the revisional proceedings. It was averred by the ld. A.R that the assessee had ....
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.... his claim had placed on record the complete income-tax credentials of the sub-contractor, viz. M/s Urja Infrastructure, as well as furnished the latters copy of 'Return of income' for the year under consideration, viz. A.Y. 2009-10, as an enclosure to the reply filed with the CIT. The ld. A.R further submitted that the issue raised by the CIT that M/s Urja Infrastructure was a 'sister concern' of the assessee, was also clarified by the assessee, vide its reply dated. 11.02.2014 filed with the CIT (Page 73 -74 of 'APB'). The ld. A.R submitted that it was clarified to the CIT that as the sub-contractor concern, viz. M/s Urja Infrastructure had no substantial interest in the 'AOP', viz. M/s Metakaps Engineering Mahindra Constructions J.V, therefore, the payments made to the said concern did not fall within the purview of Sec. 40A(2)(b). Te ld. A.R submitted that without prejudice to the aforesaid, the assessee further placing reliance on the order of the ITAT, Hyderabad, in the case of M/s IVR CL-KBL-MEIL-JV Vs. Department of Income-tax (Hyd); dated. 12.07.2012, had submitted that as the whole contract was sub-contracted under 'back to back' basis, therefore, the same would not be co....
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....ch he was obliged to make during the course of the assessment proceedings. The ld. D.R also referring to the Explanation 2 of Section 263, which was made available on the statute vide the 'Finance Act, 2015', w.e.f 01.06.2015, submitted that as the same was declaratory in nature, therefore, the same would be applicable to the case of the assessee. The ld. D.R thus taking support of the post-amended Sec. 263, submitted that as the A.O had passed the assessment order without making inquiries and verifications which he should have made in the opinion of the CIT, therefore, the same rendered the order passed by him amenable for revision under Sec. 263. The ld. D.R in support of his contention that the CIT had rightly exercised his jurisdiction under Sec. 263 and revised the order passed by the A.O under Sec. 143(3) relied on the judgment of the Hon'ble High Court of Delhi in the case of CIT Vs. Ashok Logani (ITA No. 553 of 2010; Dated. 11.05.2011). 10. The ld. A.R rebutting the aforesaid contentions of the revenue submitted that the assessment record has to be looked into in order to verify as to whether the A.O while framing the assessment had applied his mind, or not. The ld. A.R ....
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....actor, viz. M/s Urja Infrastructure, and find that the sub contractor on completion of a part of the project would raise its 'bill' on the assessee. That after the Ex. Engineer or Site Engineer of the government department would carry out inspection of the site, the assessee would raise its 'Running Account' bill ('RA' bill) in respect of the part of work completed by the sub-contractor, on the government. The amount (Net of 'TDS') received by the assessee from the concerned government department under the said contract, would thereafter be passed on to the sub-contractor, viz. M/s Urja Infrastructure, after making certain statutory deductions, viz. VAT liability etc. Thus, in light of the aforesaid arrangement between the assessee and the sub-contractor, viz. M/s Urja Infrastructure, the business interest of the assessee in the aforesaid project was restricted to the amount of TDS by the government department. We find that the aforesaid business arrangement having emerged on the basis of the 'Agreement' dated. 20.12.2006 between the assessee and M/s Urja Infrastructure was deliberated upon, scrutinized and accepted by the department while framing the assessments under Sec. 143(3) ....
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....y the sub-contractor of the assessee, viz. M/s. Urja Infrastructure; (ii).that during the course of the assessment proceedings no supporting details/documentary evidence was filed by the assessee in respect of the heavy labour charges which were claimed as an expenditure by the assessee in its 'Profit and loss A/c', and the A.O had thus failed to verify/examine the issue of disallowance of labour charges amounting to Rs. 1,30,22,495/- in the absence of any documentary evidence in support thereof; (iii). the A.O had failed to examine the basis of valuation of WIP at Rs. 60,00,000/- by the assessee on 31.03.2009; (iv). the A.O had failed to deliberate upon the fact that though the assessee was engaged in the same contract and for the same project in A.Ys. 2007-08, 2008-09 and 2009-10, however, the net profit reflected by the assessee during the year under consideration at 2.01% was substantially lower than the net profit rate of 6.65% shown by it in A.Y. 2007-08; (v) that though the 'balance sheet' of the assessee revealed VAT liability of Rs. 1,20,000/- payable/outstanding on 31.03.2009, however, the A.O failed to examine/verify as to whether the said liability was discharged before....
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.... on which the order passed by the A.O is sought to be revised by the CIT would be lost and rendered otiose, in case the reply of the assessee explaining as to why the order sought to be revised is not erroneous and prejudicial to the interest of the revenue is not judicially deliberated upon by the CIT. We are of the considered view that it is obligatory on the part of the CIT to consider the reply of the assessee in respect of the issues on which the order of the A.O is sought to be revised by him. It is only if the conviction of the CIT that the order of the A.O is erroneous and prejudicial to the interest of the revenue outweighs the reply/explanation furnished by the assessee, that the CIT remains vested with the jurisdiction to proceed with and revise the order of the A.O. We though are not oblivious of the fact that the view that an order passed by the A.O is found to be erroneous and prejudicial to the interest of the revenue remains within the exclusive realm of the wisdom of the CIT, but then the legislature by contemplating an opportunity of being heard to the assessee, can thus safely be held to have presupposed due application of mind by the revisional authority before ....
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....sought to be revised, however, the same did never see the light of the day and except for forming part of the record and finding a mention in the order passed by the CIT u/s 263, were however as a matter of fact never deliberated upon and brought to a logical end by the CIT. We are of the considered view that in the backdrop of the explanation/objections filed by the assessee during the course of revisional proceedings in respect of certain issues on which the CIT had sought to revise the order passed by the A.O under Sec. 143(3), the CIT had failed to point out as to how the order of the A.O was found to be "erroneous". We are of the considered view that in the absence of clear observations of the CIT as to how the order of the A.O after considering the explanation/objections filed by the assessee was found to be erroneous in respect of the said respective issues, thus, can safely be held to have failed the fundamental requirement for valid assumption of jurisdiction as per the mandate of law. We find our aforesaid view to be supported by the judgment of the Hon'ble High Court of Delhi in the case of : CIT Vs. Vikas Polymers (2012) 341 ITR 537 (Del), wherein it was observed, as un....
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....been called into question by the CIT was duly reflected in the respective assessments of the partners who were income-tax assessees and the unsecured loan taken from M/s Stutee Chit & Finance (P) Ltd. was duly reflected in the assessment order of the said chit fund which was also an assessee." We find that a similar view was also arrived at by the Hon'ble High Court of Punjab & Haryana in the case of CIT Vs. R.K. Metal Works (1978) 112 ITR 445 (P&H), wherein stressing on the statutory obligation on the part of the CIT to deal with the points raised by the assessee in its explanation/objection filed with him during the course of the revisional proceedings to show that the order passed by the A.O was not erroneous and prejudicial to the interest of the revenue, in context of the issues on which it was sought to be revised, the Hon'ble High Court held as under:- "There is no indication in the order of the CIT as to the basis on which he came to the prima facie conclusion that the capital borrowed by the firm was utilised for purposes other than that of the firm's business. When the assessee filed a detailed written statement before him, the CIT did not deal with any of the....
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....l proceedings be permitted to substitute and impose his choice of mode and manner of carrying out the verifications on the A.O. We are constrained to record the aforesaid observations in order to make it clear beyond any doubt that the scope of revision under Sc. 263 is restricted only for the purpose of revising an order passed by the A.O, which is found to be both erroneous and prejudicial to the interest of the revenue, and failing the said fundamental requirements, the same cannot in guise of the said powers be exercised by the CIT to impose his view as against that of the A.O. We find that our aforesaid view that now when the A.O in the present case had after examining the accounts, making enquires and applying his mind to the facts and circumstances of the case in accordance with law had framed assessment in the hands of the assessee, then merely for the reason that the CIT is not satisfied with the manner of the verifications and investigations carried out or conclusion arrived at by the A.O cannot form the basis for branding the assessment as erroneous, stands fortified by the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Gabrial India Ltd. (1993) 203 ....
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....he CIT had even otherwise failed to show as to how the order passed by the A.O was found to be "prejudicial" to the interest of the revenue. We find that the specific contention raised by the assessee during the course of the revisional proceedings that the order passed by the A.O was in no way prejudicial to the interest of the revenue, had however not been addressed by the CIT. We are of the considered view that as per the mandate of law, for valid assumption of jurisdiction u/s 263 the order passed by the A.O must be found to be both erroneous and prejudicial to the interest of the revenue. The term 'erroneous' used in conjunction with the term 'prejudicial' makes it clear beyond any scope of doubt that both the preconditions have to be cumulatively satisfied, before the order passed by the A.O is revised by the CIT. Reliance in support of our aforesaid view is drawn from the judgment of the Hon'ble Supreme Court in the case of Malabar Industrial Ltd. Vs. CIT (2000) 243 ITR 83 (SC). 17. We now advert to the contentions raised and the judicial pronouncements which had been relied upon by the ld. D.R. before us. The ld. D.R had during the course of hearing of the appeal relied ....