TaxTMI 
TaxTMI 
2020 (7) TMI 149
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....receipts (iii) Large other expenses claimed in the Profit & Loss A/c (iv) Mismatch in amount paid to related persons u/s 40A(2)(b) reported in Audit Report and ITR. (v) Mismatch between income/receipt credited to P&L A/c considered under other heads of income and income from heads to income other than business/profession. The Ld. A.O asked the assessee to produce documents related to above mentioned reasons to which reply was received which also forms part of assessment order. Ld. A.O made ad-hoc disallowance of Rs. 60,586/-, Rs. 3,50,000/- and Rs. 2,00,000/- out of the Directors travelling expenses, Employees benefit expenses and other expenses respectively. Thus after making addition of Rs. 6,10,586/- income was assessed at Rs. 53,08,610/-. Subsequently Ld. PCIT on examining the assessment records observed that the Ld. A.O failed to examine the reasons for which limited scrutiny was taken up. He also observed that what was required to be examined had not at all been carried out by the Ld. A.O and therefore the assessment framed on 2.5.17 is erroneous and prejudicial to the interest of revenue. Ld. PCIT accordingly within his revisionary powers u/s 26....
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....e the assessment order dated 02.05.2017 observing as follows:- "10. I have gone through the assessment order and related records and also carefully considered the submissions made by the assessee in which it has been argued that no mistake has occurred in the order passed and the assessment order is neither erroneous nor prejudicial to the interests of the revenue and therefore the proposed action u/s 263 be dropped. I 1. From the assessment record. it is seen that nothing was brought on record by the assessing officer in support of expenses claimed by the assessee with respect to salary & wage The order sheet entries were written in general nature and did not show what type of record , bills/vouchers, ledgers etc. were examined and verified during the assessment proceedings, it is also observed that no third party enquiry has been made for verification of vouchers related to expenses. The assessing officer failed to verify attendance register. salary register, provident fund challans and various forms submitted to EPFO, ESIC Challan, labour license as no record was maintained regarding the production of salary register. attendance register and various forms submi....
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.... that assessment made in undue haste and without making inquiries which are called for the circumstances of the case is erroneous and prejudicial to the interest of revenue. 2.Malabar Industrial Co. Ltd. V. CIT (2000) 243 [TR 83 (SC) Hon'ble Supreme Court has held that non-application of mind by the assessing authority on a particular issue, renders the assessment order susceptible to revision. 3. CIT V Bhagwan Das (2005) 272 [TR 367 (All,) (HC), the Hon'ble High Court has held that non-application of mind by the Assessing Officer was prejudicial to the interest of the revenue. 4.- Pratap Footwear v ACIT (2003) SOT 638 (Jabalpur) (Trib.) the Hon'ble Tribunal has held that non-application of mind by the Assessing 0ffieer was prejudicial to the interest or revenue. 5. CIT v. Jawahar Bhallacharjee (2012/341 J711 434 (Gauhati) (HCJ (FB), The Hon'bIe has held that error in assessment order arising by ignoring relevant material or on incorrect assumption of facts or incorrect application of law - Amenable to revision u/s 263. 6. (2017) (Himachal Pradesh (2017) 298 CTR 393, Virbhadra Singh (HUF) vs. Principal Commissioner of Income-....
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....bmitted its reply on 24.03.2017 along with supporting documents. Assessing officer has reproduced this submission dt. 24.03.2017 in the assessment order. Again statements of bank accounts were asked and assessee submitted on 01.05.2017. Books of accounts and vouchers were verified by the assessing officer. As mentioned in the para 5, 6 & 7 of the assessment order, assessing officer has carefully test checked the Profit & Loss Account as shown by the assessee in audit report and also test checked the books of account, bill and vouchers. After verification of records, assessing officer has made addition of~ 6105861- into the income of assessee. 2.2 Ld Pr.CIT has specified certain documents and manner of examination of the documents which should have been followed by the assessing officer during assessment proceedings but assessing officer failed to examine. These are as under- Low net profit or loss shown from large gross receipts It is also observed that no third party enquiry has been made for verification of vouchers related to expenses. The assessing officer failed to verify attendance register, salary register, provident fund challans....
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....e ITAT, Indore in the order dt. 19.07.2018 for AY 2008-09 in the assessee's case. Other Expenses in Profit & Loss Account is Rs. 7,71,40,909/- but Id. Pr.CIT has chosen one account Sub-contract Work amounting to Rs. 1,10,08,059/- in which she found that this account has not been verified Properly. Inadequate enquiry for verification of one account cannot be considered as non- application of mind by assessing officer in the whole assessment. Mismatch in amount paid to related persons U/S 40A (2)(b) reported in audit report and ITR No further queries were made regarding genuineness of the payment to related person u/s-40A (2)(b). AD has accepted the reply of assessee dt. 24.03.2017 that payment to related persons is genuine. My submission As required by the reason, mismatch is to be verified and not the verification of payments. There is no mismatch in the amount paid to related persons u/s 40A(2)(b) reported in audit report and ITR. In the Income Tax Act, there is no provision which prescribes the specific document and manner of examination of these documents, which should be followed by the assessing officer during assessment proceed....
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....re possible and the ITO has taken one view with which CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue. In the case of CIT vs International Tractors Ltd. (2017) 297 CTR (Del) 119, it was held that if interpretation of provision is debatable and further it is contrary to the principle of consistency, order u/s 263 was not warranted. In the case of CIT vs Sohana Wollen Mills (2007) 207 CTR (P&H) 178 it was held that mere audit objection and merely because a different view can be taken are not enough to hold that order of AO is erroneous or prejudicial to the interest of revenue. 3. Ground No. 4 Ld Pr. CIT in her order u/s 263 of the Act has prescribed certain documents which should be checked by assessing officer to verify expenses. Ld Pr. CIT has following observation in para 11 of her order- it is also observed that no third party enquiry has been made for verification of vouchers related to expenses. The assessing officer failed to verify attendance register, salary register, provident fund challans and various forms submitted to EP FO, ESIC Challan, labour license as no record was maintai....
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....atnam Trib. (iii) CIT vs Max India Ltd (2007) 213 CTR (SC) 266. (iv) CIT vs International Tractors Ltd. (2017) 297 CTR (Del) 119 (v) CIT vs Sohana Wollen Mills (2007) 207 CTR (P&H) 178 (vi) Malabar Industrial Co. Ltd V/s CIT 243 ITR 83 (SC) (vii) Smt. Taradevi Agrawal V/s CIT 88 ITR 323 (SC) (viii) Rampyaridevi Saraogi V/s CIT 67 ITR 84 (SC) (ix) CIT V/s Nagesh Knitwears Pvt. Ltd 345 ITR 135 (Delhi HC) (x) Gee Vee Enterprises V/s Addl. CIT 99 ITR 375 (DelhiHC) (xi) Bhushan Steel Ltd V/s ACIT ITAT A Bench Delhi (xii) CIT V Deepak Kumar Garg 299 ITR 435 (M.P) (xiii) CIT V Mahavar Traders. 220 ITR 167 (M.P) (xiv) Smt. Renu Gupta v CIT 301 ITR 45 (Rajasthan) (xv) PT Lashkari Ram V CIT 272 ITR 309 (Allahabad) (xvi) CIT V Himachal Pradesh Financial Corpn. 186 Taxman 105 (Himachal Pradesh) (xvii) CIT v/s Prafulla C Pant and Dharam Veer JJ 176 Taxman 184 (Uttrakhand) (xviii) Mofussil Warehouse & Trading Co. Ltd V CIT 238 ITR 867(Madras) (xix) Durgalal & Co. V CIT 220 ITR 456 (Delhi) (xx) CIT V Active Traders (P) Ltd 24ITR 583 (Cal....
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....e time of examination by the Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or] Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 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....
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....owing reasons :- (i) High ratio of refund to TDS (ii) Low net profit or loss shown from large gross receipts (iii) Large other expenses claimed in the Profit & Loss A/c (iv) Mismatch in amount paid to related persons u/s 40A(2)(b) reported in Audit Report and ITR. (v) Mismatch between income/receipt credited to P&L A/c considered under other heads of income and income from heads to income other than business/profession. 12. Ld. PCIT was of the view that the Ld. A.O has accepted the claim of the assessee regardless of reasons of selection of the case for scrutiny without any investigation or bringing anything on record to substantiate the assessee's claim. Ld. PCIT also observed that the Ld. A.O has merely made some ad-hoc disallowance of expenses without any application of mind and thus the order passed by the Ld. A.O dated 02.05.2017 is erroneous so far as prejudicial to the interest of revenue. 13. Before examining the factual aspects and also whether proper enquiry was conducted by the Ld. A.O for the reasons for which limited scrutiny was conducted, we would like to consider the plethora of judgments referred and relied by the ....
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....in the case of Assistant Commissioner of Income Tax vs Ashoka Buildcon Ltd. as relied by the AO wherein it has been held that where an assessee is executing an infrastructure development fixed price contract, the foreseeable losses of future years can be recognized following the rationale of AS-7 issued by ICAI, and such a provision is an allowable deduction. It is not controverted by the Revenue that the assessee has been claiming provision of expenditure in the present case and such provision was allowed to the assessee which is in accordance to AS-7. Under this fact in the light of the binding precedents, we are of the view that Ld. CIT was not justified to invoke the provision of section 263 in the case of the assessee hence we quash the order passed u/s 263 of the Act. The grounds raised in the appeal are allowed. 10. In the result, the appeal filed by the assessee is allowed." 15. Though Ld. Departmental Representative has not specifically referred to any decision but since he had relied to the finding of Ld. PCIT, we need to consider the judgments referred and relied by the Ld. PCIT. 16. Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd....
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....ored and those of the learned Tribunal dated 28th August, 2007 and the High Court dated 7th August 2008 are set aside. The appeal of the Revenue is allowed. 19. Now in light of the above judgments both in favour and against the revenue we will examine the facts in view of ratios laid down by Hon'ble Courts and Tribunal. We will first like to make the facts straight and even at the cost of repetition we would like to mention the reasons for which the case was selected for limited scrutiny. (i) High ratio of refund to TDS (ii) Low net profit or loss shown from large gross receipts (iii) Large other expenses claimed in the Profit & Loss A/c (iv) Mismatch in amount paid to related persons u/s 40A(2)(b) reported in Audit Report and ITR. (v) Mismatch between income/receipt credited to P&L A/c considered under other heads of income and income from heads to income other than business/profession. 20. Now as regards the information called by the Ld. A.O and the information supplied by the assessee during the course of assessment proceedings, we find that questionnaire was issued u/s 142(1) of the Act on 03.01.2017 calling various information....
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....elated persons u/s 40A 2 b reported in audit re ort and ITR Payment to related persons is genuine hence these were not disallowed in the audit report. Mismatch between income/receipt credited to Profit & Loss Account considered under other heads of income and Income from heads of income other than business/profession Details of Other Heads of Income in return of income is as under- Interest on bank FDR 3727467 Dividend 32877 Purchase discount 19647 Short term capital gain 337286 VAT Refund 45603 4162880 Interest on bank FDR, purchase discount and VAT refund are business income hence these are included in business income. Bank FDRs are made for the margin money of bank guarantee required for contract (performance guarantee, security deposit) and earnest money required for tender of contract. These FDRs are compulsorily made for running the business and not for earning interest as assessee has no idle fund for FDRs. Short term capital has been shown in the return. Dividend is tax free income. 2.Copies of assessment orders for last six years are enclosed here with. 22. Thereafter on 01.05.2017 information was pro....
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....ited scrutiny has been taken up. So his focus should be limited to the reasons but in such situation what is required from the Ld. A.O is to put best of his focus and pinpointed examination of information of the assessee so as to arrive at the correct income of the assessee. The file records should speak by itself that the Ld. A.O has given/delivered his best to justify that in the scrutiny for limited purpose, no stone is left unturned for the issues raised in the limited scrutiny case by way of in depth examination. 26. Now looking to the reasons and the enquiry conducted by the Ld. A.O as far as the reason No.3 "Large other expenses claimed in the Profit & Loss Account" and reason No.5 i.e. "Mismatch between income/receipt credited to P&L A/c considered under other heads of income and income from heads to income other than business/ profession", are concerned we find that the Ld. A.O has clearly observed in the assessment order that he has checked the books of accounts, bills and vouchers and has conducted sufficient enquiry and had made some disallowance of expenses. Once enquiry has been conducted with specific observation of having checked the books of accounts, bills and ....
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....in cost of material consumption. The details of sales made in the preceding and current year and the details for increase in purchase cost were the bare minimum details which the Ld. A.O could have gone through to form an opinion. Merely accepting the few liner reply of the assessee cannot be held to be sufficient or minimum enquiry in case of such limited scrutiny. The enquiry conducted by the Ld. A.O in the instant case for reasons 1 & 2 cannot be termed as adequate enquiry. Rather looking to the reply given by the assessee which is not at all clear in itself, in our view the Ld. A.O has not conducted any enquiry with regard to reasons No. 1 & 2 relating to High ratio of refund of TDS and Low Net profit or loss shown for large gross receipts. Thus Ld. PCIT was justified in setting aside assessment order by invoking the provisions of Section 263 of the Act and holding that the Ld. A.O has not conducted proper enquiry with reference to Reasons No. 1 & 2. 30. Apropos issue No.4 "mismatch in amount paid to related persons u/s 40A(2)(b) reported in audit report and ITR" the one small reply submitted and accepted by Ld. A.O. is that "payment is genuine hence these were not disallowe....
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....payment made to relatives u/s 40A(2)(b) of the Act should be well documented and assessment records should speak by itself about the enquiries conducted by the Ld. A.O. The records of the instant case speaks that no details were filed by the assessee before the Ld. A.O to prove the reasonableness of payments made to relatives nor any indication is there on behalf of the Ld. A.O to call for specific details relating to payment to relatives u/s 40A(2)(b) of the Act. Thus in our considered view there is "no enquiry" about the reasons No.4 i.e mismatch in amount paid to related persons u/s 40A(2)(b) and therefore Ld. PCITT has rightly invoked his power u/s 263 of the Act setting aside the order of Ld. A.O with regard to these reasons. 32. We thus in the given facts and circumstances of the case in view of the discussions and judicial pronouncements referred above are of the considered view that the action of Ld. PCIT of invoking the provisions of Section 263 of the Act and setting aside the assessment order dated 2.5.2017 is partly held to be justified. We accordingly hold that for the reasons No.1, 2 & 4 namely "High rate of refund of TDS, "Low net profit or loss shown for large gr....