TaxTMI 
TaxTMI 
2024 (2) TMI 660
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....ons of law and facts on record hence, the proceedings initiated 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 ....
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....was no case of unexplained expenses of such amount as alleged and assessee submitted the credit 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 remai....
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.... debited under this head was substantial, the same needed to be examined and verified as to its genuineness, purpose 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 incor....
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.... made. If the order is passed without application of mind, such order will fall under the category of erroneous order". 7. Accordingly, by virtue of the powers conferred 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 Fac....
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....oner u/s 263, is that the order of the Assessing Officer is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The Commissioner has to be satisfied of twin conditions, namely (i) The order of the Assessing Officer sought 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....
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....2. Submit the break-up of Gross receipts during the AY under consideration 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 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 ....
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....es and considerably saving the time of assessing officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched or not. The time of the assessing officers thus saved could be utilized for attending to more important investigational aspects of a case." 4. Issue raised, never made a ground in the SCN: 4.1 It is submitted that in the concluding part of the impugned order in Para 6, 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 assessm....
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....s High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. The ld. Counsel relied on the decision of M/s. Amira Pure Foods Pvt. Ltd., v. PCIT in ITA No.3205/Del/2017 and Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd. v. DCIT [2018] 97 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 h....
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....ely missing in the present case. 18 In the light of above facts and legal position, we are of the considered view that the AO had made detailed enquiries and after applying his mind and accepted the genuineness of loans received from GTPL and PAFPL, which is also plausible view. Therefore, we find that twin conditions were not satisfied for invoking the jurisdiction under section 263 of the Act. The case laws relied by the ld. CIT(D.R.) are distinguishable on facts and in law hence, by the ld. Counsel as 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 t....
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....ed scrutiny notified to him. It is also very apparent on the face of the record that unexplained expenditure which is a subject matter of Sec.69C of the act pre supposes that some expenditures has been incurred without any source and out of the books of account therefore, an addition is required to be made on that account. But where the expenditure is admittedly recorded in the books of account that too audited and with reference to such recorded expenditure only the AO is required to make examination by way of limited scrutiny assessment hence, 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 prejudici....
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....e Principal CIT under s. 263 is set aside and the order of the AO is sustained." 5.2.2 In CIT v/s Smt. Padmavathi (2020) 4 NYPCTR 682 (Mad), it was held that: "Revision-Erroneous and prejudicial order lack of proper enquiry-AO in his limited scrutiny, has verified the source of funds, noted the sale consideration paid, the expenses incurred for stamp duty and other charges-Source of funds was verified and the AO was satisfied with the same-Principal CIT while invoking his power under s. 263, faults the AO on the ground that he did not make proper enquiry-It is not clear 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 case....
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....nless there is an established case of total lack of enquiry. Kindly refer CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del) (wherein Delhi High Court was considering the aspect, when there is no proper or full verification, and it was held that: "One has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion 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, th....
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....erroneous simply on the allegation of inadequate enquiry-Reason for selection of the case for scrutiny does not speak of s. 56(2)(viib)-Therefore, the AO could not have made enquiries on this aspect-Even otherwise, the assessee also submitted a report of the expert under r. 11UA which fully justified charging premium @ Rs. 50 per share-Hence, the AO was justified in not applying s. 56(2)(viib)-Moreover, once all the details were made available before the CIT, he should have decided the issues instead of setting aside to the AO-Therefore, the order passed by the Principal CIT under s. 263 is quashed." 7. Similar claim made in past also: It is not that the assessee 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 on....
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....e." A bare perusal of the above finding recorded by the ld. CIT shows that it was sort of a clerical mistake or at the best a confusion, which croped up in the mind of the Ld. CIT based on which alone, he initiated proceedings u/s 263 but undeniably it was not a case of substantive incorrectness so far as the AO is concerned in the context of S.263 of the Act as wrongly alleged in as much as it was the ld. CIT himself felt satisfied Firstly on the aspect that there was nothing as un explained expenses of Rs.76,56,298/- as contended by the appellant also before him in the Written Submission reproduced at Pg.2 Para 4 of the Revisionary Order and thereafter with reference to the figures of Rs. 80,46,456 /- 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 relev....
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....ma)Rs. 44,13,706/- . The appellant in fact, sold goods being the medical equipments (stunt and wires ) to these two parties and as per their understanding , were provided Purchase Discounts (or Sales Discount) for assessee .Though the word "Incentive" has been used although it has been debited as Sales Incentive (PB 41) in the Books of Accounts of Heath Plus (Proprietory of Appellant ) however, its true nature was the discount given to the customerS .The recipient have also accounted for similarly in their books by reducing the cost of goods purchased at their end. It means there was no requirement of TDS in such cases. Moreover, Kymera was nothing but another proprietory of the Assessee hence it was a sort of transaction between two proprietaries 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. ....
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....urred without any source and out of the books of account therefore, an addition is required to be made on that account. But where the expenditure is admittedly recorded in the books of account that too audited and with reference to such recorded expenditure only the AO is required to make examination by way of limited scrutiny assessment hence, 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." 5.1. To support the contentions so raised and in addition to the written submission the ld. AR of the assessee also submitted a paper book containing following documents which reads as under:- S. No. Particulars Pg. No. 1 Copy of ROI filed for for A.Y 2018-19 along with computation of 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 a....
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....cryptic way diplomatically replied to the letter. The issue pointed out by the ld. PCIT has not apparently have been examined by the ld. AO and thus he supported the detailed order of the ld. PCIT. 8. Heard the parties, perused the material and judicial decision cited before us to drive home to the respective contentions so raised by the parties. In the instance case the assessee has challenged the initiation of the proceeding by the Principle Commissioner of Income Tax, Jaipur-2 in assuming the jurisdiction under section 263 of the Act. The brief fact of the case is that the case of the assessee was selected for limited scrutiny to verify the Business Expenses claimed by the assessee. Accordingly, the ld. AO vide notice dated 22.11.2019 has raised as many as 9 specific questions to the assessee in relation to the sales 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 ra....
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....)Rs. 44,13,706/-. The appellant in fact, sold goods being the medical equipment's (stunt and wires ) to these two parties and as per their understanding, were provided Purchase Discounts (or Sales Discount) for assessee .Though the word "Incentive" has been used although it has been debited as Sales Incentive (PB 41) in the Books of Accounts of Heath Plus (Proprietory of Appellant ) however, its true nature was the discount given to the customer. The recipient have also accounted for similarly effect in their books by reducing the cost of goods purchased at their end. It means there was no requirement of TDS considering the nature of transactions. The assessee also clariid that Kymera was nothing but another proprietary of the Assessee hence it was a sort of transaction between two proprietaries or payment to self and not with a third party. Pertinently the ld. 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. Thus, when all the transactions are duly recorded in the books of account there is ....
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....icial to the interest of the revenue. Even the assessee has placed on record and clarified the confusion of the figure noted and based on that details the ld. PCIT did not established that the order is prejudicial. As held in the case of CIT V. K. Ramachandran (Dr.) (2004) 139 Taxman 320 (Mad.), it was held that 'Record' does not mean only 'record' available with ITO at time of passing of assessment order. It would include the records available with the Commissioner at the time of passing of the order by the Commissioner. 11. Thus, now discussing what has been examined by the ld. FAO we are examining the Explanation 2 inserted in section 263 by Finance Act, 2015, w.e.f. 01.06.2015, which has widened the powers of CIT to revise the already completed assessment and in the present case ld. PCIT has taken shelter of clause (a) (b) and (c) of the same, which reads as under: 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 ....
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.... interest in any matter merely on spacious ground that the Assessing Officer was required to make an enquiry, cannot be held to satisfy the test of existing necessary condition for invoking jurisdiction under section 263 of the Income-tax Act. 11. Undoubtedly, the jurisdiction under section 263 is wide and is meant to ensure that due revenue ought to reach the public treasury and if it does not reach on account of some mistake of law or fact committed by the Assessing Officer, the CIT can cancel that order and require the concerned Assessing Officer to pass a fresh order in accordance with law after holding a detailed enquiry. But when enquiry in fact has been conducted and the Assessing Officer has reached a particular conclusion, though reference to such enquiries has not been made in the order of the assessment, but the same is apparent from the record of the proceedings, in the present case, without anything to say 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. Juris....