TaxTMI 
TaxTMI 
2025 (6) TMI 704
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....oup of cases on 10.01.2019. The assessee filed its return of income on 30.10.2019 declaring total income of Rs. 8,54,65,340/-. The case was selected for compulsory scrutiny and a notice u/s 143(2) of the Act was issued and served on the assessee. Subsequently, notice u/s 142(1) of the Act along with a questionnaire was issued on 03.11.2020 and 11.12.2020. The assessee responded to the above statutory notices by furnishing the details through e-proceedings portal which were verified by the Assessing Officer. After verifying the details, the Assessing Officer completed the assessment u/s 143(3) on 21.04.2021 determining the total income at Rs. 11,53,82,340/- wherein he made addition of Rs. 74,17,000/- on account of difference in the valuation report of the DVO and the value declared by the assessee in respect of value of various shops of "Ganga Platino". Similarly, he also made addition of Rs. 2,25,00,000/- on account of provision for warranty. 4. Subsequently, the Ld. PCIT examined the record and noted that the order passed by the Assessing Officer u/s 143(3) of the Act in the case of the assessee for assessment year 2019-20 prima facie appears to be erroneous and prejudicial to ....
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.... that all the expenses under consideration i.e., debit expense of Rs. 7,43,19,308/- to 'Provision for Construction Expenditure' and Rs. 2,44,07,369/- written back as 'Provision of Expenses Written Back' have been booked by the assessee by a journal entry dated 31/03/2020 wherein complete details of the expenses debited to the respective ledgers are not available on record thereby making it difficult to ascertain the genuineness & authenticity of the same. The fact that the assessee firm had incurred such huge expenses amounting to Rs. 7,43,19,308/- after the completion of the work related to buildings P,Q & R of the project 'Ganga Platino' is also not palatable. The AO should have disallowed the 'provision for construction expenses to be incurred in future' debited to the P&L account. The AO failed to disallow the same during the assessment proceedings for the year under consideration. 04. In view of the above, it is found that the no verification on the aforesaid issues has been done in the assessment proceedings by the AO. As per explanation (2) to section 263(1) of the Act an order without making inquiries or verification which should hav....
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....evelopment expenses to be incurred in future. However, the AO had not questioned the same. Further, it is seen that the Project 'Ganga Platino' was already completed on 19.04.2018, and the total expenses booked after completion of the project under the head of 7,43,19,308/- after the completion of the work related to buildings P,Q & R of the project 'Ganga Platino'. The assessee had not submitted the details of the expenses incurred after the completion of the said projects and as to how the same were allowable. The Assessing Officer has not carried out proper examination / verification /enquiries in the course of assessment proceedings with respect to the above mentioned issue and as such there was lack of examination/verification/enquiries on the part of Assessing Officer. 6. In view of the above facts, it is clear that the above issue has not been properly examined/verified/enquired upon by the Assessing Officer during the course of the assessment proceedings. It has been held by various Courts that lack of enquiry on the germane issue renders the assessment order being erroneous and prejudicial to the interest of revenue. In this connection the followin....
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....ex Court. • The Hon'ble ITAT Delhi in the case of Ankush Garg v CIT, Rohtak in ITA No 2287 & 2288/Del/2015 dated 21.05.2019, upheld the Pr. CITs action u/s 263 by holding that the order of the AO was cryptic, and was not passed after due examination and verification of certain issues and therefore, there was an error on the part of AO which led to a correct conclusion of the CIT that the order of the AO was not only erroneous but also prejudicial to the interest of Revenue. • In the case of Pooja Gupta in ITA No 4057/Del/2018 dated 31.01.2019, the ITAT Delhi has discussed the validity of action under section 263 in respect of penny stock matters. The Tribunal has referred to the detailed SOP issued by the CBDT, CBDT Instruction dated 16.03.2016 on penny stock/LTCG, and other specified parameters in this order, and held that the order u/s 263 was justified since there was complete lack of inquiry with regard to the perspective for which the case was selected for scrutiny, and that the AO had merely relied on the assessee's submissions. • The decision of the ITAT Delhi Bench in the case of Bhushan Steel Ltd., New Delhi vs ACIT dated 30 M....
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....de 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, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 8. In view of the above facts and circumstances of the case and keeping in view the judicial pronouncements as discussed above, it is held that the assessment order dated 21.04.2021 for A.Y. 2019-20 has been passed by the AO without making necessary examination/verification/enquiries on the issue mentioned above and accordingly, the same is held to be erroneous in so far as it is prejudicial to the interest of Revenue: 9. Accordingly, the said assessment order dated 21.04.2021 is hereby set aside to the file of the Assessing Officer for examining the above issues in detail while framing the fresh assessment order. The Assessing Officer shall make necessary examination, verification and enquiries in respect of the above issue after giving adequate and reasonable opportunity of being heard to the assessee." 6. Aggrieved with such order of the PCIT, ....
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.... of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to question raised by the Assessing Officer in the notice issued u/s 142(1) of the Act on 03.04.2021 wherein again the provision of expenses of Rs. 9,87,26,677/- was specifically asked. Referring to page 72 to 75 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the reply given by the assessee on 10.04.2021 regarding the same. The Ld. Counsel for the assessee submitted that the Assessing Officer had specifically asked the questions regarding the allowability of provision of expenditure. Referring to the following decisions, he submitted that since the Assessing Officer had made specific enquiries during the course of assessment proceedings with regard to the allowability of provision of expenditure and the assessee had given the detailed reply and it is not a case of lack of enquiry, therefore, the Ld. PCIT was not justified in invoking the provisions of section 263 of the Act: 1. THE PCIT VS PRAKHAR DEVELOPERS PRIVATE LIMITED, ITA 182 OF 2023 (MADHYA PRADESH HC) 2. M/S. B.U BHANDARI SCHEMES VS. THE PCIT, ITA NOS.637 ΤΟ 641/PUN/2018....
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....he instant case completed the assessment u/s 143(3) of the Act on 21.04.2021. Before completing the assessment, the Assessing Officer in the questionnaire attached to the notice issued u/s 143(2) of the Act dated 02.02.2021 has asked the following details: "GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT To GOEL EISHA CAPITALS 6TH FLOOR SAN MAHU COMPLEX,5 BUND GARDEN ROAD OPP POONA CLUB PUNE 411001,Maharashtra India PAN: AAJFG0543R AY 2019-20 Dated 02/02/2021 DIN & Notice No ITBA/AST/F/142(1)/2020-21/1030292594(1) Notice under sub-section (1) of Section 142 of the Income Tax Act, 1961 Sir/Madam/M/s, In connection with the assessment for the assessment year 2019-20 you are required to a) Furnish or cause to be furnished on or before 09/02/2021 at 11:00 AM the accounts and documents specified overleaf, b) Furnish and verified in the prescribed manner under Rule 14 of 1.T. Rules 1962 the information called for as per annexure and on the points or matters specified therein on or before 09/02/2021 at 11:00 AM. c) The above mentioned evidence/information is to be furnished o....
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.... more required to be incurred. A copy of ledger extract of the ledger, "Provision for construction expense", of FY 2019-20 along with audited financial statements is annexed for your honour's reference. (Refer Annexure "H") Your honour will appreciate that the assessee is engaged in the business of real estate development. The partners of the firm are engaged in the business of real estate development since last 40 years. Based on the past experience and estimates and certificate from engineering, provision of defect warranty of Rs. 2.25.00.000/- is made Also as per section14(3) of THE REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016 provides the remedy to the allottees in case of any structural defects incurred in the five years from the date of giving the possession then the promoter is liable to rectify the defect at his own cost. Hence the assessee made provision for Defect warranty in accordance with aforesaid mentioned discussion. A copy of engineer's certificate is also attached for your honour's reference. (Refer annexure "H1") The assessee hereby produces section 14(3) of The Real Estate (Regulation And Development) Act, 2016 for yo....
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....me Tax Act, 1961 read with section 143(3), assessment proceedings would be conducted manually. Yours faithfully, SWAPNIL SHARADRAO PATIL CENTRAL CIRCLE 2(3), PUNE ANNEXURE 1. From the reply filed by you, it is seen that you have made provision on account of defect warranty of Rs. 2,25,00,000/- for under consideration. But, while going through ITR filed by you for AY 2020-21, it is seen that no expenses have been incurred under this head. Thus, liability booked by you is contingent in nature. In this regard, you are requested to explain why provision should not be added to income. 2. Further, with regard to provision of expenses of Rs. 9,87,26,677/- made during the year, it is seen that you have incurred expenses in tune of Rs. 7,43,19,308/- in AY 2020-21 while provision of Rs. 2,44,07,368/- is added back in AY 2020-21. In view of same, you are requested to state whether provision written back is added to income or not for AY 2020-21. Also, Furnish supporting evidences to prove your claim. Also, furnish ledger account extract of expenses of Rs. 7,43,19,308/- SWAPNIL SHARADRAO PATIL CENTRAL CIRCLE 2(3) PUNE" 1....
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.... whether or not the Pr. CIT were justified in exercising the power of revision of the assessment order on the issue of allowability of legal and professional charges of Rs. 10 lakhs incurred in connection with the acquisitions of New Ship Lift System. From the perusal of para 6 at page no.10 of the Paper Book, it is crystal clear that during the course of assessment proceedings, the Assessing Officer had called for the details regarding the true nature of legal and professional expenses of Rs. 10 lakhs and the same was explained by the assessee on being satisfied the Assessing Officer had chosen not to make any addition. The fact that the assessment order does not discuss about this item of the expenditure does not mean that the Assessing Officer had not examined the issue. In the circumstances, it cannot be said that there was no enquiry by the Assessing Officer on this issue of allowability of legal and professional charges of Rs.10 lakhs. The Hon'ble Jurisdictional High Court in the case of Aker Powergas Pvt. Ltd. (supra) clearly held that even though the legal expenses are incurred in connection with the capital asset, the same are allowable as revenue expenditure after referri....
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....erstanding of the extent of inquiry. There were a number of judgments by various High Courts in this regard. 12.2 Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon'ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 on the ground of inadequate inquiry "12...... There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, 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 Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inqui....
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....rder is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well- accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. 12.4 The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words: "20. Further clause (a) of Explanation states that an order shall be deemed....
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....h 2016. The respondent company received unsecured loans from M/s. Georgett Tradecom Pvt Ltd and M/s. Purba Agro Food Pvt. Ltd amounting to Rs. 2.49 Crore and the Assessing Officer allowed these unsecured loans. The Principal Commissioner of Income-tax invoked section 263 of the Act, 1961 for revising the assessed income of the respondent assessee. It was noticed by the PCIT that the unsecured loans obtained by the respondent assessee are shown as investment in the name of the assessee in the share application as well as in the balance sheet of the respective companies. The PCIT passed an order under section 263 of the Act directing the Assessing Officer to pass fresh assessment order under section 143(3) of the Act, 1961 on the aspect of unsecured loans shown by the respondent assessee. The Hon'ble Supreme Court made the following observation while deciding in favour of the assessee: "Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the r....
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....owing observations: "Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a debatable issue. The Assessing Officer has taken a plausible view. More importantly, if the Commissioner was of the opinion that on the available facts from record it could be conclusively held that income arose from other sources, he could and ought to have so held in the order of revision. There was simply no necessity to remand the proceedings to the Assessing Officer when no further inquiries were called for or directed" 12.9 The Supreme Court in the case of Principal Commissioner of Income-tax--8 Mumbai v. Sumatichand Tolamal Gouti [2019] 111 taxmann.com 287 (SC) held that where High Court upheld Tribunal's order holding that AO had made detailed enquiries while allowing assessee's claim for deduction of business expenditure and, thus, revisional order passed by Commissioner was not sustainable, SLP filed against High Court's order was liable to be dismissed. The facts of ....
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.... also not the case of the Pr. CIT that the Ld. AO failed to apply his mind to the issues on hand or he had omitted to make enquiries altogether or had taken a view which was not legally plausible in the instant facts. As held by various Courts, s 263 of the Act does not visualise a case of substitution of the judgment of the Principal CIT for that of the Assessing Officer, who passed the order unless the decision is held to be wholly erroneous. As noted in various judicial precedents highlighted above, the Principal CIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-visit the entire assessment and determine the income himself at a higher figure. Now on the issue that the Ld. AO passed a cryptic order and did not discuss in detail regarding assessee‟s submissions on various queries raised vide the various notices, in our view it is a well settled position of law that if from the assessment records, it is evident that the....