TaxTMI 
TaxTMI 
2025 (5) TMI 2282
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....ther for the reason to verify large increase in turnover but there is no corresponding increase in net profit. Accordingly, the Assessing Officer issued various notices under section 143(2) dated 28.06.2022 followed by notices u/s 142(1) along with questionnaire and the show-cause notice. The assessee made reply to the same. After considering the submissions made by the assessee, he Assessing Officer observed that during the year under appeal, there was substantial increase in turnover from Rs. 38,91,08,598/- to Rs. 69,79,72,191/- however, gross profit has fallen from 18.48% to 10.59%. The Assessing Officer appreciated the submissions of the assessee that the year under appeal was badly affected by Covid-19 and there was great difficulty to cop up between supply and demand and vice versa. Looking to the factors which are beyond the control of assessee, Assessing Officer accepted the income declared in the return of income filed. Thereafter, Ld. PCIT in terms of the show-cause notice issued under section 263 of the Act dated 22.11.2023 has observed that the assessment order passed is erroneous as well as prejudicial to the interest of the Revenue as the Assessing Officer has not mad....
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.... ld. AR submits that ld. PCIT in its order in para 7 has observed that Assessing Officer has not examined the issue of payment of commission, payment of professional expenses and rent etc. However, nowhere in the show-cause notice through which present proceedings u/s 263 were initiated, these issues were never raised by the ld. PCIT. Therefore, without confronting the same, action of the Ld. PCIT in holding the assessment order as erroneous and prejudicial to the interest of the Revenue on this issue is not correct. 4. The ld. AR further drew our attention to the notice issued u/s 142(1) dated 20.10.2022 placed at pages 56 to 59 of the paper book, wherein, the Assessing Officer has specifically asked the assessee to file the details of commission, legal and professional fee and rent paid, which were duly replied dated 31.10.2022. The ld. AR further submits that the assessee has filed all the relevant details with respect to the claim of these expenses before the Assessing Officer, who has examined the same with reference to the business of the assessee and thereafter had not raised any further enquiry in this regard. 5. With respect to the observations of the ld. PCIT in par....
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....sioner of Income Tax but by going into the merits and making an addition, and not by way of remand, recording that there was failure to investigate. The ld. AR submits that in the instant case ld. PCIT has not pointed out any error or omission in the details filed by the assessee rather the whole allegation of the ld. PCIT is revolving around that the Assessing Officer has not made adequate enquiries and verification which in his opinion should have been made in a particular manner. He, therefore, prayed that the order passed u/s 263 of the Act be quashed. 7. On the other hand, the ld. CIT-DR vehemently supported the order of Ld. PCIT and submits that in para-5 of the assessment order, AO simply reproduced the reasons given by the assessee for the fall in gross profit. A bare perusal of which, it is evident that the AO has accepted the contention of the assessee without making any further enquiries or verification. The AO also failed to make enquiries with respect to substantial increase in project and installation expenses and further no enquiries whatsoever were made independently from the persons to whom commission was paid. Ld. CIT-DR submits that the assessment order is ver....
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....file item-wise details of project and installation expenses in specified format. The assessee had filed its reply on 31.10.2022, wherein ledger account of Narula Export was submitted along with other details as called for by the AO alongwith bills and vouchers. All these documents are placed paper book pages 60 to 188. 9. It is observed that the AO vide notice dated 04.11.2022 issued u/s 142(1) of the Act asked the assessee to file further details of projects and installation expenses with nature of work done and details of contractors. Besides this, AO asked the assessee to file details of various other expenses. The assessee in terms of letter dated 15.11.2022 had filed all these details along with relevant bills and vouchers which are placed in the paper book at pages 194 to 391. 10. Thereafter, vide notice under section 142(1) dated 17.11.2022, AO made specific query about the advances given to M/s Narula Exports and further asked to explain as to why the provisions of section 2(22)(e) should not be invoked. The said query letter is placed at page 322 of the paper book. Thereafter, the AO further issued notice on 18.11.2022 and asked the assessee to file details of person....
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....cus with which this complete scrutiny was to be taken up. The Assessing Officer had been given powers to examine all the accounts of the assessee with a view to determine whether the large value of cash deposited during the demonetization period needed to be brought to tax and whether the profits had been adequately recorded in view of the sales made. When considering the import of Explanation 2(a) of Section 263 of the Act, we are of the opinion that complete scrutiny, with such indicators does not mean that each and every aspect of the assessee's accounts was required to be looked into, if they were not immediately relevant to the reasons for the selection and in our opinion, a failure to conduct enquiries not related to the main reason for selection, would not render a case to be one of lack of enquiry or verification under Explanation- 2(a) of Section 263 of the Act. That being the case, we may examine the conclusions of the Ld. PCIT in the light of enquiries conducted by the Assessing Officer to determine whether in fact these conclusions were warranted. The Ld. PCIT has held that on examination of records, it is evident that the assessment order was passed without proper enqu....
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.... proceedings under Section 271C of the Act, whether these attract the revision provisions under Section 263 of the Act or not. We note that the learned PCIT was of the view that the investment made by the assessee in funds was not equity oriented funds and once these are not equity-oriented funds, these are not to be taxed under the special rate of taxation under Section 112A of the Act. We note that the assessee could explain before us that the funds are equity-oriented funds and we have given a clear finding in paragraph 6 of this order. We also find that the PCIT has not given a finding or has not observed that how these funds are not equity oriented funds and without that, the PCIT cannot invoke the revisionary power. We are of the view that consideration of the PCIT as to whether an order is erroneous insofar as it is prejudicial to the interest of the Revenue must be based on materials on record of the proceedings called for by him. If there is no such material on record on the basis of which it can be said that the PCIT acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without justification. In s....
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....cular view was taken. This view of ours is supported by the decision of Hon'ble Supreme Court in the case of The Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (Supreme Court)." 14. The Hon'ble Supreme Court in the case of Pr. CIT vs Shreeji Prints (P.) Ltd. reported in [2021] 130 taxmann.com 294 (SC) has held as under:- "Section 69, read with section 263, of the Income-tax Act, 1961 - Unexplained investments (Unsecured loans) - Assessment year 2013-14 - Assessee-company had received unsecured loans from two different companies - Commissioner noting that said loans were shown as investment in assessee's name in balance sheet of respective companies exercised revisionary powers and passed an order without giving an opportunity to assessee of being heard, invoking Explanation 2 to section 263 - High court by impugned order held that since Assessing Officer has made inquires in details and accepted genuineness of loans receive by assessee, such view of Assessing Officer was a plausible view and same cannot to be considered erroneous or prejudicial to interest of revenue - Whether SLP against said impugned order was to be dismissed - Held, Yes" 15. The Hon....
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.... enshrined in Section 263 of the Act. The Revenue in the instant case has not been able to make out a sufficient case that the CIT has exercised the power in accordance with law. Rather, in our considered opinion, the facts of the case do not indicate that the twin conditions contained in Section 263 of the Act are fulfilled in its letter and spirit. 28. Notably, the ITAT, while making a categorical finding that the CIT had failed to point out any definite or specific error in the assessment order, has satisfactorily explained both the claims in question in Paragraph 8.2 of its order, which reads as under:- "8.2 In the Impugned Order, the Ld. Commissioner of Income Tax-IV, Delhi held that the AO had not examined the aforesaid two issues properly and, therefore, set aside the issues for further inquiries to be conducted by the AO. As regards the first issue is concerned, we note that out of total provision of Rs. 1114.68 lacs, a sum of Rs. 7,60,76,105/- was suo moto added back in the computation of income and a further sum of Rs. 73,46,160- was disallowed by the AO in the original assessment order dated 30.3.2005. Therefore, out of Rs. 1114.68 lacs Rs. 834.22 lacs ....
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....see observed as under:- "In our opinion, the order passed by the High Court, which upheld the decision of the Tribunal, is correct on facts and in law. This case does not involve a failure by the assessee officer to conduct any investigation. Instead, according to the Revenue, it is a case where the assessing officer having made inquiries erred by not making additions. The assessee does not have control over the pen of the Assessing Officer. Once the Assessing Office carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee. In such cases, it would be wrong to say that the Revenue is remediless. The power under Section 263 of the Income Tax Act, 1961, can be exercised by the Commissioner of Income Tax, but by going into the merits and making an addition, and not by way of a remand, recording that there was failure to investigate. There is a distinction between the failure or absence of investigation and a wrong decision/conclusion. A wrong decision/conclusion can be corrected by the Commissioner of Income Tax with a decision on merits and by making an addition or disallowance ....
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....as held in Gabriel India Ltd.(supra). However, the expression "prejudicial to the interest of the revenue", as held by the Supreme Court in the Malabar Industrial Co. Ltd. (supra), is not an expression of art and is not defined in the Act and, therefore, must be understood in its ordinary meaning. The Commissioner's exercise of revisional jurisdiction under the provisions of Section 263 cannot be based on whims or caprice. It is trite law that it is a quasi-judicial power hedged in with limitation and not an unbridled and unchartered arbitrary power. The exercise of the power is limited to cases where the Commissioner on examining the records comes to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interest of the revenue and that fresh determination of the case is warranted. There must be material to justify the Commissioner's finding that the order of the assessment was erroneous insofar as it was prejudicial to the interest of the revenue. 20. The Hon'ble Delhi High Court, in the aforesaid case of Vikas Ploymers (supra) further observed that there is a fine though subtle distinction between "lack of inquiry" and "....