TaxTMI 
TaxTMI 
2026 (8) TMI 364
X X X X Extracts X X X X
X X X X Extracts X X X X
.... income as assessed and accepted by the learned assessing officer under the facts and circumstances of the case. 3. The revisional proceedings concluded under the provisions of section 263 of the Act by the learned Principal Commissioner of Income-Tax-2, is without jurisdiction and is liable to be quashed in to under the facts and circumstances of the case. 4. The learned Principal Commissioner of Income-Tax-2, is not justified in exercising the powers conferred under section 263 of the Act in the absence of mandatory twin precedent conditions i.e., 'Order passed by the learned Assessing Officer being erroneous' and Prejudicial to the interest of revenue' under the facts and circumstances of the case. 5. The learned Principal Commissioner of Income-Tax-2, erred in law in exercising the power conferred under section 263 of the Act on those issues against which there was a specific application of mind by the learned Assessing Officer during the course of assessment proceedings under the facts and circumstances of the case. 6. The learned Principal Commissioner of Income-Tax-2 erred in law in holding that that the learned Assessing Offic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eliance on any cogent material on record on the facts and circumstances of the case, especially in view of the detailed questionnaires issued during the course of assessment proceedings and elaborate replies filed by the Appellant, including the detailed reply filed in response to section 263 proposal notice under the facts and circumstances of the case. The act of the learned Principal Commissioner of Income-Tax-2, in invoking the Explanation to section 263 to set aside the order of assessment in a mechanical and haste manner is not justified and the revision proceedings concluded under such circumstances do not have any legs to stand and is liable to be quashed in toto under the facts and circumstances of the case. 12. The learned Principal Commissioner of Income-Tax-2 erred in law in concluding the revision proceedings without drawing/ observing adverse remarks on the issues as were raised in the 263 proposals notice vis-à-vis replies filed by the Appellant. The revision proceedings concluded under such circumstances is liable to be quashed in toto under the facts and circumstances of the case. 13. The learned Principal Commissioner of Income-Tax-2, erre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee claimed TDS of Rs. 49,36,147/- on corresponding credit of Rs. 4,9361470/- from the party namely M/s Google India Ltd. However, as per the ledger copy submitted by the assessee during the assessment proceedings dated 11-02-2022, the total credit from M/s Google India Ltd as "pay out advance" was shown at Rs. 2,58,30,507/- only against which debited an amount of Rs. 2,47,64,564/- only. Hence, the learned PCIT noted that there was irregularity in the amount of credit of TDS allowed and corresponding proportionate income offered. 5.1 The learned PCIT further noted that the in the Form 3CD, the expenditure being "Fee for Professional or Technical Services" reported at Rs. 10,81,56,942/- however the same was disclosed at Rs. 6,95,96,711 only in the profit and loss account. 5.2 The learned PCIT found that above mentioned mismatches were not examined or verified by the AO. The AO without making the necessary enquiry completed the assessment accepting the return income which in erroneous insofar prejudicial to the interest of the Revenue. Accordingly, the learned PCIT issued show cause notice under section 263 of the Act proposing to revise the assessment order. 6. In respons....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee was selected for scrutiny assessment to verify the TDS credit brought forward with the income offered to tax. It was found that reconciliation of income declared, payout advance and corresponding TDS was not brought on record. Further, the claim of the assessee that the invoice raised by the senior counsels was discounted and only net amount paid is not supported by the documentary evidence. The AO also has not brought on record the copy of agreement between the assessee and respective clients from whom the fees for the services have been charged. Accordingly, the learned PCIT held that the AO has not carried out the necessary enquiries and verification for which the case was selected for scrutiny. The learned PCIT also referred the provision of explanation 2 to section 263 of the Act and held that in terms of explanation 2 also the order passed by the AO is erroneous insofar prejudicial to the interest of the revenue and set aside the same. The learned PCIT directed the AO to make fresh assessment after verification of professional income and payout advances viz-a-viz TDS deducted thereon. The AO was also directed to verify the expenditure being the professional & techni....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rting documents, the AO consciously accepted the returned income and completed the assessment under section 143(3) of the Act. Therefore, it is not a case of lack of inquiry or non-application of mind by the AO. 13. With respect to the first issue raised under section 263 regarding alleged mismatch of TDS claimed from Google India Private Limited, the learned AR contended that the Principal Commissioner wrongly correlated external payout advances with total TDS. It was explained that TDS was deducted by clients on professional receipts payable to the assessee as well as on amounts payable to external senior counsels engaged on behalf of clients. Cost-to-cost reimbursements, though reflected in invoices, were not subjected to TDS. A complete reconciliation, supported by payout memos, invoices, TDS certificates and bank statements, was already furnished and placed on record which is enclosed in the paper book. 14. Regarding the second issue relating to professional fees and TDS under section 194J, the learned AR submitted that there is no discrepancy as alleged. The figures appearing in the Income and Expenditure Account and those reported in Form 3CD were reconcilable, and the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the scope and intent of section 263 of the Act, particularly when the original assessment was completed after due application of mind. 20. On the issue of alleged discounting of invoices, the learned AR submitted, without prejudice, that even if any discount was negotiated by the clients with the respective counsels, the same has no tax implication in the hands of the assessee, as the assessee has accounted only the final agreed amounts, deducted TDS thereon and made payments supported by bank statements and TDS certificates. Such commercial adjustments between clients and counsels cannot render the assessment order erroneous or prejudicial to the interests of revenue. 21. Similarly, with respect to the observation regarding non-furnishing of client agreements, the learned AR submitted that the assessee follows the cash system of accounting and recognizes income strictly on receipt basis. Income has been offered to tax on actual receipts and corresponding TDS has been claimed. Once revenue and bank ledgers were examined by the AO, non-production of agreements does not cause any prejudice to the revenue. 22. The learned AR further submitted that the Principal Commissioner t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....diction under section 263 of the Act. He contended that the order of the learned PCIT is in accordance with law and deserves to be upheld and the appeal filed by the assessee is liable to be dismissed. 26. We have heard the rival contentions of both the parties and perused the materials available on record. The entire controversy before us revolves around the validity of the assumption of revisionary jurisdiction under section 263 of the Act and whether the assessment order passed under section 143(3) read with section 144B of the is both erroneous and prejudicial to the interests of the revenue, which are the mandatory twin conditions for invoking section 263 of the Act. 26.1 The facts are largely undisputed. The assessee is a partnership firm engaged in the profession of advocacy and solicitor services and follows the cash system of accounting. The return of income for Assessment Year 2020-21 was filed on 02.12.2020 and the case was selected for limited scrutiny specifically to verify the issue of credit of brought-forward TDS. During the course of assessment proceedings, the Assessing Officer issued detailed notices under section 142(1) of the Act calling for exhaustive in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xternal counsels were wrongly correlated with the total TDS claimed. Second, it was observed that the amount of "Fees for Professional or Technical Services" reported in Form 3CD did not tally with the expenditure debited in the Income and Expenditure Account. 26.4 On the first issue relating to TDS and payout advances, we find merit in the explanation of the assessee. The assessee has consistently explained that amounts received from clients, including the Google Group, comprised of two components-its own professional fees and amounts received on behalf of independent external counsels engaged at the request of clients. TDS was deducted by the clients on the gross professional receipts, including amounts payable to external counsels. The portion attributable to external counsels was not income of the assessee and was shown separately as payout advances, which were later paid to the respective counsels after deduction of TDS. This accounting treatment is supported by client-wise ledgers, payout memos, bank statements and TDS certificates, all of which were placed before the Assessing Officer during the assessment proceedings. 26.5 The learned PCIT, in our considered view, has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing limited scrutiny. The record clearly shows that specific and pointed enquiries were made by the Assessing Officer and detailed replies were filed by the assessee. In such a situation, the case, at best, may fall within the realm of inadequate enquiry in the opinion of the learned PCIT, but it certainly is not a case of lack of enquiry. The law is well settled that section 263 of the Act cannot be invoked merely because the ld. Commissioner believes that further or more detailed enquiry should have been conducted. This fact can be verified from the AO's observation in the assessment order extracted as under: 3.3 Reasons for inference drawn that no variation is required on this issue - The case was selected for scrutiny as the brought forward TDS credit claimed by the Assessee is substantially lower than TDS credit carried forward in the preceding years and therefore, it was to be verified whether the brought forward TDS Credit and corresponding receipts has been correctly claimed. The Assessee during the Assessment proceedings submitted that it has been following cash system of accounting and the income is offered on receipt basis and therefore, the TDS is also claimed as and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessment order. The conclusions have been drawn largely on surmises, suspicion and a change of opinion, which is impermissible in law. 26.13 Apart from the above findings, we also deem it necessary to specifically address the contention of the assessee regarding the material inconsistency between the reasons recorded by the learned Principal Commissioner at the stage of initiation of proceedings under section 263 of the Act and the final findings and directions issued while setting aside the assessment order. 26.14 On careful perusal of the show cause notice issued under section 263 of the Act, it is evident that the learned Principal Commissioner initially proposed revision on a limited and specific premise, namely that the AO had allegedly failed to reconcile the TDS claimed viz-a-viz amount credited from Google India Ltd with the proportionate income offered to tax and had not verified the mismatch between the figures of expenditure being professional & technical services fee reported in Form 3CD and those debited in the Income and Expenditure Account. Thus, the jurisdiction under section 263 was assumed on the footing of alleged non-verification of specific numerical ....