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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned order dated 30/03/2023, passed under section 263 of the Income Tax Act, 1961 ("the Act") by the learned Principal Commissioner of Income Tax, Mumbai-1, Mumbai, [“learned PCIT”], for the assessment year 2018–19.
In its appeal, the assessee has raised the following grounds:–
“1. The Ld. Principal Commissioner of Income Tax, Mumbai - 1, (hereinafter referred to as the Principal CIT) erred in law and on facts in holding that the scrutiny assessment order dated 18-01-2021 passed by the Assessing Officer is erroneous and prejudicial to the interests of revenue.
CEC-UBC (JV) ITA no.1896/Mum./2023
2. The Principal CIT erred in law and on facts in not appreciating that the assessment order was neither erroneous nor prejudicial to the interests of revenue as a result of which the same cannot be revised under section 263 of the I.T. Act.
3. The Principal CIT erred in not appreciating that revision jurisdiction under section 263 cannot be exercised when issues raised in his show cause notice were satisfactory replied to by the Appellant. 4. The Principal CIT erred in not appreciating that revision jurisdiction under section 263 cannot be exercised in respect of issues not covered by his show cause notice. 5. The Principal CIT erred in not appreciating that the order passed by the Assessing Officer was not unsustainable in law so as to invoke jurisdiction under section 263 of the I.T. Act. 6. The Principal CIT erred in not appreciating that assessment order cannot be revised under section 263 of the I.T. Act if the assessment order has been passed by the Assessing Officer after adequate inquiries. 7. The Principal CIT erred in not appreciating that assessment order cannot be revised under section 263 of the I.T. Act merely because the Assessing Officer has not discussed in his order the result of inquiries duly conducted by him. 8. The Principal CIT erred in laws and on facts in invoking his jurisdiction under section 263 of the I.T. Act, presumably on the basis of audit objection. 9. The Principal CIT erred in stating in his order that the Appellant filed the return declaring total loss of Rs.2,29,25,897/-, without appreciating that total income of the same amount was returned in the return. The Appellant prays that reliefs on the aforesaid grounds be allowed and the order passed by the Principal CIT under section 263 of the I.T. Act be quashed accordingly. The Appellant craves leave to add to, alter, amplify, modify and delete any of the aforesaid grounds at or before the hearing.”
In the present appeal, the assessee is aggrieved against the invocation of revisionary proceedings under section 263 of the Act by the learned PCIT.
The brief facts of the case as emanating from the record are: The assessee was formed as a joint venture vide partnership deed dated 26/05/2017 comprising of partners, namely Mr. Viren R. Shah (partner of Cimechel Electric Co.), Mr. Saumil V. Shah, and Mr. Umesh S. Munde Page | 2
CEC-UBC (JV) ITA no.1896/Mum./2023 (proprietor of M/s Umesh & Bros. Construction). The assessee is engaged in the business of electrical engineering, manufacturing, and trading in industrial goods and equipment, execution of large electro-mechanical and civil contracts, providing consultancy service, and advising on electro-mechanical engineering matters for industries and other ancillary business. For the year under consideration, the assessee filed its return of income on 19/02/2019 declaring a total income of Rs. 2,29,25,893. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. After considering the replies along with details and documents electronically filed by the assessee, the Assessing Officer (“AO”) vide order dated 18/01/2021 passed under section 143(3) read with sections 143(3A) and 143(3B) of the Act accepted the returned income of the assessee.
Subsequently, vide notice dated 22/02/2023, issued under section 263 of the Act, revisionary proceedings were initiated in the case of the assessee on the basis that the AO passed the assessment order without proper verification of facts as from the record it was noticed that the partners have contributed capital of Rs. 2,00,05,000 but the same was not examined by the AO during the assessment proceedings. Further, it was alleged that the AO did not examine whether the said contribution was from explained sources or not. It was also alleged that the AO did not examine the various aspects of the partnership deed. Accordingly, it was alleged that the assessment order is erroneous insofar as it is prejudicial to the interest of Revenue.
CEC-UBC (JV) ITA no.1896/Mum./2023
In response to the aforesaid notice, the assessee submitted that the return filed by it was selected for scrutiny and various details were sought during the assessment proceedings vide notice issued under section 142(1) of the Act, which was duly furnished by the assessee as per the requirement from time to time. It was further submitted that after being satisfied with the submissions filed by the assessee, the AO passed the assessment order accepting the income as per the return filed. It was further submitted that the assessee filed various details which include the partnership deed, partners’ capital account, and the confirmation and source of capital introduced as well as relevant bank statements. The assessee also furnished certain information as required by the learned PCIT during the revisionary proceedings.
After considering the submissions of the assessee, the learned PCIT vide impugned order did not agree with the submissions of the assessee and held that during the assessment proceedings neither any enquiry in respect of the capital contribution by the partners was conducted nor any submission was made by the assessee. It was further held that the amount was advanced to Cimechel Electric Co. and thus fund was routed to the account of the partners of Cimechel Electric Co., namely Mr. Viren R. Shah and Mr. Saumil V. Shah by the assessee by partner of Cimechel Electric Co. and thereafter the amount was again routed to the account of the assessee which is in the nature of cash trail with routing of funds from a partnership concern to the joint venture. Accordingly, the learned PCIT, vide impugned order, after referring to Explanation-2(a) to section 263 of the Act set aside the assessment order and directed the AO to pass a fresh assessment order after conducting all the CEC-UBC (JV) ITA no.1896/Mum./2023 necessary inquiries and verifications as warranted on the facts of the case and also after giving due opportunity of being heard to the assessee. Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. The assessee was formed as a joint venture amongst Mr. Viren R. Shah, Mr. Saumil V. Shah, and Mr. Umesh S. Munde vide partnership deed dated 26/05/2017. Mr. Viren R. Shah is also a partner of Cimechel Electric Co., while Mr. Saumil V. Shah has been working with his father, Mr. Viren R. Shah, in Cimechel Electric Co. From the record, it is evident that Cimechel Electric Co. is in the business since last 25 years. As per the assessee, it was awarded work from the Railway for overhead wiring. Since the assessee firm was new in the business and the work was highly technical and required a huge workforce, accordingly the same was sub-contracted to well-established Cimechel Electric Co. at the agreed rate since it had the ready infrastructure to cope with the job.
It is further evident from the record that the return filed by the assessee was selected for scrutiny through CASS due to the reason of the introduction of large capital or share capital in the year under consideration by the assessee. The copy of the notice dated 22/09/2019 issued under section 143(2) of the Act and the reason for selection for the case for scrutiny through CASS forms part of the paper book from pages 1-4 and page 13, respectively. We find that vide notice dated 17/01/2020 issued under section 142(1) of the Act, forming part of the paper book from pages 5-12, the assessee was asked to furnish detailed notes on each point of selection of the return for scrutiny Page | 5
CEC-UBC (JV) ITA no.1896/Mum./2023 through CASS. We further find that vide another notice dated 24/12/2020 issued under section 142(1) of the Act, inter-alia, the following query was raised by the AO:-
“3. In respect of introduction of capital in the JV by the partners, please provide the ITR of last 3 years to substantiate the creditworthiness and the bank account statement for the F.Y.2017-18 as proof of genuineness of transaction. Please furnish the source of addition in capital by partners.”
In response to the aforesaid notice, the assessee filed its reply on 09/01/2021, forming part of the paper book from pages 64-124, inter-alia, making the following submissions:-
“3. ITR of Last 3 years i.e. FY 16-17, FY 15-16, FY 14-15 of all the partners is attached in Annexure-3 Bank accounts statements for FY 17-18 of Partners and or firm from where Capital is introduced. Mr Viren Shah and Mr Saumil has introduced capital in the firm by withdrawing from their Firm Cimechel Electric co. Mr Umesh Munde has not introduced any capital in the Financial year 2017- 18. Copy of Capital account of partners is attached herewith. The copies of Relevant Bank statement of M/s Cimechel Electric co from where the partners Mr Viren Shah and Saumil Shah has withdrawn the amount and introduced in the Firm as Capital. Annexure 4 and Annexure 5.”
From the aforesaid details, we find that the assessee not only furnished the copy of the income tax return and the computation of income but also furnished the bank statement of the assessee highlighting the capital contribution made by the partners during the year, the ledger account of the partners in the books of the assessee as well as bank statement of partners highlighting payment made to the assessee. Therefore, from the perusal of the aforesaid documents, forming part of the paper book, it is sufficiently evident that the return filed by the assessee was selected for scrutiny, inter-alia, particularly to examine the introduction of large capital or share capital in the year under consideration. Further, the AO also examined this issue by seeking Page | 6
CEC-UBC (JV) ITA no.1896/Mum./2023 various information from the assessee, which was duly furnished by the assessee to substantiate the flow of funds from the partners’ account in Cimechel Electric Co. to the assessee. It is further pertinent to note that in the present case, some of the partners in Cimechel Electric Co. and the assessee are common. Therefore, these very partners have transferred their funds from one entity to the assessee which has been duly substantiated with the material placed on record. Further, it is also evident from the record that the assessee has also furnished a copy of partnership deed dated 26/05/2017 during the assessment proceedings, which clearly highlighted the name of the partners and the share of their profit/loss. It is further pertinent to note that vide impugned order the learned PCIT in para 9 though agreed that the assessee has explained the capital contribution, however, even then held the assessment order to be erroneous and prejudicial to the interest of the Revenue on the basis that no enquiry in this respect nor any submission was made during the assessment proceedings. From the record, it is evident that the AO had examined the issue of capital contribution by the partners in the assessee firm, during the assessment proceedings. From the perusal of the notices issued by the AO and the reply filed by the assessee, we find that this issue was specifically raised during the scrutiny assessment proceedings and the same was duly replied to by the assessee. Therefore, it cannot be concluded that this aspect was not examined by the AO. We find that the Hon’ble jurisdictional High Court in CIT vs Reliance Communication Ltd, [2016] 69 taxmann.com 103 (Bombay) held that the fact that the AO did not make any reference in the assessment order cannot make the order erroneous when the issues were indeed looked into. Thus, in view of the facts and Page | 7
CEC-UBC (JV) ITA no.1896/Mum./2023 circumstances of the present case, we are of the considered opinion that this issue was duly examined by the AO during the scrutiny assessment proceedings. Therefore, the impugned revision order passed under section 263 of the Act is set aside.
In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 14/12/2023