M/S. ARSH VISION C/O- M/S. MAHENDRA GARGIEYA & ASSOCIATES, ADVOCATES & TAX CONSULTANTS, 537-539, 5TH FLOOR, MAHIMA'S TRINITY, NEAR JYOTI RAO PHULE COLLEGE, NEW SANGANER ROAD, JAIPUR,JAIPUR vs. DCIT CIRCLE-1, AJMER, CIRCLE-1, AJMER

During the course of hearing, the ld. AR submitted that it is a case of change of opinion in as much as the Assessing Officer has already applied his mind and formed an opinion. It was submitted that the assessment was completed u/s 143(3) after making various enquiries and detailed investigation, the AO raised detailed queries arising from the discussion through query letter dated 02.08.2017 and in response, the assessee also filed submission dated 22.08.2017. It was submitted that the AO had evidently made reasonably detailed enquiries and collected relevant information. Thus, it is a case of change of opinion in as much as the AO after making due investigation and application of mind completed the assessment and now the ld. Pr. CIT has substituted the AO’s opinion which is not permissible within scope of section 263. In support, the reliance was placed on the Hon’ble Rajasthan High Court decision in case of CIT vs. Ganpat Ram Bishnoi (2005) 198 CTR (Raj) 546.

Coming to the each of the matters raised by the ld. Pr. CIT in his show cause notice, firstly, regarding the claim of depreciation on the residential properties, the ld. AR submitted that, the subjected property is being used by the assessee firm for the purpose of business purpose i.e. for godown and office which fact was brought before the AO also and after necessary verification, he has accepted the same. In support, the reference was drawn to the Question No. 2 of the questionnaire dated 02.08.2017 issued by the AO and the reply filed by the assessee. It was submitted that the AO was 2

Regarding the claim of depreciation on scooter which was purchased in the name of partner of the assessee firm, it was submitted by the ld AR that the said scooter was purchased for and on behalf of the firm, in the name of the partner Shri Ashish Deedwania. The payment against the same was made by the assessee firm only. A perusal of the bank statement shows payment made to Raj Motor of Rs. 56,000/-. Admittedly, the scooter appears in the balance sheet of the assessee firm. In support, the reliance was placed on the Co-ordinate Bench decision in case of Jain Transport Co. vs. ITO (1985) 22 TTJ (JP) 457 and Shri Mangal Singh Palsania vs. ACIT (in ITA No. 53/JP/2014 vide order dated 31.03.2016).

Regarding the matter relating to interest on FDR of Rs. 3,36,620/- not included while calculating allowable remuneration to partners u/s 40(b), it was submitted that the assessee during the revisionary proceeding has stated that the said FDRs were given as guarantee to Sony India Pvt. Ltd and Canon Ltd. who are supplier of printers and thus the interest on FDRs being 3

Lastly, regarding the direction given by the ld. Pr. CIT to the AO to initiate penalty proceedings u/s 271(1)(c) in respect of ad-hoc disallowances of expenses made in the assessment order, it was submitted that no penalty can be levied on mere disallowance of expenses and on mere estimation. It was further submitted that , the ld. Pr. CIT cannot be invoked revisionary jurisdiction u/s 263 to direct AO to initiate the penalty proceeding and in support, reliance was placed on the Hon’ble Rajasthan High Court decision in case of CIT vs. Keshrimal Parasmal (1986) 27 Taxman 447 (Raj). It was submitted that arriving at a satisfaction is the foundation of initiation of proceedings u/s 271(1)(c) and such satisfaction has to be recorded by the AO during the course of assessment proceedings and in the instant case, non-initiation of penalty proceedings shows that the AO of the view that it is not a fit case for initiation of penalty and hence he did not initiate the penalty. Therefore, non-initiation of penalty proceedings would not be lead 4

Per contra, the ld. DR taken us through the finding of the ld. CIT(A) and regarding claim of depreciation on residential property, it was submitted that on perusal on the sale deed, it is clear that the said property is a residential property and can be used for residential purpose only. The assessee has not furnished any documentary evidence which can prove that the use of property has been converted from residential to commercial. Regarding the photograph of a room with two tables and some chairs where a person is shown to have been working on laptop and the other photograph where some boxes of Symphony winter air cooler have been shown, it was submitted that on perusal of said photographs, it cannot be said that the assessee has used the property for its business purposes. There is no sign board or other indication in both the photographs, which can substantiate the claim of the assessee that the assessee is using the property for its business purpose. Further, referring to the photograph of the house and site plan of the property showing bed rooms, toilets, kitchens, bathroom, kitchen store room, lounge etc, the AO failed to enquire into each of such places i.e. rooms etc. to see the use thereof and therefore, it is clear that an erroneous and prejudicial order has been passed by the Assessing Officer on account of lack of enquiry. Further, the assessee has furnished fee receipt issued by the Sub-Registrar along with sale deed however, on going through the same, the evaluated value taken by the Sub-Registrar is again not clearly shown therein.

Regarding claim of depreciation on scooter, it was submitted that the same is in the name of partner of the assessee firm, and the firm had no 5

Regarding placing of FDRs and considering the interest on said FDRs for the purpose of computation of partner’s remuneration u/s 40(b), it was submitted that the assessee has merely raised its contentions that said FDRs were placed for business purposes. However, it has not furnished any documentary evidence to substantiate its claim. No documents in the form any letter or contract agreement has been furnished which prove that the assessee has made the FDR for giving guarantee to the Canon India Pvt. Ltd. and Sony India Ltd.

He accordingly supported the order passed by the ld. Pr. CIT. Further, in support of his contentions, he has relied on the following decisions: • Daniel Merchants P. Ltd and others vs. ITO (SLP No. 23976/2017 dated 29.11.2017) • Virbhadra Singh [HUF] vs. Pr. Commissioner of Income-tax [2017] 86 taxmann.com 113 (HP) • Commissioner of Income-tax vs. Ballarpur Industries Ltd. [2017] 85 taxmann.com 10 (Bombay) • Commissioner of Income-tax vs. Bhawal Synthetics (India), Udaipur [2017] 81 taxmann.com 478 (Raj.) • Malabar Industrial Co. Ltd. vs. Commissioner of Income-tax [2000] 109 Taxman 66 (SC)

We have heard the rival submissions and perused the material available on record. We find that it is a case where the return of income filed 6

In order to examine the rival contentions, we therefore refer to each of the matters raised by the ld Pr CIT in his show-cause notice and the contents of the show-cause reads as under:

In the instant case, where the matter was selected for complete scrutiny and there are addition to the fixed assets during the year, it is ordinarily expected that the Assessing officer examines these transactions thoroughly from the perspective of satisfying the twin test of ownership and usage for purposes of business rather than merely relying on the information submitted by the assessee company. It is not a question of kind and extent of enquiry and hence, a difference of approach and methodology of examination of a particular transaction as done by the AO and as suggested by the ld Pr CIT. No doubt every Assessing officer has his unique style of functioning and no hard and fast rule can be laid down as to how he should conduct the enquiry in discharge of his statutory functions. However, where the factual scenario of a case prima facie shows the description of property as residential and cry for looking deep into it in terms of acual usage for the purposes of business, then a mere collection of registry document and keeping that on record cannot be held as conducting an enquiry. In our considered view, it is a clear case of lack of enquiry on part of the Assessing officer and the order thus passed is clearly erroneous and prejudicial to the 11

In respect of claim of depreciation on scooter, we find that it is again a case of lack of enquiry on part of the Assessing officer. No queries were raised, no documents were furnished and therefore, there is no question of any examination being carried out by the AO. As we have held above, the AO has to satisfy himself about the ownership and usage of the property. In the instant case, the scooter is registered in the name of one of the partners of the firm and therefore, it was incumbent on part of the AO to examine the reason as to how the same was reflected in the balance sheet of the firm and whether any payments were made by the firm or not and whether the assessee firm can still claim depreciation on such scooter even though the scooter was not registered in the name of the firm. However, no such enquiry was conducted and matter was thus not examined at all. Similarly, no enquiry was conducted regarding usage of scooter for business purposes. Therefore, it is again a case of lack of enquiry on part of the Assessing officer and the finding of the ld Pr CIT that the order so passed by the AO is erroneous in so far as prejudicial to the interest of Revenue is upheld.

Similarly, we find that there is no enquiry and investigation carried out by the AO regarding the purpose for which the FDRs were created and placed as guarantee as so claimed by the assessee for business purposes. Consequently, there is no examination and finding as to how the interest on such FDRs can be included for the purposes of computing the partner’s remuneration u/s 40(b). Therefore, it is again a case of lack of enquiry on part of the Assessing officer and the finding of the ld Pr CIT to this extent

Regarding expenses of Rs 5,55,789/- and Rs 5,43,296/- claimed by the assessee, we have gone through the findings of the ld Pr CIT and find that though there is a mention in the show-cause notice, there is no direction given by the ld Pr CIT to the AO to initiate penalty proceedings u/s 271(1)(c) and therefore, contention so advanced by the ld AR need not be examined and thus cannot be accepted where he says that such a direction is beyond the scope of revisionary power u/s 263 of the Act as the same is not borne out of records. All the ld Pr CIT has stated is that these expenses so claimed by the assessee include inadmissible expenses and the AO failed to make the enquiry and identify such expenses and therefore, the order so passed by the AO is erroneous in absence of making enquiry/investigation and we therefore, don’t see any infirmity in the said findings of the ld Pr CIT.

In light of above discussions and in the entirety of facts and circumstances of the case, we are of the considered view that there is no infirmity or illegality in action of the ld Pr CIT in exercising his revisionary jurisdiction u/s 263 of the Act and the order so passed and the directions so issued where the matter is set-aside to the file of the AO for making fresh enquiry and investigation, in respect of matters discussed supra and thus, limited to that extent, after providing reasonable opportunity to the assessee is hereby upheld and the grounds of appeal no. 3 and 4 so taken by the assessee are hereby dismissed.

No arguments/contentions were advanced in respect of ground no.1 and hence, the same is dismissed and ground no. 2 is general in nature which doesn’t require any separate adjudication. 13