M/S. SANEE INFRASTRUCTURE PVT. LTD.,BHOPAL vs. THE PR CIT , BHOPAL

PER MANISH BORAD, AM.

The above captioned appeal filed at the instance of assessee

pertaining to Assessment Year 2015-16 is directed against the

orders of Ld. Pr. Commissioner of Income-2 (in short ‘Ld.PCIT’],

Bhopal passed u/s 263 of the Act dated 31.07.2018.

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the assessee is a company engaged in business of civil

construction. Return of income declaring income of Rs. 46,98,020/-

for the Assessment Year 2015-16 was filed on 30.09.2015. Case

selected under limited scrutiny followed by serving valid notices u/s

143(2) & 142(1)of the Act. The case was selected under limited

scrutiny for following reasons;

(i) High ratio of refund to TDS

(ii) Low net profit or loss shown from large gross receipts

(iii) Large other expenses claimed in the Profit & Loss A/c

(iv) Mismatch in amount paid to related persons u/s 40A(2)(b)

reported in Audit Report and ITR.

(v) Mismatch between income/receipt credited to P&L A/c

considered under other heads of income and income from

heads to income other than business/profession.

The Ld. A.O asked the assessee to produce documents related

to above mentioned reasons to which reply was received which also

forms part of assessment order. Ld. A.O made ad-hoc disallowance

of Rs. 60,586/-, Rs. 3,50,000/- and Rs.2,00,000/- out of the 2

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Directors travelling expenses, Employees benefit expenses and

other expenses respectively. Thus after making addition of

Rs.6,10,586/- income was assessed at Rs.53,08,610/-.

Subsequently Ld. PCIT on examining the assessment records

observed that the Ld. A.O failed to examine the reasons for which

limited scrutiny was taken up. He also observed that what was

required to be examined had not at all been carried out by the Ld.

A.O and therefore the assessment framed on 2.5.17 is erroneous

and prejudicial to the interest of revenue. Ld. PCIT accordingly

within his revisionary powers u/s 263 of the Act set aside the

assessment order and directed the Ld. A.O to assess it afresh as per

the direction given in the order u/s 263 of the Act.

challenging the order u/s 263 of the Act passed by Pr. CIT raising

following grounds of appeal:-

1.That in the facts and under the circumstances of the case the Ld Principal CIT-2, Bhopal erred in facts and also in law in invoking the provisions of s. 263 of the Income Tax Act and directing setting aside of the assessment order passed u/s 143(3) of the Act by the DCIT-5(l), Bhopal dt. 02.05.2017.

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has been initiated on account of change of opinion which is not permitted by law.

6.The case was selected for limited scrutiny in which AO has limited power in view of the CBDT directions for the verification of records. Hence expectation of in-depth verification and scrutiny by Ld Principal CIT-2 is unwarranted and illegal.

The appellant craves leave to add or amend any grounds of appeal, if necessary in the interest of justice under law. 4. From perusal of above grounds the sole grievance of the

assessee which needs to be adjudicated is that whether the Ld.

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PCIT was justified and was within his jurisdiction to invoke the

provisions of Section 263 of the Act thereby setting aside the

assessment order dated 02.05.2017 observing as follows:-

“10. I have gone through the assessment order and related records and also carefully considered the submissions made by the assessee in which it has been argued that no mistake has occurred in the order passed and the assessment order is neither erroneous nor prejudicial to the interests of the revenue and therefore the proposed action u/s 263 be dropped.

From the assessment record. it is seen that nothing was brought on record by I 1. the assessing officer in support of expenses claimed by the assessee with respect to salary & wage The order sheet entries were written in general nature and did not show what type of record , bills/vouchers, ledgers etc. were examined and verified during the assessment proceedings, it is also observed that no third party enquiry has been made for verification of vouchers related to expenses. The assessing officer failed to verify attendance register. salary register, provident fund challans and various forms submitted to EPFO, ESIC Challan, labour license as no record was maintained regarding the production of salary register. attendance register and various forms submitted to FPFO. The nature of sub contract expenses of Rs. I. J 0 crore were not examined by the assessing officer. In spite of claiming all the conceivable expenses, .the assessee has claimed Rs. 1.42 crore under the head 'other expenses' which were not verified and examined by the assessing officer during the assessment proceedings. Trading results accepted by the assessing officer without making thorough inquiry/investigation and genuineness of sales/purchases/expenses and further without enquiring or investigating independently. The assessing officer vide notice u/s l42( I) dt. 06/03/2017 asked the assessee to give clarification with regards to reasons for the selection of the case for scrutiny mentioning only the reasons ill the notice. no further queries were made.

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the assessee submitted single reply on 24.03.2017 during the entire assessment proceedings which was accepted by the assessing officer without making any specific enquiry and further no independent enquiry has been made.

I 2. Regarding the mismatch in amount paid to related persons .the assessee vide its written reply dt. 24.03.2017 submitted "payment to related persons is genuine hence these were not disallowed in the audit report" which was not examined during-the assessment as no. further queries were made regarding genuineness of the payment to related person u/s 40A(2)(b). A.O has accepted the reply of assessee dt.. 24.03.2017 that payment to not disallowed in Audit report without any analysis or enquiry. Therefore. it is clear that the Assessing Officer has not applied his mind and assessment order is erroneous and prejudicial to interest of Revenue. It is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to complete the assessment as per law. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word ‘erroneous’ includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made.

1.Ram Pyari Devi Saraogi vs CIT (1968) 67 ITR 84 (SC) the Hon'ble Supreme Court has held that assessment made in undue haste and without making inquiries which are called for the circumstances of the case is erroneous and prejudicial to the interest of revenue.

2.Malabar Industrial Co. Ltd. V.CIT(2000) 243 [TR 83 (SC) Hon'ble Supreme Court has held that non-application of mind by the assessing authority on a particular issue, renders the assessment order susceptible to revision.

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4.- Pratap Footwear v ACIT (2003) SOT 638 (Jabalpur) (Trib.) the Hon’ble Tribunal has held that non-application of mind by the Assessing 0ffieer was prejudicial to the interest or revenue.

In view of the detailed reasons given and discussions made herein above, the assessment order u/s 143(3) dated 02.05.2017 made by the DCIT 5(1), Bhopal for the AY 2015-16 is hereby set aside u/s 263 with the direction to the AO to make it de novo on after giving reasonable opportunity to the assessee of being heard and after bringing on records the relevant supporting material and evidences in support of the action of the AO.

In this regard, the amendment made to Clause (a) to explanation 2 (inserted by finance act 2015 w.e.f. 1.6.2015 of section 263( I) of I.T. Act which is reproduced here below may also be kept in mind for guidance by the AO while passing the fresh assessment order pursuant to this order u/s 263. 5. Ld. Counsel for the assessee referred to the following written 7

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submissions and various judgments and decisions contending that

necessary enquiry was conducted by the Ld. A.O with regard to the

reasons for the limited scrutiny and additions have also been made

in the assessment order:-

Ground No. 1,2 & 3 2.1 The assessee company's case was selected for Limited Scrutiny for AY 2015-16 as mentioned in para 1 of assessment order and para 9 of order u/s 263 of the Act. Reasons for selection of case for limited scrutiny was as under-

5.Mismatch between income/receipt credited to Profit & Loss Account considered under other heads of income and Income from heads of income other than business/profession

Assessing officer has issued notice U/S 142(1) on 03.01.2017 and assessee has filed its submission on 01.02.2017 along with audited final accounts, bank details and other information.

Again a notice dt. 06.03.2017 was issued along with questionnaire requiring submission on above mentioned reasons for selection of case for

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scrutiny and assessment orders of last 6 years. Assessee submitted its reply on 24.03.2017 along with supporting documents. Assessing officer has reproduced this submission dt. 24.03.2017 in the assessment order.

Again statements of bank accounts were asked and assessee submitted on 01.05.2017. Books of accounts and vouchers were verified by the assessing officer.

As mentioned in the para 5, 6 & 7 of the assessment order, assessing officer has carefully test checked the Profit & Loss Account as shown by the assessee in audit report and also test checked the books of account, bill and vouchers. After verification of records, assessing officer has made addition of~ 6105861- into the income of assessee.

2.2 Ld Pr.CIT has specified certain documents and manner of examination of the documents which should have been followed by the assessing officer during assessment proceedings but assessing officer failed to examine. These are as under-

Low net profit or loss shown from large gross receipts

It is also observed that no third party enquiry has been made for verification of vouchers related to expenses. The assessing officer failed to verify attendance register, salary register, provident fund challans and various forms submitted to EP FO, ESIC Challan, labour license as no record was maintained regarding the production of salary register, attendance register and various forms submitted to EP FO.

My submission

Assessing officer has verified books of account and bills & vouchers of Salary & Wages of ~19532623/- and Staff Welfare Exp. Rs 2383483/- as mentioned in para 6 of assessment order. After verification of records, 9

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assessing officer has disallowed Rs.350000/-- in these heads. Assessee has acquired many updated plant and machineries which are capable to achieve more turnover but during the year it could obtain the business of~ 27.87 crores only as against Rs. 39.85 in last year. Certain expenses of fixed nature cannot be reduced in the same ratio of turnover. Depreciation of Rs. 3,60,89,084/- has been provided during the year which is major expenditure. During this year, Companies Act has changed method of calculating depreciation; hence depreciation has increased so much. It is also a reason for loss during the year. There are many expenditures in the Profit & Loss Account but Id. Pr.CIT has chosen only one head Salary & Wages in which she found that this account has not been verified properly. Inadequate enquiry for verification of one account cannot be considered as non- application of mind by assessing officer in the whole assessment.

Hence profit has reduced during the year.

Large Other Expenses claimed in Profit & Loss Account

The nature of sub contract expenses of Rs. 1.10 crore were not examined by the assessing officer. In spite of claiming all the conceivable expenses, the assessee as claimed Rs 1.42 crore under the head 'other expenses' which were not verified and examined by the assessing officer during the assessment proceedings.

My submission

Assessee has furnished copy of account of all expenses along with bills and vouchers during assessment proceeding along with submission dt, 24.03.2017 and assessing officer has verified these expenses as mentioned in the para 7 of assessment order and disallowed Rs.200000/-. IUS has been deducted on sub contract expenses. Other expenses have reduced to Rs. 1.42 croes from Rs. 2.05 crores in last year. Out of Rs. 1.42

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crores, Rs.1.32 crores is Provision for Performance Guarantee which has been found justified by the Hon'ble ITAT, Indore in the order dt. 19.07.2018 for AY 2008-09 in the assessee's case. Other Expenses in Profit & Loss Account is Rs. 7,71,40,909/- but Id. Pr.CIT has chosen one account Sub-contract Work amounting to Rs. 1,10,08,059/- in which she found that this account has not been verified Properly. Inadequate enquiry for verification of one account cannot be considered as non- application of mind by assessing officer in the whole assessment.

Mismatch in amount paid to related persons U/S 40A (2)(b) reported in audit report and ITR

No further queries were made regarding genuineness of the payment to related person u/s-40A (2)(b). AD has accepted the reply of assessee dt. 24.03.2017 that payment to related persons is genuine.

My submission

As required by the reason, mismatch is to be verified and not the verification of payments. There is no mismatch in the amount paid to related persons u/s 40A(2)(b) reported in audit report and ITR.

In the Income Tax Act, there is no provision which prescribes the specific document and manner of examination of these documents, which should be followed by the assessing officer during assessment proceedings. It is prerogative power of the assessing officer to examine the records according to his wisdom, discretion and a manner which he thinks proper. It is his power and discretion to allow or disallow any expenditure. Assessing officer has applied his mind and due diligence in passing the assessment order with disallowance of Rs. 610586/-..

Assessing officer has made full enquiries and verifications on the issues

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on the basis of which case was selected for limited scrutiny during assessment proceedings and applied his mind properly to assess the case.

This case was selected for limited scrutiny and Central Board of Direct Taxes has issued Instruction No. 20/2015 [F.N 0.225/269/2015_IT A -Ill dt. 29.12.2015 regarding important issues and Scope of scrutiny. Procedure for handling Limited Scrutiny has been specified in this instruction at Para 3. CBDT has confined assessing officer only to the specific issues for which case has been picked up for scrutiny. Assessing officer cannot go beyond it.

2.3 Thus this order u/s 143(3) of the Act dt. 02.05.2017 passed by DCIT-5(l) Bhopal for AY 2015- 16 is not erroneous as well as prejudicial to the interest of revenue as decided in the following cases-

Recently in the case of Satya Prakash Sharma vs PrCIT (2019) 77 CCH 0296 Kol Trib it was held that where enquiry was conducted by AO even if inadequate that would not by itself give an occasion to the Pr. CIT to interdict and interfere by exercising his revisional jurisdiction merely because he is of the opinion that some more enquiries should have been conducted in the matter.

In the case of Srinivasa Hair Industries vs ACIT (2019) 55 CCH 0089 Vishakapatnam Trib it was held that on inadequate enquiry and not lack enquiry, the L'd Pr.CIT is not allowed to invoke the jurisdiction u/s 263.

In the case of Shantai Exim Ltd. vs CIT (2016) 178 TT J (Ahd) 451 it was held that initiation of revision proceedings u/s 263 of the Act simply on the basis of proposal from AO is not valid.

In the case of Vikrant Mehra vs ITO (2016) 178 TTJ (Asr) (UO) 53 and CIT vs Max India Ltd. (2007) 213 CTR (SC) 266 it was held that there should

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be lack of proper enquiry by AO for revision u/s 263. AO having made sufficient enquiries and passed order after due application of mind, revision u/s 263 was not warranted. Where two views are possible and the ITO has taken one view with which CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue.

In the case of CIT vs International Tractors Ltd. (2017) 297 CTR (Del) 119, it was held that if interpretation of provision is debatable and further it is contrary to the principle of consistency, order u/s 263 was not warranted.

In the case of CIT vs Sohana Wollen Mills (2007) 207 CTR (P&H) 178 it was held that mere audit objection and merely because a different view can be taken are not enough to hold that order of AO is erroneous or prejudicial to the interest of revenue.

Ld Pr. CIT in her order u/s 263 of the Act has prescribed certain documents which should be checked by assessing officer to verify expenses. Ld Pr. CIT has following observation in para 11 of her order-

it is also observed that no third party enquiry has been made for verification of vouchers related to expenses. The assessing officer failed to verify attendance register, salary register, provident fund challans and various forms submitted to EP FO, ESIC Challan, labour license as no record was maintained regarding the production of salary register, attendance register and various forms submitted to EP FO

It is the discretion of assessing officer how to verify expenses for his satisfaction and what documents should be asked to verify expenses. L' d Pr. CIT cannot not dictate or specify the documents and manner of verification of expenses. Income Tax Act has bestowed discretionary power

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to assessing officer for verification of expenses to his satisfaction. Negligence of assessing officer is not allowed in the law and he should apply his mind. Hence this order u/s 263 of the Act is illegal.

One of the reason for selection of case for scrutiny and also the reason for passing order u/s 263 of the Act is as under-

Mismatch in amount paid to related persons u/s 40A (2)(b) reported in audit report and ITR

Ld Pr.CIT has mentioned in para 7 of order u/s 263 of the Act regarding this matter as under-

However the assessing officer has not examined nor commented in assessment order about the reasonableness of these payments or whether these payments were made at arm's length price.

Reason for selection of Case for scrutiny is mismatch and not verification of payment to related persons. Assessee has replied to the assessing officer that there is no mismatch of payment to related person between audit report and ITR. L d Pr. CIT has misinterpreted this reason that payment to related persons should be examined. Hence this order is illegal as based on the misinterpreted facts and wrong observations.

This case has been selected for limited scrutiny and as Central Board of Direct Taxes has issued Instruction No. 2012015[F.N0.225/269/2015-ITA_II] dt. 29.12.2015 regarding important issues and Scope of scrutiny. Procedure for handling Limited Scrutiny has been specified in this instruction at Para 3. CBDT has confined assessing officer only to the specific issues for which case has been picked up for scrutiny. Assessing officer Cannot go beyond it. 14

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Hence expectation of Pr. CIT for in-depth verification of records is unwarranted and illegal. 6. Ld. Counsel for the assessee also referred and relied following

judgments/decisions;

(i) Satya Prakash Sharma vs PrCIT (2019) 77 CCH 0296 KOl Trib (ii) Srinivasa Hair Industries vs ACIT (2019) 55 CCH 0089 Vishakapatnam Trib. (iii) CIT vs Max India Ltd (2007) 213 CTR (SC) 266. (iv) CIT vs International Tractors Ltd. (2017) 297 CTR (Del) 119 (v) CIT vs Sohana Wollen Mills (2007) 207 CTR (P&H) 178 (vi) Malabar Industrial Co. Ltd V/s CIT 243 ITR 83 (SC) (vii) Smt. Taradevi Agrawal V/s CIT 88 ITR 323 (SC) (viii) Rampyaridevi Saraogi V/s CIT 67 ITR 84 (SC) (ix) CIT V/s Nagesh Knitwears Pvt. Ltd 345 ITR 135 (Delhi HC) (x) Gee Vee Enterprises V/s Addl. CIT 99 ITR 375 (DelhiHC) (xi) Bhushan Steel Ltd V/s ACIT ITAT A Bench Delhi (xii) CIT V Deepak Kumar Garg 299 ITR 435 (M.P) (xiii) CIT V Mahavar Traders 220 ITR 167 (M.P) (xiv) Smt. Renu Gupta v CIT 301 ITR 45 (Rajasthan) (xv) PT Lashkari Ram V CIT 272 ITR 309 (Allahabad) (xvi) CIT V Himachal Pradesh Financial Corpn. 186 Taxman 105 (Himachal Pradesh) (xvii) CIT v/s Prafulla C Pant and Dharam Veer JJ 176

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Taxman 184 (Uttrakhand) (xviii) Mofussil Warehouse & Trading Co. Ltd V CIT 238 ITR 867(Madras) (xix) Durgalal & Co. V CIT 220 ITR 456 (Delhi) (xx) CIT V Active Traders (P) Ltd 24ITR 583 (Calcutta) (xxi) Addl.CIT V Mukur Corporation 111 ITR 312 (Gujarat)

placed before us and carefully gone through the judgments and

decisions relied by Ld. Counsel for the assessee. The sole grievance

of the assessee is against the legality of order issued u/s 263 of the

Act and the same being without jurisdiction since initiation of

proceedings u/s 263 of the Act is on account of change of opinion

which is not permitted by law.

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far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include— (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner undersection 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or] Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made 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.

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(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.—In computing the period of limitation for the purposes of sub- section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.

prejudice to the revenue by the erroneous assessment orders

passed by the A.O. Section 263 of the Act empowers the Pr.CIT/CIT

to initiate suo moto proceedings either where the A.O takes a wrong

decision without considering the materials available on record or he

takes a decision without making any enquiry into the matters,

where such enquiry was prima facie warranted. The PCIT/CIT is

well within his powers to treat an order erroneous if he/she

observes that the A.O should have made further enquiries before

accepting the wrong claim made by the assessee. The Assessing

Officer cannot remain passive in the face of a claim, which calls for

further enquiry to know the genuineness of the transactions. In

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other words Assessing Officer is required to decide the matter

judiciously and is also statutory required to make an assessment

u/s 143(3) of the Act after scrutiny and not in summary manner as

contemplated by Sub Section 1 of Section 143 of the Act. The A.O

should protect the interest of the revenue and to see that no one

dodge the revenue to escape the legitimate tax. The A.O is not

expected to put blinkers on his eyes and accept the claim him. It is

his duty to ascertain the truth of the facts stated and the

genuineness of the claim made in the report.

limited scrutiny on account of following reasons :-

(i) High ratio of refund to TDS

(ii) Low net profit or loss shown from large gross receipts

(iii) Large other expenses claimed in the Profit & Loss A/c

(iv) Mismatch in amount paid to related persons u/s 40A(2)(b)

reported in Audit Report and ITR.

(v) Mismatch between income/receipt credited to P&L A/c

considered under other heads of income and income from

heads to income other than business/profession. 19

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claim of the assessee regardless of reasons of selection of the case

for scrutiny without any investigation or bringing anything on

record to substantiate the assessee’s claim. Ld. PCIT also observed

that the Ld. A.O has merely made some ad-hoc disallowance of

expenses without any application of mind and thus the order

passed by the Ld. A.O dated 02.05.2017 is erroneous so far as

prejudicial to the interest of revenue.

enquiry was conducted by the Ld. A.O for the reasons for which

limited scrutiny was conducted, we would like to consider the

plethora of judgments referred and relied by the Ld. Counsel for the

assessee. On perusal of various decisions following two ratios are

established and Ld. Counsel for the assessee is referring to the

same through these judgements/decisions.

(i) Where there are two possible views and the Ld. A.O has

taken up one of the possible view then PCIT/CIT cannot

invoke the jurisdictionary power of Section 263 of the Act

(ii) Where enquiry was conducted by A.O even if inadequate

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that would not by itself give an occasion to the Pr. CIT

to interdict and interfere by exercising his revisional

jurisdiction merely because he is of the opinion that

some more enquiries should have been conducted in the

matter.

Bench in the assessee’s own case vide ITA No.289/Ind/2017 order

dated 19.7.2018 wherein Tribunal observed as under:-

“8. We have heard the rival contentions and perused material on going through the orders of the authorities below. There is no dispute with regard to the fact that the Ld. CIT(A) is empowered to invoke the provisions of section 263 where he considers that any orders passed by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue. The law is well settled that in absence of any of this condition would make the order invalid. It is also a settled position of law that where the AO has applied his mind and made inquiries and after making such inquiry, he adopts one of the possible views in that event order u/s 263 would not be justified. 9. Admittedly, in the present case reopening was also based on the same ground on which the Ld. CIT(A) preceded to exercise u/s 263 of the Act. The Hon'ble Madras High Court in the case of Indira Industries vs. Pr. CIT (supra)held that the principle of

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law was that it could be construed to be change of opinion only when same issue dealt with in reassessment was raised again in proceedings u/s 263. This is clearly articulated in Sat Pal Aggarwal’s case itself. In facts it would be seen that in Sat Pal Aggarwal’s case, reassessment proceedings and thereafter invocation of jurisdiction of CIT u/s 263 of the Income Tax Act were on the same set of grounds. In the case in hand as well, we find that reassessment and proceedings have u/s 263 of the Act were initiated on the same ground. Further, we find that Coordinate Bench of this Tribunal in the case of Assistant Commissioner of Income Tax vs Ashoka Buildcon Ltd. as relied by the AO wherein it has been held that where an assessee is executing an infrastructure development fixed price contract, the foreseeable losses of future years can be recognized following the rationale of AS-7 issued by ICAI, and such a provision is an allowable deduction. It is not controverted by the Revenue that the assessee has been claiming provision of expenditure in the present case and such provision was allowed to the assessee which is in accordance to AS-7. Under this fact in the light of the binding precedents, we are of the view that Ld. CIT was not justified to invoke the provision of section 263 in the case of the assessee hence we quash the order passed u/s 263 of the Act. The grounds raised in the appeal are allowed.

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referred to any decision but since he had relied to the finding of Ld.

PCIT, we need to consider the judgments referred and relied by the

Ld. PCIT.

v/s CIT (2000) 243 ITR 83 (supra) that “non application of mind by

the assessing authority on a particular issue renders the assessment

order susceptible to revision”.

ITR 84 (SC) has held that “the assessment made on undue basis and

without making enquiries which are called for in the circumstances of

the case is erroneous and prejudicial to the interest of revenue”.

Petition No.5009 of 2016 is also relevant wherein the Hon'ble Court

held as under ;

“There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional 23

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authority. This is a course of action that must be desisted from. However, the above is not the situation in the present case in view of the reasons stated by the learned CIT on the 3(2000) 243 ITR 83 (Hon'ble Supreme Court) 4 (2007) 295 ITR 282 (SC) 22 basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/ withdrawing the same gives rise to the necessity of further enquiry in the interest of revenue. The notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the claim has been withdrawn. We, therefore, are of the opinion that the learned CIT was perfectly justified in coming to his conclusions in so far as the issue No. (iii) is concerned and in passing the impugned order on that basis. The learned Tribunal as well as the High Court, therefore, ought not have interfered with the said conclusion. In the light of the discussions that have preceded and for the reasons alluded we are of the opinion that the present is a fit case for exercise of the suo motu revisional powers of the learned CIT under Section 263 of the Act. The order of the learned CIT therefore, is restored and those of the learned Tribunal dated 28th August, 2007 and the High Court dated 7th August 2008 are set aside. The appeal of the Revenue is allowed. 19. Now in light of the above judgments both in favour and against

the revenue we will examine the facts in view of ratios laid down

by Hon’ble Courts and Tribunal. We will first like to make the facts

straight and even at the cost of repetition we would like to mention

the reasons for which the case was selected for limited scrutiny.

ITANo.742/Ind/2018 Sanee Infrastructure Pvt. Ltd

(i) High ratio of refund to TDS (ii) Low net profit or loss shown from large gross receipts (iii) Large other expenses claimed in the Profit & Loss A/c (iv) Mismatch in amount paid to related persons u/s 40A(2)(b) reported in Audit Report and ITR. (v) Mismatch between income/receipt credited to P&L A/c

considered under other heads of income and income from

heads to income other than business/profession.

information supplied by the assessee during the course of

assessment proceedings, we find that questionnaire was issued u/s

142(1) of the Act on 03.01.2017 calling various information from

the assessee. In reply thereto assessee submitted his reply on

01.02.2017 submitting following documents :-

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point wise reply to the reasons for selecting the case for scrutiny

and this letter has been scanned in the assessment order also.

The Assistant Commissioner of Income Tax - 5(1) Bhopal.

Dear Sir,

Re.: Sanee Infrastructure Pvt. Ltd., D- 19, Machna Colony, Bhopal.

PAN: AAGCS8307M

Ref. Notice u/s 142(1) of the Act vide No. DCIT- 5(1)/BPLlI42(1)/206-17/411 dt. 06.03.2017 for AY 2015-16

Sub. : Submissions for assessment proceedings for AY 2015-16

I hereby submit point wise information as under: _

(a) High ratio of refund to TDS

As per return of income filed for AY 2015-16, TDS is ~ 6988150/- and refund claimed is Rs.5586610/-. Turnover of the year is Rs.27.87 crores and returned income is Rs. 46.98 lakhs which is 1.68. Reason for this lower profit is decrease in turnover certified by the contractee but the expenditure could not be reduced due to their nature. Lower turnover with set up of higher turnover is the reason of lower profit.

Due to lower profit, tax liability is less hence refund is more.

ITANo.742/Ind/2018 Sanee Infrastructure Pvt. Ltd

(b) Low net profit or loss shown from large gross receipts

Reason for lower profit is the same as mentioned in point (a) above.

(c) Large Other Expenses claimed in Profit & Loss Account

Rs. 34570900/- has been shown in the Profit & Loss Account filled in the return of income filed. Certain head of account has been given in the Profit & Loss Account in the return of income; hence remaining accounts are taken into Other Expenses. Other expenses of Rs. 3.45 crores is 12.37% of turnover which is reasonable. Copy of accounts of all other expenses is enclosed herewith.

(d) Mismatch in amount aid to related persons u/s 40A 2 b reported in audit re ort and ITR Payment to related persons is genuine hence these were not disallowed in the audit report. Mismatch between income/receipt credited to Profit & Loss Account considered under other heads of income and Income from heads of income other than business/profession

Details of Other Heads of Income in return of income is as under-

Interest on bank FDR 3727467

Dividend 32877

Purchase discount 19647

Short term capital gain 337286

VAT Refund 45603

4162880

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Interest on bank FDR, purchase discount and VAT refund are business income hence these are included in business income. Bank FDRs are made for the margin money of bank guarantee required for contract (performance guarantee, security deposit) and earnest money required for tender of contract. These FDRs are compulsorily made for running the business and not for earning interest as assessee has no idle fund for FDRs. Short term capital has been shown in the return. Dividend is tax free income.

2.Copies of assessment orders for last six years are enclosed here with. 22. Thereafter on 01.05.2017 information was provided regarding

various bank accounts held by the assessee.

1.Bank statements of following banks for the FY 2014-15 are enclosed .

Bank of India, cash credit A/c No. 900130100008226

Bank of India, current A/c No. 900120110000074

Bank of India, current A/c No. 901520110000195

Bank of India, current A/c No. 870220100010960

Bank of India, current A/c No. 950620110000265

State Bank of India, current A/c No. 11084739951

IDBI Bank, current A/c No. 03012000010867

Central Bank of India, current A/c No. 3431456632

State Bank of India, current A/C No. 63010127926

ITANo.742/Ind/2018 Sanee Infrastructure Pvt. Ltd

except these three submissions which were in reply to the

information asked in the notice issued u/s 142(1) of the Act, Ld.

A.O has examined the books of accounts on test basis but there is

no further questioning to the assessee which could show that Ld.

A.O has tried to investigate/examine all the reasons for which

limited scrutiny was taken up by the department

normal scrutiny the area of examining the records is much larger

than the one required in the case of limited scrutiny case. Because

when the case is selected for normal scrutiny each and every aspect

of the financial statement is to be looked into and A.O may resort to

some test check basis examination theory so as to complete the

assessment but the situation is little different for limited scrutiny

case. The reasons mentioned in the limited purpose scrutiny cases

are not been prepared by the Ld. A.O examining the records but

they are generated with the assistance of computer software. In the

present case assessee e-files Income Tax Returns, and Tax Audit

Report. The computers on the basis of programmes loaded therein

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compare various datas of preceding year and current year and also

match details of tax audit report vis-a-vis financial data mentioned

in the Income Tax Return and also the claim of Tax Deducted at

Source with the available records. The five reasons mentioned in

the instant case have been generated by computer assisted scrutiny

of data.

is required to keep his investigation and examination limited to the

extent of the reasons for which limited scrutiny has been taken up.

So his focus should be limited to the reasons but in such situation

what is required from the Ld. A.O is to put best of his focus and

pinpointed examination of information of the assessee so as to

arrive at the correct income of the assessee. The file records should

speak by itself that the Ld. A.O has given/delivered his best to

justify that in the scrutiny for limited purpose, no stone is left

unturned for the issues raised in the limited scrutiny case by way

of in depth examination.

Ld. A.O as far as the reason No.3 “Large other expenses claimed in

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the Profit & Loss Account” and reason No.5 i.e. “Mismatch between

income/receipt credited to P&L A/c considered under other heads

of income and income from heads to income other than business/

profession”, are concerned we find that the Ld. A.O has clearly

observed in the assessment order that he has checked the books of

accounts, bills and vouchers and has conducted sufficient enquiry

and had made some disallowance of expenses. Once enquiry has

been conducted with specific observation of having checked the

books of accounts, bills and vouchers then in these circumstances

Ld. PCIT was not justified in invoking the provisions u/s 263 of the

Act and holding that the assessment needs to be set aside since the

Ld. A.O has not examined properly the reasons No. 3 & 5

mentioned herein above which were also the reasons for selecting

the case of limited scrutiny.

conducted by the Ld. A.O with regard to reasons No. 1 & 2 and 4.

Reasons No.1 & 2 are inter related which relates to “High ratio of

refund to TDS and Low net profit or loss shown from large gross

receipts” and the reason No.4 relates to “mismatch in amount paid to

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related persons u/s 40A(2)(b) reported in the audit report and ITR” .

or loss from large gross receipts the assessee has submitted the

financial statement and mentioned few lines in his reply mentioning

that “reasons for these low profit is decrease in turnover certified by

the contractee but the expenditure could not be reduced due to their

nature. Lower turnover with set up of higher turnover is the reason

of lower profit. Due to lower profit, tax liability is less hence refund is

more”.

end the Ld. A.O seems to be fully satisfied and has not taken any

step further to examine the reasons for low net profit rate. As we

mentioned earlier that in limited scrutiny case the focus of the Ld.

A.O should be more sharp but in the instant case it does not seems

so. On referring to audited financial statement, Profit and Loss

Account and Balance sheet we observe that in the preceding

assessment year turnover of the assessee was 39.89 crores which

decreased to Rs. 27.87 crores and the cost of material consumed

decreased from 17.91 crores (approx) to Rs. 16.54 crores. The

ITANo.742/Ind/2018 Sanee Infrastructure Pvt. Ltd

percentage of decrease in turnover is not in consonance with the

percentage of decrease in cost of material purchased. Percentage of

cost of material purchased which was approximately 44.92% in

Assessment Year 2013-14 has increased to 60% for Assessment

Year 2014-15 but interestingly salary, wages expenses has come

down from 7.5% of the turnover to 7%. Now once these figures

were in front of Ld. A.O which is the main basis of reasons No. 1 &

2 the minimum required enquiry was towards examining decrease

in turnover and the increase in cost of material consumption. The

details of sales made in the preceding and current year and the

details for increase in purchase cost were the bare minimum details

which the Ld. A.O could have gone through to form an opinion.

Merely accepting the few liner reply of the assessee cannot be held

to be sufficient or minimum enquiry in case of such limited

scrutiny. The enquiry conducted by the Ld. A.O in the instant case

for reasons 1 & 2 cannot be termed as adequate enquiry. Rather

looking to the reply given by the assessee which is not at all clear in

itself, in our view the Ld. A.O has not conducted any enquiry with

regard to reasons No. 1 & 2 relating to High ratio of refund of TDS

and Low Net profit or loss shown for large gross receipts. Thus Ld. 33

ITANo.742/Ind/2018 Sanee Infrastructure Pvt. Ltd

PCIT was justified in setting aside assessment order by invoking the

provisions of Section 263 of the Act and holding that the Ld. A.O

has not conducted proper enquiry with reference to Reasons No. 1

& 2.

persons u/s 40A(2)(b) reported in audit report and ITR” the one small

reply submitted and accepted by Ld. A.O. is that “payment is

genuine hence these were not disallowed in the Audit Report”. Ld.

A.O seems to have to be fully satisfied with this reply of assessee

and accepted that the payment to related persons is genuine. The

mismatch arises because in the tax audit report details are

provided by the tax auditor about the payment made to the related

persons u/s 40A(2)(b). In the Income Tax Return there is a specific

column for mentioning the amount to be disallowed u/s 40A(2)(b)

which in this case is NIL. In the tax audit report prepared u/s

44AB of the Act auditor submits the annexure to the report in Form

3CD wherein various information need to be punched in by the

auditor. One of the information relates to payment to related

persons u/s 40A(2)(b). The auditor take information from the

ITANo.742/Ind/2018 Sanee Infrastructure Pvt. Ltd

assessee and gives the details of the relatives with the amount of

payment and the nature of such expenditure in the format provided

in Form 3CD. These details may help the Assessing Officer to

examine the payment related persons if the case is selected for

scrutiny. We can say that these details assist the Assessing Officer

to frame a correct assessment and energy is saved to gather related

information from the huge financial data maintained by the

assessee. There is hardly any occasion that such payment to

relatives is disallowed by the Tax Auditor in his report by way of

qualification of Audit Report and the same amount is mentioned in

the ITR. Since no disallowance is made by the Tax Auditor the

details of payment made to the relatives is mentioned in Report but

the amount in ITR is ‘NIL’ there occurs mismatch.

143(2) of the Act with one of the reasons relating to the mismatch to

payment made to relatives it is not that simple that the Ld. A.O

merely matches the I.T return to the Tax Audit return and comes

to a conclusion that there is no mismatch. It will be too narrow

approach which cannot be accepted in scrutiny cases. So what is

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required on the part of the Ld. A.O is to call for the details for the

payments made to the related persons and examine the

transactions as per the provisions of Section 40A(2)(b) of the Act

and after examining the details if he frames a view that such

payments are neither excessive nor unreasonable with regard to

fair market value and goods and services, may infer that no

disallowance is called for. This examination of the transaction of

payment made to relatives u/s 40A(2)(b) of the Act should be well

documented and assessment records should speak by itself about

the enquiries conducted by the Ld. A.O. The records of the instant

case speaks that no details were filed by the assessee before the Ld.

A.O to prove the reasonableness of payments made to relatives nor

any indication is there on behalf of the Ld. A.O to call for specific

details relating to payment to relatives u/s 40A(2)(b) of the Act.

Thus in our considered view there is “no enquiry” about the reasons

No.4 i.e mismatch in amount paid to related persons u/s

40A(2)(b) and therefore Ld. PCITT has rightly invoked his power

u/s 263 of the Act setting aside the order of Ld. A.O with regard to

these reasons.

ITANo.742/Ind/2018 Sanee Infrastructure Pvt. Ltd

view of the discussions and judicial pronouncements referred above

are of the considered view that the action of Ld. PCIT of invoking

the provisions of Section 263 of the Act and setting aside the

assessment order dated 2.5.2017 is partly held to be justified. We

accordingly hold that for the reasons No.1, 2 & 4 namely “High rate

of refund of TDS, “Low net profit or loss shown for large gross

receipts and “mismatch in amount paid to related persons u/s

40A(2)(b) reported in audit report and ITR”, action of the Ld. PCIT is

confirmed and the matter has been rightly set aside to the Ld. A.O

for afresh adjudication in the light of our above finding as well as

the finding of CIT/PCIT. However with regard to Reasons No. 3 & 5

“Large other expenses claimed in Profit & Loss Account and

mismatch between income/ receipt credited to Profit & Loss account

considered under other heads of income and income for heads of

income other than business/profession “ , in our considered view a

proper enquiry was conducted by the Ld. A.O and details were duly

examined before concluding the assessment by disallowing certain

expenses and once the enquiry has been conducted then the action

of Ld. PCIT to make enquiry as per his opinion is uncalled for and 37

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thus in the set aside proceedings Ld. A.O has not to make any

further enquiry or investigation with regard to reasons No. 3 & 5.

Thus the appeal of the assessee is partly allowed as per the terms

indicated herein above.

The order pronounced in the open Court on 01.06.2020.

Sd/- Sd/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER नांक /Dated : 1st June, 2020 /Dev Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file.

By Order, Asstt.Registrar, I.T.A.T., Indore