NARENDRA SHARMA,DHOLPUR vs. PR.CIT, ALWAR

per CBDT Instruction No.20/2015 dated 29.12.2015, if the AO notice that

there is potential escapement of income exceeding Rs.5 lacs requiring

substantial verification on any other issue, the case may be taken up for

complete scrutiny with the approval of PCIT/CIT. However, the AO has

7 ITA 282/JP/2020_ Shri Narendra Sharma Vs PCIT

not made proper enquiry/investigation on the above issues and therefore,

order passed by AO is erroneous and prejudicial to the interest of

revenue.

vide its letter dated 02.03.2020 submitted that in course of assessment

proceedings, the AO required the assessee to furnish various information

vide notice u/s 142(1) dated 04.01.2017 including the issues for which

assessment was taken up for limited scrutiny and the same is duly

explained before the AO. With reference to three issues raised in show

cause notice u/s 263 of the Act it was explained that claim of deduction

under Chapter VI-A was not an issue for limited scrutiny, in respect of

large amount of sundry creditors, assessee has filed complete explanation

for the same in course of assessment proceedings (PB 24, Point No.6)

and in respect of direct and indirect expenses claimed in the P&L A/c, the

same is explained with reference to the increase in turnover/ expenses

vis-à-vis that in the previous year. Thus, it is contended that AO passed

the order after complete verification/ enquiry and thus, order passed by

him is not erroneous or prejudicial to the interest of revenue. The Ld.

PCIT, however, at Page 12-13 of the order observed that (i) AO has not

asked the assessee to furnish the capital account in support of claim of

deduction under Chapter VI-A nor the same is mentioned in the tax audit

8 ITA 282/JP/2020_ Shri Narendra Sharma Vs PCIT

report (ii) the major sundry creditors of Rs.4.10 crores is in the name of

M/s Krishna Infrastructure but confirmation of sundry creditor is not filed

except in case of M/s Krishna Infrastructure, further copy of ledger

account of assessee in the books of sub-contractor has not been called

(iii) net profit shown is unverified with reference to direct and indirect

expenses claimed in P&L A/c of which the major expenses to the extent

of Rs.8,53,19,970/- relate to sub-contract expenses of which

Rs.7,92,35,635/- pertain to M/s Krishna Infrastructure and thus, the claim

of direct expenses is interlinked with sundry creditors. Accordingly, the

order passed by AO is erroneous and prejudicial to the interest of revenue

on account of non-examination of case properly on the issue specially

‘large increase in sundry creditors with respect to turnover as compared

to preceding year’. He further observed that during proceedings u/s 263

assessee failed to submit the reply on the issues raised through notice

dated 05.02.2020 and AO has not made proper investigation and

verification on these issues. Accordingly, the order passed by AO is set

side with the direction to properly examine all the issues.

assessee was picked up for limited scrutiny to verify the mismatch

between contract receipt, sales turnover, tax credit mismatch and

increase in sundry creditors. All these four issues were examined by the

9 ITA 282/JP/2020_ Shri Narendra Sharma Vs PCIT

AO in detail by issuing notice u/s 142(1) of the Act dated 04.01.2017 by

raising six queries, which is available at page No. 4 of the assessee’s

paper book. The assessee explained all these queries and the mismatch

between Form 26AS vis-à-vis audited P&L A/c with reference to the

turnover/ gross receipt, TDS credit and the turnover reported in audit

report as compared with ITR was explained. So far as verification of

sundry creditors is concerned the same was explained by filing

confirmation of M/s Krishna Infrastructure which is the main sundry

creditor of Rs.4.10 crores out of total sundry creditors of Rs.4,59,61,765/.

The sundry creditors were mainly in respect of outstanding sub-contractor

payment and the explanation for increase in sundry creditors vis-à-vis last

year was also furnished before the CIT, which are available at page No.

6-7 of the assessee’s paper book as well as the AO which are available at

page No. 24 -26 of the assessee’s paper book. It may be noted that on

the issue of mismatch of turnover and TDS credit, the ld. PCIT has not

raised any issue but in respect of sundry creditors he has raised the issue

in Sec.263 order ignoring that this issue has been thoroughly examined

by the AO during the course of assessment proceedings. Thus, on this

issue, the order of AO cannot be held to be erroneous or prejudicial to

the interest of revenue.

10 ITA 282/JP/2020_ Shri Narendra Sharma Vs PCIT

replied on the issues raised in show cause notice u/s 263 dated

05.02.2020. This is incorrect inasmuch as all the three issues raised in the

show cause notice has been replied by assessee vide letter dated

02.03.2020, which are available at page No. 9-10 of the assessee’s paper

book. It may be noted that in respect of claim of deduction under Chapter

VI-A, when this issue is not a subject matter of limited scrutiny, the AO is

to confine himself to those issues only as per the CBDT Instruction

No.20/2015 dated 29.12.2015, which is available at page No. 13 of the

assessee’s paper book where it is specifically mentioned that in case of

limited scrutiny questionnaire u/s 142(1) shall remain confined to specific

reasons/ issues for which case has been picked up for scrutiny. Only

when the AO notices that there is potential escapement of income

exceeding Rs.5 lacs then the case may be taken for complete scrutiny.

However, on verification of the issues taken up for limited scrutiny, the

AO has not found anything incorrect and therefore, there was no reason

for him to ask for complete scrutiny. Therefore, in respect of Chapter VI-A

deduction, if the AO has not made an enquiry the same cannot be

considered as erroneous or prejudicial to the interest of revenue more

particularly when such claim is allowed in the preceding year and is

verifiable from the capital account of assessee for the year under

11 ITA 282/JP/2020_ Shri Narendra Sharma Vs PCIT

consideration. Further on the issue of large amount of sundry creditors

and expenses claimed in the P&L A/c the same is duly explained before

the AO, who after making necessary verification and enquiry from the

assessee has accepted the explanation of assessee. Therefore, on the

issue of increase in sundry creditor with respect to turnover as compared

to the preceding year, therefore, in our view, the order passed by the AO

cannot be held to be erroneous or prejudicial to the interest of revenue.

The ld. PCIT has directed the AO to pass the assessment order afresh

ignoring that when the case is selected for limited scrutiny, the

jurisdiction of CIT for holding the order erroneous or prejudicial to the

interest of revenue is confined only to the issue of limited scrutiny and

not to direct the AO to pass a denovo assessment afresh by raising issues

beyond what is permitted in the limited scrutiny. Hence, the direction

given by Ld. CIT is also bad in law. We draw strength from the decision

as relied by the ld AR, in the case of Torrent Pharmaceuticals Ltd. Vs.

DCIT (2018) 173 ITD 130 (Ahd.) (Trib.) wherein the Coordinate

Bench has observed as under:

Even after the insertion of Explanation 2, the Revisional Commissioner is expected to show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without

12 ITA 282/JP/2020_ Shri Narendra Sharma Vs PCIT

establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and in turn will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO.

We also draw strength from the decision in the case of Amira Pure

Foods Pvt. Ltd. Vs. PCIT (2017) 63 ITR(Trib.) 355/ 51 CCH 473

(Del.) (Trib.) wherein the Coordinate Bench has observed as under:

Explanation 2 to s. 263 inserted w.e.f. 01.06.2015 does not override the law as interpreted by the various High Courts whereby it is held that the CIT cannot treat the AO's order as being erroneous and prejudicial to the interest of revenue without conducting an enquiry and recording a finding. If the Explanation is interpreted otherwise, the CIT will be empowered to find fault with each and every assessment order and also to force the AO to conduct enquiries in the manner preferred by the CIT, thus prejudicing the mind of the AO. This will lead to unending litigation and no finality in the legal proceedings which cannot be the intention of the legislature in inserting the Explanation.

Hence, we are not in agreement with the view taken by the ld. Pr.CIT in

the facts and circumstances of the case and therefore we hold that the

assessment order, subjected to revision u/s 263, is not erroneous and

prejudicial to the interest of the revenue. The case laws relied upon by

the ld. CIT-DR are not applicable on the facts and circumstances of the

present case, therefore, considering the totality of facts and

circumstances of the case, the impugned order passed u/s 263 of the Act

by the ld. Pr.CIT, is therefore, quashed.

13 ITA 282/JP/2020_ Shri Narendra Sharma Vs PCIT 11. Once, we quash the order passed U/s 263 of the Act, then in that

eventuality, the other grounds raised by the assessee become infructuous and needs no adjudication.

Sd/- Sd/- ¼foØe flag ;kno½ ¼lanhi x®lkÃa½ (SANDEEP GOSAIN) (VIKRAM SINGH YADAV) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 15/09/2021 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Shri Narendra Sharma, Dholpur. 1. izR;FkhZ@ The Respondent- The P.C.I.T. Alwar. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 282/JP/2020) 6.

vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत