BE HEALTHY PHARMACY,MUMBAI vs. DCIT 41(3)(1), KAUTILYA BHAVAN, MUMBAI

Per Omkareshwar Chidara (AM) :-

The appellant company’s case was taken up for scrutiny by Ld. AO who called for certain details like listing fees and wallet Burn Expenses. The Ld. AO disallowed 20% of Wallet Burn Expenses and with respect to listing fees expenses, the Ld. AO has mentioned in the assessment order as follows:-
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Issue No. 1: Large expenses claimed and to be disallowed
The assessee in response to the Show-cause Notice dated
09.12.2022 submitted the reply on 13.12.2022. On the issue of the Listing
Fees of Rs.20,13,87,271/- the assessee has submitted the details alongwith copy of listing fees agreement/invoices etc. to justify its contentions. The assessee has also submitted the details w.r.t. travelling expenses (containing vouchers, Form 16A etc.) which are checked on test check basis. The assessee on the issue of Value Added Services expense has submitted the copies of invoices and Form 16A. To substantiate all these expenses, the assessee has also submitted the Bank Statement.

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3. Subsequently, the PCIT has exercised Revisionary Juri iction under section 263 of the Income Tax Act and while passing this order under section 263 of the Act, it was mentioned as follows :-

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under section 194H on the payment of Rs. 1,71,21,154/- and there was no TDS on payment of Rs. 6,57,21,415/- towards listing fees under the correct section 194-O which the Ld. AO ought to have. Finally, the Ld. PCIT concluded that as Ld. AO did not conduct enquiries into all these, an order under section 263 of the Act was passed directing the Ld. AO to carry out due verification after considering the factual submissions of appellant company. It was mentioned that the huge expenditure claimed of Rs. 20.13
crore was not enquired into when appellant has shown a loss of more than Rs. 2 crore while filing Return of Income.

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not be liable to tax deduction by appellant’s firm again and submitted the reconciliation of ‘listing fees’ paid/payable to Axelia Solutions Pvt. Ltd., while giving reply to Ld. PCIT. Since, the amounts were reconciled and submitted to the Ld. PCIT, it was prayed that Ld. PCIT may drop the proceedings under section 263 of the Act. The Ld. AR has submitted before the ITAT that since the reconciliation of ‘listing fees’ was submitted to Ld. PCIT, there is no need of remit the issue back to Ld. AO again and hence the proceedings under section 263 may be quashed by ITAT. The Ld. AR of the appellant company has filed a legal paper book containing cases-law of Malabar Indl. Co. Vs.
8. The Ld. DR has submitted that the issue of “Listing Fees” was dealt by Ld. AO at para 4.1 of the assessment order which is very cryptic and from that para, it is observed that neither the bifurcation nor reconciliation now submitted to PCIT was given to Ld. AO. The Ld. AO has not applied his mind to this major expense of Rs. 20.13 crore claimed by appellant company. The applicability of section 194C/194H and 194-O of the Act applicability to E- commerce operators etc. with effect from 1.10.2020 were neither asked nor details were submitted by the appellant company. Similarly, the Ld. PCIT has stated that the amount mentioned in profit and loss account of Rs.
20.13 crore was not matching with details furnished in Form 3CD. In view of the same, it can be safely presumed that the Ld. AO has not at all applied his mind, nor examined this huge expenses claimed of more than Rs. 20
9. Heard both sides and perused the assessment order, order under section 263 passed by Ld. PCIT, written submissions and cases-law filed by both parties. Facts of the case are as follows :

From the assessment order, it can be seen that, except the above noting, there is absolutely no finding/decision on this issue as to what happened to the ‘test check’. Nowhere, in the assessment order, the AO has whispered about the outcome of this test check. It can be seen that the AO directly jumped to the issue of “Wallet Burn Expenses” at para 4.1, page 5
of assessment order from “Listing Fees” expenses without saying anything about the correctness/genuineness of the expenses. Neither confirmation letter from the party as to who received this amount of Rs. 20,13,87,271/- was filed by appellant nor asked by AO. Nowhere in the order, it was mentioned which items were test checked and what is the result.
Similarly, the appellant has claimed that still an amount of Rs.
3,14,92,407/- was payable to the party who rendered the services. No enquiry, query by AO on this issue too.

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14,24,88,594/-. Again there is a payment of Rs. 1,71,21,154/- and TDS under section 194H of the Act was deducted. The nature of these payment were also not enquired by AO. The AO did not get full details of “Listing
Fees”, nor enquired. Similarly, the appellant’s claim of applicability of section 194-O of the Act also was not questioned by AO. In view of all these facts, the Ld. PCIT has only directed the AO to carry out due verification which is total absent in this case. It was also mentioned clearly by Ld. PCIT that a fresh assessment order is to be passed only after giving “reasonable opportunity” after taking explanation and supporting evidence.

“10. In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High
Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in die statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts, the conclusion that the order of the ITO was erroneous is irresistible. We are, therefore, of die opinion that die High Court has righty held that die exercise of the juri iction by die Commissioner under section 263(1) was justified”.
Revision under section 263 of the Act is not valid. Even though this case was held against Revenue, the ratio laid down is the same i.e., if the enquiries are not done by AO, then the Ld. PCIT can revise the assessment and otherwise “No”. Again, third case relied on by appellant is Coastal Gujarat Power Ltd. (SC) 138 taxman.com 60 deals with gains arising out fluctuation of foreign exchange is capital or receipt and this case is not applicable to our facts. Fourth case relied on by appellant is Shreeji Prints (P) Ltd. (SC) in which Hon'ble Apex
Court has held in favour of the appellant as AO made enquiries in detail with regard to credits and accepted the genuineness of credits and hence Revision under section 263 of the Act is not permissible, whereas in our case, AO did not enquire into genuineness of “Listing
Fees” and whether entire amount is paid for the purposes of business etc. Hence, order of AO is not correct if enquiries were not done, then the Ld. PCIT can assume Revisionary Juri iction under section 263 of the Act. The fifth case relied on by appellant is Clix Finance India (P)
Ltd. (Del) where the Hon'ble Delhi High Court held in favour of appellant because the AO examined the issues during assessment and there is no error. In our case, the Ld. PCIT has demonstrated that no enquiry/investigation was done with the party nor there is even confirmation from concern party that the amount was paid nor the AO asked appellant to explain about the amounts payable to party. The AO did not mention which items were checked and what was the result of the same. Similar is the ratio of all cases relied on appellant in their legal paper book.
11. On the converse side, reliance is placed on the following cases-law to uphold the Revision Order of PCIT under section 263 of the I.T. Act :-

Be Healthy Pharmacy a) In the case of Daniel Merchants (P) Ltd. (supra), it was held as follows :-
“In all these cases, we find that the Commissioner of Income Tax had passed an order under section 263 of the Income-tax Act, 1961 with the observations that the Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) in so far as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is upheld by the High
Court. We see no reason to interfere with the order of the High Court”.

b) Duggal & Co. 220 ITR 456 (Del) : The ITO is not only an adjudicator but also an investigator. He cannot remain passive in the face of a Return of Income which is apparently in order but call for further enquiry. It is incumbent on the ITO to further investigate the facts sated in Return of Income, when circumstances would make such an enquiry prudent and the word “erroneous” in section 263, includes the failure to make such an enquiry. The order becomes erroneous because such an enquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.
c) TCE Consulting Ltd. Vs. ACIT, 7 ITR 718(Mum-Tribu) : The AO called for material relating section 10B deduction and obtained – but without examining them, assessment was completed under section 143(3) and hence revisionary juri iction under section 263 was held valid.
d) K.A. Ramaswamy Chettiar, 220 ITR 657 (Mad) : Where the replies filed by appellant were not examined by AO, and a routine assessment was done, then Revision under section 263 is valid.

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towards listing fees under section 194-O of the Act in the impugned case, the Bench decides that the Ld. AO did not obtain the full details nor conducted any enquiries about the genuineness of expenditure relating to “listing fees”
and hence the Ld. PCIT has correctly directed the AO to conduct enquiries and take appropriate action after giving opportunity to the appellant company, under section 263 of the Act is held valid.

Copy of the Order forwarded to :

BY ORDER,

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