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Income Tax Appellate Tribunal, A BENCH, MUMBAI
Date of conclusion of hearing : 22.02.2022 Date of pronouncement of order : 19.05.2022 O R D E R Per Rahul Chaudhary, Judicial Member
By way of the present appeal the Appellant/Assessee has challenged the order, dated 19.03.2021, passed by the Ld. Principal Commissioner of Income Tax- 1 , Thane [hereinafter referred to as „the PCIT‟] under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟] pertaining to the Assessment Year 2015-16, whereby the PCIT had set aside the Assessment Order dated 29.11.2017 passed under Section 143(3) of the Act holding the same to be erroneous in so far as prejudicial to the interest of the Revenue.
Assessment Year: 2015-16 2. The Appellant has raised the following grounds of appeal all challenging the exercise of power by PCIT under Section 263 of the Act:
1. On the facts and circumstances of the case and in law, the order passed U/s. 263 of the I.T. Act, 1961 is invalid and bad in law.
2. On the facts and circumstances of the case and in law, the learned Pr. C.I.T. erred in passing an order U/s. 263 of the I.T. Act, 1961 and that too without even giving full and proper opportunity of being heard in the matter.
3. On the facts and circumstances of the case and in law, the learned Pr. C.I.T. erred in passing an order u/s 263 of the I.T. Act and that too without appreciating fully and properly the facts of the case.
4. On the facts and circumstances of the case and in law, the learned Pr. C.I.T. erred in holding that the order passed by the learned A.O. u/s 143(3) is erroneous and prejudicial to the interest of revenue, although the same was neither erroneous nor prejudicial to the interest of revenue.”
Brief facts of the case are that the Appellant is an individual engaged in the business of civil construction in the name of style of M/s V.K. Construction. The Appellant filed its return of income on 30.09.2015 declaring total income of INR 1,63,16,040/-. The case of the Appellant was selected for scrutiny. Vide order dated 29.11.2017 (hereinafter referred to as „the Assessment Order‟), assessment was framed upon the Appellant under Section 143(3) of the Act.
4. Subsequently, in exercise of power under Section 263 of the Act, the PCIT set aside the Assessment Order vide order, dated 19.03.2021, holding as under:
“02. On verification of record, it has been noticed that during the year the assessee has the following four properties:
Assessment Year: 2015-16 1. Shop @ Pawan Deep Arcade Valued at Rs. 6,56,000/- 2. Flat @ S. Kharghar Regency Creast valued at Rs. 78,16,297/- 3. Flat @ Seawood Garden valued at Rs. 1,58,19,271/- and 4. Office in Full Stop Mall Vashi Valued at Rs. 18,42,500/- However, in the computation of income, rental income from only one property, i.e. Flat @ Seawood, amounting to Rs. 1,28,000/- was offered and no rental income was offered for the other properties. It has been further seen from the records that the assessee has not deducted TDS on sub-let work of Rs. 6,74,74,067/- & Labour charges of Rs. 7,13,32,161/- debited to the Profit and Loss account. As per the provisions of section 40(a)(ia) of the Act, 30% of Rs. 13,88,06,228/- (Rs. 6,74,4,067+ Rs. 7,13,32,161/-) is required to have been added back to the total income of the assessee for the year under consideration. It is evident from the above facts that the A.O. has not properly verified the facts as per provisions of the Act while passing the assessment order.
3. Since, the assessment order passed by the AO is found to be erroneous in so far as it is prejudicial to the interests of the revenue, notice under Section 263 of the IT Act, 1961 was issued to the assessee on 15.03.2021. In response to the notice under Section 263, the assessee failed to submit any reply to this office till passing of this order. Accordingly, the decision is made on the basis of facts and materials available on records. Since the assessee has more than one residential house and he has also commercial properties i.e. shop/office and therefore, the income/deemed income from the same is required to be offered as Income from House property of the assessee for the year under consideration. Further, the assessee has not deducted TDS on sub-let works of Rs. 6,74,74,067/- & Labour charges of Rs. 7,13,32,161/- totaling 3
Assessment Year: 2015-16 to Rs. 13,88,06,228/- as per provision of section 40(a)(ia) of the Act, and therefore 30% of Rs. 13,88,06,228/- (which works out to Rs. 4,16,41,868/-) is required to be disallowed and added back to the total income of the assessee.
Considering the above mentioned facts, I am of the considered opinion that the assessment under Section 143(3) dated 29.11.2017 made by the A.O. is erroneous in so far as it is prejudicial to the interests of the revenue. I therefore, set aside the order of the AO passed under Section 143(3) with the direction to examine the above pointed issues as per relevant provisions of the Act and to redo the assessment after affording adequate opportunity to the assessee.”
Being aggrieved, by setting aside of the Assessment Order, the Appellant has preferred the present appeal.
The Ld. Authorised Representative of the Appellant appearing before us submitted that the PCIT has failed to appreciate the correct facts and has incorrectly exercised powers under Section 263 of the Act. He submitted that the case of the Appellant was selected for limited scrutiny and the Assessing Officer (AO) has carried out proper verification. He submitted that in response to notice of hearing dated 15.03.2021, the Appellant has filed reply dated 19.03.2021 (Acknowledgment No. 19032114498530) placed at page 43 to 53 of the paper book, wherein it was stated as under:
“The return of total income ….Sir, invoking the provisions of section 263 in the cases covered under limited scrutiny will defeat the purpose of legislature and CASS of simplification the assessment process.
Sir, considering the above facts in my humble view initiating proceedings under section 263 of the Income Tax Act 1961 is bad in law.
Assessment Year: 2015-16 Sir without prejudice to whatever stated above I submit that there is no vacant property on which provisions of deemed rent are attracted. The details of properties reflected in my balance sheet and its status is as under:
Sr. No. Particulars Status 1 Shop @ Pawan Deep Office use of M/s V K Arcade Construction Prop. Ashok Dayaramani 2 Flat @ Regency Crest Under construction (Booking) 3 Flat @ Sea Woods Rent Received offered to tax 4 Shop in Full Stop Mall Under Construction (Booking)
It will be seen from above chart that there is no vacant property on which provision of deemed Rent under section 22 and 23 of the Act are applicable.
The disallowance proposed on account of non-deduction of TDS on Sub Contract charges and Labour charges paid attracting disallowance under section 40(a)(ia) of the Act is totally wrong and baseless. Sir I have duly deducted and paid the TDS and have duly filed quarterly TDS statements on NSDL. The party -wise list of Sub-Contract Charges and Labour Charges paid along with the details of the amount paid and TDS deducted are attached herewith. The copy of acknowledgement of TDS quarterly statements filed are attached for your kind records. Sir, even my Chartered Accountant in his audit report has not pointed out any disallowance under Section 40(a)(ia)of the Act.
In view of the above facts, the conclusion drawn that the order of the Ld. AO is erroneous and prejudicial to the interest of revenue is far stretched.”
The Ld. Departmental Representative relied upon the order passed by PCIT to contend that AO had failed to carry out proper verification
Assessment Year: 2015-16 and therefore, PCIT was justified in exercising powers under Section 263 of the Act. Without prejudice to the aforesaid, he submitted that matter can be remanded to PCIT for passing appropriate orders after taking into account the reply filed by the Appellant on 19.03.2021 as the Appellant has contended that the same was not considered by the PCIT.
Having considered the rival submissions and perused the material on record, we find merit in the contentions raised by the Appellant. On perusal of notice dated 22.09.2016 issued under Section 143(2) of the Act, it is clear that the case of the Appellant was selected for limited scrutiny on the following issues (i.) Contract Receipts/ Fees Mismatch (ii.) Sales Turnover Mismatch (iii.) Sundry Creditors (iv.) Unsecured Loans (v.) Tax Credit Mismatch. Therefore, in our view, the AO was duty bound to carry out necessary verification/examination of the aforesaid issues only, and therefore, it cannot be said that AO had failed to carry out necessary examination/verification making the Assessment Order erroneous or prejudicial to the interest of Revenue. In the case of M/s Su-Raj Diamond Dealers Pvt. Ltd. vs. Principal Commissioner of Income Tax: (2020) 203 TTJ 0137 (Mumbai), relied upon by the Ld. Authorised Representative of the Appellant, it has been held as under: “8. We shall now in the backdrop of our aforesaid observations deliberate on the validity of the order passed by the Pr. CIT under Sec. 263. As observed by us hereinabove, the Pr. CIT had held the order passed by the A.O under Sec. 143(3), dated 08.12.2016 as erroneous, in so far it was prejudicial to the interest of the revenue, for the reason, that he had failed to carry out proper investigation as regards the issue of valuation of the “closing stock‟ as reflected in the audited accounts of the assessee. We are of a strong conviction that now when the case of the assessee was selected for limited scrutiny for the reasons viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares, therefore, no infirmity could be attributed to the assessment 6
Assessment Year: 2015-16 framed by the A.O on the ground that he had failed to deal with other issues which though did not fall within the realm of the limited reasons for which the case was selected for scrutiny assessment. In other words, the Pr. CIT in the garb of his revisional jurisdiction u/s 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment. In sum and substance, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was vested with the A.O while framing the assessment. As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, in terms of our aforesaid observations, we are of the considered view that as the A.O had aptly confined himself to the issues for which the case of the assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order, for the reason, that he had failed to dwell upon certain other issues which did not form part of the reasons for which the case was selected for limited scrutiny under CASS. We thus not being able to concur with the view taken by the Pr. CIT that the order passed by the A.O under Sec. 143(3), dated 08.12.2016 is erroneous, therefore, set aside‟ his order and restore the order passed by the A.O. As we have quashed the order passed by the Pr. CIT under Sec. 263 on the ground of invalid assumption of jurisdiction by him, therefore, we refrain from adverting to and therein adjudicating the contentions advanced by the ld. A.R on the merits of the case, which thus are left open." (Emphasis Supplied)
Further, on perusal of records, it is clear that the Appellant had filed reply dated 19.03.2021, however, the PCIT had incorrectly recorded that the Appellant had failed to submit any reply. In the said reply, the Appellant had explained that the order passed by the Assessing Officer is not erroneous as there is no house property in relation to which income/deemed income was required to be offered to tax by the Appellant during the relevant previous year except for flat at Sea Woods – the rental income arising from which has already been offered to tax. Further, the Appellant had also filed party wise details and reconciliation/working to show that TDS has been correctly 7
Assessment Year: 2015-16 deducted and deposited on Sub-Contract and Labour Charges. Perusal of the Audit Report also shows that even the Chartered Accountant has not pointed out any disallowance under Section 40(a)(ia) of the Act. The aforesaid submissions of the Appellant are supported by the Audit Report and the reply/letter filed before the AO and the PCIT forming part of the paper book. The Ld. Departmental Representative has not been able to controvert the same.
In view of the above, we are not able to concur with the view taken by the PCIT that the Assessment Order, dated 29.11.2017, passed under Section 143(3) of the Act, is erroneous in so far as it is prejudicial to interest of the Revenue. We set aside the order dated 19.03.2021 passed by PCIT under Section 263 of the Act. The Assessment Order, dated 29.11.2017 stands restored.
Accordingly, the present appeal is allowed.
Order pronounced on 19.05.2022.