TECHNO ELECTRIC & ENGINEERING COMPANY LTD.,NOIDA, UTTAR PRADESH vs. P.C.I.T. - 2,, KOLKATA

The only issue raised by the assessee in the various grounds of appeal is against the invalid exercise of jurisdiction u/s 263 of the Act and the consequent order passed u/s 263 of the Act by the ld. PCIT, which is nullity and bad in law.

The facts in brief are that the assessee company is engaged in the business of power generation and related infrastructure engineering, procuring and operation and maintenance services in the e-industry

The ld. PCIT on perusal of the assessment records observed that income chargeable under the head profit and gains of business or profession shall be computed in accordance with the income computation and disclosure standard (ICDS) as notified by the Government. The ld. PCIT observed that the assessee’s treatment of ICDS adjustment as noted in Para No.3 page 1 does not seem to be not in order. The ld. PCIT noted from the submission that in A.Y. 2020-21, ₹91,97,826/- has been debited in the Profit and Loss account on account of anticipated loss in Engineering, Procurement and Construction (EPC) contracts, which is not allowable as per ICDS as the same is anticipated loss. Therefore, the ld. PCIT observed that in tax audit report it has rightly been recorded that profit has to be increased of the said amount. The ld. PCIT also noted that any deduction in any assessment year in respect of previous year disallowance made in any earlier year required a corresponding write back (credit) in the Profit and Loss account in the year in which deduction was claimed. The ld. PCIT further noted that no such wright back or credit was noticed or claimed to have been made by the assessee in the Profit and Loss account in A.Y. 2020-21 and as such F.Y. ended A.Y. Anticipated loss Amount showed in Treatment in ITR TAR (Increase in (ICES Adjustment) Profit) 31.03.20218 2018-19 6,68,50,915 6,68,50,915 6,68,50,915 added with income 31.03.2019 2019-20 3,94,10,268 3,94,10,268 2,74,40,647/- (6,68,50,515 minus 3,94,10,268) deducted from income 31.03.2020 2020-21 91,97,826 91,97,826 3,02,12,442 (3,94,10,268 minus 91,97,826/- deducted from income) 05. However ld PCIT revised the assessment vide order dated passed u/s 263 of the Act directing the AO to frame the assessment after taking into account the issues as discussed in order and after affording a reasonable opportunity to the assessee.

The ld. Counsel for the assessee submitted that as is evident from the above table in A.Y. 2018-19, the assessee company had estimated anticipated loss from contracts amounting to ₹6,68,50,915/-, which was debited into the profit and loss account of the assessee company

The learned DR on the other hand relied on the order of learned PCIT by submitting that no prejudice is going to be caused to the assessee as the assessee would be heard fully in the set aside proceedings and only then the assessment order would be passed. The learned DR further submitted that the learned PCIT has already issued direction to the learned AO in that regard in the revisionary order. Therefore the pleas and arguments of the ld AR need to be brushed aside at this stage.

After hearing the rival contentions and perusing the materials available on records, we find that the scrutiny was selected under Computer Assisted Scrutiny Selection (CASS) in this case for examination of certain items, out of which one item was ICDS compliance and adjustment. We note that during the course of assessment proceedings, the learned AO specifically called upon the assessee to furnish the details of ICDS compliance and adjustment which were duly furnished before the learned AO and the learned AO only, after examining the same, accepted the stand of the assessee and framed the assessment accordingly, without making any addition in respect of ICDS compliance/ adjustment. In our opinion, the order passed by the learned AO is in accordance with law and does not suffer any infirmity, illegality or otherwise. Therefore, the order “7. In the case of The Malabar Industrial Corporation Ltd. vs. Commissioner of Income Tax [243 ITR pg 83 (SC) | it has been held that "to exercise of jurisdiction by the Commissioner suo moto under the provisions of Section 263 of the Act, he has to be satisfied of twin conditions, namely (1) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revemie. If one of them is absentif the order of the Income Tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue recourse can not be had to Section 263(1) of the Act" In the same case it has also been held that "The phrase 'prejudicial to the interests of the revenue' has to read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interest of the revenue, for example, when an Income Tax Officer adoptedon of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law.”

In our opinion, once the learned AO has carried out investigation into the issue and has not made any addition then it can be presumed that he has accepted the plea and stand of the assessee. The PCIT has to prove that the assessment framed by the AO is wrong as there was failure to investigate . In our opinion the PCIT has to record the abject failure and lapse on the part of the assessee which rendered "The assessee does not have control over the pen of the Assessing Officer. Once the Assessing Officer carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee. In such cases, it would be wrong to say that the Revenue is remediless. The power under Section 263 of the Income Tax Act, 1961, can be exercised by the Commissioner of Income Tax, but by going into the merits and making an addition, and not by way of a remand, recording that there was failure to investigate. There is a distinction between the failure or absence of investigation and a wrong decision/conclusion. A wrong decision/conclusion can be corrected by the Commissioner of Income Tax with a decision on merits and by making an addition or disallowance. There may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue. Recording the aforesaid, the special leave petition is dismissed."”

Similarly, where the learned AO has taken a plausible view of one of the two views even then the order passed by the learned AO cannot be said to be erroneous and prejudicial to the interest of the Revenue unless if the view taken by the ITO is not in accordance with law or contrary to the facts on record. The case of the assessee find support from the decision of the Hon'ble Apex Court in the case of Max India Ltd. (supra) where two view existed and AO has taken one view, it can not said erroneous order prejudicial to the interest of the Revenue unless the view taken by the AO iis unsustainable in law. Similarly, in the case of DG Housing Projects Ltd (supra). The Hon'ble Delhi High Court has held as under:-

The appeal of the assessee is allowed.