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Facts
The assessee filed an appeal against the order of the Principal Commissioner of Income Tax (PCIT) passed under Section 263 of the Income Tax Act, 1961. The PCIT had invoked Section 263 on the ground that the assessment order was cryptic and did not sufficiently examine issues, specifically the reconciliation between Form 26AS and the assessee's books of accounts.
Held
The Tribunal held that the Assessing Officer (AO) had conducted necessary inquiries and examined the submissions of the assessee, including the reconciliation of the discrepancy between Form 26AS and the books of accounts. Therefore, the assessment order was not erroneous or prejudicial to the revenue, and the order passed by the PCIT under Section 263 was unsustainable.
Key Issues
Whether the Principal Commissioner was justified in invoking Section 263 on the grounds that the assessment order was cryptic and lacked proper inquiry, despite the Assessing Officer having examined the assessee's submissions and reconciliation of Form 26AS with books of accounts.
Sections Cited
263, 143(3), 144B, 142(1)
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Income Tax Appellate Tribunal, PUNE BENCHES “B” :: PUNE
Before: MS.ASTHA CHANDRA & DR.DIPAK P. RIPOTE
Assessment Year: 2020-21 P P Kharpatil Construction Pvt. V The Principal Ltd., s. Commissioner of Income 656, AT Post Chimer Taluka, Tax, Thane-1. Uran district, Raigad – 410206. Maharashtra. PAN: AACCP4003B Appellant/ Assessee Respondent / Revenue Assessee by Mrs. Naina Chaurasia and Shri Sameer Gavli – AR’s Revenue by Shri Amit Bobde –CIT(DR) Date of hearing 18/06/2025 Date of pronouncement 20/06/2025 आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal is filed by the Assessee against the order of ld.Principal Commissioner of Income Tax, Thane-1 passed under section 263 of the Income Tax Act, 1961 for A.Y.2020-21, dated 27.03.2025 emanating from Assessment Order u/s.143(3)r.w.s. 144Bof the Income Tax Act, dated 22.09.2022. The assessee has raised following grounds of appeal :
1. That on facts and circumstances of the case and in law, the Principal Commissioner of Income Tax(PCIT)-1, Thane, Maharashtra, erred in assuming the jurisdiction u/s.263 of the issue of “Reconciliation of Contract Receipts appearing in Form 26AS with that of Return of Income even though the same has been discussed and scrutinized by the Assessing Officer in detail, while framing the assessment u/s.143(3) r.w.s. 144B of the Act.
2. That on facts and circumstances of the case and in law, the Principal Commissioner of Income Tax(PCIT)-1, Thane, Maharashtra, erred in invoking the Explanation 2(a) of Section 263, assuming that the order is passed without making inquires or verification which should have been made.
3. That on facts and circumstances of the case and in law, the Principal Commissioner of Income Tax (PCIT-1), Thane, Maharashtra, erred in setting aside the order by stating that order passed by the Ld.AO is very cryptic and that the AO has failed to inquire/verify/examine all the issues while passing the assessment order, ignoring the fact that the AO has raised a specific question of reconciliation of entire income as per Form 26AS with that of the income offered by the Company.
4. That on facts and circumstances of the case and in law, the Principal Commissioner of Income Tax (PCIT-1), Thane, erred in holding that the assessment order is erroneous and prejudicial to interest of revenue to the extent of revenue income of Rs.34,49,17,710/-, being difference in amount shown in Form 26AS and as reported in financial statement, which has not been offered to tax.
5. The Appellant craves leave to add, amend, alter, modify or omit any of the aforesaid Grounds of Appeal
as occasion may arise of demand.” Submission of ld.AR :
2. Ld.AR for the Assessee submitted two paper books. Ld.AR read out the order u/s.263 of the Act and explained that the issue of mismatch of the figures mentioned in Form No.26AS and the Return of Income was elaborately explained before the Assessing Officer during the Assessment Proceedings. Ld.AR invited our attention to the reasons for selection of the case for scrutiny which have been recorded by the Assessing Officer in the assessment order. Ld.AR read out the relevant paragraph of the assessment order wherein, Assessing Officer has recorded that reconciliation of discrepancy, 26AS has been verified. Ld.AR invited our attention to the notice u/s.143(2) dated 29.06.2021, wherein, Assessing Officer has asked about two issues i.e. 1) Business receipts on which tax is deducted and 2) Credit of Brought Forward TDS. Ld.AR invited our attention to the following notices and replies filed : Sr.No. Particulars Page No. 1 Notice u/s.142(1) dated 09.11.2021 56 to 57 2 Reply – u/s142(1) dated 16.11.2021 58 to 61 3 Notice u/s.142(2) dated 25.01.2022 62 to 63 4 Notice u/s.142(1) dated 25.02.2022 64 to 65 5 Reply letter dated 09.03.2022 with Annexures 66 to 104 6 Reply letter dated 29.08.2022 with Annexures 105 to 126 7 Reconciliation of Income 150 to 151 8 Note 173 to 176 9 Notice and Reply letter 179 to 219 10 Reply letter dated 29.08.2022 220 to 239 11 Income Reconciliation 240 to 252 2.1 Ld.AR therefore, submitted that all the details were filed during the assessment proceedings and the Assessing Officer had verified it. Therefore, the order u/s.263 of the Act, is bad in law.
Submission of ld.DR : 3. Ld.DR for the Revenue relied on the order of the ld.Pr.CIT.
Findings & Analysis : 4. We have heard both the parties and perused the records. In this case, ld.Pr.CIT has invoked Section 263 of the Act, on the ground that assessment order is cryptic and does not mention whether the issues were examined during the assessment proceedings. The relevant paragraph of the order u/s.263 is reproduced here as under : “7. The contentions of the assessee have been perused carefully. In its submissions, the assessee has furnished the details submitted during the course of the assessment proceedings. In Para No.2 to 6 of its submission dated 09.03.2025, the assessee has enumerated various factors in support of its contention that Form No.26AS cannot be regarded as the parameter for determining the revenue/turnover of the assessee. It is evident enough from the submission of the assessee that issue was required to be examined by the AO and a reasonable order, bringing out the reconciliation of receipts with reference to the various factors, should have been passed. Merely because the submissions were filed does not indicate the fact that the AO has examined/verified the same. The assessment order passed by the AO is very cryptic and does not mention whether the issues now under consideration were examined during the assessment proceedings. The AO has failed to inquire/verify/examine all the issues while passing the assessment order, thereby making the order erroneous and prejudicial to the interest of the revenue. Assessment order is required to be passed by making relevant enquiries and verification by the Assessing Officer. Explanation 2(a) makes it clear that any order passed without making inquiries or verification which should have been made by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue. On perusal of the assessee's submission it is evident that the issue now under consideration has not beer examined by the AO.
In view of above discussion, I have come to a conclusion that the assessment order dated 12/09/2022 passed u/s.143(3) r.ws. 144B for the A.Y.2020-21 is erroneous in so far as it is prejudicial to the interest of the Revenue. The assessment order dated 12/09/2022 for A.Y.2020-21 is accordingly partly set aside for the limited purpose to examine the following issues :-
1. 1. The AO shall examine the submission of the assessee made during the present proceedings and make necessary verification with regard to the amount appearing as 'TDS receivable', amount shown as "Deferred Revenue" and the 'Contract Receipts' offered by the assessee while preparing the Profit & Loss Account to determine the amount not offered to tax.
2. The A.O. shall give reasonable opportunity to the assessee of being heard.” 4.1 Thus, the basic contention of the ld.Pr.CIT is that AO has not carried out proper enquiries. However, we have gone through the paper book filed by assessee containing 252 pages. It is noted that the Assessing Officer had asked specific questions regarding 26AS, TDS deducted, Income offered. It is also noted that Assessee had made elaborate submissions. Assessee had also filed reconciliation which is at page no.240 to 252 of the paper book. The notice under section 142(1) dated 25.02.2022 issued by the Assessing Officer is reproduced here as under : “We have perused your reply dated 02/02/2022 in which you have stated during the relevant assessment year, the total income amounting to Rs. 1155640942/has been offered to tax. However, as per 26AS the total income during the relevant assessment year is 164,61,19,656, Therefore, there is a discrepancy of Rs. 49,04,78,714/- (1646119656 1155640942) between 26AS and as per books. Your annexure-1 is also reflecting the same fact. Further, you have been repeatedly asked to reconcile the figure of 26AS and the figure of your books. For that you have submitted Annexure-1 claiming that you have reconciled the two figure. On perusal of Annexure-1, we have not found satisfactory explanation how the two figures are reconciled with and you have failed to reconcile this huge difference in a proper manner. A final opportunity is being provided to you to reconcile the amount of 26AS and the amount offered for tax with detail explanation and documentary evidence. If you fail to offer satisfactory explanation then please state as to why the differential amount of Rs. 49,04,78,714/ should not be added back to your income. Please note that no further opportunity will be provided to you. It is also to be noted that non compliance of notices u/s. 142(1) of the I.T. Act attracts penalty as per provision of income Tax. Please reply within 07 day from receipt of this letter.” 4.2 The Assessee filed an elaborate reply dated 09.03.2022 along with the copies of the invoices. The Assessing Officer has studied the replies filed by the assessee and then, passed the assessment order. The relevant paragraphs of the assessment order is reproduced here as under : “The assessee filed submissions in response to the notices issued. The submissions of the assessee were perused and kept on record. In the said submissions the assessee filed Computation of income, Tax Audit Report, Audited Financial along with schedules, P&L Accounts, Balance Sheets, Form No.3CA & 3CD, details of TDS credit bought forward, details reconciliation of discrepancy, 26AS, and other relevant details and documents in support of its claim. On the basis of submissions filed by the assessee during the course of assessment proceedings, and materials available on record, assessee’s return of income is accepted. Subject to the above discussion, the total income of the assessee is computed at Rs.23,92,31,240/-, i.e., as per return of income.”
4.3 This explains that Assessing Officer had carried out necessary enquiries and after verifying the facts, passed the assessment order. Therefore, it is not erroneous.
4.4 On the contrary, the ld.Pr.CIT has not brought out any discrepancy in the Income shown by Assessee and 26AS, though all details were filed before Ld.Pr.CIT. On perusal of the details filed by assessee, it is noted that assessee has reconciled the difference as under : “3. However, as per Form 26AS, total revenue amounted to Rs.1,64,61,19,656/-. The difference of Rs.49,04,78,714/- (1646119656 - 1155640942/-) between 26AS and books is explained below in tabular format; Sr Amount Reason Annexure No. 1 2,240,848 Income offered in FY 2018-19 Invoice Copy based on invoice by the enclosed in Assessee, M/s.CIDCO Ltd. Exhibit 12 deducted TDS on payment basis in FY 2018-19 and FY 2019-20. Hence TDS is claimed in F.Y.2019-20. There is not short reporting of income. 2 138,909 Amount shown in 26AS is Invoice Copy inclusive of amount recovered enclosed in by the authority for Royalty. Exhibit 13 3 509,040 TDS deducted on inclusive of Invoice Copy GST. Invoice Amount is enclosed in Rs.42,51,038, Total Invoice Exhibit 14 Amount is Rs.47,51,039 4 1,128,836 TDS deducted on inclusive of Invoice Copy GST enclosed in Exhibit 15 5 1,925,304 TDS deducted on inclusive of Invoice Copy GST enclosed in Exhibit 16 6 (1,108,469) We have offered revenue as per As per Excel our invoice which is more than Char enclosed the amount reflecting in 26AS in Exhibit 11 above 7 (42,374) Income reflecting in 26AS is Invoice Copy after deduction of TDS. enclosed in Exhibit 17 8 417,461 No such income has been earned and confirmation from party has been obtained Confirmation 9 95,600 No such income has been from Party earned and confirmation from Enclosed in Exhibit 18 party has been obtained 10 390,231 No such income has been earned and confirmation from party has been obtained 11 (198,305) Income reflecting in 26AS is after deduction of TDS As per Excel Chart enclosed 12 (42,374) Income reflecting in 26AS is in Exhibit 11 after deduction of TDS. above 13 (42,374) Income reflecting in 26AS is after deduction of TDS. 14 285,408,000 Amount relates to the Final RA Invoice Copy bill of the contract. Contract along with MB was completed in FY 2020-21 Book and and certified in FY 2020-21. Completion Accordingly, the same is Certificate is accounted for in next year, enclosed i.e.AY 2021-22. However, TDS Exhibit 19 was deducted on provision by PWD. Completion certificate is attached for your reference. 15 114,163,200 Note enclosed Note in Exhibit 20 16 114,163,200 17 11,4163,200 18 78,285,344 Brought Forward from FY Note enclosed 2018-19, party offered to in Exhibit 20 income and partly carried above forward 19 35,500,000 Brought Forward from FY Note enclosed 2018-19 (TDS deducted on in Exhibit 20 advance in FY 2018-19) above 20 71,704,000 Brought Forward from FY Note enclosed 2018-19 (TDS deducted on in Exhibit 20 advance in FY 2018-19) above 21 2,649,096 Amount in 26AS is inclusive of Invoice Copy of GST. However, income offered enclosed in in books of accounts excluding exhibit 21 GST 22 (19,290,482) We have offered revenue based Note enclosed on invoice raised for escalation in Exhibit 21 in contract value on which TDS was not deducted by the PWD and hence not reflected in 26AS 23 (1,381,356) 24 (166,900) 25 (54,450) 26 (248,431) Income offered is not liable for 27 (60,000) TDS deduction, hence not 28 259,296 reflected in 26AS. 29 (817,290) 30 (1,500) 31 (30,000) 32 (143,667,752) 33 (146,213,396) 34 (19,287,882) 49,04,88,714 4. It is hereby submitted that during the assessment proceedings, the difference of income of Rs.49,04,88,714/- as per books and 26AS was duly expenditure explained to the Ld.AO vide reply dated 09.03.2022 in response to notice on 25.02.2022, wherein the Ld.AO has specifically asked the Assessee to reconcile the said difference in income.
The copy of the notice dated 25.02.2022 and reply letter dated 09.03.2022 filed in response thereto and available on the portal is enclosed in “Exhibit 23”.”
4.5 The ld.Pr.CIT has not doubted or rebutted the said facts. Therefore, we are of the opinion that assessee had explained the difference.
The Hon’ble Bombay High Court in the case of CIT Vs. Gabriel India Limited 203 ITR 108 (BOM) had held as under : “14. We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the ITO to re-examine the matter that, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the ITO was erroneous and prejudicial to the interests of the revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal.”
5.1 Therefore, we are of the opinion that Assessment Order is not erroneous and prejudicial to the interest of the Revenue. Hence, the order u/s.263 passed by ld.Pr.CIT cannot be sustained. Accordingly, grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 20 June, 2025.