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Facts
The assessee's original assessment was reopened under Section 147 for examining a deduction claimed under Section 35(1)(ii). Subsequently, the PCIT initiated revisional proceedings under Section 263, observing that the assessee had failed to offer contract income of Rs.66,22,032/- as per Form 26AS, which rendered the AO's order erroneous and prejudicial to the revenue.
Held
The Tribunal found that while two components of the contract income were duly examined and accounted for, the AO failed to conduct requisite third-party verification for a disputed receipt of Rs.49,76,868/- from Social Forestry Division, which the assessee denied. The Tribunal modified the PCIT's order, directing the AO to re-adjudicate only this specific disputed contract receipt after carrying out the necessary verification from Social Forestry Division.
Key Issues
Whether the PCIT's revisional order under Section 263 was justified in directing the addition of entire contract income from Form 26AS, especially when the AO had partially examined it; and whether the AO's failure to conduct independent verification for a denied contract receipt made the assessment order erroneous and prejudicial to the interest of revenue.
Sections Cited
263, 147, 144, 35(1)(ii), 194C, 142(1), Explanation-2 to 263, 144B
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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI NARENDRA PRASAD SINHA
O R D E R
PER SHRI NARENDRA PRASAD SINHA, AM:
This appeal is filed by the assessee against the order of Principal Commissioner of Income Tax-3 (in short “PCIT”), Ahmedabad dated 30.03.2025 passed under his revisional jurisdiction under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (A.Y.) 2016-17.
The brief facts of the case are that the assessee is engaged in the business of selling petroleum products and had filed its original return of income for the A.Y. 2016-17 on 07.10.2016 declaring total income of Rs.53,64,110/-. Subsequently, the Assessing Officer had received an information that the assessee had claimed deduction under Section 35(1)(ii) of the Act of Rs.12,25,000/- @ 175% on the donation of Assessment Year: 2016-17 Unique Retreads Pvt. Ltd. Vs. PCIT-3 Page 2 of 8 Rs.7,00,000/- made to M/s. Shri Arvindo Institute of Applied Scientific Research Trust. The case of the assessee was reopened under Section 147 of the Act to examine this transaction. The assessment was completed under Section 147 read with Section 144 of the Act on 24.03.2023 at total income of Rs.65,89,110/- after disallowing the deduction claimed under Section 35(1)(ii) of the Act. Subsequently, the Ld. PCIT had called for the records and found that as per 26AS the assessee had received contract income of Rs.66,22,032/- during the year which was not offered for tax in the return of income. Therefore, the Ld. PCIT found that the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue. Therefore, the impugned order under Section 263 of the Act dated 30.03.2015 was passed by the Ld. PCIT, directing the Assessing Officer to modify the assessment order and compute the income by adding the contract receipt income of Rs.66,22,032/- as per Form 26AS, for the year under consideration.
Aggrieved with the order of the Ld. PCIT, the assessee is in appeal before us. The following grounds have been taken by the assessee in this appeal: -
“1.1 The Order u/s. 263 passed on 30.03.2025 by PCIT A'bad-3, A'bad for AY 2016-17 (for short Pr. CIT) holding that the order passed u/s.147 rws 144 rws 144B on 24.03.2023 by AO was erroneous and prejudicial to the interest of the revenue in as much as contract income to the tune of Rs.66.22,032/- as per 26AS was not offered for taxation is wholly illegal, unlawful and against the principles of natural justice. 2.1 The Id. Pr. CIT has grievously erred in law and or on facts in holding that the order of assessment passed u/s.147 rws 144 rws 144B on 24.03.2023 by AO was erroneous and prejudicial to the interest of the revenue in as much as contract income to the tune of Rs.66,22,032/- as per 26AS was not offered for taxation.
Assessment Year: 2016-17 Unique Retreads Pvt. Ltd. Vs. PCIT-3 Page 3 of 8 2.2 That the in the facts and circumstances of the Id. Pr. CIT ought not to have invoked the powers of revision u/s.263 and thereby held that the order of assessment passed u/s.147 rws 144 rws 144B on 24.03.2023 by AO was erroneous and prejudicial to the interest of the revenue in as much as contract income to the tune of Rs.66,22,032/- as per 26AS was not offered for taxation. 2.3 The Pr. CIT has failed to appreciate that the issue relating to the contract receipts as per 26AS was very much subject matter of scrutiny by AO and after having considered material produced by the appellant, the same were accepted in the order of assessment passed u/s.147 rws 144 rws 144B on 24.03.2023 so that it was neither erroneous nor prejudicial to the interest of revenue which could be revised u/s.263 of the Act rws Explanation-2. 2.4 The Id. Pr. CIT has grievously erred in law and or on facts in directing the AO to modify the assessment order to compute the income by making addition to the tune of Rs.66,22,032/- towards the contract Income in view of 26AS. It is, therefore, prayed that the order of revision passed u/s.263 by the respondent should be quashed and direction to make addition should be quashed.”
Shri S.N. Divatia, Ld. AR of the assessee submitted that the Ld. PCIT was not correct in exercising jurisdiction under Section 263 of the Act as order of the Assessing Officer was neither erroneous nor prejudicial to the interest of revenue. He explained that the matter of contract receipt shown in Form 26AS was duly examined by the Assessing Officer while completing the assessment under Section 147 of the Act. He had drawn our attention to the query raised by the Assessing Officer in this regard and the explanation given by the assessee in the course of assessment proceedings, a copy of which was brought on record in the paper-book filed by the assessee. The Ld. AR submitted that since the matter of contract receipt was duly examined by the Assessing Officer in the course of assessment, the order of the Assessing Officer cannot be held as erroneous and prejudicial to the interest of the revenue.
Per contra, Shri R. P. Rastogi, Ld. CIT(DR) submitted that the Assessing Officer had merely accepted the explanation of the assessee regarding contract receipt without making necessary verification as required. He, therefore, strongly supported the order of the Ld. PCIT.
We have considered the rival submissions and gone through the materials brought on record in the paper-book. It is found that the Assessing Officer vide notice under Section 142 of the Act dated 16.03.2023 has made enquiry about the contract receipt as per Form 26AS, which is found to be as under :-
“1. As per 26AS, you have received an amount of Rs.66,22,032/- as contract income please provide the treatment in your books of account.” 6.1 The assessee had submitted its reply in this respect vide letter dated 20.03.2023, a copy of which has been brought on record. The following explanation was given by the assessee in this respect.
Kindly find the Reconciliation of TDS u/s.194C of the Income Tax Act, 1961 as per 26AS and Books of Accounts Reconciliation TDS u/s.194C of the Income Tax Act, 1961 as per 26AS and Books of Accounts:
Sr. Party Name TDS Transaction TDS TDS(Rs.) Remarks Schedule Page # No. Amount (Rs.) as claimed # of of per Form in ITR Annual Annual 26AS Report Report (Annx.A) 1 Ahmedabad AHMA00475G 5,09,750 10,195 10,195 Tyre Schedule 46 Municipal Retreading 16 of Transport income Annual Service (Grouped Report under Sales- Revenue from Operation) 2 Indian Oil AHMI00358B 11,35,414 - - Tanker Schedule 47 Corporation Rent 17 of Ltd. Income Annual Rs.1423743 Report Net off
Tanker Rent Expense 1371224 = Net Tanker Rent income Rs.52519 (Grouped under Other Income Rent) 3 SOCIAL ALDS03251D 49,76,868 104514 - Refer Note NA FORESTRY 1 below DIVISION JAUNPUR 66,22,032 1,14,709 10,195
Note 1: We hereby states that Social Forestry Division, Jaunpur has wrongly reported the transaction amounting to Rs.49,76,868/- with us and deducted & deposited the TDS u/s.194C amounting to Rs.1,04,514/-. In fact, we have not done any transaction/business with the Social Forestry Division, Jaunpur (TAN: ALDS03251D). We have also not claimed the said TDS in our ITR as it does not belongs to us. We have already communicated the fact to the Social Forestry Division, Jaunpur to rectify the said mistake vide letter dated 22.06.2016 through Registered Post sent on 24.06.2016 (CC to Income Tax Department). Copy of letter alongwith receipt of Registered Post acknowledgement enclosed in Annexure B of your ready reference. Your Honor can independently verify the said fact with Social Forestry Division, Jaunpur (TAN: ALDS03251D) as per the powers given to A.O. under income tax Provisions. Your honor can also verify from the bank statements for whole year of all banks submitted earlier vide letter dated 28.01.2023 in response to Notice u/s.142(1) DIN-ITBA/AST/F/142(1)/2022-23/1048683717(1) dated 13.01.2023. There is no payment at all received from Social Forestry Division, Jaunpur during the year.”
6.2 It is thus found that the Assessing Officer had enquired about the contract receipt of Rs.66,22,032/- as reported in form 26AS. The assessee had explained that out of total contractual receipts, Tyre Retreading income of Rs.5,09,750/- and Tanker Rent income of Rs.11,35,414/- was duly disclosed in Schedule-16 and Schedule-17 of the audited accounts respectively. As regard the balance receipt of Assessment Year: 2016-17 Unique Retreads Pvt. Ltd. Vs. PCIT-3 Page 6 of 8 Rs.49,76,868/- from Social Forestry Division, Jaunpur, the assessee had denied having made any such transaction. It was clarified that since no transaction was made with Social Forestry Division, Jaunpur; neither the receipt was taken into account in its income nor the assessee had taken credit of TDS of Rs.1,04,514/- on this amount. The assessee had also brought to the notice of the Assessing Officer that it had taken up the matter with Social Forestry Division, Jaunpur to rectify the mistake vide its letter dated 22.06.2016. In fact, the assessee had also requested the Assessing Officer to independently verify the matter with Social Forestry Division, Jaunpur. However, the Assessing Officer did not take any action in this regard and merely accepted the contention of the assessee.
6.3 So far as contract receipt on account of tyre retreading income and tanker rent income is concerned, these receipts were duly accounted for by the assessee. However, with regard to receipt from Social Forestry Division, Jaunpur, which was denied by the assessee, the Assessing Officer should have made requisite enquiry from the said authority. When the assessee is denying any transaction, it was incumbent upon the AO to independently verify the contention of the assessee by making third party enquiry. Merely because the assessee had not taken credit of TDS made @ 2 %, it can’t be considered as correct reason to accept the denial of the transaction by the assessee. As per Explanation-2 to section 263 of the Act, if the order is passed without making inquiries or verification which should have been made, then the order shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue. In the present case, the AO should have made enquiry with Social Forestry Division, Jaunpur, about the assessee’s denial of transaction with this entity as reported in the assessee’s 26AS form. Since the order of the AO Assessment Year: 2016-17 Unique Retreads Pvt. Ltd. Vs. PCIT-3 Page 7 of 8 was passed without making the enquiry or verification which was required to be made vis-a-vis the contract receipt of Rs.49,76,868/- disclosed in form 26AS from Social Forestry Division, Jaunpur; the order of the Assessing Officer was rightly held by Ld. PCIT as erroneous and prejudicial to the interest of revenue, to this extent.
The Ld. PCIT has directed the Assessing Officer to modify the assessment order and re-compute income by adding contract receipt of Rs.66,22,032/- as per 26AS. This direction cannot be held as correct as contract receipt of Rs.5,09,750/- in respect of tyre retreading and of Rs.11,35,414/- for tanker rent was duly examined by the Assessing Officer and found accounted for in the books of accounts of the assessee. The order of the AO was erroneous and prejudicial to the interest of revenue only in respect of contract receipt of Rs.49,76,868/- from Social Forestry Division, Jaunpur, which was denied by the assessee and the denial was accepted by the AO without requisite verification. Therefore, the direction of the Ld. PCIT in the order under Section 263 of the Act is modified to carry out verification from Social Forestry Division, Jaunpur in respect of contract receipt of Rs.49,76,868/- as appearing in the form 26AS of the assessee and thereafter re-adjudicate this issue. In fact, the assessee had also requested the AO in the course of assessment to make independent verification from Social Forestry Division, Jaunpur in respect of this contract receipt. Therefore, no prejudice would be caused to the assessee with the direction to have a fresh look at this transaction after carrying out the necessary verification with Social Forestry Division, Jaunpur. Accordingly, the AO is directed to re-adjudicate the issue of contract Assessment Year: 2016-17 Unique Retreads Pvt. Ltd. Vs. PCIT-3 Page 8 of 8 receipt of Rs.49,76,868/- from Social Forestry Division, Jaunpur on the basis of the outcome of the verification from the said authority.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on this 29th July, 2025.