Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI G. MANJUNATHA & SHRI RAHUL CHAUDHARY
आदेश /O R D E R Per Rahul Chaudhary, Judicial Member:
By way of the present appeal the Appellant/Assessee has challenged the Order, dated 18.03.2021, passed by the Learned Principal Commissioner of Income Tax, Central – 1, Chennai [hereinafter referred to as the ‘the PCIT’] under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] setting aside the Assessment Order, dated 27.09.2018, passed under Section 143(3) of the Act. This appeal was heard along with appeal for the Assessment Year 2015-16 which has been disposed by way of a separate order.
The brief facts of the case are that the Assessee, a resident individual engaged in civil Interior decoration business, e-filed his original return of income for the Assessment Year 2016-17 on 20.03.2017 declaring a total income of INR 40,31,100/-. The case of the Assessee was selected for scrutiny. The Assessing Officer, vide order, dated 27.09.2018 [hereinafter referred to as ‘the Assessment Order’] completed the assessment under Section 143(3) of the Act accepting the returned income.
Subsequently, on examination of the assessment records, the PCIT 3. noticed that there was an increase in sundry creditors with respect to turnover as compared to immediately preceding previous year. During the assessment proceedings, the Appellant had furnished age-wise break up of sundry creditors and confirmation letters of the some creditors. However, the confirmation did not contain details of permanent account number, and date/mode of payments. The PCIT was of the view that the Appellant had failed to prove identity of parties, genuine of transaction and creditworthiness of the sundry creditors.
Further, the PCIT also noticed that the Appellant had claimed credit of entire amount of tax deducted at source form Contract Receipts of INR 3,03,49,980/- without offering to tax the entire amount of such Contract Receipts. Accordingly, the PCIT issued a show-cause notice under Section 263(1) of the Act to the Appellant. In response to the same, the Appellant filed letters, dated 16.12.2020, 06.01.2021 and 11.03.2021.
However, the PCIT vide order dated 18.03.2021 passed under Section 263 of the Act set aside the Assessment Order by invoking the provisions of the Clause (a) of Explanation 2 to Section 263 of the Act on the ground that the Assessing Officer had failed to carry out necessary inquiry or verification before passing the Assessment Order.
Being aggrieved, the Appellant is before us in the present appeal. The Appellant has raised 9 grounds, all challenging exercise of power of revision by the PCIT under Section 263 of the Act, and supporting Assessment Order as being correct having been passed after making proper and adequate inquiry. Since all the grounds are inter-connected the same are being taken up together.
The learned Authorized Representative of the appellant appearing before us submitted that the case of the Appellant was selected for limited scrutiny and the Assessing Officer carried out necessary inquiry/verification before accepting the submissions of the Appellant.
He submitted that during the assessment proceedings, letters dated 09.05.2018, 11.06.2018, and 31.08.2018 were filed. Since the assessing officer had asked for confirmation from Sundry Creditors for more than INR 10,00,000/- the same were furnished along with the age-wise break-up of the sundry creditors. The issue relating to mismatch/reconciliation of contract receipts offered to tax and reported in Form 26AS as well as credit of tax deducted at source were explained to the satisfaction of the Assessing Officer. He submitted that in the present case, the Assessing Officer had carried out all the inquiries/verifications during the assessment proceedings and therefore, it cannot be said that the Assessment Order has been passed without making inquiries. Referring to the expression ‘without making inquiries’ used in Clause (a) of Explanation 2 to Section 263 of the Act, he further submitted that contrary to the view taken by the PCIT, the provisions contained in the aforesaid clause/explanation support the case of the Appellant. Admittedly, according to the PCIT inquiries were conducted, however, the same were found to be insufficient. Therefore, since the Assessment Order has not been passed ‘without making inquiries’ provisions of Clause (a) of Explanation 2 to Section 263 are not attracted. Though the Assessment Order is silent on the issues raised by the PCIT, it does not mean that the same issues were not inquired into or verified by the Assessing Officer. In conclusion, the Ld. Authorized Representative of the Appellant submitted that the PCIT had reviewed the order passed by the Assessing Officer in the garb of exercising powers of revision under Section 263 of the Act, and therefore, the order passed by the PCIT is liable to be set aside.
Per Contra, the Learned Departmental Representative submitted that the Assessment Order was erroneous in so far as it was prejudicial to the interest of Revenue and therefore, the PCIT was justified in setting aside the same. He furnished a copy of the letter/reply, dated 11.06.2018, filed by the Appellant during the assessment proceedings.
Taking us through the same, he submitted that the Appellant has only filed balance confirmation from some of the parties which did not contain any details necessary for verification/inquiry of the transaction. Further, the Appellant has also not filed any reconciliation. He submitted that the Assessing Officer had made no attempt to inquire into the issues for which the case of the Appellant was selected for limited scrutiny during assessment proceedings. The Assessing Officer was required to make specific inquiries into the claims made by the Appellant. Having accepted the submissions made by the Appellant without necessary inquiry/verification, the Assessing Officer failed to discharge this duty/obligation and therefore, the PCIT was justified in exercising powers of revision. He submitted that no prejudice has been caused to the Appellant as the PCIT has set aside issue with the directions to decide the same afresh.
We have considered the rival submissions and perused the materials on record. As per notice dated 19.09.2017 issued under Section 143(2) of the Act, the case of the Appellant was selected for limited scrutiny for examining (i) whether sundry creditors are genuine, (ii) whether contract receipts/fee have been correctly offered to tax, and (iii) whether sales turnover/receipts has been correctly offered to tax. Thus, the Assessing Officer was required to carry out necessary verification and inquiries in relation to the said issues. We have examined the appellant’s paper- book, and copy of letter/reply dated 11.06.2018 filed by the Appellant in assessment proceedings along with annexures being reconciliation statement and confirmations. The Assessing Officer had merely asked for age-wise break-up of sundry creditors and confirmations from creditors of more than 10,00,000/- during the assessment proceedings and the same were furnished by the Appellant. However, in our view, the aforesaid were not sufficient for the Assessing Office to arrive at a satisfaction that the creditors were genuine. The balance confirmation provided by the Appellant only disclosed the amount outstanding as on 31.03.2016 and nothing more. Material placed before us does not show that any inquiry was made by the Assessing Officer on receiving such confirmations. No material was placed before the Assessing Officer to enable the Assessing Officer to verify the genuineness of sundry creditor and/or the genuineness of the transaction undertaken by the Appellant with such sundry creditor. Further, the ‘Reconciliation of 26AS’ filed by the Appellant along with letter/reply 11.08.2016, and the explanation furnished by the Appellant vide letter, dated 31.08.2018 were not sufficient to verify/confirm that the contract receipts have been offered to tax correctly. Even the Assessment Order, being silent on these issues, does not support the contention of the Appellant that the Assessing Officer made necessary inquiry/verification in relation to issues identified for limited scrutiny. We are also not inclined to accept the contention advanced on behalf of the Appellant that provisions of Clause (a) of Explanation 2 to Section 263 of the Act support the case of the Appellant. The expression ‘without making inquiries or verification’ used in Clause (a) of Explanation 2 to Section 263 of the Act, has to be read in conjunction with the words that follow this expression ‘which should have been made’. In the case before us, the Assessing Officer has failed to carry out necessary inquiries and verification in relation to the issues identified for limited scrutiny which should have been made in the facts and circumstances of the present case.
Assessment Year : 2016 - 2017 8. In view of the above, the PCIT was legally justified in exercising powers of revision under Section 263 of the Act in the facts and circumstances of the present case. Accordingly, we uphold the order, dated 18.03.2021, passed the PCIT under Section 263 of the Act.
In result present appeal is dismissed.