SMT. SWAPNA MANNA,PURBA MEDINIPUR vs. PR.CIT-9, KOLKATA

1 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15 आयकर अपील�य अधीकरण, �यायपीठ –“A” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA [Before Shri J. Sudhakar Reddy, AM and Shri A. T. Varkey, JM] I.T.A. No. 1072/Kol/2019 Assessment Year: 2014-15

Smt. Swapna Manna Vs. Pr. Commissioner of Income-Tax-9, (PAN: ADYPM 0343 H) Kolkata

Appellant Respondent

Date of Hearing (Virtual) 06.05.2021 Date of Pronouncement 23.06.2021 For the Appellant Shri Subash Agarwal, Advocate For the Respondent Shri John Vincent D. Longstich, CIT DR

ORDER Per Shri A. T. Varkey, JM:

This is an appeal filed by the Assessee against the order of Ld. PCIT-9, Kolkata dated 21.02.2019 passed u/s 263 of Income Tax Act, 1961 ( hereinafter referred to as the Act) for Assessment year 2014-15.

2 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15 the assessee appeared and submitted the explanation, details and documents as called for by him and thereafter he made disallowance of Rs. 18,726/- in respect of travelling expenses claimed and made an addition to the tune of Rs. 54,000/- on account of income from oil tanker lorry and framed assessment order dated 30.09.2016. Thereafter, the Ld. PCIT-9, Kolkata proposed to exercise his revisional jurisdiction u/s 263 of the Act by taking note that the case of the assessee was selected for limited scrutiny under CASS due to mismatch of sales turnover reported in audit report and ITR. Further, according to Ld. PCIT on examination of assessment records, he found fault with the AO in not enquiring into three issues even though the fact was that the case of the assessee was selected for scrutiny only for one purpose i.e. alleged mismatch in the sales turnover reported in audit report and ITR. However according to Ld. PCIT in addition to the issue for which the assessee’s case was picked up for Limited Scrutiny, three (3) more issues need to have been looked into/scrutinized which are as follows:

i) Reason for sharp drop in the GP rate during the year.

ii) Whether substantial receipts from IOCL was in any way connected with the business of plying, hiring etc. of goods carriages and

iii) Whether the assessee was in lawful possession of capital which was introduced in the proprietary concern of the assessee by way of matured LIC and gifts.

3 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15 5. Aggrieved by the aforesaid action of the Ld. PCIT, the assessee is before us challenging the invocation of revisionary jurisdiction u/s 263 of the Act without satisfying the condition precedent as prescribed in section 263 of the Act i.e. AO’s order should have been held by Ld. PCIT to be erroneous as well as prejudicial to the revenue in accordance to law.

4 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15 order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”.

5 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15 9. On this issue the Ld. A.R drew our attention to page 22 of PB which shows that the total turnover of the assessee is Rs. 15,03,96,582/- which is evident from the Form No. 3CD. Thereafter, he drew our attention to the profit and loss account placed at Page 24 of PB wherein the sales turnover is Rs. 15,03,96,582/-. So, we note that there was no mismatch and the amount in the tax audit report and ITR is the same. Therefore, the AO being satisfied on this issue did not draw any adverse view against the assessee; and further, the AO had made the addition of Rs. 54,000/- as income from the tanker lorry and also made disallowance in respect of travelling expenses claimed by the assessee to the tune of Rs. 18,726/- and framed the assessment order on 30.09.2016 which has been interdicted by the Ld. PCIT exercising his jurisdiction u/s 263 of the Act wherein his main allegation is that the AO ought to have taken up with the competent authority for complete scrutiny [in respect of the three (3) issues which he found fault supra]. The main fault according to Ld. PCIT is that the AO during assessment proceedings failed to take up with the competent authority to expand the scope of scrutiny as per the Circular of CBDT No. 5/2016 dated 14.07.2016. According to Ld. PCIT on three issues the AO ought to have enquired other than the issue on which the limited scrutiny was selected by CASS as under:

i) Reason for sharp drop in the GP rate during the year.

ii) Whether substantial receipts from IOCL was in any way connected with the business of plying, hiring etc. of goods carriages and

iii) Whether the assessee was in lawful possession of capital which was introduced in the proprietary concern of the assessee by way of matured LIC and gifts.

6 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15 Instruction No. 5/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 14th of July, 2016 Subject: Direction regarding scope of enquiry in cases under “Limited Scrutiny” selected through Cass 2015 & 2016- regd.- Vide Instruction No. 20/2015 dated 29.12.2015 in File of even number, Board has laid Standard Operating Procedure for handling of cases under “Limited Scrutiny”which were selected through Computer Aided Scrutiny Selection in “CASS Cycle 2015”. In these cases, it was stated that the general scope of enquiry in scrutiny proceedings should be restricted to the relevant parameters which formed the basis for selecting the case for scrutiny. However, in revenue potential cases, it was further provided that ‘Complete Scrutiny’ could be conducted. If there was potential escapement of income above a prescribed monetary limit, subject to the approval of administrative Pr. CIT/CIT/Pr. DIT/DIT. 2. In order to ensure that maximum objectivity is maintained in converting a case falling under ‘Limited Scrutiny’ into a ‘Complete Scrutiny’ case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015. Board hereby lays down that while proposing to take up ‘Complete Scrutiny’ in a case which was originally earmarked for ‘Limited Scrutiny’, the AO shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under ‘Complete Scrutiny’. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para 3(d) of earlier instruction dated 29.12.2015, shall continue to remain applicable. 3. Furhter, while forming the reasonable view, the Ao would ensure that: a. there exists credible material or information available on record for forming such view; b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and c. there must be a direct nexus between the available material and formation of such view. 4. It is further clarified that in cases under ‘Limited Scrutiny’, the scrutiny assessment proceedings would initially be confined only to issues under ‘Limited Scrutiny’ and questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to ‘Complete Scrutiny’ after following the procedure outlined above, the AO may examine the addiitonal issues besides the issue(s) involved in ‘Limited Scrutiny’. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting ‘Complete Scrutiny’ in such cases. 5. It is also clarified that once a case has been converted to ‘Complete Scrutiny’, the AO can deal with any issue emerging from ongoing scrutiny proceedings notwithstanding the fact that the reason for such issue have not been included in the Note. 6. To ensure proper monitoring in cases which have been converted from ‘Limited Scrutiny’ to ‘Complete Scrutiny’, it is suggested that provisions of Section 144A of the Act may be invoked in suitable cases. To prevent possibility of fishing and roving enquiries in such cases, it is desirable

7 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15 that these cases should invariably be picked up while conducting Review or inspection by the administrative authorities. 7. The above Instruction shall be applicable from the date of its issue and would cover the cases selected under CASS 2015 which are pending scrutiny cases as well as cases selected /being selected under the CASS 2016. 8. The contents of this Instruction may be brought to the notice of all for necessary compliance. 9. Hindi version to follow. 11. From a perusal of the aforesaid circular it is vivid that this circular has narrowed down the play in the joints/discretion which the AO had earlier enjoyed as per the earlier CBDT Instruction No. 20/2015 dated 29.12.2015, wherein the condition precedent to take up the case for complete scrutiny from Limited Scrutiny was “in potential escapement of income of Rs. 10 lakhs in metro city.” Thus AO could have taken up the case seeking approval for complete scrutiny, if there was potential escapement of income of Rs. 10 Lakh. However, it is noted that by issuing the Instruction No. 5/2016 date 14.07.2016(supra) [which CBDT Circular the Ld. Pr. CIT is relying upon to find fault with the AO in not seeking approval for enlarging the scope of scrutiny], the CBDT has narrowed down the discretion/scope/power of AO to do so and it has spelled out the condition precedent before the AO seeks approval in this regard by observing that in order to ensure maximum objectivity in converting the case falling under the Limited Scrutiny to Complete Scrutiny, the AO can take up the case only if he can form a reasonable view that there is possibility of under assessment of income, if the case is not examined under “Complete Scrutiny”. Further, for forming the reasonable view, the AO has to ensure that –

a. there exists credible material or information available on record for forming such view; b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and c. there must be a direct nexus between the available material and formation of such view. From a perusal of the aforesaid conditions/parameters laid down by the CBDT it can be discerned that before the AO proposes to the competent authority for approval for enlarging the scope of scrutiny from Limited Scrutiny, he should first of all form a reasonable view that in case if the assessment of the assessee is not scrutinized for

8 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15 complete assessment there would be under assessment of income. The parameters/standard laid down by the CBDT is almost similar to that envisaged for the AO to reopen the assessment u/s. 147 of the Act. Before reopening an assessment u/s. 147 of the Act, the AO should have “reason to believe” escapement of income. Whereas as per the Instruction No. 5/2016 the CBDT, before the AO intends to put up a proposal to the competent authority for enlarging the scope of Limited Scrutiny to Complete Scrutiny, the AO had to form a “reasonable view” that there is possibility of under assessment of income. Further CBDT explains that AO while forming the reasonable view, and while taking such view he has to ensure that there exists credible material or information available on record for forming such a view. And circular further states that there must be a direct nexus between the available material and formation of such a reasonable view. And the circular also cautions that AO’s view (i.e. reasonable view) should not be based on mere suspicion, conjecture or unreliable source. So these are the conditional precedent which the AO should keep in mind before he forms a reasonable view that there is a possibility of under assessment, if the case is not taken up for complete scrutiny, which would enable the AO to take up for approval an assessment from ‘Limited Scrutiny’ to complete scrutiny. So we have to test whether the three issues raised by the Ld. PCIT, satisfies the requirement of law as prescribed by the CBDT Circular No. 5/2016 and then only the AO could have taken up the case for further scrutiny as envisaged in the ibid circular.

9 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15 case of Pandit Brothers 26 ITR 159 (Punj), has held that books of account cannot be rejected merely due to low GP the relevant finding is reproduced here:

“6.7. We may draw support for our views from the decisions relied upon by Mr. Khaitan. In Pandit Bros. v. CIT (supra), the Punjab High Court in a Division Bench held that in order to reject the accounts, the ITO must either hold that there was no method of accounting or that the method employed was such that it did not disclose the true profit and loss of the firm. In that case, the accounts maintained were accepted as correct, but only in the absence of stock register, the accounts were rejected. The learned Court held that the absence of stock register was not such a serious defect in the method of accounting employed by the assessee that the ITO could not determine the correct statement of profits and losses. This decision was dealing with Section 13 of the IT Act, 1922, which is pari materia the same as Section 145 stood at the relevant point of time viz., before the amendment. In the said decision, it was further held that there must be material before the ITO to lead him to the conclusion that the method employed was defective or that the income could not be deduced. In the said decision, it was further held that the profits were low was merely a warning to the ITO to look into the accounts more carefully and to show whether there was material to conclude that there was something false in the account books. The mere fact that the profits were low was not material upon which a finding under Section 13 can be based, because the assessee may be incompetent or his method of business may be uneconomic. The mere fact that there was no stock register would not lead to hold that the account books were false. The books of account having been accepted as correct and disclosing a true state of affairs, the absence of one register cannot amount to be material and there must be a clear finding before the ITO could apply provisions of the proviso to Section 13. The Court cannot 'leap in the dark' as was held by the Privy Council in CIT v. Maharajadhiraja Kameshwar Singh of Darbhanga (1933) 1 ITR 94 (PC).” (emphasis given by us) 13. In the instant case, on hand, the assessee is running the business of petrol pump and she has increased the turnover from Rs. 9.84 cr. to Rs. 15.03 crores which is substantial increase in business turnover. In order to attract more customers to her petrol/diesel pump it was told to us that the assessee had given incentives/discounts which would had brought down the profit margin or as observed by the Hon’ble High Court’s observation supra, may be the assessee is incompetent or her method of business may be uneconomic. Moreover, it is noted that the assessee’s books of account are statutorily audited and the AO had acknowledged to have gone through it and has accepted the same. So in such circumstances, we can safely infer that AO after going through the books of account of the assessee was of the opinion that assessee’s books discloses true profit and loss of the business. In such a scenario, we have to examine the Ld. PCIT’s observation that since there was drop in G.P, he (the AO) should have taken up the case for complete scrutiny and failure to do so, makes the order erroneous. When we examine such a contention of Ld. PCIT, first we have to examine whether the AO could have taken up this issue for complete scrutiny as per the CBDT Circular No. 5/2016. We are afraid the AO could not

10 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15 have done so, because for doing so he should have credible material or information from the records before him for forming such a reasonable view that there is a possibility of under assessment of income. Since there was no such credible material or information available on record and being satisfied by the books of account of the assessee, the AO might have made a conscious decision not to take up the case for complete scrutiny as stipulated in CBDT circular which inference we draw because the Ld. PCIT has not mentioned about any such credible material or information available on record to take the opposite view. So when there is no such material or information available on records, the AO could not have formed a reasonable view of under assessment of income on the issue of drop in G.P. Therefore since there is no credible information or material available on record to form a reasonable view that there is a possibility of under assessment, the Ld. PCIT’s allegation on this issue is noted to have been based on surmises and conjectures, so we are to the opinion that AO ought not to have taken up this issue (drop in G.P) for expanding the scope of limited scrutiny as per the CBDT Instruction No. 5/2016 dated 14.07.2016. So the fault pointed out by the Ld. PCIT on this score is erroneous.

11 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15 tanker lorry was not given to any other person on hire and that assessee did not receive any income from running of the tanker lorry. Therefore it is noted that this issue was enquired into and considered by the AO; and thereafter, the AO had proceeded to tax separately the income by estimating at Rs. 54,000/- as the income from tanker u/s 44AE of the Act. So therefore it is noted that the AO had enquired about the issue and even though the AO’s view of adopting the percentage of profit u/s 44AE of the Act, strictly doesn’t fall in its ken, however adoption of percentage of profit/estimate for the purpose of taxation on the facts of the case cannot be ground on which the Ld. PCIT can exercise his revisional jurisdiction because, assessee’s case is that there is no business income from the tanker lorry. However, the AO made addition of Rs. 54,000/-. So there is no prejudice caused to the Revenue; and moreover it is not the case of the Ld. PCIT that despite there was credible information or material to suggest that the assessee’s tanker lorry was used for transport business of plying/running of tanker lorry, then also the AO failed to take up the issue for scrutiny by seeking approval as envisaged in the CBDT circular. Therefore, in the absence of any such material, the AO could not have taken up the case for enlarging the scope of scrutiny and further the decision of AO to apply presumptive tax rate u/s 44AD is in line with judicial precedent as given below:

12 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15 up the matter for further scrutiny on this issue. And the Ld. PCIT in the impugned order have not mentioned about any credible material or information on this issue in the assessment record which could have prompted the AO to have taken up the case for further scrutiny and therefore the Ld. PCIT erred in finding fault with the AO for not taking up this issue for scrutiny as stipulated by Instruction No. 5/2016 dated 14.07.2016 of CBDT.

Order is pronounced in the open court on 23rd June, 2021

Sd/- Sd/- (J.S. Reddy) (A. T. Varkey) Accountant Member Judicial Member Dated: 23.06.2021 SB, Sr. PS

Copy of the order forwarded to: 1. Appellant- Smt. Swapna Manna, at Dhandighi, PO. Contai, Dist. Purba Medinipur, West Bengal-721442 2. Respondent – PCIT-9, Kolkata 3. The PCIT- 9, Kolkata 4. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order

Assistant Registrar ITAT, Kolkata Benches, Kolkata

13 ITA No. 1072/Kol/2019 Smt. Swapna Manna, AY 2014-15