M/S ROCKBED RENOVATORS LTD.,BHOPAL vs. THE PCIT-1, BHOPAL

This appeal by assessee is directed against the revision order dated 28.03.2023 of Pr. Commissioner of Income Tax, Bhopal passed u/s 263 of the Act for Assessment Year 2018-19. The assessee has raised following grounds of appeal :

“1. That the order of the Ld. Pr. Commissioner of Income Tax, Bhopal u/s 263 of the Act is illegal, void and without jurisdiction. 2. That the Ld. Pr. Commissioner of Income Tax, Bhopal has wrongly invoked provision of Section 263 of the Act without looking into factum that ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. the assessment order was framed u/s 143(3) after making due enquiry and was not erroneous or prejudicial to the interest of revenue.

4. The Ld.PCIT has erred in ignoring the records of the assessment proceedings while passing the impugned order. It is submitted that in case the authority had perused the records of the assessment proceeding, it would have considered the merit in Appellant's submission that detailed enquiry and investigation was made by the LD AO qua expenses in form of payment to Sub-contractors on which TDS was deducted u/s 196C.

5. The Learned PCIThas erred in concluding that the assessment order passed by the AO is prejudicial to the interest of the revenue and is erroneous in the nature.

6. That the impugned order is contrary to the extant judicial position wherein it has been settled that the revisionary power by the LD PCIT/CIT can be held to be correct only if the LD CIT examines and verifies the transactions under question by himself and arrives at a finding on merits that the concerned order is erroneous and prejudicial to the interest of revenue. However, in the instant case, the LD PCIT has at the foremost, failed to even examine and verify whether the interest of revenue has been prejudiced. An examination of the order of PCIT reveals that it is without any merits and does not even venture out to ascertain the interest of revenue or any supposed prejudice/error.

7. That there is a distinction between "lack of enquiry" and "inadequate enquiry". In the present case the Assessing Officer collected necessary details, examined the same and then framed the assessment u/s. 143(3) of the Act. Since the Assessing Officer had investigated/examined the issue and applied his mind towards the whole record made available by the assessee during assessment proceedings and uncontrovertedly, necessary details/reply to the questionnaire were filed/produced by the assessee and the same were examined by the Assessing Officer, therefore, the present case is not a case of lack of enquiry by the Assessing Officer and thus section 263 cannot be invoked by the Pr. CIT.

9. That for the purposes of exercising jurisdiction u/s 263, the conclusion of the CIT that the order of the AO is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. If the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. The second option available u/s 263 (1) of sending the entire matter back to the AO for a fresh assessment can be exercised by the PCIT only after he undertakes an inquiry himself and not otherwise. Thus the present order u/s 263 is vitiated on this ground alone.

10. That the Ld. PCIT's decision to treat the payments to sub- contractors as not genuine and, consequently to treat the assessment order as erroneous is based on incorrect grounds, facts and reasoning and without considering the submissions of the assessee in both the assessment proceedings and under revisionary proceedings and without properly applying the mind to the facts and records of the case and therefore, the same deserves to be quashed.

11. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal."

2. The assesse company was engaged in the business of construction/contractor of PWD for construction of Road etc. The assessee filed its return of income for the year under consideration on 31.10.2018 declaring total income of Rs.3,41,44,890/-. The case was selected for limited scrutiny assessment under e-assessment Scheme of 2019 on the issue of “Verification of Genuineness of Expenses”. The assessment was completed u/s 143(3) r.w. section 143(3A) & 143(3B) of the Act on 06.03.2021 at total income by accepting the return income of the assesse. Thereafter, the Pr. CIT ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. while examining assessment record found that the order passed by the AO is erroneous in so far as it was prejudicial to the interest of revenue as the AO did not examine certain aspect of the case properly. The Pr. CIT accordingly issued show cause notice u/s 263 on 20.02.2023 which was replied by the assesse vide reply dated 03.03.2023. The Pr. CIT did not accept reply filed by the assessee and held that the expenditure claimed by the assessee on account of payment to sub-contractors cannot be treated as genuine and therefore, the AO failed to verify the genuineness of the expenses for which the case was selected for scrutiny by conducting a proper inquiry on the said issue. The Pr. CIT accordingly set aside the assessment order with directions that the AO should pass assessment order de novo after affording reasonable opportunity of being heard to the assesse. Aggrieved by the impugned order the assessee filed the present appeal.

3. Before the Tribunal the Ld. Counsel for the assessee has submitted that the case was selected for scrutiny on the very issue of verification of genuineness of the expenses. During the scrutiny assessment proceedings the AO issued notice u/s 142(1) dated 19.01.2021 placed at page no.23 of the paper book. Ld. Counsel has submitted that the AO has specifically called the details of all the payments above Rs.10,000/- and above Rs.50,000/- in aggregate made to the contractor/sub-contractors whose TDS is made u/s 194C of the Act. The details of the persons their PAN, E- mail, current address, payment details, TDS amount, payments made during the preceding year and subsequent year, copy of ITR, Page 4 of 33 ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. ledger copy of the person to whom payment has been made, bank account statements and specific details of the work done by such persons etc. Therefore, the AO called for exhaustive details and documents which were duly furnished by the assessee vide its reply dated 03.02.2021 placed at page no.25 and supporting evidences placed at page no.26 to 74 of the paper book. Ld. Counsel has thus submitted that this fact of filing relevant details and reply to the show cause notice issued by the AO u/s 142(1) is duly recorded in the assessment order and therefore, the AO has conducted a due inquiry on this issue and only after his satisfaction the claim of the assessee was accepted as genuine while passing the assessment order. Ld. Counsel has thus submitted that it is not a case of lack of inquiry on the part of the AO but a proper and due inquiry was conducted by the AO and assessee produced sufficient supporting evidence to the satisfaction of the AO. Even the AO also issued notice u/s 133(6) to the sub-contractors which shows that apart from the supporting evidences produced by the assessee the AO also called information and relevant details from the sub- contractors to whom the assessee has shown the contract payments outstanding. He has then referred to the show cause notice issued by the Pr. CIT and reply of the assessee at page no.3 to 15 of the paper book which is also reproduced by the Pr. CIT at page no.3 of the impugned order.

3.1 In reply to the show cause notice issued u/s 263 the assessee has again explained all the details which were produced before the AO leaving no doubt that the AO conducted a proper inquiry on this Page 5 of 33 ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. issue. Ld. Counsel then contended that the assessment was framed as per e-assessment scheme of 2019 and the order passed by the AO was subjected to verification and approval of the higher authorities at e-assessment center and thus more than one income tax authority was involved in the assessment proceedings. The Pr. CIT has invoked the provisions of section 263 on the premises that the assessee has not produced supporting evidences relating to identity of these persons, their address, PAN, and other records as called for by the AO. The said observation of the Pr. CIT is contrary to the facts and record. He has referred to the contract between the PWD and assessee as well as work orders issued in favor of sub- contractors for execution of the said work and as per terms and conditions of the work order awarded to the sub-contractors the payment was to be made only after the period of performance guaranty is over i.e. five years. Therefore, the payments to the sub- contractors were not made during the year under consideration as it was to be made as per the terms and conditions of the work orders and only after the period of performance guaranty. Ld. Counsel has referred to the documents which were produced before the AO placed at page no.3 to 15 of the paper book comprising of Aadhar Card, tender documents of PWD, Government of MP, work order to the sub-contractors to establish the identity of the sub- contractors and genuineness of the transactions and expenditure on account of execution of the work through sub-contractor. The books of accounts of the assessee are duly audited as per the provisions of section 44AB and no adverse remarks or discrepancy ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. was found by the auditor regarding the expenses claimed and debited in the profit and loss account. Ld. AR has thus submitted that merely because the payments were not made during the year and to be made in the future as per the terms of the sub-contractor the claim of the assesse cannot be held as bogus or not genuine. In support of his contention he has relied upon following decisions:

1.Bengal Peerless Housing Devat. Co. Ltd v. Deputy Commissioner of Income (Circle -7) (1), Kolkata (2019) 103 Taxmann 298 (Kolkata Trib) 2.Bharat Earth Movers v. Commissioner of Income Tax (2000) 112 Taxmann 61 (SC) 3. Commissioner of Income Tax v. Alembic Glass Industries (Tax Appeal No. 729/201)

3.2 Further when the assessment order was subject to verification and approval at e-assessment centers by the higher authorities then the same cannot be held as erroneous and prejudicial to the interest of the revenue on the ground of improper inquiry on the part of the AO. Ld. Counsel has submitted that the entire claim of expenses was subjected to TDS u/s 194C and therefore, if some of the parties have not responded to the notice issued u/s 133(6(. The assessee cannot be held liable for the same and consequently cannot be parished by disallowing the claim of expenses which is otherwise supported by the relevant evidences.

3.3 In support of his contention he has relied upon the decision of this tribunal dated 08.02.2024 in case of AL AS Real Estate and ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. Developers Pvt. Ltd. vs. Pr. CIT in ITANo.181/Ind/2023 and submitted that this tribunal has considered an identical issue of assessment framed as per e-assessment scheme of 2019 on the identical issue of verification of genuineness of the expenses and held that the AO has made a proper inquiry and given a clear finding about the issue based on the various documents produced before the AO then invoking of provisions of section 263 by the Pr. CIT is not warranted on the ground that the AO failed to conduct an proper inquiry. He has further contended that once the AO has taken a possible view after proper inquiry and examination of the supporting evidences then the Pr. CIT is not permitted to invoke provisions of section 263 merely because he does not agree with the view taken by the AO. The Ld. Counsel then contended that even otherwise order passed by the Pr. CIT u/s 263 is not valid and liable to be quashed as the Pr. CIT himself was not sure about correctness of the claim of the assessee and set aside the matter to the record of the AO for denovo assessment. He has relied upon the decision of this Tribunal dated 11th July 2023 in case of Maa Narmada Agrotech and Infrastructures ltd. vs. PCIT in ITANo.117/Ind/2022. Hence the Ld. Counsel has submitted that the impugned order of Pr. CIT is not sustainable in law and liable to be quashed.

1.The case was selected for Limited Scrutiny assessment under the E-assessment Scheme, 2019 on the following issues:- S. No. Issues i.Verification of Genuineness of Expenses. The assessee filed its Return of Income for the A.Y. 2018-19 electronically on 31.10.2018 declaring total income Rs.3,41,44,890/- .The case was selected for scrutiny for verification of issue(s) mentioned above.

5.1. Therefore, on the issue of verification of genuineness of the expenses the case was selected for scrutiny. In para 2 of the assessment order the AO has stated that notice u/s 143(2) & 142(1) were issued and in-compliance thereto, the assessee filed details and documents electronically which are considered. The AO has not given elaborate finding on the issue but recorded that on the basis of the Income Tax Return filed and submissions made by the assessee in the course of assessment proceedings the total income of the assessee is assessed to return income. The notice issued u/s 142(1) raised various quarries as under:

“Sir/ Madam Mis, Subject: Furnishing of details and documents With respect to the amount paid during the year under consideration, on which tax has been deducted u's 194C of the Income-tax Act, you were requested vide notice and letter dated 04/02/2020, 09/10/2020, 10/11/2020 and 24/12/2020 to furnish the following details and Page 10 of 33 ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. documents. However, till date the required details and documents have not been furnished by you. Her.ce, you are again requested to furnish the following details within seven days of receipt of this letter:

Name PAN Total Expenses Amount Payment Payment Details of payment booked of TDS made made work done made during during 16-17 18-19

2017-18 Labour work Abhay Mishra CBHPM3381E 275220 278000 2780 218840 249975 Labour work Bhupendra ACWPS6320D 6415000 5645820 56458 0 0.00 Sharma Labour work 0.00 Farid Khan BNVPK2860D 173250 205000 2050 260330 Labour work 0.00 Gajraj Singh CATPS8315P 28700 290000 2900 213690 Labour work 0.00 Ghanshyam Soni GPEPS1649Q 0.00 1725640 17256 0 Labour work 0.00 Priya Enterprises AZTPK3137A 350460 354000 3540 0 Labour work 0.00 Vijay Shukla GPEPS1602P 0 1726840 17268 0 Labour work 0.00 Yogendra Mishra BCKPM1300E 0 1872450 18724 0

Labour work 0.00 Pawan Singh BJFPR5637F 70300 71050 711 0 5.3 Thus, the assesse produced the PAN of all these sub- contractors in whose names payments were made and expenditure ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. was booked on account of sub-contract/ labour work. The assessee also produced ledger account of all sub-contractors. It is clear from the assessment order as well as notice issued u/s 142(1) and reply filed by the assessee along with supporting documents that the AO has conducted an inquiry on the solitary issue of verification of genuineness of expenses selected for limited scrutiny. Therefore, it is not a case of lack of inqiry on the part of the AO however, it may be a case of inadequate inquiry. The Pr. CIT invoked the provisions of section 263 by issuing a show cause notice dated 20.02.2023 which is reproduced as under:

“1……….

2. During the assessment proceedings, it was observed by the AO that the assessee company has made large payments to various contractors w/s 194C. As per Form 3CD total payments to sub-contractors are to the tune of Rs. 1,22,75,870/-. Details were called for in this regard. From the details of payments made, as submitted by the assessee, it is observed that in respect of three sub-contractors, also huge amounts were booked in their name and TDS @ 1% is shown to have been deducted u/s 1940, not a single rupee was paid to these three contractors during the year. The details of such sub-contractors are as under:

Name of sub contractor Amount TDS Amount Nature of work don booked deducted paid Vijay shukla 17,26,840 17,268 0 Labour Supply Ghanshyam Soni 17,25,640 17,256 0 Labour Supply ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. Yogendra Prasad 18,72,450 18,724 0 Labour Supply Mishra 3.During the assessment proceedings, the AO issued notice u/s 142(1) on 14/01/2020, 04/02/2020, 10/11/2020, (11/12) / 2020 (24/12) / 2020 and (19/1) / 2021 whereby the assessee was asked to furnish name, PAN, emailID, current address, etc of the sub-contractors. However, compliance on these points was not made. 4.Meanwhile, the AO also issued letters u/s 133(6) to these three sub contractors and they were asked to provide details such as nature of services rendered, PAN, copy of ITR for relevant year, details of payments received, etc. However, no compliance was made by any of the sub- contractors to the notice u/s 133(6). 5.Thus, it was apparent during the assessment proceedings that the assessee company has booked huge expenses in the names of the said three sub-contractors but not a single penny was paid to them during the entire year. Interestingly, for the details furnished by the assessee, it is seen that no payment whatsoever was made to these sub-contractors even in the next financial year. The assessee failed to provide PAN, address or email Ids of these contractors despite repeated queries in this regard. Also, notices issued w/s 133(6) to these sub-contractors remained un-complied. Thus, the payments booked in the name of the said three sub-contractors, which are debited to Profit & Loss A / c cannot be treated as genuine." 5.4 Thus, the Commissioner has picked up the issue of expenses booked in the name of three persons ; Vijay Shukla, Ghanshyam Soni & Yogendra Prasad Mishra primarily on the ground that the amount was not paid by the assessee during the year though the same was subjected to TDS u/s 194C as mentioned in para 3 of the show cause notice. The Commissioner has recorded that in the notice u/s 142(1) the assessee was asked to furnish the name, PAN address, E-mail ID of the sub-contractors however, the compliance of these pointes were not made. This statement of the Pr. CIT is in ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. contradiction of the statement of the AO recorded in para 2 as under:

2. Accordingly, notices u/s 143(2) and 142(1) of the Income Tax Act 1961 are issued and duly served upon the assesse. In compliance thereof, the assessee filed details and documents electronically which are considered.

Thus, the AO has specifically mentioned that in compliance of notice u/s 142(1) the assesse filed details and documents electronically which were considered.

5.5 The next observation of the Pr. CIT is that the AO issued letter u/s 133(6) to these three sub-contractors for providing details such as nature of service, PAN, copy of ITR etc. however, no compliance was made by any of the sub-contractor. This fact of issuing notice u/s 133(6) itself proves that the AO has conducted the inquiry on this issue and therefore, outcome of the inquiry conducted by the AO was available on record. The next objection of the Pr. CIT was regarding the non-payment of the amounts to these three persons during the year as well as during the next financial year. It is pertinent to note that as per the terms and conditions of the work order awarded to the sub-contractors for execution of the work which was originally awarded to the assessee by the PWD, Division- 2, Bhopal M.P., the payments were to be made only after completion of performance guaranty. This reply of the assessee were also available before the Pr. CIT wherein it is recorded that the assessee submitted that as per terms of agreement between the PWD and the assessee performance based security deposit which ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. were taken at the time of Bid will only be realized after five years of completion of work. As sub-contractors were part of the project and realization of performance security which depends upon quality of work completed by them the assessee incorporated condition in the work order issued to sub-contractor for payment of the contract work after realization of performance guaranty. The Commissioner has rejected this contention of the assessee on the ground that no supporting evidence has been produced by the assessee. It is pertinent to note that the work order itself is an agreement between the parties which is duly signed by both the parties and it is a tangible supporting evidences on the point that the parties have agreed to the payments conditions. Even otherwise deferment of the payment cannot be a ground for disallowing the claim of expenses accrued during the year. The observation of the Pr. CIT is all in the nature of suspicion about genuineness of the claim of the assessee whereas the AO undertaken an inquiry on the very issue of genuineness of the expenditure and allowed the claim based on the facts as well as relevant material available on the assessment record. The view taken by the AO accepting claim of the assessee is a reasonable and a possible view. Therefore, the AO has taken a possible view after conducting inquiry on the issue. The commissioner can invoke the provisions of section 263 and revised the order of the AO but only when he comes to the conclusion that the order passed by the AO is either contrary to the facts or not permissible under law. This Bench in case of AL AS Real Estate ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. and Developers Pvt. Ltd. vs. Pr. CIT (supra) has considered an identical issue in para 10 & 11 as under:

“10. We have considered rival submissions of both sides and perused the impugned order as well as the material held on record to which our attention has been drawn. On a careful consideration, we find that the AO has made a clear-cut finding in assessment-order Para No. 1 and 2 that the issue of scrutiny namely "Verification of Genuineness of Expenses" has been examined and no addition is made and the returned income is accepted. This finding by AO is fully supported from various documents placed in the Paper-Book as discussed in foregoing paras of this order, which clearly show that the AO has issued multiple questionnaires u/s 142(1) and made repeat enquiries to examine the expenses claimed by assessee in general and payments made to M/s AD Enterprises in particular. The assessee also filed complete replies to those questionnaires. To this extent, there cannot be any dispute or rebuttal by revenue. Clearly, therefore, it is discernible that the AO has considered those replies/submissions and thereafter taken a plausible view. Further, the action of AO in accepting the replies/ submissions of assessee cannot not lack bona fides and cannot be said to be faulty specially when the assessment of assessee has been made by National e-assessment Centre, Delhi. With regard to various objections raised by PCIT in revision-order and also contended by Ld. DR qua M/s AD Enterprises, we find that the Ld. AR for assessee is very much correct in arguing that the assessee filed complete point-wise replies to AO; that all payments were made through banking channel and bank statements were duly filed; that the assessee deducted TDS and filed copies of TDS returns/ challans; that the assessee filed PAN, current address and phone number of Smt. Nilima, proprietor of M/s AD Enterprises. In fact, the assessee has also filed details of payments made to M/s AD Enterprises not only in current year but also the payments made in preceding year and subsequent year.Ld. AR is also justified in submitting that nou-filing of income-tax return and no response of the notice u / s 133(6) by Smt. Nilima is not under the control of assessee and the assessee cannot be punished for this. The submission of Ld. AR that the assessee is engaged in the business of real estate and the services taken from M / s AD Enterprises in the nature of various job works like moram filling, chambers, road, boundary wall, drainage line, etc. were very much required by assessee to build the structures, is also meritorious. We may mention here that the assessee has deducted substantial amount of TDS from payments made to M / s AD Enterprises, remitted the proceeds of TDS to income-tax department and also filed statutory returns of TDS giving each item of payment, TDS etc. against the payee M / s AD Enterprises. The TDS returns also contain PAN of Smt. Nilima proprietor of M / s AD Enterprises. The PAN so mentioned is Page 17 of 33 ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. verified and accepted as valid and correct by TDS Wing of Income-tax Department and that is why they have not created demand of higher amount of TDS u/s 206AA of the Act. Therefore, just by saying that the payee has not filed income-tax return, the authorities cannot punish the assessee. So far as non-response of notice u / s 133(6) is concerned, the assessee has very much discharged his duty by providing current address and current phone number of M / s AD Enterprises which has enabled the AO to issue notice u/s 133(6). But thereafter, non-response by the payee to the statutory notice directly issued by AO, is not within the reach and control of assessee. Hence, we are unable to understand as to how the assessment -order of assessee can be considered as erroneous for no fault of assessee.

11. In view of above discussions and for the reasons stated therein, we are persuaded to hold that the facts of the present case do not warrant application of section 263. Therefore, the revision-order passed by Ld. PCIT is not a valid order. We, thus, quash the revision-order and restore the original assessment-order passed by AO. The assessee succeeds in this appeal.” 5.6 Thus, the Tribunal has given a finding that once the assessee has deducted substantial amount of TDS from the payments made to the parties and remitted to proceeds of TDS to Income Tax Department which also contains PAN of the parties then no response on the part of the parties to the notice issued u/s 133(6( cannot be attributed to the assessee for making the disallowance of claim or doubt the claim.

5.7 There is another aspect in this case regarding impugned order passed by the Pr. CIT when giving concluding finding is not sustainable without outcome of the inquiry conducted by the AO is available on record. It is pertinent to refer the judgment of Hon’ble Delhi High Court in case of ITO vs. D.G. Housing Project 20 taxmann.com 587 wherein the Hon’ble High Court has held that in cases where the order of the AO is erroneous because the order ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. passed is not sustainable in law and the said finding must be recorded by Commissioner to establish and show the error or mistake made by the AO making order unsustainable in law such finding must be clear, unambiguous and not debatable in such cases if matter is remanded to the AO it would imply and mean the Commissioner has not examined and decided whether or not the order is erroneous but direct the AO to decide the issue. By following the said judgment of Hon’ble Delhi High Court as well as other judgments on the said point this tribunal in case of Maa Narmada Agrotech and Infrastructures Limited vs. Pr. CIT(supra) has considered this issue in para 11 to 13 as under:

“11. As it is apparent from the annexures to show cause notice issued by the AO u/s 142(1) that the AO issued a detailed questionnaire to the assessee for providing the necessary details, record and evidence. The AO even given a specific format in respect of each details to be provided by assessee which covered all these issues as raised by the Pr. CIT in the show cause notice issued u/s 263 of the Act. The assessee duly complied with the show cause notice issued by the AO by filing to detail reply along with relevant details and documents which runs into 100 of the pages, therefore, for the sake of brevity we are not reproduced the reply and documents filed by the assessee before the AO. However, on-going through the reply filed by the assessee it is manifest that the assessee has given all these details and explanation as sought by the AO in the show cause notice issued u/s 142(1) of the Act. The AO even issued a second show cause notice dated 22.12.2019 asking the details regarding unsecured loans along with explanation in respect of disallowance u/s 14A r.w. Rule 8D. Finally the AO has made disallowance only u/s 14A and no disallowance or addition was made in respect of the other issues as raised in the show cause notice issued u/s 142(1) of the Act. Thus, it is clear that the AO has conducted an inquiry on these issues and was satisfied with the reply and explanation filed by the assessee along with supporting evidence. Hence it is not a case of complete lack of inquiry on the part of the AO while passing the assessment order and therefore, the assessment order cannot be held to be erroneous so far as the prejudicial to the interest of the revenue on the ground of lack of inquiry. Though the commissioner has jurisdiction to invoke the provision of section 263 even ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. when the AO has conducted inquiry and taken a view but the said jurisdiction and power of commissioner is restricted only in the case, where the view taken by the AO is absolutely wrong and against provision of law. No such allegation has been made by the Pr. CIT in the impugned order that the view taken by the AO in allowing the claims and accepting the explanation of the assessee is absolutely not permissible under the law. Even otherwise we find that the assessee has duly explained discrepancies in the total receipts declared by the assessee in comparison to the receipts appearing in form 26AS and explained the reasons with supporting evidence that the said difference is due to the time difference in recognizing the revenue by the assessee and booking of expenditure by the contractee. It is matter of record that the assessee filed the reconciliation before the AO as well as before the Pr. CIT. Therefore, it was incumbent upon the Pr. CIT to verify the details produced by the assessee as well as reconciliation of difference in the receipts and to give a finding about the correctness of the claim of the assessee. The assessee has given the relevant details and explained difference of Rs.1.97 cr being the income already declared by the assessee in the preceding year with the supporting bills and TDS which was deducted by the payee in the preceding year as well as for the year under consideration. Therefore, if the TDS details for two years are taken into consideration it goes to prove that only because of the difference of time in deducting the TDS by contractee the discrepancies appears in respect of the receipts as shown in the form 26AS and turnover declared by the assessee. All these details were produced by the AO and this is a recurring issue as already examined before the AO in the preceding assessment years. The AO did not feel any need to give an elaborate finding on this issue. The assessee has produced copies of the assessment order passed u/s 143(3) for A.Ys.2014-15 & 2015-16 wherein an identical issue was considered by the AO and after examining of the record and explanation of the assessee the AO accepted the claim of the assessee. Once it is a recurring issue and already examined in the preceding years and AO has duly conducted an inquiry by issuing show cause notice u/s 142(1) which was duly replied by the assessee with relevant record then the AO was not expected to give an elaborate finding on this issue. Similarly on the other issues when the AO has issued show cause notice and the assessee produced relevant details and supporting evidence in respect of the expenses incurred which were subjected to TDS wherever applicable and the extra expenditure was incurred for the year was specifically explained by the assessee giving the specific reasons of consumption of electricity in development of site in the remote rural area as well as the expenditure incurred on acquiring equipment of machinery require for carrying out construction work. All these details were available with the AO as filed by the assessee, therefore, this case is certainly does not fall in the category of lack of inquiry on the part of the Assessing Officer. Coordinate Bench of this ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. Tribunal in case of Rakesh Khandelwal vs. Pr. CIT (Supra) while considering an identical issue has held as under:

“8. Therefore, it is not the case where there was no enquiry at all by the A.O. The assessee had furnished certain evidences, which the assessing officer has gone through. There is no dispute that the Ld. Principal CIT can exercise the revisionary jurisdiction u/s 263 of the Act. If he considers that any order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of the revenue. Explanation (2) to section 263 of the Act further clarifies that an order passed by the A.O. shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if in the opinion of the Principal Commissioner or Commissioner (a) the order is passed without making enquiries or verification which should have been made (b) the order is passed allowing any relief without enquiring into the claim (c) the order has not been made in accordance with the order, direction or instruction issued by the Board u/s 119 or (d) order has not been passed in accordance with any decision, which is prejudicial to the assessee rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. In the present case, Principal CIT has revised the order on the ground that the A.O. has failed to make enquiries or verification, which should have been made. Ld. Principal CIT has not specified that what enquiries the A.O. has not made. There is no material suggesting that the Principal CIT has expressed his view about insufficiency of enquiry on the material placed on record. The issue regarding whether the assessment order is erroneous or prejudicial on the ground of insufficiency of enquiry has been dealt by the Hon'ble Delhi High Court in the judgement of ITO Vs. DG Housing Projects Ltd. (2012) 20 Taxmann.com 587, which has been followed by this Tribunal in various cases. Hon'ble High Court while adverting to the issue held that in cases of wrong opinion for finding on merit, the CIT has to come to the conclusion and himself decide that order is erroneous, by conducting necessary enquiry, if required and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the A.O. will be erroneous because the order passed is not sustainable in law and the said finding must be recorded CIT cannot remand the matter to the assessing officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the A.O. making the order unsustainable in law. In some cases, possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the A.O. had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable.

ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. The matter cannot be remitted for a fresh decision to the A.O. who conduct further enquiries without a finding that the order is erroneous finding that order is erroneous the condition or requirement which must be satisfied for exercise of jurisdiction u/s 263 of the Act. In such matters, to remand the matter/issue to the A.O. would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the A.O. to decide the aspect/question. The Hon'ble Court further held that this distinction must be kept in mind by the CIT while exercising jurisdiction u/s 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the A.O., who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/enquiry.

The order of the A.O. may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the A.O. to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT held and records reason why it is erroneous.

An order will become erroneous because on remit, the A.O.may decide that order is erroneous. Therefore, CIT must after recording reasons, hold that order is erroneous the jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It was further observed that the material, which the CIT can rely includes not only the records as it stands at the time when the order in question was passed by the A.O. but also record as it stands at the time of the examination by the CIT. Nothing appears/prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the A.O. is erroneous. We find that Ld. CIT in the present case has not carried out any enquiry of his own has merely set aside the assessment to the file of the A.O. to re-examine issue of source of cash deposited by the assessee. Therefore, it is contrary to the guidelines as mandated in the Hon'ble Delhi High Court in the case of ITO Vs. DG Housing Projects Ltd. (supra) coupled with the fact that the assessee during the assessment proceedings had submitted evidences in support of sale of jewelleries and receipt of gift. Moreover, the issue of examination of source of gift was not subject matter of the scrutiny.

Therefore, the decision of the Ld. CIT invoking provisions of section 263 of the Act is not justified and cannot be sustained under the facts and circumstances of the present case. We therefore, set aside the impugned order and allow the grounds raised by the assessee.”

ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd.

“5. We have considered the rival submissions as well as the relevant material on record. We have carefully perused the assessment order passed by the AO under section 143(3), show cause notice issued by the ld. PCIT under section 263 of the Act as well as the impugned order passed under section 263. It is manifest from the record that the case of the assessee was taken up for limited scrutiny as per the notice issued under section 143(2) dated 19.09.2016, the relevant part of the said notice listing the issues identified for examination are as under :-

" This is for your kind information that the return of income for Assessment Year 2015-16 filed vide ack. No. 134831180300316 on 30/03/2016 has been selected for Scrutiny. Following issues have been identified for examination :- i. Purchase of Property ii. Deduction claimed under the head Capital Gains

2. In view of the above, we would like to give you an opportunity to produce, or cause to be produced, any evidence which you feel is necessary in support of the said return of income on 26/09/2016 at 11:00 AM in the Office of the undersigned."

Thus it is clear that the case was selected for limited scrutiny on the issue of purchase of property and deduction claimed under the head Capital Gains. Both these issues are inter-connected as the deduction under section 54F was claimed by the assessee in respect of purchase of property and construction of residential house on the said land. The AO, thereafter issued notice under section 142(1) dated 14.07.2017 along with a questionnaire. These facts are also evident from the assessment order in para 1 and 2 as under :-

" Thereafter, the case was transferred to the office of the undersigned from the ITO Ward 4(1) Jaipur on 26.05.2017 and due to change of incumbent of charges, notice u/s 142(1) along with questionnaire issued on 14.07.2017 fixing the case of hearing on 20.07.2017 which was duly served upon the assessee on 15.07.2017. In response thereto, the CA/AR of the assessee Sh. Ajay Jain attended the proceedings from time to time Page 23 of 33 ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. and furnished required details/documents and also produced books of accounts, which were examined on test check basis. The case was discussed with him.

Thus in response to the notice issued under section 142(1), the assessee attended the proceedings through her A/R and also furnished the required details/documents as well as books of account which were examined by the AO. There is no dispute that the AO has conducted the enquiry on the issue for which the case was selected for scrutiny and after satisfying himself the AO finally concluded that the assessee earned the income from capital gain and interest. The details and records produced before him were examined and thereafter the returned income is accepted. Thus it is not a case of lack of enquiry on the part of the AO. Though the AO has not discussed the issue in elaborate manner, but once he was satisfied with the supporting evidences produced by the assessee he has accepted the claim. The ld. PCIT has invoked the provisions of section 263 by issuing the show cause notice dated 4th February, 2019 at pages 16 & 17 of the paper book as under :-

Xxxxxxxxxxxxx Thus it is clear from the show cause notice issued under section 263 that the ld. PCIT has invoked the provisions of section 263 only on the issue of allowability of deduction under section 54F in respect of the investment made by the assessee towards cost of agricultural land and construction of house. The sole ground for initiating the proceedings under section 263 by the ld. PCIT is that in his view the claim of deduction in respect of agricultural land is not admissible. As apparent from the show cause notice that the scope of proceedings under section 263 was limited Smt. Lata Phulwani, Jaipur.only on the issue of allowability of deduction under section 54F in respect of the agricultural land acquired by the assessee and used for construction of house. There was no allegation by the ld. PCIT about the lack of enquiry on the part of the AO while passing the assessment order. Even otherwise, it is clear from the assessment order that the case was selected for limited scrutiny only on the issue of investment made in the agricultural land and deduction under section 54F of the IT Act. Therefore, the question of lack of enquiry does not arise when the AO has taken up the scrutiny and issued the notice under section 142(1) along with a questionnaire calling for all the details relevant to the acquisition of the land as well as of Page 24 of 33 ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. construction of house. It is also not in dispute that the assessee produced the relevant details and evidences and specifically the purchase documents for acquiring the agricultural land as well as the valuation report towards the cost of construction. The ld. PCIT has also not doubted the facts as brought on record by the assessee and considered by the AO while passing the assessment order. The provisions of section 263 were invoked by the ld. PCIT due to the reason that he has a different view regarding the allowability of deduction under section 54F in respect of the investment made for purchase of agricultural land and construction of house. There is no quarrel on the point that lack of enquiry renders the order of the AO as erroneous so far as prejudicial to the interests of the revenue. However, when there is no allegation and even otherwise it is manifest from the record that this is not a case of lack of enquiry on the part of the AO but the AO after satisfying himself about the claim of deduction under section 54F consequent upon the examination and verification of the concerned details, evidences and books of account produced by the assessee, allowed the claim of the assessee. Further, though the ld. PCIT has not alleged that there is inadequate enquiry on the part of the AO, however, even in case there is inadequate enquiry on the part of the AO, the ld. PCIT can give a concluding finding while passing the revision order after considering the complete record as well as conducting a necessary enquiry. In this case the assessee has contended before the ld. PCIT that the claim of deduction under section 54F is eligible even if the residential house is constructed on the agricultural land. The crux of the argument of the assessee has been reproduced by the ld. PCIT in para 5 of the impugned order. Thus the assessee has cited various decisions in support of her claim. The ld. PCIT has turned down the contentions of the assessee and has gone further to verify the facts by conducting an enquiry. This exercise of the ld. PCIT in conducting the enquiry to find the facts is beyond the scope of the proceedings initiated under section 263 by issuing the show cause notice dated 4th February, 2019. In the said show cause notice, the ld. PCIT has raised only one issue i.e. purely a view regarding the allowability of the deduction under section 54F in respect of the investment made for construction of house on agricultural land. Whereas in the proceedings under section 263 the ld. PCIT has travelled beyond the scope of proceedings as initiated vide show cause notice dated 4th February, 2019. Therefore, the proceedings which are beyond the scope of the revisional proceedings, are not permissible as not an issue involved in the show cause notice.

6. Further, once it is not a case of lack of enquiry or inadequate enquiry as per the show cause notice issued under section 263 of the Act, then conducting a further enquiry on the factual aspects of the investment made in purchase of agricultural land and construction of the house is beyond the jurisdiction of the ld. PCIT as assumed by issuing show cause notice ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. under section 263. The finding of the ld. PCIT in the revision order ought to have been confined on the issue of allowability of deduction under section 54F. Since the ld. PCIT was not agreeing with the view of the AO regarding the claim of deduction under section 54F, at the outset, he was required to give a concluding finding on the issue. On the contrary, the ld. PCIT has remitted the issue to the AO in para 7 as under :-

"

7. In view of the above I hold that the order passed by the AO in this case for the A.Y. 2015-16 on 18.12.2017 is erroneous in so far as it is prejudicial to the interests of revenue. The order dated 18.12.2017 passed u/s 143(3) of the Act deserves to be set-aside. AO will pass the order after taking into account all necessary facts and details connected with the claim of deduction u/s 54F of the Act and the claim of indexed cost of construction/improvements on the land sold by the assessee amounting to Rs. 18,18,483/- (pertaining to F.Y. 2007-08) and of Rs. 13,46,834/- (pertaining to F.Y. 2010-11)."

Thus while passing the revision order, the ld. PCIT himself was not sure about the correctness of the claim and has remanded the matter to the record of the AO for passing a fresh order. Hence he has not given a concluding finding whether the order of the AO allowing the claim of deduction under section 54F after conducting an enquiry is absolutely against the provisions of law. Once it is not a case of lack of enquiry on the part of the AO, the said order cannot be held to be erroneous unless the ld. PCIT holds and records the reason why it is erroneous. The pre- condition for invoking the jurisdiction under section 263 is that the ld. PCIT must come to the conclusion that the order of the AO is erroneous and is unsustainable in law. When the order passed by the AO is not erroneous for want of an enquiry, then it is incumbent upon the ld. PCIT to give a concluding finding and reasons that the order is not sustainable in law. An identical issue was considered by the Hon'ble Jurisdictional High Court in case of CIT vs. Ganpat Ram Vishnoi, 296 ITR 292 (Raj.) in para 7 to 12 as under :-

"

8. We are of the opinion in the aforesaid circumstances on the finding reached by the Assessing Officer, no question of law really arises for consideration in this appeal.

12. The finding of the Tribunal that the ITO had passed assessment order after relevant enquiries and considering the aspects of the matter required by the CIT to be considered by him is a finding of fact and on the basis of which, the jurisdiction assumed by the CIT being non-existent must be held to be not sustainable. Consequently, the appeal fails and is hereby dismissed."

Thus the Hon'ble High Court has held that the ld. CIT can cancel the order of the AO and require the concerned AO to pass a fresh order in accordance with the law after holding a detailed enquiry. But when the enquiry in fact has been conducted and the AO has reached a particular conclusion, though reference to such enquiries has not been made in the order of assessment, but the same is apparent from the record of the proceedings, the invocation of jurisdiction by the ld. CIT was unsustainable. A similar view has been taken by the Hon'ble Delhi High Court in case of ITO vs. D.G. Housing Projects Ltd. 343 ITR 329 in para 18 as under :-

18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, [2000] 243 ITR 83 / 109 Taxman 66 (SC), had observed that the phrase 'prejudicial to the interest of Revenue' has to be 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 Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue.

The Hon'ble High Court has laid out a fine distinction between the orders where no enquiry has been made by the AO from the order based on inadequate enquiry. Therefore, where the AO has made an enquiry and Page 28 of 33 ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. taken a possible/permissible view, then the said order cannot be treated as erroneous and prejudicial to the interests of the revenue unless the view taken by the AO is unsustainable in law. The Hon'ble Supreme Court in case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) has held that an order of ITO cannot be treated as prejudicial to the interests of the revenue if the ITO adopted one of the course permissible in law and it has resulted in loss of revenue or two views are possible and the ITO has taken one view with which the ld. CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. As it is clear from the impugned order that the assessee has relied upon various decisions and further the assessee has also relied upon the recent decision of the Coordinate Bench of this Tribunal in case of Shri Rajendra Kumar Sharma vs. JCIT in wherein the Tribunal has held in paras 4 & 5 as under :-

"4. We have heard and considered the rival contentions and perused the material placed on record. From the record, we found that the assessee claimed deduction of Rs. 83,54,434/- u/s 54F from the LTCG declared by it. The assessee made investment of Rs. 1,15,00,000/- in purchase of land and constructed residential house thereon. The area of land was 4090 Sq.mt. and construction thereon is of 1504 Sq. ft. The A.O. on these facts issued a show cause notice to assessee as given in assessment order to which assessee replied which is given in page -- 6 of assessment order. The A.O. on following grounds denied the claim of assessee: (a) The land is agricultural and not residential. (b) The construction of residential house without approval of plan by Govt. Authority. (c) The assessee has also not submitted any electricity and water connection evidence. (d) The land was registered in the name of assessee on 28-3-13 i.e. beyond the period specified in Section 54F (4) and so assessee not complied conditions laid down therein. The agreement to purchase land executed on 2-6-2011 claimed by assessee has no evidentiary value as payment of consideration shown in cash. (e) The bills for construction are lacking details and contain no detail of work done and each payment made therefor was in cash for less than Rs. 20,000/-. (f) The Inspector physically verified the property and found there is only boundary wall with gate and on whole land there was little construction, with walls and Tin shed roofing and construction is about 700-800 Sq.ft as against 1504 Sq.ft. construction claimed by assessee. The Ld. A.O. in assessment order gave scanned photographs stated to have been taken by Inpsector on site visit. Page 29 of 33 ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. The A.O. thus concluded that investment was purely in land and not a residential house as required u/s 54F of I. T. Act, 1961 and so assessee is not entitled to claimed deduction u/s 54F. As per our considered view, benefit of Section 54F cannot be denied on the ground that land on which construction done was agriculture in nature. Reliance is placed on the judgements in case of Vishnu Trading Co. 259 ITR 724 (Raj.), Narendra Mohan Uniyal 34 SOT 152 (Del.), Shyam Sunder Mukhija Vs. ITO 38 ITD 125 (JPR) and ACIT Vs. Om Prakash Goyal (2012) 53 SOT 158 (JPR). In the case of Narendra Mohan Uniyal (Supra) it is held that "It is crystal clear from the plain reading of ss. 54 and 54F that exemption is allowable in respect of amount invested in the construction of a residential house. There is no any rider under s. 54F that no deduction would be allowed in respect of investment of capital gains made on acquisition of land appurtenant to the building or on the investment on land on which building is being constructed. When the land is purchased and building is constructed thereon, it is not necessary that such construction should be on the entire plot of land, meaning thereby a part of the land which is appurtenant to the building and on which no construction is made, there is no denial of exemption on such investment. In this connection reference may be made to Cir. No. 667 dated 18- 10-1993 (204 ITR (ST) 103) issued by CBDT which has clarified that for the purpose of computing exemption u/s 54 or 54F, the cost of the plot together with cost of the building will be considered as cost of new asset, provided the acquisition of the plot and also the construction thereon are completed within the period specified in these sections. There is no need of approval of plan from competent authorities if construction is within limits on agricultural land and it is not a condition laid down in Section 54F for construction of residential house. The construction on land is meant for residential house. The assessee could complete the construction of the residential house within three years and if any facility lacking in the constructed residential house the same could be completed within in that period. There is water supply from well and temporary electric connection in the residential house constructed by assessee. The construction of residential house is 1553.50 Sq.ft. and not having proper bills for construction cannot be taken adversely against him for purposes of Section 54F. These facts are evident from the valuation report of Regd. Valuer a copy of which is submitted. The Inspector of department furnished vague details without any physical inspection of building and took only photographs. The assessee has only to invest net sale consideration in purchase or construct a residential house and therefore registration or legal ownership is not necessary which is evident from Circular No. 471 dated 15-10-1986 issued by CBDT and from judgements of Balraj Vs. CIT 254 ITR 22 and CIT Vs. Laxmi Chand 211 ITR 804 and various other judgements on the issue. Thus, agreement to purchase copy of which submitted proves domain and control of assessee on the land in the hands of assessee and satisfies the connotation of ITANo.214/Ind/2023 M/s. Rockbed Renovators Ltd. purchase of land for construction of residential house. WE found from the record that the assessee had invested Rs. 1,15,00,000/-in construction of residential house and, therefore entitled to claimed deduction u/s 54F. The Ld. A.O. is wrong and has erred in law in disallowing the claimed deduction of Rs. 83,54,434/- u/s 54F the Act, which deserves to be allowed.

5. We found that in the previous year relevant to the above said assessment year the assessee invested a sum of Rs.1,15,00,000/- in purchase of land for construction of a residential house. The deduction u/s 54F amounting to Rs.83,54,434/- has been claimed on account of said investment in the land; copy of the agreement to purchase and registered purchase deed were verified before the A.O.. The assessee got constructed a residential house in the F.Y. 201213 i.e. within the statutory time limit allowed by the Act i.e. before the due date of February, 2014. Copy of bills for construction of house alongwith Map of the house was filed before the A.O.. The total area of land is about 4090 sq.mtr. and the constructed area is about 1504 sq.ft. No approval is required for construction of the above said residential house. C o p y o f r e g i s t e r e d s a l e d e e d i s a l s o f i l e d before the A.O. We found that it was a residential unit, therefore, the assessee is entitled for claim of deduction U/s 54F of the Act amounting to Rs. 83,54,434/-." Thus it is clear that the Tribunal has referred and relied upon various decisions on the point of allowability of deduction under section 54/54F of the Act in respect of the investment made in construction of house on agricultural land. Therefore, the view taken by the AO is a possible view though may not be the only view. Further once the issue of allowability of deduction under section 54F is a debatable issue and the AO has taken a possible view, then the ld. PCIT is not permitted to invoke the provisions of section 263 merely because he does not agree with the view of the AO. Hence in the facts and circumstances of the case as well as the foregoing discussion about the settled principles of law laid down in various decisions, we hold that the impugned order passed by the ld. PCIT is not sustainable and the same is liable to be set aside.”