M/S PBN CONSTRUCTION PVT. LTD.,SILIGURI vs. PCIT, SILIGURI, SILIGURI

The Assessee is a company. It is engaged in the business of steel fabrication, construction, carrying on contract and engineering works. For A.Y.2011-12 the assessee filed return of income on 01.11.2011 declaring total income of Rs.85,89,700/-. The assessment was completed by the AO by an order dated 28.03.2014 passed u/s.143(3) of the Act, determining the total income of the assessee as follows :- “On the foregoing discussion the total income of the assessee is assessed as below :- Returned income : Rs.85,89,700/- Add : As per para No.4.1(a) : Rs.42,37,120/- Add : As per para No.4.1(b) : Rs.23,17,264/- Add: As per para No.5 : Rs. 51,632/- Total Income : Rs.1,59,57,716/-“.

Anomalies and gross divergences in expenses claimed have not been verified during the scrutiny proceedings. Some examples of such expenses are : (i) vehicle running & maintenance expense of Rs. 2.85 crore (ii) Transportation & freight charges of Rs. 37.36 lakh (iii) repair and maintenance expenses of Rs. 92.95 lakh compared to Rs. 9.72 lakh in the preceding year (iv) salary expenses of Rs, 146.62 lakh compared to Rs. 18.88 lakh (v) mess expenses of Rs. 22.54 lakh compared to Rs. 1.17 in the preceding year lakh last year etc.

The assessee vide its reply dated 14.01.2016 pointed out that the AO made the required enquiries before concluding the assessment and it cannot be said that the order of the AO is erroneous and prejudicial to the interest of the revenue for the failure on the part of AO to make proper enquiries on the issues set out in the show cause notice. 6. The CIT however concluded that the AO did not apply his mind to the issues set out in the show cause notice and did not conduct proper enquiry on those issues before concluding the assessment. In this regard the CIT also concluded that the order sheet entries of the AO before concluding the assessment did not show application of mind on 3 M/s. PBN Construction (P)Ltd. A.Yr.2011-12 the part of the AO. Thereafter the CIT after referring to certain judicial pronouncements, concluded as follows :- “The Assessing Officer has miserably failed to conduct proper enquiry necessary for making assessment. There is a clear non application of mind on the part of Assessing Officer in making the assessment. The assessee could not rebutt the ratio of judgment on which the reply was asked and also on the points mentioned in the notice u/s 263. In view of the above facts and the ratio of judgments cited above the assessment order is erroneous and prejudicial to the interest of revenue, hence it is cancelled. The AO should pass a denovo assessment order by making proper enquiry including on all the points mentioned in the notice u/s 263. Addition of Rs. 42,37,120/-, as per Para No. 4.1(a), of Rs. 23,17,264/- as per Para No. 4.1(b) and of Rs. 51,632/- as per Para No. 5 already made by AO in the assessment order dt. 28.03.2014 will remain in the fresh assessment order. Proper opportunity of being heard should be given to the assessee.”

Aggrieved by the order of CIT the assessee has preferred the present appeal before the Tribunal.

The appeal before the Tribunal has been filed belatedly by 27 days. In an application for condonation of delay, the reason for the delay have been stated by the assessee as due to the absence of Shri.Anil Kumar Agarwala, director of the assessee, who was looking after the tax matter. It has been mentioned that Shri Anil Kumar Agarwala had to go out of station from 28.01.2016 for some urgent business purpose and had to remain out of station for the period between 28.01.2016 to 07.04.2016. It appears that after the return of Shri Anil Kumar Agarwala to Kolkata on 08.04.2016 he went and met his advocate Shri Subash Agarwal, who filed the appeal of the impugned year before the Tribunal. The advocate prepared the appeal and after signing the same was filed in the registry on 21.04.2016. The delay of 27 days in filing the appeal has been explained thus. Shri Anil Kumar Agarwala, Managing Director of the assessee has sworn to an affidavit mentioning all the above facts. The ld. DR opposed the prayer of the assessee for condonation of delay. According to him the reasons given by the assessee for condonation of delay cannot be regarded as reasonable and sufficient cause for the delay in filing the appeal.

As far as the merits of the various issues raised by the CIT in the show cause notice u/s 263 is concerned, we are of the view that it is not necessary to go into the merits of the said issues. Ultimately the CIT has invoked the jurisdiction u/s 263 of the Act on the ground that the AO failed to make necessary and proper enquiries which he ought to have made before concluding the assessment. Therefore it is enough for the purpose of the present appeal to examine the question as to whether the AO before concluding the assessment made enquiries which ought to have made in the given facts and circumstances of the case.

In this regard the first aspect which we notice is the fact that the case of the assessee was taken for scrutiny assessment for the following reasons :- “2. The case was selected for scrutiny through CASS as per AIR information the A.O. was required to examine the reason for difference of TDS as per 26AS and TDS as declared in ROI. Subsequently notices u/s 143(2) & u/s 142(1) of IT Act’61 was issued and served upon the assessee. “

The record of proceedings before the AO from the date the case was selected for scrutiny assessment till the conclusion of the assessment which is in the form of order sheet entries of the AO, would show the nature of enquiry conducted by the AO before concluding the assessment proceedings. The order sheet entries of the AO shows that on 8.8.2012, the case of the Assessee has been selected for scrutiny through CASS and notice u/s.143(2) of the Act was issued to the Assessee. On 23.5.13, notice u/s.142(1) of the Act was issued calling for books of accounts and other documents. In all there 4 5 M/s. PBN Construction (P)Ltd. A.Yr.2011-12 were about 16 hearings before the AO. A perusal of Paragraph 4 of the order of assessment shows that the AO had called for books of accounts supporting bills, vouchers, cash book, bank statements etc. The same were produced by the Assessee and test examined by the AO. In respect of purchase of goods and sundry creditors the Assessee was asked to furnish name and address of the concerns from who purchases were made. Notices u/s.133(6) of the Act were issued and served on the various parties to verify the genuineness of purchases as shown by the Assessee and the replies received were cross verified with Assessee’s books of accounts, ledger and payments verified through bank statements. Thereafter the AO found that there was non- deduction of tax at source in respect of certain payments which resulted in disallowance of expenses u/s.40(a)(ia) of the Act. Un-reconciled difference in loan amount was added to the total income of the Assessee.

In one of the reply of the assesee dated 27.02.2014 to queries raised by the AO, throws light on the enquiries made by the AO and the same is as follows :- “Sub : Submission Documents against scrutiny assessment for the Asset. Year 2011112 Ref: Hearing date on 27.02.2014 Respected Sir, With reference to your requirements we are submitting the following information . against scrutiny assessment for the. asst, year 2011-12 (Accounting year 2010-11) the details of' which are as under : 1.We are enclosing herewith a Xerox copy of the balance sheet of RashinoVyapaar Pvt Ltd. Kolkata, who had taken made investments towards share application in our company by cheques. The investments have duly reflected in their balance sheet. The investment may please be accepted in view of the ratio laid down by the Hon'ble Supreme Court in Lovely export's case. PAN of Rashino Vyapaar Pvt Ltd. is AADCR1939F 1.For HCC {pare) ledger difference, we are enclosing herewith reconciled .statement for your ready reference. 2.For HCC Road, Assam ledger difference, we are enclosing herewith reconciled statement for your ready reference .

We are enclosing herewith Xerox copy of Invoice, Bill of Entry, Insurance copy & Way bill copy of Motor Graders purchase from L& T Limited as advised by you.

Thereafter the assessment was concluded by the AO and the following were the order sheet entries of the AO which throw light on the nature of enquiry conducted by the AO :- “14.3.14 Reply received from Hindusthan Construction Corporation Ltd., Mumbai received clarifying that total TDS in the case of PBN Construction during F/Y 2010-11 was Rs.12,37,989/- is placed on record. Sd/- JCIT(R) 19.3.14 Reply to show cause notice dated 07/04/14 is received and is being examined and considered. Sd/- JCIT® 28.7.14 Sanction for Provisional attachment u/s 281B of the I.T.Act is received from CIT. Sd/- JCIT® 28.3.14 Assessed u/s 143(3) of the I.T.Act, 1961. Issue copy of D/N and challan. Initiate penalty proceedings.”

The learned counsel for the Assessee submitted before us that as per CBDT instructions dated 8.9.2010 which was the norm applicable for selection of cases for scrutiny when the case of the Assessee was picked up for scrutiny, the scope of scrutiny assessments is limited to only that aspect of information received through AIR. He pointed out that the case of the Assessee was picked up for scrutiny only based on AIR information which was with reference to difference of TDS as per 26AS and TDS as declared in the return of income by the Assessee. According to him, therefore the AO could not go into any other aspect while concluding the assessment, more so, on the various issues pointed out by the CIT in the impugned order u/s.263 of the Act. In support of his contention that the scope of scrutiny assessment proceedings cannot be enlarged by the AO contrary to the CBDT Instruction referred to above, the learned counsel for the Assessee relied on the decision of the Delhi ITAT in the case of 6 7 M/s. PBN Construction (P)Ltd. A.Yr.2011-12 Smt.Santosh Yadav Vs. CIT in ITA No.1810/Del/2012 order dated 18.1.2013 and the decision of the ITAT Amritsar in the case of Smt.Gurupreet Kaur Vs. ITO in ITA No.87/(Asr.)/2016 order dated 24.3.2016. In both the aforesaid decisions, the Tribunal has taken a view that the scope of scrutiny assessment cannot be enlarged contrary to the CBDT instructions on scope of scrutiny assessment.

We have considered the submission of the learned DR. The relevant Paragraphs of the CBDT instruction dated 8.9.2010, reads as follows: “……Reference is invited to Board’s letter of even number dated 23rd May, 2007 regarding scope of enquiry in the scrutiny cases selected only on the basis of information received through the AIR returns.

It can be seen from the above instructions of the CBDT that the AO is also duty bound to examine that apart from the AIR information, if there is potential escapement income more than Rs.10 lacs. On the facts and circumstances of the present case, we are of the view that the AO ought to have made proper and adequate enquiries with regard to all the aspects set out in the show cause notice u/s.263 of the Act. The enquiry with regard to the receipt of share capital by the Assessee during the previous year was inadequate and in the light of the decision of the ITAT Kolkata Bench in the case of Subhlakshmi Vanijya (P) Ltd., (2015) 124 DTR (Kol)(Trib.) 249, the enquiry cannot be said to be adequate and proper. In our view there has been failure on the part of the AO to make proper and adequate enquiries on the issues set out by the assessee in the show cause notice u/s 263 of the Act. The circumstances pointed out by CIT in the show cause notice clearly warrant an enquiry by the AO before concluding the assessment on the various aspect set out in the show cause notice of the CIT u/s 263 of the Act. There 7

In these decisions it was held that there was no material brought on record to show that there was an error or omission or failure on the part of the AO. In our view, in the present case, as we have already observed, the material on record shows that the AO failed to make necessary enquiries on the issues set out in the show cause notice u/s 263 of the Act. Another argument of the ld. Counsel proceeded on the basis that there is a difference between the lack of enquiry and inadequate enquiry. It was submitted that it is only in the case of lack of enquiry that jurisdiction u/s 263 of the Act could be invoked and not in a case of where the CIT feels that the enquiry made by the AO was inadequate. In this regard reliance was placed by the ld. Counsel on the decision of the Hon’ble Delhi High Court in the case of CIT vs Sunbeam Auto Ltd. 332 ITR 167 (Delhi). We however find that the Hon’ble Calcutta High Court in the case of Maithan International 375 ITR 128 (Cal) has however taken a view that jurisdiction u/s 263 of the Act could be invoked when the AO fails to make an enquiry which he ought to have made in the given facts and circumstances of a case. We are therefore unable to accept the plea of the ld. Counsel for the Assessee in this regard. As we have already mentioned, at this stage that we need not go into the merits of the issues raised by the CIT in the show cause notice u/s 263 of the Act because in the impugned order the AO 8 9 M/s. PBN Construction (P)Ltd. A.Yr.2011-12 has only been directed to examine the issues on merits after affording the assessee opportunity of being heard. In the given circumstances we are of the view that the assessee is at liberty to put forth of its claims on the merits of the issues before the AO in the assessment proceedings to be completed pursuant to the impugned order of CIT. For the reasons given above we uphold the order of CIT u/s 263 of the Act and dismiss the appeal of the assessee.

In the result the appeal by the assessee is dismissed.