ECOTECH MONITORING SOLUTIONS LTD ,INDORE vs. PCIT -1, INDORE, INDORE

Feeling aggrieved by revision-order dated 08.03.2022 passed by learned Pr. Commissioner of Income-Tax-1, Bhopal [“Ld. PCIT”] u/s 263 of Income-tax Act, 1961 [“the Act”], which in turn arises out of assessment-order dated 03.12.2019 passed by DCIT/ACIT-2(1), Indore [“Ld. AO”] u/s 143(3) for Assessment-Year [“AY”] 2017-18, the assessee has filed this appeal on following grounds:

Briefly stated the facts are such that the assessee filed return of income of relevant AY 2017-18, which was subjected to scrutiny-assessment and the Ld. AO completed assessment u/s 143(3). Subsequently, the Ld. PCIT examined the record of assessment-proceeding and viewed that the assessment-order passed by Ld. AO is erroneous in so far it is prejudicial to the interest of revenue, which attracts revisionary-jurisdiction u/s 263 and accordingly, Ld. PCIT issued a show-cause notice dated 08.02.2022 to assessee. The reason of framing such a view by Ld. PCIT is very precise and simple i.e. the assessee had debited twin-expenses to P&L A/c, namely (i) expenditure of Rs. 7,03,470/- incurred for increase in authorized capital, and (ii) late filing fee of service-tax of Rs. 500/-, which are capital or penal in nature as reported in Tax Audit Report and hence disallowable, but the Ld. AO has failed to examine these expenses during assessment-proceeding.

By the aforesaid show-cause notice, the assessee was asked to explain as to why the assessment-order may not be revised. In response thereto, the assessee did not make any compliance. Ld. PCIT issued another notice dated 16.02.2022 which again remained un-complied with by assessee.

Finally, Ld. PCIT concluded that the AO has not carried out the inquiry/verification which he should have done and hence the assessment- order is erroneous-cum-prejudicial to the interest of revenue. In coming to such conclusion, Ld. PCIT also observed that since the section 263 has been amended and Explanation 2, as reproduced below, had been introduced

Accordingly, the Ld. PCIT passed revision-order u/s 263 whereby the assessment-order was set aside to the file of Ld. AO with a direction to reframe assessment de novo. Aggrieved by such revision-order, the assessee has filed this appeal.

In this ground, the assessee claims that the PCIT was not justified in passing revision-order and thereby setting aside the assessment-order passed by AO.

Ld. AR representing the assessee submitted that the assessee is a company whose accounts have been subjected to statutory audit under Companies Act as well as tax audit under Income-tax Act. He submitted that the audited financial statements in the form of Balance-Sheet, P&L A/c and their Schedules as also the reports of statutory audit and tax audit were duly available before AO and the Ld. AO has scrutinized all these documents. Ld. AR submitted that the impugned twin-expenses noted by Ld. PCIT are duly reflected from these documents and the Ld. AO has allowed deduction of the same after taking note of the same; therefore it is wrong to infer that the AO has not examined the expenses claimed by assessee. Ld. AR further submitted that even otherwise those expenses can’t be said to be disallowable; they could be allowable or disallowable depending on case to Ecotech Monitoring Solutions Pvt. Ltd. Assessment year 2017-18 case basis and therefore the Ld. PCIT has proceeded with a wrong notion that those expenses were disallowable only. Ld. AR strongly contended that the assessment-order is neither erroneous nor prejudicial to the interest of revenue as understood by Ld. PCIT; therefore the revision-order is not in accordance with section 263 and deserves to be quashed.

Per contra, Ld. DR argued that there is no enquiry whatsoever having been done AO qua the claim of twin-expenses noted by PCIT. He submitted that simply because those expenses are recorded in the documents filed by assessee; it cannot be said that the AO has made enquiries or verification with respect to those expenses. Ld. DR submitted that the “enquiries” or “verification” has to be active or tangible. Ld. DR strongly emphasised that the AO has passed assessment-order without making inquiry or verification which should have been done and, therefore, the assessment-order is erroneous, more so in view of the Explanation 2 to section 263 of the act. Ld. DR, therefore, prayed to uphold the revision-order.

We have considered rival submission of both sides and perused the orders of lower authorities as also the documents placed by assessee in a Paper-Book. After a careful consideration, we do not find any evidence or material coming from assessee to substantiate that the AO has made any enquiry with respect to the twin-expenses noted by PCIT. Ld. AR has also filed a questionnaire dated 14.06.2019 issued by AO u/s 142(1) in the Paper-Book but on perusal of the same, we do not find any query having been raised by AO with respect to impugned twin-expenses claimed by assessee. Ld. AR is not able to demonstrate as to how the AO has enquired or verified the impugned claim of expenses made by assessee. Faced with this situation, we have no hesitation in observing that the present case perfectly fits in Explanation 2 to section 263, as re-produced earlier, according to which an order passed by the Assessing Officer is deemed to be erroneous if (a) the order is passed without making inquiries or verification which should have been made; or (b) the order is passed allowing any relief

Ld. AR submits that this ground is nothing to do with present-appeal and it has been inadvertently raised in appeal-memo; therefore the same is not pressed. No adjudication is, therefore, required from us.

In the result, this appeal of assessee is dismissed.