RICHA & CO.,DELHI vs. JCIT, SPECIAL RANGE- 17, NEW DELHI

PER ANUBHAV SHARMA, JM : The Assessee has come in appeal against the order dated 22.03.2019 passed by the Ld. Commissioner of Income Tax (Appeals)-17, New Delhi [in short ‘Ld.CIT(A)’] u/s 263 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) being Appeal No. PCIT 17/order u/s 263/2018-19/3116, pertaining to AY 2014-15.

I. Large specified domestic transaction(s) (FORM 3 CEB). II. Depreciation claimed at higher rates/higher additional depreciation claimed. III. Mismatch in sales turnover reported in Audit Report and ITR. IV. Delayed payment of tax and return filed late.

3 V. Large other expenses claimed in the Profit and Loss Account. VI. Mismatch in amount paid to related persons u/s 40(A)(2)(b) reported in Audit Report and ITR. 3.1 Ld. PCIT questioned the assessment order observing that from the above reasons it can be seen that the case was selected on the basis of a TP Risk parameter. There was a mistake in noting the reason of selection on the system and, therefore, the case was not referred to TPO due to omission. This has resulted in the order passed therein which is erroneous and prejudicial to the interest of the Revenue.

(i) The AO as required by the Act/Circular did not send your case to the TPO, who has knowledge and ability to properly examine the specified domestic transaction which in your case appears to be in large amount. This was on the issues required to be examined extensively and it was one of the basis on which the case was selected for scrutiny. The AO, the record shows, has failed to apply his mind in making enquiries with regard to Specified Domestic Transactions.

4 (ii) Besides this AO, has not properly examined the amount paid to related persons u/s 40(A)(2)(b) which was also a parameter for selection of the case for scrutiny. (iii) Further AO has failed to verify the sales turnover as given by the assessee in the audit report and ITR and has not applied his mind in making enquiries with regard to sales made by the assessee. (iv) Further proper enquiries with respect to other expenses as claimed by the assessee have not been done by the AO which appears to be in large amount in your case. (v) Moreover, AO has not conducted proper enquiries on the issue of large commission expenses paid by you which has resulted in low net profit as declared by you in your ITR.

“The assessment records have been called and perused and it is observed that: As per reply submitted by the AR of the assessee the case was selected for scrutiny only for two reasons. However, the AO has failed to make assessment as per the revised reasons of selection. And as per the revised reasons the AO had to send the case to the TPO in first instance and thus failed in making enquiries with regard to specify domestic transactions. Thus, reassessment u/s 263 is necessarily required in the case. The assessee has submitted the reply however, on perusal of the records it is observed that the assessee has only submitted the unsigned copies of ledger account of various parties from page no. 55-128. No explanation/comparison/reconciliation have been submitted by the assessee and AO has failed to make detailed enquiry about the rent paid to various parties of Rs.5,39,328/- which does not have premises/building no. and no rent agreement found in assessment records. Vide reply dated 17.08.2016 the assessee has submitted the party wise details of Fabrication and Embroidery charges for top ten parties with their PAN and address with aggregate amount paid during the year. But there is difference between amount paid to the parties i.e. for Fabrication Expenses and for Embroidery Expenses as compared to TDS certificate submitted by the assessee. Further, the assessee also claimed the various expenses on account of foreign tour expenses of Rs.25,46,244/- and Diwali & Festival expenses of Rs.29,90,855/- but did not submit any bank account details or vouchers to justify the same. The assessee has only submitted unsigned copies of ledger account no Bill Vouchers or copy of bank account has been submitted by the assessee to justify the amount paid on account of commission. The AO had not referred the case to TPO even when the reason for selection was TP risk parameter. The AO had to mandatorily refer the case to TPO as scrutiny reasons had been revised as under:

1. 1. Large specified domestic transaction(s) (Form 3 CEB). 2. Depreciation claimed at higher rates/higher additional depreciation claimed. 3. Mismatch in sales turnover reported in Audit Report and ITR. 4. Delayed payment of tax and return filed late. 5. Large other expenses claimed in the Profit & Loss A/c.

6 6. Mismatch in amount paid to related persons u/s 40(A)(2)(b) reported in Audit Report and ITR. Hence, I am satisfied that this order is erroneous and prejudicial to the interest of Revenue. The order is set aside with directions to AO to refer it to TPO and examine all the other reasons as reflected in the system. The assessee must be given adequate opportunity.” 6. The assessee is now in appeal before this Tribunal raising the following grounds:

1. “The assumption of jurisdiction u/s 263 of the Act by the Pr. CIT is beyond the scope of provisions contained in section 263 of the Act. Therefore, the order is not sustainable in law and liable to be quashed.

2. The assessment framed by the AO was after due consideration of the facts and the law. There is nothing pointed out by the Pr. CIT in the order of AO as erroneous or resulting in any prejudice to the interest of the Revenue and hence the setting aside of the order of AO by the Pr. CIT u/s 263 of the Income Tax Act, 1961 is in excess of jurisdiction and bad in law. 3. Without prejudice, setting aside the order of the AO on the ground of not referring the case to TPO and directing for examination of other reasons for scrutiny cannot be reason for calling the AO’s order as erroneous or prejudicial to the interest of the Revenue, the order u/s 263 of the Pr. CIT is erroneous and not in accordance with law. 4. The above grounds are independent and without prejudice to one another. 5. The appellant prays that he may be allowed to add, amend, alter or forgo any of the grounds at the time of hearing.” 7. Heard and perused the record.

13. The order of Ld. PCIT makes it apparent that he has taken note of these submissions of the assessee as made before Ld. AO and as available on the assessment record, but found that enquiry was not detailed without indicating by his own efforts as to where Ld. AO failed to follow the mandate of the Act in accepting the pleas. No separate and reasoning of his own are stated to establish his findings that how the submissions were not otherwise sustainable under the law to hold that assessment order was erroneous and prejudicial to the interest of Revenue.