NIVESH GROUP ,DELHI vs. PR. CIT DELHI-15, DELHI
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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: Sh. Kul BharatDr. B. R. R. Kumar
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’, NEW DELHI Before Sh. Kul Bharat, Judicial Member Dr. B. R. R. Kumar, Accountant Member ITA No. 1176/Del/2022 : Asstt. Year: 2017-18 Nivesh Group, Vs Pr. CIT Delhi-15, Block-F, Sector 12, Delhi. Delhi – 110 075. (APPELLANT) (RESPONDENT) PAN No. AAMFN1544J Assessee by : Ms Rano Jain, Advocate & Ms. Mansi Jain, Adv. Revenue by : Sh. Subhra J. Chakraborty, CIT-DR Date of Hearing: 20.09.2023 Date of Pronouncement: 08.12.2023
ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by assessee against the order of ld. Pr.CIT, Delhi-15, dated 26.03.2022.
Following grounds have been raised by the assessee: “1. On the facts and circumstances of the case, the order passed by the learned Pr. Commissioner of Income Tax (CIT) under Section 263 of the Act is bad, both in the eye of law and on facts. 2. On the facts and circumstances of the case, the order passed by the learned Pr. CIT assuming jurisdiction under section 263 is bad in law in the absence of twin conditions of the order passed by the A.O. being erroneous as well as prejudicial to the interest of the Revenue having been satisfied. 3(i). On the facts and circumstances of the case, the learned Pr.CIT has erred both on facts and in law in ignoring the fact that the issues raised by him in notice under Section 263 were before the A.O. and as such the
2 ITA No. 1176/Del/2022 Nivesh Group jurisdiction on these issues under Section 263 cannot be assumed by him. (ii). On the facts and circumstances of the case, the learned Pr.CIT has erred both on facts and in law in ignoring the contention of the appellant that the proceeding under Section 263 cannot be used for substituting opinion of the A.O. by that of the Pr.CIT. 4. On the facts and circumstances of the case, the learned Pr. CIT has erred both on facts and in law in invoking the provisions of Explanation 2 to section 263(1) of the Act, despite the fact that the conditions prescribed therein are not satisfied in the present case. 5. On the facts and circumstances of the case, the learned Pr. CIT has erred both on facts and in law in setting aside the matter to the file of the A.O. to assess afresh without himself giving a finding as to the error and prejudice caused to the revenue by the assessment order. 6. On the facts and circumstances of the case, Id. Pr. CIT has erred both on facts and in law, in rejecting the contention of the assessee that the commission expenses having been incurred wholly and exclusively for the purposes of business only, as such are an allowable expenditure. 7. On the facts and circumstances of the case, Id. Pr. CIT has erred both on facts and in law, in rejecting the contention of the assessee that the marketing expenses having been incurred wholly and exclusively for the purposes of business only, as such are an allowable expenditure. 8. On the facts and circumstances of the case, Id. Pr. CIT has erred both on facts and in law, in rejecting the contention of the assessee that there is total identity & creditworthiness of the unsecured loan amounting to Rs.2,00,08,576/- as well as the genuineness of the same. 9. On the facts and circumstances of the case, Id. Pr. CIT has erred both on facts and in law, in holding that the nature of loan & advances of Rs. 2,00,08,576/- was not examined by the Id. AO.”
3 ITA No. 1176/Del/2022 Nivesh Group 3. The assessee filed return of income on 31.10.2017 declaring income of Rs.12,97,350/-. The case was selected for complete scrutiny under CASS. Subsequently, the assessment order u/s 143(3) was passed by the Assessing Officer on 09.07.2019 at an income of Rs.13,21,902/-.
For the sake of brevity and ready reference, the Assessment Order in toto is reproduced as under:
“The return of income in this case for the assessment year 2017-18 was e-filed on 31.10.2017 u/s 139(1) vide acknowledgement no. 275525541311017 declaring an income of Rs.12,97,350/-. Subsequently, this case was selected for Complete Scrutiny through CASS. Notice u/s. 143(2) of the I.T. Act dated 09.08.2018 was issued and served on the assessee. Notices u/s 142(1) of the Act along with questionnaire, were issued on 07.02.2019, 23.05.2019 & 11.06.2019, same were sent through e-mail.
Reasons for selection of case for complete scrutiny are as follows:
Higher turnover reported in Service Tax Return as compared to ITR 2. Low receipt from house property in ITR as compared to rental receipt in 26AS 3. High ratio of refund to TDS (Part B-TTI of ITR)
In response to the statutory notices, the assessee submitted necessary details and documents through mail, as prescribed for e-proceedings of the case. The documents and other supporting material submitted by the assessee were examined and placed on record. As this is e-proceedings in which evidence/information is to be furnished online electronically, all documents/evidence were verified from the online submission made by the assessee.
During the course of scrutiny proceedings, the necessary details about the reasons of selection in scrutiny were asked. In response, the assessee submitted necessary details which were found satisfactory.
However, on perusal of the Profit & Loss Account it is observed that assessee has claimed various expenses under the head Conveyance amounting to Rs.1,70,276/- & Telephone expenses amounting to Rs.75,253/-.
4 ITA No. 1176/Del/2022 Nivesh Group
Keeping in view that their personal element in these expenses is used by the assessee and family cannot be ruled out. Therefore, the following disallowances are made as under: Sr. No. Head of expense Extent of Amount of disallowance 1. Conveyance 10% 17,027/- 2. Telephone expenses 10% 7,525/- Total Rs. 24,552/-
The above Assessment Order has been examined by the ld. PCIT and after the examination of the record, the ld. PCIT came to a conclusion that the assessment order so passed was “erroneous in so far as it was prejudicial to the interests of the revenue” owing to the following reasons:
a) It is seen that the assessee has debited commission expenses of Rs.2,01,91,335/-. Further, it is observed that the assessee has paid expenses of Rs.1,29,59,949/- to one party M/s M R Advisory Pvt. Ltd, and M/s M R Advisory Pvt. Ltd claimed to have paid commission to various parties. Confirmation copy of account of M R Advisory Pvt. Ltd and the parties whom commission was paid has been placed on record but it is observed that during the course of assessment proceedings, no independent verification of parties whom huge commission expenses were paid was carried out as well as not ascertained the nature of services provided by them. b) The assessee has debited advertising and marketing expenses of Rs.1,36,01,783/- in profit & loss account. An amount of Rs.50,00,000/- debited on account of payment made to Nivesh Development & Management Pvt. Ltd. However, during the course of assessment, the Assessing Officer neither examined nature of payment being a related person nor examined whether it is reasonable or not excessive. c) The assessee firm has shown unsecured loans as on 31-03-2017 of Rs.1,32,80,000/-. On perusal of assessment record, it is seen that examination of the unsecured loans has not been done by the Assessing Officer. d) The assessee has shown loan & advances of Rs.2,00,08,576/-. However, no interest seems to have received by the assessee. Further, during the assessment proceedings, nature of loans & advances was not examined by the Assessing Officer.”
5 ITA No. 1176/Del/2022 Nivesh Group 6. The ld. PCIT issued a show cause notice to the assessee on 23-02-2021 to show cause to the assessee proposing revision of the Assessment Order u/s 263.
The assessee submitted before the ld. PCIT that during the year under consideration, the assessee has incurred commission expenses of Rs.2,01,91,335/- and advertising expense of Rs.1,36,01,783/-. It was submitted that the details regarding the said expenses were asked by the Assessing Officer during the course of assessment proceedings and the same were duly replied with all the supporting evidences. Further, the assessee had unsecured loans of Rs.1,32,80,000/- as on 31.03.2017 and the complete details of which were filed at the time of assessment proceedings along with all supporting documents. It was submitted before the ld. PCIT that at the time of assessment proceedings, various other details and documents were asked which were duly provided to the Assessing Officer.
After considering the submission of the assessee, the ld. PCIT held that that the Assessing Officer had not conducted adequate inquiry regarding claim of commission expenses of Rs.2,01,91,335/-, advertising expense of Rs. 1,36,01,783/-, unsecured loans of Rs. 1,32,80,000/- and Loan and advances given of Rs. 2,00,08,56/-. The ld. PCIT held that the Assessing Office simply accepted the contention of the assessee and kept the documents filed by the assessee on record and passed the assessment order. The ld. PCIT held that the above fact clearly shows that AO had not made proper inquiry and verification before completion of assessment and without making inquiries or verification which should have been made. The ld. PCIT held that due to an erroneous order of the AO the
6 ITA No. 1176/Del/2022 Nivesh Group revenue is losing tax lawfully payable by a person, it would be certainly prejudicial to the interest of revenue, as held in the case of CIT Vs Leisure Wear Exports Ltd. (2012) 341 ITR 166 (Del.) and in case of Malabar Industrial Co. Ltd. Vs CIT (2000) 243 ITR 87 (SC) where in it was held that there was no material to support the claim of appellant & yet AO accepted the entry in the statement of account in absence of any supporting material and without making any inquiry. The ld. PCIT held that where the Assessing Officer keeps a letter on record and does not carry out necessary investigations which are per se required to verify the correctness of the averments, there being an error in the sense that he has failed to carry out the requisite enquiry which can be rectified in a revision. [CIT v. DLF Power Ltd., (2012) 345 ITR 446(Del.)].
The ld. PCIT relied on the amendment made in explanation 2 to section 263 which states that:-
“The Principal Commissioner or] Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation 1.- …….
Explanation 2.- For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be
7 ITA No. 1176/Del/2022 Nivesh Group erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,-
the order is passed without making inquiries or verification which should have been made; 2. the order is passed allowing any relief without inquiring into the claim; 3. the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or 4. the 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.”
Observing thus, Ld. PCIT concluded that the AO has not made inquiry and verification which he should have done and held that the assessment order passed u/s 143(3) of Income Tax Act 1961 dated 09-07-2019 for A.Y. 2017-18 is erroneous in as much as it is prejudicial to the interest of revenue. The ld. PCIT held that the assessment is cancelled with the direction that the assessment be made de novo after conducting appropriate inquiries.
Aggrieved, the assessee filed appeal before us.
During the hearing before us, the ld. AR argued that this is not a case where the Assessing Officer has not inquired into the details. It was argued that the Assessing Officer has duly inquired about the commission expenses, advertising and marketing expenses and with regard to the unsecured loans & advances. Referring to page no. 32 of the paper book pertaining
8 ITA No. 1176/Del/2022 Nivesh Group to the notice issued by the Assessing Officer, the ld. AR argued that at question no. 9, 10, 13 the Assessing Officer has duly inquired into the veracity of the expenses incurred and after due verification only the said expenses have been allowed. It was further argued that the case has been selected for scrutiny u/s 143(3) with regard to 1) high turnover, 2) low receipt from house property and 3) high ratio of refund to TDS. It was argued that the issues raised by the ld. PCIT do not pertain to the reasons for selection of case for scrutiny and thus even on the justification of invoking provisions of Section 263, the order of the ld. PCIT ought to have been annulled.
Rebutting the arguments of ld. AR, the ld. CIT DR vehemently argued that the Assessing Officer has not issued notice u/s 133(6) or examined the Principal Officer of the entities who has received payments from the assessee u/s 131. The ld. DR argued that the AO merely examined the expenses claimed in the P&L account and examined the same with books of accounts which cannot be said to be conducting any enquiry which should have been conducted. Hence, the Explanation 2(1) of the Section 263 are squarely applicable to the case of the assessee and hence the order of the ld. PCIT ought to have been upheld. Further, the ld. DR submitted his arguments in writing which are reproduced below:
“In this regard, it is humbly submitted that Explanation 2 has been inserted in Section 263 of I.T. Act by Finance Act 2015 w.e.f 01.06.2015 which is reproduced below:
Explanation 2.-—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be
9 ITA No. 1176/Del/2022 Nivesh Group deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,—
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing any relief without inquiring into the claim;
(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or
(d) the 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 above case, it is humbly submitted that the following decision may kindly be considered with regard to validity of proceedings u/s 263 of I.T.Act:
Surya Jyoti Software Pvt. Ltd. Vs PCIT (I.T.A. No.2158/DEL/2017) ITAT Delhi
Hon’ble ITAT Delhi held that the Pr. CIT has amply demonstrated in his impugned order that this issue was neither enquired into nor was verified by the Assessing Officer once the information and the material in hard copy and in form of CD was made available to him. Hence, assessment order is not only erroneous but also prejudicial to the interest of revenue
10 ITA No. 1176/Del/2022 Nivesh Group 2. CIT Vs Ashok Logani (11 taxmann.com 208, 202 Taxman 201, 347 ITR 22) Hon’ble Delhi High Court held that whether when, on facts, it was found that there was no proper consideration by Assessing Officer to issue at hand and he left many loose ends, that too in a case where huge cash was found during search most of which was surrendered by giving statement at time of search, though retracted and sought to be explained afterward, it was necessary for Assessing Officer to properly adjudicate upon that issue and assessment order should have at least reflected that he was satisfied with explanation disclosing source of cash found; and that there was a proper and valid retraction.
[2022]143 taxmann.com 173 (Calcutta)- Principal Commissioner of Income-tax vs. Mrs. Premlata Tekriwal- PCIT invoked revision on ground that once it was established that expenditure was unexplained/bogus, entire amount of bogus expenditure was to be added to income of assessee - It was noted that when Assessing Officer gave an opportunity to assessee to explain transaction, assessee did not produce any document but rather stated that 2 per cent of purported bogus purchase might be added to its income - Thus, it would mean that assessee had accepted allegations against it - Whether since it was established that expenditure was unexplained/bogus, entire amount of bogus expenditure was to be added to income of assessee - Held, yes - Whether, therefore, PCIT was fully justified in exercising revision jurisdiction under section 263 - Held, yes [Para 4] [In favour of revenue]
11 ITA No. 1176/Del/2022 Nivesh Group 4. [2008] 169 Taxman 117 (Punjab & Haryana)-Mahavir Prasad vs. Income- tax Officer- Unexplained investments - Assessment year 1997-98 - Assessee had deposited a sum of Rs. 4 lakhs with a firm and source of such deposit was not verifiable from original return of assessee - In response to notice under section 148, assessee stated that he had received credits from four persons and produced evidence in that regard - Assessing Officer found that credit of Rs. 3.08 lakhs was received from two totally different persons 'S' and 'D' and said money was advanced by assessee to said firm along with an amount of Rs. 68,000, which was deposited by him in cash - Therefore, Assessing Officer made addition of Rs. 68,000 to assessee's income under section 69 - Commissioner, acting under section 263, took view that Assessing Officer had wrongly accepted that said amount was received by assessee from 'S' and 'D' because said fact was totally contrary to stand taken by assessee and evidence and material produced by assessee himself to show that said credits were received by him from four persons - Therefore, Commissioner directed Assessing Officer to add a sum of Rs. 3.08 lakhs to income of assessee in respect of credits - Tribunal confirmed order of Commissioner - Whether Tribunal was justified in its action - Held, yes
[2016] 69 taxmann.com 170 (SC)- Commissioner of Income-tax, Mumbai vs. Amitabh Bachchan- Section 263 does not require any specific show cause notice detailing specific grounds on which revision of assessment order is tentatively being proposed affecting initiation of exercise in absence thereof or to require commissioner to confine himself to terms of notice and foreclosing consideration of any other issue or
12 ITA No. 1176/Del/2022 Nivesh Group question of fact; Commissioner is free to exercise his jurisdiction on consideration of all relevant facts, provided an opportunity of hearing is afforded to assessee to contest facts on basis of which he had exercised revisional jurisdiction
[2010] 186 Taxman 105 (Himachal Pradesh)-Commissioner of Income-tax, Patiala vs. Himachal Pradesh Financial Corpn.- Whether an incorrect assumption of fact or an incorrect application of law would satisfy requirement of order being erroneous under section 263 - Held, yes - Whether expression 'prejudicial to interest of revenue' as understood in its ordinary meaning is of wide import and not confined to loss of tax alone - Held, yes - Whether if due to an erroneous order of Assessing Officer, revenue is loosing tax lawfully payable by a person, it should be certainly prejudicial to interest of revenue - Held, yes - Whether where Assessing Officer had allowed assessee's claim of deduction of interest due on sticky loans without any material on record, order passed by Assessing Officer was erroneous and was rightly set aside by Commissioner - Held, yes.”
Heard the arguments of both the parties and perused the material available on record.
No doubt, the Explanation 2 to Section 263 is applicable to the A.Y. 2017-18 which is before us. We find that assessee has paid commission expenses to an entity named M/s M.R. Advisory Pvt. Ltd. which has paid amounts to other various parties. The confirmation has been obtained by the AO from M/s M.R. Advisory Pvt. Ltd. and also from the parties to whom inturn the commission was paid by M/s M.R. Advisory Pvt. Ltd.
13 ITA No. 1176/Del/2022 Nivesh Group Hence, it can be said that the Assessing Officer has conducted due enquiries with regard to the commission payments. With regard to advertising and marketing expenses claimed in the P&L account, we find that the assessee has made payment to Nivesh Development & Management Pvt. Ltd. With regard to the unsecured loans and advances, the ld. PCIT held that no interest “seems to have received” by the assessee. The ld. PCIT has not examined whether interest is to be receivable, if so how much interest and on what grounds. These loans have been given by the assessee on the issue of availability of the amount with the assessee was never in question. The Assessing Officer has duly enquired about this issue in the questionnaire issued on 07.02.2019, 23.05.2019 and 11.06.2019. Since, the issue has been duly examined and a conscious decision has been arrived by the AO and in the absence of any material contrary brought on record by the ld. PCIT, Section 263 proceeding cannot be invoked on this issue.
Thus, we find in the facts and circumstances of the instant case, the Assessing Officer has conducted due enquiries and verifications and the ld. PCIT did not bring anything on record to prove any error or demonstrate that the order is prejudicial to the interest of the Revenue and since the provisions of explanation 2 to Section 263 cannot be attracted in the instant case, we hereby set aside the order of the ld. PCIT passed u/s 263 of the Income Tax Act, 1961.
14 ITA No. 1176/Del/2022 Nivesh Group 17. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 08/12/2023.
Sd/- Sd/- (Kul Bharat) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 08/12/2023 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR
