2019 (11) TMI 1385 - AT - Income Tax

Revision u/s 263 - case of the assessee company was selected for scrutiny for the purposes of verification of large commission expenditure claimed while filing its return of income - HELD THAT - In the instant case, where there are commission payments which constitute 32.15% of assessee s turnover which seems quite unusual in the assessee s line of business and rate of commission within the same project/scheme various from ₹ 100/sq yard to ₹ 400/sq yd and the commission payment have been made to over 70 parties mostly outside the city of Jaipur and more so, when the matter was selected for the precise reason of examination of such huge commission payments, it is ordinarily expected that the AO examine these transactions thoroughly rather than just relying on the information submitted by the assessee company. It is not a question of kind and extent of enquiry and hence, a difference of approach and methodology of examination of a particular transaction as done by the AO and as suggested by the ld Pr CIT. No doubt every AO has his unique style of functioning and no hard and fast rule can be laid down as to how he should conduct the enquiry in discharge of his statutory functions. Where the factual scenario of a case prima facie indicates abnormalities and cry for looking deep into it, then a mere collection of documents cannot be held as conducting an enquiry. In our considered view, it is a clear case of lack of enquiry on part of the Assessing officer and the order thus passed is clearly erroneous and prejudicial to the interest of the Revenue. Where the AO shuts his eyes and the PCIT discovers the glaring discrepancies leading to non-satisfaction of cardinal test of admissibility and allowability of commission expenditure during the course of his examination of records, we donot think there is any infirmity or illegality in ld Pr CIT exercising her revisionary jurisdiction u/s 263 - It is not a case where the Pr. CIT has set-aside the assessment order rather she has examined these transactions and has carried out broad analysis of the documentation so submitted by the assessee company and has come to a conclusion, that the AO has failed to carry out adequate enquiries which he should have conducted especially in light of glaring discrepancies in the documentation so submitted by the assessee company. We accordingly upheld the order passed by the ld Pr CIT u/s 263 of the Act setting aside the assessment order passed by the Assessing officer for the limited purposes of examining the allowability of the commission expenses claimed by the assessee company. - Decided against assessee.

Summary

Issues Involved:
1. Invocation of Section 263 of the Income Tax Act by the Pr. CIT.
2. Adequacy of inquiry conducted by the Assessing Officer (AO) regarding the payment of commission.
3. Justification of the Pr. CIT's decision to set aside the assessment order.

Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act by the Pr. CIT:
The assessee contested the invocation of Section 263 by the Pr. CIT, arguing that the assessment order under Section 143(3) was neither erroneous nor prejudicial to the interest of the Revenue. The assessee claimed that the AO had conducted a thorough examination and inquiry regarding the payment of commission for selling residential plots. The Pr. CIT, however, issued a show cause notice under Section 263, questioning the allowability of the commission expenses claimed by the assessee.

2. Adequacy of Inquiry Conducted by the Assessing Officer:
The assessee argued that the AO had adequately inquired into the commission payments by requesting detailed information, including the names of brokers, their addresses, PAN details, amounts of commission paid, details of plots/shops sold, TDS amounts, and rates of commission. The Pr. CIT, however, found that the AO did not conduct a thorough examination or verification of the details provided. The Pr. CIT highlighted several discrepancies, such as the lack of complete addresses of recipients, absence of documentary evidence linking the commission payments to the sale of plots, and varying rates of commission within the same scheme.

The Pr. CIT noted that the AO accepted the payment of commission based merely on the details of payments made and TDS deducted, without verifying whether the payments were genuinely made for business purposes. During the revision proceedings, the Pr. CIT found that the assessee had not provided sufficient documentary evidence to demonstrate that the transactions were negotiated through the brokers concerned. The Pr. CIT concluded that the AO's failure to conduct necessary inquiries rendered the assessment order erroneous and prejudicial to the interest of the Revenue.

3. Justification of the Pr. CIT's Decision to Set Aside the Assessment Order:
The Tribunal agreed with the Pr. CIT's decision, emphasizing that the AO did not conduct a thorough examination of the commission payments, which constituted a significant portion of the assessee's turnover. The Tribunal noted that the AO issued a standard questionnaire and accepted the assessee's submissions without further verification. The Tribunal cited the case of Subhlakshmi Vanijya (P.) Ltd. vs. Commissioner of Income-tax-I, Kolkata, stating that merely collecting documents without further investigation in cases indicating abnormalities does not constitute conducting an inquiry.

The Tribunal found that the Pr. CIT's examination revealed glaring discrepancies in the documentation submitted by the assessee, justifying the invocation of Section 263. The Tribunal upheld the Pr. CIT's order setting aside the assessment for the limited purpose of examining the allowability of the commission expenses, citing the Supreme Court's decision in Daniel Merchants Private Limited and others, which supported the Pr. CIT's authority to direct a thorough and detailed inquiry.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the Pr. CIT's order under Section 263 of the Income Tax Act. The Tribunal concluded that the AO's failure to conduct adequate inquiries rendered the assessment order erroneous and prejudicial to the interest of the Revenue, justifying the Pr. CIT's decision to set it aside for further examination of the commission expenses.