2017 (12) TMI 188 - AT - Income Tax

Revision u/s 263 - Disallowance u/s 14A - Held that - We are of the view that the AO had issued a detailed questionnaire raising various queries. The appellant had appeared from time to time and filed the detailed replies to all the queries raised. Books of account were produced along with the supporting vouchers which were examined by the AO. The confirmed copies of account with PAN numbers of the parties to whom sales and purchases were made, were filed before the AO. The explanation regarding fall in GP rate was duly given. A specific query was raised in respect of disallowance during the course of assessment proceeding to which reply was filed by the assessee that there is no exempt income and provisions of section 14A of the Act will not be applicable. The details of traveling expense and godown rent expense were duly filed before the AO. Hence it cannot be said that this is a case of no enquiry made by the AO. Merely because the ld. PCIT feels that further enquiry should have been made does not make the order of the AO erroneous. The assessee had filed various replies to the ld. PCIT in response to notice u/s of the Act 263 of the Act stating that all the issues raised by the PCIT have been examined by the AO during the course of assessment. The PCIT has ignored the replies of the assessee. He merely states that the reply has been filed by the assessee but he nowhere discusses the contentions raised by the assessee and why he does not agree with the contentions of the assessee. The ld. PCIT has merely remitted the matter back to the AO without making any enquiry himself. The ld. PCIT has mentioned that the opening stock has not been verified by the AO, whereas the total opening stock was pledged with the bank. The ld. PCIT has not considered the contentions of the assessee. Similarly, the other replies of the assessee filed during the course of assessment and in response to notice u/s 263 of the Act have been totally ignored. No enquiry has been made by the PCIT. It was incumbent for the PCIT to make some minimum independent enquiry to reach to the conclusion that the order of the AO is erroneous and prejudicial to the interest of revenue. -Decided in favour of assessee.

Issues Involved:

1. Trading results accepted without proper inquiry.
2. Non-examination of disallowance under Section 14A.
3. Allowability of foreign travel expenses not examined.
4. Genuineness of godown rent not examined.

Issue-wise Detailed Analysis:

1. Trading Results Accepted Without Proper Inquiry:

The Principal Commissioner of Income Tax (PCIT) issued a notice under Section 263, questioning the acceptance of trading results without thorough inquiry. The PCIT claimed that the Assessing Officer (AO) did not independently verify the genuineness of sales and purchases. In response, the assessee argued that detailed explanations and quantitative details of stocks, purchases, and sales were provided during the assessment proceedings. The assessee also submitted that all transactions were supported by invoices and payments were made through account payee cheques. Despite these submissions, the PCIT set aside the assessment order, directing the AO to redo the assessment with necessary inquiries.

2. Non-examination of Disallowance Under Section 14A:

The PCIT criticized the AO for not examining the applicability of Section 14A. The assessee contended that no exempt income was earned during the relevant assessment year, making Section 14A inapplicable. This position was supported by the jurisdictional Punjab & Haryana High Court's ruling in CIT v. Winsome Textile Industries Ltd. The assessee maintained that the AO had conducted an inquiry into this matter, and thus, the PCIT's intervention was unwarranted.

3. Allowability of Foreign Travel Expenses Not Examined:

The PCIT noted that the AO did not examine the allowability of foreign travel expenses. The assessee argued that complete details of these expenses were furnished during the assessment proceedings. The AO had issued a detailed questionnaire under Section 142(1), which the assessee duly answered, providing all necessary details and supporting documents. The assessee's position was that the AO had considered these expenses after due examination, making the PCIT's directive for further inquiry unnecessary.

4. Genuineness of Godown Rent Not Examined:

The PCIT also questioned the AO's examination of the genuineness of godown rent expenses. The assessee responded that detailed justifications and ledger accounts for these expenses were provided during the assessment proceedings. The AO had examined the books of account and supporting vouchers before allowing the expenses. The assessee argued that the PCIT's directive for further verification was based on a misapprehension of the AO's thorough examination.

Judgment Analysis:

The Tribunal found that the AO had conducted detailed inquiries, issued questionnaires, and examined the assessee's books of account and supporting documents. The Tribunal emphasized that the PCIT had not considered the assessee's submissions and had not conducted any independent inquiries to substantiate the claim that the assessment order was erroneous and prejudicial to the interest of revenue.

The Tribunal noted that the PCIT's order lacked a discussion on the assessee's contentions and merely remitted the matter back to the AO without making any independent inquiry. The Tribunal relied on the Delhi High Court's rulings, which held that for exercising jurisdiction under Section 263, the PCIT must conduct some minimal inquiry to establish that the assessment order is erroneous and prejudicial to the interest of revenue.

The Tribunal concluded that the PCIT's order was illegal and bad in law, as the PCIT had not adhered to the principles of natural justice by ignoring the assessee's submissions and failing to conduct independent inquiries. Consequently, the Tribunal allowed the assessee's appeal, setting aside the PCIT's order under Section 263.

Conclusion:

The Tribunal allowed the assessee's appeal, ruling that the PCIT's order under Section 263 was invalid due to the lack of independent inquiry and consideration of the assessee's submissions. The Tribunal emphasized that the AO had conducted adequate inquiries during the assessment proceedings, and the PCIT's directive for further verification was unwarranted.

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