2019 (12) TMI 1033 - AT - Income Tax

Revision u/s 263 - selection of scrutiny - mismatch in turnover - whether receipts reported in Statement 26AS fully reconciled with the receipts reported in the audited accounts? - HELD THAT - Assessee had established before the AO as well as before the Ld. Pr. CIT that all receipts certified in the TDS certificates had been fully accounted in the assessee s books for the relevant year. Although these documents and explanations were admittedly filed before the lower authorities, no factual infirmity or falsity was shown by the Ld. Pr. CIT or by the ld. CIT, DR appearing on behalf of the Revenue. The Ld. Pr. CIT set aside the assessment order on this issue merely observing that the issue was not properly examined. Applying the principles set out in Paras 8 to 17 above, we therefore hold the order u/s 263 of the Act on this issue to be unsustainable because not only did the AO had enquired into this issue but had consciously applied his mind to the facts made available before him and adopted the permissible view in law. On the contrary the Ld. Pr. CIT did not bring on record any material to disprove the assessee s explanations which showed that receipts certified in the TDS Certificates totaling ₹ 972 Lacs were fully accounted in the assessee s books of the relevant year but merely restored the issue for fresh examination by the AO. The order of the Ld. Pr. CIT with reference to issue in clause (a) is therefore set aside. Ground Nos. 3 4 are accordingly allowed. Mismatch in amount paid to related persons u/s 40A (2) (b) reported in Audit report (Form 3CEB) and ITR - HELD THAT - When the impugned order was passed by the Ld. Pr. CIT, clause (i) of section 92BA of the Act had already been omitted by the Finance Act, 2017 and in that view of the matter the Ld. Pr. CIT could not set aside the order for alleged non-compliance with provision of law which no longer existed in the statute as on the date of order. The Ld. Pr. CIT s direction requiring the AO to consider making a reference to the TPO in the set aside proceedings is also contrary to the view expressed in the foregoing decision of the coordinate bench in M/S. DVC EMTA COAL MINES LTD., M/S. BENGAL EMTA COAL MINES LTD., M/S. PANEM COAL MINES LTD. VERSUS ASSISTANT COMMISSIONER OF INCOMETAX, CENTRAL CIRCLE-3 (1) , KOLKATA. 2019 (5) TMI 1709 - ITAT KOLKATA . For all the foregoing reasons therefore, we hold that the AO s order did not suffer from any error for the reason that he did not make reference to the TPO. Accordingly the Ld. Pr. CIT s order for the reason setout in clause 3(b) of the SCN and for the entirely new set of reasons contained in the impugned order, is set aside. Ground Nos. 5 to 7 are accordingly allowed. Disallowance u/s 14A not made by the A.O keeping in view the circular No. 5/2014 (F.No. 225/182/2013-ITA.II) dated 11-02-2014 as well as provisions laid down in the Act - HELD THAT - Assessment order passed by the AO in which no disallowance u/s 14A was made, could not said to be unsustainable in law because the course adopted by the AO while passing the order u/s 143(3) of the Act was not only permissible in law but the said course was in conformity with the view expressed by the jurisdictional high court. Accordingly the impugned order of the Ld. Pr. CIT with reference to the reasons set out in clause (c) of the SCN is held to be unsustainable and accordingly set aside. Ground Nos. 8 9 are therefore allowed. Assessee did not take valuation of properly sold as per provisions of section 50C - HELD THAT -We find that in the Profit Loss Account, the assessee never debited under the head write-off of fixed assets nor separately claimed deduction therefore in the return of income. In the circumstances therefore when there was no claim for deduction of such an amount in the return, the issue of non-enquiry in respect of a non issue did not have any material impact and no prejudice can be said to have been caused to the interest of the Revenue because of the alleged nonenquiry. We also find that before the Ld. Pr. CIT the assessee had filed the certificate issued by M/s D.V. Agarwal Associates, Chartered Accountant in which it was certified that the assets written off were sold during the relevant year and the loss incurred on sale was netted off against profit made on sale of other fixed assets and the net gain was separately credited under the head Other Operating Income, and this was separately considered in the computation of income. No factual infirmity or falsity was shown by the Ld. Pr. CIT in the explanations put forth which was supported by corroborative evidence. Applying the ratio laid down in the decisions of the Hon ble Delhi High Court in the case of ITO vs DG Housing Projects Ltd 2012 (3) TMI 227 - DELHI HIGH COURT DIT vs Jyoti Foundation 2013 (7) TMI 483 - DELHI HIGH COURT we therefore hold that the order of the ld. Pr. CIT merely setting aside the AO s order without independently dealing with merits of the issue was untenable and therefore the same is set aside. Ground Nos. 13 14 are accordingly allowed. Deduction u/s 80IC on income from other Sources - Rationale behind such claim was not verified by the A.O during the course of assessment proceedings - the preceding four income-tax assessments framed u/s 143(3), the AOs had consistently allowed the deduction u/s 80IC in respect of scrap sales which was accounted in the respective standalone accounts under the head Other Sources . Having regard to these facts and judicial precedents, we do not find merit in the submissions of the ld. CIT, DR that the order of the AO suffered from any error or that the view taken by the AO was unsustainable in law making the AO s order liable for revision u/s 263 of the Act. The Ld. Pr. CIT s order on this issue is therefore held to be unsustainable and accordingly set aside. Ground Nos. 15 16 are allowed. Headwise break up of miscellaneous expenses was not called for by the A.O - HELD THAT - We find from the chart furnished before us that in fact the expenditure debited under the head Miscellaneous Expenses during the year under consideration was substantially lower than the expenditure incurred in the prior years Miscellaneous Expenses not permissible as deduction u/s 37(1) the same was disallowed by the AO in the impugned order which showed that the AO had examined the amounts disallowable but included under the head Miscellaneous Expenses. We also note that in none of the past assessments completed u/s 143(3) any part of the expenses debited under the head Miscellaneous Expenses was disallowed and therefore we find merit in the submissions of the ld. AR that by allowing deduction for expenses debited under the broad head of Miscellaneous expenses, no prejudice was caused to the Revenue. For the foregoing reasons therefore we hold that the assessment order passed by the AO could not be held to be erroneous and prejudicial to the interests of the Revenue for the reason set out clause 3(g) of the SCN. Accordingly the order of the Ld. Pr. CIT on this issue is set aside and Ground No. 17 is allowed. Assessment order was not the result of non-enquiry or nonapplication of mind or assumption of wrong facts. We are also of the considered opinion that while passing the assessment order the AO had followed the permissible view in law which cannot be said to be 'unsustainable in law'. In the circumstances therefore, the jurisdictional facts for usurping the jurisdiction u/s 263 of the Act, being absent, we hold that the action of Ld. CIT was without jurisdiction - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the Principal Commissioner of Income Tax (Pr. CIT) exercising revisional jurisdiction under Section 263 of the Income Tax Act.
2. Alleged mismatch in turnover.
3. Non-reference to Transfer Pricing Officer (TPO) for related party transactions.
4. Disallowance under Section 14A of the Income Tax Act.
5. Valuation of property sold and applicability of Section 50C.
6. Write-off of fixed assets.
7. Deduction under Section 80IC of the Income Tax Act.
8. Verification of large other expenses in the Profit & Loss Account.

Issue-wise Detailed Analysis:

1. Validity of Pr. CIT Exercising Revisional Jurisdiction Under Section 263:
The Tribunal examined whether the conditions for invoking Section 263 were satisfied. The Pr. CIT must prove that the AO's order was both erroneous and prejudicial to the interests of the Revenue. The Tribunal referred to the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, which requires both conditions to be met. The Tribunal emphasized that the Pr. CIT must demonstrate a clear error in the AO’s order that caused prejudice to the Revenue.

2. Alleged Mismatch in Turnover:
The Tribunal found that the AO had specifically examined the alleged mismatch in turnover during the assessment. The assessee had provided a reconciliation statement, and the AO was satisfied with the explanation. The Pr. CIT did not bring any material to disprove the assessee’s explanations. Therefore, the Tribunal held that the AO's order was neither erroneous nor prejudicial to the interests of the Revenue on this issue.

3. Non-reference to TPO for Related Party Transactions:
The Tribunal noted that the case was not selected for scrutiny on transfer pricing risk parameters. The Pr. CIT's assumption that the case required a mandatory reference to the TPO was incorrect. The Tribunal emphasized that the AO had conducted enquiries regarding the assessee's international transactions and found no need for a TPO reference. The Tribunal also noted that the relevant provision of Section 92BA(i) had been omitted by the Finance Act, 2017, and any reference to the TPO under this clause would be invalid. Therefore, the Tribunal set aside the Pr. CIT's order on this issue.

4. Disallowance Under Section 14A:
The Tribunal found that the AO had enquired into the applicability of Section 14A and decided not to make a disallowance as the assessee did not earn any tax-free dividend during the relevant year. The AO's decision was in line with judicial precedents, including those from the jurisdictional High Court. Therefore, the Tribunal held that the AO's order was not erroneous or prejudicial to the interests of the Revenue.

5. Valuation of Property Sold and Applicability of Section 50C:
The Tribunal noted that the AO had examined the sale of the factory building and found no discrepancy. The assessee had provided a valuation report and TDS certificates, which the AO verified. The Tribunal held that the AO's order did not suffer from any error as the sale consideration was correctly accounted for, and no income was assessed under the head 'Capital Gains'. Therefore, the Pr. CIT's order on this issue was set aside.

6. Write-off of Fixed Assets:
The Tribunal found that the assessee did not separately claim a deduction for the write-off of fixed assets in its Profit & Loss Account. The loss on the sale of fixed assets was netted off against the profit on the sale of other fixed assets. The Pr. CIT did not point out any specific error in the AO's assessment. Therefore, the Tribunal held that the AO's order was not erroneous or prejudicial to the interests of the Revenue.

7. Deduction Under Section 80IC:
The Tribunal noted that the AO had allowed the deduction under Section 80IC after examining the relevant documents and reports. The income from scrap sales was correctly included in the eligible profits for deduction. The Tribunal found that the AO's decision was in line with judicial precedents and not erroneous. Therefore, the Pr. CIT's order on this issue was set aside.

8. Verification of Large Other Expenses in the Profit & Loss Account:
The Tribunal found that the AO had examined the 'Other Expenses' and was satisfied with the explanation provided by the assessee. The Pr. CIT did not point out any specific instance of disallowable expenses. The Tribunal held that the AO's order was not erroneous or prejudicial to the interests of the Revenue.

Conclusion:
The Tribunal held that the Pr. CIT's order under Section 263 was without jurisdiction as the AO's order was neither erroneous nor prejudicial to the interests of the Revenue. The appeal of the assessee was allowed, and the Pr. CIT's order was quashed.