2020 (3) TMI 223 - AT - Income Tax

Revision u/s 263 - Assessment order passed u/s 147 - suppression of gross receipts on the basis of reasons recorded for reopening of assessment, which is further supported by evidences found during the course of survey in form of second set of financial statements prepared by the assessee for the impugned assessment year - HELD THAT - In this case, on perusal of facts, we find that the Ld.PCIT has questioned the issue of suppression of turnover, which is also a matter of deliberation by the Ld. AO during the reassessment proceedings and hence, we are of the considered view that the Ld. PCIT was completely erred in invoking jurisdiction to revise the assessment order passed by the Ld. AO u/s 143(3) r.w.s. 147 of the I.T.Act, 1961, in respect of very same issue of suppression of turnover, which was very much deliberated by the Ld. AO during the assessment proceedings. Other part of proceedings taken up by the Ld.PCIT as directed the Ld. AO to examine the expenses and determine the net profit after considering the profit declared by the assessee for the year under consideration, after taking note of the fact that there is large number of difference in certain expenses claimed in two set of financial statements. We find that first and foremost the PCIT has exceeded his jurisdiction conferred upon by him u/s 263 because the show cause notice is very clearly stated that the assessment order is erroneous, insofar as, it is prejudicial to the interest of the revenue, in respect of the issue of suppression of turnover. Once the Ld.PCIT having found that the issue of suppression of turnover was considered by the Ld. AO, at the time of assessment proceedings, he should have confined its scope of revisional powers to the issue of suppression of turnover instead of going to the issue of expenses claimed by the assessee and profit declared for the year under consideration. Because, the issue of various expenses claimed in two set of financial statements was neither, subject matter of reassessment proceedings u/s 147 of the Act, nor find place in show cause notice issued by the Ld.PCIT u/s 263 of the Act, 1961. PCIT having accepted the fact that the Ld.AO has examined the issue of suppression of turnover should have confined the scope of his revisional powers to the issue, which he had questioned in his show cause notice, rather than going to the issue of various expenditure, which is not at all a subject matter of proceedings u/s 147 of the I.T.Act, 1961. AO himself is precluded from making any other additions in reassessment proceedings, when he failed to make additions on the issues on which reasons for reopening of assessment was recorded, then certainly in our consider view the Ld.PCIT is also precluded from taking those issues in revisional proceedings u/s 263 of - issue of various expenses questioned by the Ld.PCIT was explained by the assessee during the assessment proceedings with reference to two set of financial statements and the Ld. AO has accepted the claim of the assessee and completed assessment without making any additions on the issues. It is also a matter of fact that the two set of financial statement have been prepared for two different periods and the difference of income and expenditure recorded in said financial statements has been explained before the Ld. AO, during reassessment proceedings. PCIT was incorrect in coming to the conclusion that the Ld. AO ought to have carried out necessary enquiries with regard to various expenditure claimed in two set of financial statements and also, the profit declared by the assessee for the year under consideration in comparison with average profitability of certain comparables furnished by the assessee. We, therefore are of the opinion that the Ld.PCIT has gone beyond the scope of his revisional powers conferred on him by the provision of section 263 - Decided in favour of assessee.

Issues Involved:
1. Validity of the show cause notice issued under Section 263 of the I.T. Act.
2. Timeliness of the order passed under Section 263.
3. Validity of the reassessment order under Section 147.
4. Approval for issuing notice under Section 148.
5. Reasons to believe for reopening the assessment.
6. Sanction granted for reopening the assessment.
7. Jurisdiction under Section 263 to revise reassessment orders.
8. Examination of unsecured loans.
9. Examination of expenses.

Detailed Analysis:

1. Validity of the Show Cause Notice Issued Under Section 263:
The assessee argued that the show cause notice under Section 263 was issued with a premeditated mind, making the proceedings bad in law and liable to be quashed. The Tribunal found that the Principal Commissioner of Income Tax (PCIT) had issued the notice based on discrepancies found during the survey, including suppression of gross receipts and discrepancies in unsecured loans. The Tribunal upheld the validity of the show cause notice, as it was based on tangible evidence gathered during the survey.

2. Timeliness of the Order Passed Under Section 263:
The assessee contended that the order under Section 263 was time-barred, referencing the Supreme Court's decision in Alagendran Finance Limited. The Tribunal found that the PCIT's order was within the permissible time frame and thus was not time-barred.

3. Validity of the Reassessment Order Under Section 147:
The assessee claimed that the reassessment order under Section 147 was bad in law as the notice under Section 148 was issued without appropriate approval. The Tribunal noted that the reassessment was initiated based on findings from a survey, which included discrepancies in the financial statements. The Tribunal upheld the validity of the reassessment order.

4. Approval for Issuing Notice Under Section 148:
The assessee argued that the notice under Section 148 was issued without proper approval, as it was taken from the Additional CIT instead of the Joint CIT as required under Section 151. The Tribunal found that the approval process followed was in accordance with the law and upheld the validity of the notice.

5. Reasons to Believe for Reopening the Assessment:
The assessee contended that the reasons recorded for reopening the assessment were bad in law, as the same addition had been made in the original scrutiny assessment proceedings. The Tribunal found that the reasons to believe were based on new evidence found during the survey, justifying the reopening of the assessment.

6. Sanction Granted for Reopening the Assessment:
The assessee argued that the sanction granted for reopening the assessment was bad in law, as the income alleged to have escaped assessment had already been considered in the original scrutiny assessment. The Tribunal upheld the sanction, noting that it was based on new evidence not previously considered.

7. Jurisdiction Under Section 263 to Revise Reassessment Orders:
The assessee argued that the PCIT erred in invoking jurisdiction under Section 263 without appreciating that no addition was made on the issue for which reasons were recorded for reopening. The Tribunal found that the PCIT had the jurisdiction to revise the reassessment order, as the AO had failed to consider vital evidence gathered during the survey.

8. Examination of Unsecured Loans:
The PCIT directed the AO to examine discrepancies in unsecured loans shown in two sets of financial statements. The Tribunal found that the AO had failed to make necessary inquiries regarding the discrepancies, making the reassessment order erroneous and prejudicial to the interest of the revenue.

9. Examination of Expenses:
The PCIT directed the AO to examine discrepancies in expenses claimed in two sets of financial statements. The Tribunal found that the AO had failed to verify these discrepancies, making the reassessment order erroneous and prejudicial to the interest of the revenue.

Conclusion:
The Tribunal concluded that the PCIT was justified in invoking jurisdiction under Section 263, as the AO had failed to make necessary inquiries regarding discrepancies found during the survey. The Tribunal set aside the reassessment order and directed the AO to re-do the assessment, taking into account the discrepancies in turnover, unsecured loans, and expenses. The appeal filed by the assessee was dismissed.

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