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2021 (2) TMI 643 - AT - Income TaxRevision u/s 263 by CIT - case of assessee was selected for limited scrutiny - PCIT has observed that AO has not examined the expenditure claimed on account of discount on CT/MRI test whereas all relevant expenditure pertaining to such test has been claimed in the P L A/c - HELD THAT - We find that the case of the assessee was selected for limited scrutiny for the reasons of large other expenses claimed in the Profit Loss account and mismatch of sales turnover reported in the audit report and ITR. In the show cause notice issued U/s 263 of the Act, the ld. Pr. CIT has stated that Form 26AS reveals that the licensor has paid an amount which is not included in the total turnover of the assessee - As stated that the assessee has claimed expenditure in its profit and loss account towards discount on CT test and MRI test which is not allowable as all the relevant expenditure pertaining to this tests have been claimed separately by the assessee in its profit and loss account. Thereafter, we refer to the findings of the ld. Pr.CIT which are again talking about non verification of receipts as reflecting in Form 26AS and non verification of discount claimed by the assessee as well as the connected issue relating to free services related to MRI and CT Scan test. Thereafter CIT has held that the order dated 29.09.2017 is set aside on the issue with the direction to the Assessing Officer to pass the same denovo in the case of the assessee in accordance with law after making the necessary examination and verification regarding the issues under discussion. We therefore, find that the directions by the ld. Pr. CIT to carry out the fresh assessment is limited to the issue mentioned relating to non-verification of receipts, discount claimed by the assessee and related free services provided by the assessee. These issues are clearly subject matter of limited scrutiny and therefore, the contention so advanced by the ld. AR cannot be accepted. AO has examined the expenses claimed in the profit and loss account and made certain disallowances and these disallowances were subject matter of appeal and since the Ld. CIT(A) has decided the appeal of assessee on the disallowances of expenses claimed in the P L A/c, therefore, with reference to the expenses, the order of AO has since merged with that of the CIT(A) and therefore, the ld Pr.CIT cannot invoke the revisionary jurisdiction U/s 263 of the Act. What has been disallowed by the Assessing Officer is 10% of expenses in the nature of advertisement expenses, Fuel Genset expenses, Legal expenses, maintenance expenses, misc. office expenses, sales promotion expenses, stationery and printing expenses and the expenses pertaining to discount which is subject matter of show cause by the ld. Pr. CIT was not at all examined and considered and for that matter, the subject matter of the assessment order, therefore, it cannot be said that by virtue of filing an appeal against disallowances so made by the Assessing Officer and the ld. CIT(A) has decided the appeal, the order of the AO has merged with that of the ld. CIT(A). In our considered view, the matter pertaining to discount claimed by the assessee in its profit/loss account was not subject matter of assessment order as well as that of the appellate order passed by the ld CIT(A) and therefore, where the matter was not considered and decided by the ld CIT(A), the theory of merger as canvassed by the ld A/R cannot be accepted and the ld Pr CIT is well within his jurisdiction to exercise his powers on such matters under section 263 of the Act. Mismatch of receipts as reflected in Form 26AS - merely because the reported receipts are more than what has been reflected in Form 26AS, it cannot be presumed that what has been reflected in Form 26AS has been included in the receipts as the question is not about the sum total of receipts rather the question is about the particular receipts pertaining to the financial year which are reflected in the Form 26AS are reported to tax or not. We find that it is only during the course of revisionary proceedings that such reconciliation has been submitted by the assessee for the first time and given the fact that the Assessing Officer has not examined the same, the ld. Pr. CIT has remitted the matter to the Assessing Officer for necessary verification. It is therefore, a case of complete lack of enquiry on the part of the Assessing Officer of the issue in respect of which the case has been selected for limited scrutiny and given such failure on the part of the Assessing Officer to carry out the necessary verification and examination, the orders so passed by him is clearly erroneous and prejudicial to the interest of the Revenue and finding of the ld. Pr CIT are hereby sustained. Expenditure claimed on account of discount offered by the assessee in relation to CT scan and MRI test and the related free services provided by the assessee to the patients - In the instant case, where there are discounts claimed to the extent of 19% and above of gross receipts so reported and there are no details available on record except the quantum of discount and an explanation that the discount has been given to the patients as per agreement with PBM Hospital 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 Assessing officer 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 Assessing officer 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 claim of huge discount which is a matter of limited scrutiny and thus cry for looking deep into it, then a mere acceptance of an explanation without conducting any further verification and examination cannot be held as conducting an enquiry. In our considered view, it is a clear case of no enquiry on part of the Assessing officer and the order thus passed is clearly erroneous and prejudicial to the interest of the Revenue. In light of same, where the AO shuts his eyes and the ld PCIT discovers the glaring discrepancies regarding claim of discount expenses during the course of his examination of records, we donot think there is any infirmity or illegality in ld Pr CIT exercising his revisionary jurisdiction u/s 263 - Appeal filed by the assessee is dismissed.
Issues Involved:
1. Legality and validity of the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act. 2. Examination of the Assessing Officer’s (AO) scrutiny and verification of expenses and receipts. 3. Jurisdiction of PCIT in cases of limited scrutiny. 4. Applicability of Explanation 1(c) to Section 263(1) of the Income Tax Act. 5. Basis of revision under Section 263 due to audit observations. Detailed Analysis: 1. Legality and Validity of the Order Passed by the PCIT under Section 263 of the Income Tax Act: The assessee challenged the legality of the PCIT’s order under Section 263, arguing that the AO had already verified the relevant expenses and receipts during the assessment proceedings. The AO had examined the books of accounts, bills, and vouchers, and made disallowances accordingly. The PCIT, however, held that the AO had not properly verified the receipts reflected in Form 26AS and the discounts claimed for free services provided to BPL patients, thus rendering the AO’s order erroneous and prejudicial to the interest of the revenue. 2. Examination of the AO’s Scrutiny and Verification of Expenses and Receipts: The AO had initially examined the large other expenses claimed in the Profit & Loss account and the mismatch of sales turnover reported in the audit report and ITR. However, the PCIT noted that the AO failed to verify the receipts of ?1,49,65,860/- reflected in Form 26AS and the expenditure of ?1,19,35,260/- claimed as discounts on CT/MRI tests. The PCIT directed the AO to re-examine these issues, stating that the AO’s lack of detailed verification made the original assessment order erroneous and prejudicial to the revenue. 3. Jurisdiction of PCIT in Cases of Limited Scrutiny: The assessee argued that since the case was selected for limited scrutiny, the PCIT’s jurisdiction should be confined to the issues specified for limited scrutiny. The Tribunal found that the PCIT’s directions for fresh assessment were limited to the issues identified in the limited scrutiny, such as non-verification of receipts and discounts claimed. Therefore, the PCIT’s actions were within the scope of limited scrutiny. 4. Applicability of Explanation 1(c) to Section 263(1) of the Income Tax Act: The assessee contended that the order of the AO had merged with that of the CIT(A) due to the appeal filed against the disallowances made by the AO. However, the Tribunal held that the issue of discounts claimed by the assessee was not examined by the AO or considered in the appellate order. Thus, the theory of merger did not apply, and the PCIT was within his rights to invoke revisionary jurisdiction under Section 263. 5. Basis of Revision under Section 263 Due to Audit Observations: The assessee argued that the revision was based on audit observations, which cannot form the basis for invoking Section 263. The Tribunal, however, upheld the PCIT’s order, stating that the AO’s failure to conduct a detailed enquiry into the receipts and discounts justified the revision under Section 263, regardless of the audit observations. Conclusion: The Tribunal upheld the order passed by the PCIT under Section 263, directing the AO to re-examine the issues of mismatch of receipts and discounts claimed in the profit and loss account. The appeal filed by the assessee was dismissed, and the Tribunal emphasized the necessity for detailed verification and examination by the AO in cases of limited scrutiny. The order pronounced in the open Court on 15/02/2021 concluded that the AO’s original assessment was erroneous and prejudicial to the interest of the revenue, justifying the invocation of Section 263 by the PCIT.
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