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2021 (6) TMI 445 - AT - Income TaxRevision u/s 263 - Low Income shown by large contractors, Mismatch in amount paid to related persons u/s. 40A(2)(b) reported in Audit Report and ITR and Higher Turnover reported in Service Tax Return compared to ITR and assessee has deposited large amount of cash in saving bank account - HELD THAT - Where there are two possible views and the AO has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the judgment of Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, 2016 (6) TMI 1004 - BOMBAY HIGH COURT . Now when matter was again re-examined by the Ld. Pr. CIT, before setting aside the issue to the Ld. AO for conducting further enquiry, provision of section 263 of the Act requires that primary enquiry should first be conducted by the Ld. Pr. CIT/CIT so as to find that whether the order is erroneous and prejudicial to the interest of revenue. As relying on DG HOUSING PROJECTS LTD 2012 (3) TMI 227 - DELHI HIGH COURT revisionary powers by Ld. Pr. CIT/CIT can be held to be correct if the Ld. Pr. CIT had examined and verified the said transactions himself and given a finding on merit. In the instant case, this aspect was completely missed out. The information of large cash deposit in Saving Bank Account had come before Ld. Pr. CIT. He should have called for the records so as to find out the details of Saving Bank account in which alleged large cash was deposited. It was not done so. Pr. CIT should have noted that how a partnership firm can open a saving bank account, it was again not done so. It is quite possible that the reasons on the basis of which case of the assessee was selected for scrutiny itself had some short comings or error which at least when Ld. Pr. CIT was issuing the show cause notice should have taken note of. Going through impugned order we find that the Ld. Pr. CIT has only mentioned the reasons and the brief submission made by the assessee and with a very brief analysis of facts just referred to plethora of judgments and held the order of the Ld. AO as erroneous and prejudicial to the interest of revenue which in our view was not correct to a certain extent. We, therefore, are of the considered view that the impugned order u/s. 263 of the Act is partly held to be correct and the direction for setting aside the order of the Ld. AO dated 26.04.2017 is held to be correct only limited to single issue of examining the payment of rent and legal fees made to related person namely Deepak Nenwani (son of partner) during the year as provided in section 40A(2)(a) of the Act regarding the reasonableness of the said expenditure incurred by the assessee.
Issues Involved:
1. Assumption of jurisdiction under section 263 of the Income Tax Act, 1961. 2. Low income shown by large contractors. 3. Mismatch in amount paid to related persons under section 40A(2)(b). 4. Higher turnover reported in Service Tax Return compared to Income Tax Return. 5. Large cash deposits in a saving bank account. Detailed Analysis: 1. Assumption of Jurisdiction under Section 263: The appellant challenged the jurisdiction assumed under section 263 by the Principal Commissioner of Income Tax (Pr. CIT), Bhopal. The Pr. CIT held that the assessment order dated 26.04.2017 was erroneous and prejudicial to the interest of the Revenue due to a lack of enquiry by the Assessing Officer (AO) on the stated issues. The Tribunal emphasized that for section 263 to be invoked, the order must be both erroneous and prejudicial to the interests of the Revenue. The Tribunal referred to the Supreme Court’s decision in Malabar Industrial Co. Ltd. vs. CIT, which states that an incorrect assumption of facts or incorrect application of law can render an order erroneous. 2. Low Income Shown by Large Contractors: The appellant argued that it was a trader and authorized dealer of Bajaj Auto Ltd., not a large contractor. The Tribunal noted that the turnover increased from ?76.42 crores in the previous year to ?79.54 crores in the current year, with consistent gross and net profit ratios. The Tribunal found that the AO had duly examined the books of account and relevant documents before making disallowances, thus there was no justification for further enquiry on this issue. 3. Mismatch in Amount Paid to Related Persons under Section 40A(2)(b): The appellant provided complete details of payments to related persons, which were also part of the tax audit report. The Tribunal observed that the AO had examined these details, especially the payments to partners as per the partnership deed. However, the Tribunal found that the AO failed to examine the reasonableness of legal fees and rent paid to the son of a partner. Therefore, the Tribunal partly upheld the Pr. CIT’s order to re-examine these specific payments under section 40A(2)(a). 4. Higher Turnover Reported in Service Tax Return Compared to Income Tax Return: The appellant explained that the service charges in the profit and loss account matched the service tax returns when both taxable and non-taxable services were considered. The Tribunal found that the AO had conducted a complete enquiry and application of mind on this issue. Hence, there was no need for invoking section 263 for this matter. 5. Large Cash Deposits in a Saving Bank Account: The Tribunal noted that the appellant, being a partnership firm, could not open a saving bank account. The details of all bank accounts were provided to the AO, who accepted them. The Tribunal criticized the Pr. CIT for not conducting a primary enquiry to substantiate the claim of large cash deposits in a saving bank account. The Tribunal held that the Pr. CIT should have verified the existence of such an account before setting aside the AO's order. Conclusion: The Tribunal partly allowed the appeal, holding the Pr. CIT’s order correct only concerning the examination of payments of rent and legal fees to the related person under section 40A(2)(a). The other issues raised by the Pr. CIT were found to be adequately addressed by the AO, and thus, the Tribunal concluded that the assumption of jurisdiction under section 263 was not justified for those issues. The Tribunal emphasized the need for the Pr. CIT to conduct a primary enquiry before invoking section 263.
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