2021 (9) TMI 446 - AT - Income Tax

Revision u/s 263 by CIT - understatement of commission receipts - as per CIT No proper enquiries and verifications have not been carried out by the AO and the order so passed has been held as erroneous in so far as prejudicial to the interest of Revenue - HELD THAT - methodology to be adopted for examining a particular transaction or set of transactions is something which is best left to the discretion of the Assessing officer who is the best judge to device an appropriate methodology given the facts and circumstances of a particular case. At the same time, we are conscious of the fact that there are standard operating procedures devised by the CBDT and the Assessing officers are expected to follow the same while discharging their functions. However, in the instant case, we find that there are no standard operating procedures devised by the CBDT and the ld PCIT has basically suggested a different methodology than the one followed by the Assessing officer and merely by virtue of the same, the order so passed by the Assessing officer cannot be held as erroneous in nature. Explanation so offered by the assessee regarding the nature of various credit entries have not been disputed by the ld PCIT, therefore, there is no justifiable basis to hold that there is a failure on part of the Assessing officer by virtue of inadequate enquiries and verifications and the directions so issued to verify bank credits and recalculate commission receipts is hereby set-aside. Non-verification of remuneration and interest paid to two - Requisite documents have been called for by the AO and duly examined in terms of payment of remuneration and interest to the partners and no adverse finding has been recorded by the AO. It is thus not a case where the AO has failed to examine and verify the subject matter - As during the course of revision proceedings, the assessee has again submitted copy of the partnership deed and partner s capital account and there is no finding recorded by the ld PCIT as to whether the allowance of remuneration and interest is not in accordance with the facts and relevant provisions of the Act - where the matter has been duly examined by the AO, the findings of the ld PCIT for fresh examination cannot be upheld and is hereby set-aside. Difference in bank balance as per books and as per bank statement - Where the difference is on account of cheque issued and not presented before the close of the financial year and the details of cheque payment and its subsequent clearance after the close of the financial year is duly available on record and examined by the AO, the order so passed by the AO cannot be held as erroneous on account of non-verification and in any case, the accrural/payment to KUMS has not been disputed, therefore, the allowance thereof cannot be held as prejudicial to the interest of Revenue. Addition u/s 40A(3) - cash payment to farmer against agriculture crop - As the factum of payment being made to Shri Ranjeet Singh Lambra, a farmer towards supply of potato is not under dispute and the assessee has reasonably explained the business exigency of making such payment in cash which is also covered in the exception so provided in Rule 6DD. Therefore, where the matter has been verified and examined during the course of assessment proceedings and the claim has been allowed as per provisions of law, the order so passed by the AO cannot be held as erroneous due to nonapplication of relevant law and related provisions. As necessary enquiries and examination as reasonably expected have been carried out by the Assessing officer and he has taken a prudent, judicious and reasonable view after considering the entire material available on record and the order so passed u/s 143(3) cannot be held as erroneous in so far as prejudicial to the interest of Revenue - Decided in favour of assessee.

Issues Involved:
1. Validity of the order passed under section 263 by the Ld. Pr. CIT-1, Jodhpur.
2. Verification of commission income based on bank deposits.
3. Verification of remuneration and interest paid to partners.
4. Reconciliation of bank balance differences.
5. Justification of cash payment to a farmer.

Issue-wise Detailed Analysis:

1. Validity of the order passed under section 263 by the Ld. Pr. CIT-1, Jodhpur:
The assessee contested the order under section 263, arguing that it was "bad in law & bad in facts." The Ld. Pr. CIT-1, Jodhpur, was claimed to have erred in not recording satisfaction regarding the assessment order's erroneous nature and its prejudice to the revenue. The assessee argued that the Ld. AO had made proper inquiries and verifications during the assessment proceedings, and thus, the assessment order was neither erroneous nor prejudicial to the interest of revenue.

2. Verification of commission income based on bank deposits:
The Ld. Pr. CIT-1, Jodhpur, noted that the total bank deposits amounted to ?10,21,80,533/-, and the commission at 6% should be ?61,30,832/-, whereas the assessee declared only ?44,46,731/-. The assessee argued that not all bank credits represented turnover, citing various non-revenue transactions like unsecured loans, partner capital, KUMS charges, and dishonored cheques. The Tribunal found that the AO had examined the bank statements and books of accounts and accepted the commission receipts after due verification. The Tribunal held that the methodology adopted by the AO was reasonable and the order could not be deemed erroneous merely because the Ld. Pr. CIT-1 suggested a different approach.

3. Verification of remuneration and interest paid to partners:
The Ld. Pr. CIT-1, Jodhpur, claimed that the partnership deed and partners' capital accounts were not on record, thus questioning the verification of remuneration and interest paid. The assessee contended that these documents were submitted and verified during the assessment proceedings. The Tribunal found that the AO had indeed called for and examined these documents, and no adverse findings were recorded. The Tribunal concluded that the AO had duly verified the matter, and the Ld. Pr. CIT-1's directive for further examination was unwarranted.

4. Reconciliation of bank balance differences:
The Ld. Pr. CIT-1, Jodhpur, noted a difference of ?40,544/- between the bank balance as per books and the bank statement. The assessee explained that this difference was due to a cheque issued to KUMS, which was cleared after the financial year-end. The Tribunal found that the AO had examined the monthly KUMS fee details and the discrepancy was due to the timing of cheque clearance. The Tribunal held that the AO had verified the matter, and the order was not erroneous or prejudicial to the revenue.

5. Justification of cash payment to a farmer:
The Ld. Pr. CIT-1, Jodhpur, questioned a cash payment of ?2,00,000/- to a farmer, Sh. Ranjeet Singh Lambra, suggesting it could be a loan. The assessee explained that the payment was for agricultural produce and allowable under section 40A(3) read with rule 6DD. The Tribunal found that the payment was part of several transactions with the farmer, mostly through banking channels, and the cash payment was due to business exigency. The Tribunal held that the AO had verified the transaction and allowed the claim as per law.

Conclusion:
The Tribunal concluded that the AO had conducted necessary inquiries and verifications, taking a prudent and reasonable view based on the material on record. The assessment order was neither erroneous nor prejudicial to the interest of revenue. Consequently, the Tribunal set aside the order passed by the Ld. Pr. CIT-1, Jodhpur, under section 263, and sustained the AO's order. The appeal of the assessee was allowed.

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