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2022 (3) TMI 466 - AT - Income TaxRevision u/s 263 by CIT - limited scrutiny case - labour and wages payable which are beyond the scope of limited scrutiny for verification of sundry creditors - HELD THAT - We find that when the return of income was selected for scrutiny, only information which was available with the department was the return of income filed online containing particulars as per the financial statements and not hard copy of the financial statements filed subsequently and therefore, what has been selected for examination is the figure of sundry creditor by the Assessing officer and during the course of assessment proceedings, the Assessing officer basis such selection has proceeded to examine the sundry creditors as part of limited scrutiny assessment to which the assessee has voluntary participated without raising any objections and supplied information/documentation and therefore, where the ld. PCIT issues a show cause u/s. 263 regarding the matter relating to examination of labour and wages payable, we do not find any infirmity in the said action in his assumption of jurisdiction u/s. 263 which is well within the limited scrutiny for which the matter was initially selected for examination by the Assessing officer. Where the matter is selected for precise reason for examination of labour and wages payable, certain basic questions arises for consideration which a person of reasonable intellect and understanding should raise and examine. Firstly, who are these persons - whether regular employees or hired through a third party, name and address and other basic identification particulars of these persons who are hired and terms of such hiring in terms of salary/wages/social security, etc., work/project for which they are hired and their attendance records, etc to establish actual rendering of services and period/hours of service, payment/muster rolls etc showing salary/wages payable, actual payment and whether liable for TDS and actual TDS done and deposited in their respective accounts. And in respect of old outstandings, the persons in respect of whom the amount has remained outstanding, the period and reasons for such outstandings and whether any payments have been made during the year or not and applicability of TDS on such payments. Therefore, where the ld. PCIT has stated that besides ledger account, there is no documentation on record in support of such expenses, we agree that the Assessing officer did not make proper and adequate enquiries while making the assessment. 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. PCIT. 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. However, where the factual scenario of a case prima facie indicates abnormalities and cry for looking deep into it as rightly highlighted by the ld. PCIT in terms of complete lack of documentation, old outstandings, payment in cash, etc, then mere calling for the details of labour and wages payable and accepting the ledger account containing incomplete details and without calling for further information/documentation and conducting independent enquiries cannot be held as conducting proper enquiry. Therefore, on this account, we agree with the findings of the ld. PCIT that proper enquiries have not been conducted by the AO and the order thus passed is clearly erroneous and prejudicial to the interest of the Revenue. It is not a case where the ld. PCIT has set-aside the assessment order rather he has examined these transactions and has carried out broad analysis of the ledger account so submitted by the assessee company and has come to a conclusion that the AO has failed to carry out adequate and proper enquiries which he should have conducted in respect of labour and wages payable. - Decided against assessee.
Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961. 2. Examination of sundry creditors and sales turnover mismatch. 3. Verification of labour wages payable and sundry creditors. 4. Adequacy of enquiries conducted by the Assessing Officer (AO) during the assessment proceedings. Issue-wise Detailed Analysis: 1. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961: The appellant argued that the Pr. CIT had no occasion to initiate proceedings under Section 263 of the Income Tax Act, 1961, as the assessment order was neither erroneous nor prejudicial to the interests of the revenue. The Pr. CIT, however, found that the AO had not made proper enquiries or verification regarding the sundry creditors and labour wages payable, which rendered the assessment order erroneous and prejudicial to the interest of the Revenue. The Tribunal upheld the Pr. CIT's jurisdiction, stating that the case was selected for limited scrutiny to examine sundry creditors and sales turnover mismatch, and the AO failed to conduct adequate verification. 2. Examination of Sundry Creditors and Sales Turnover Mismatch: The appellant contended that the AO had examined the sundry creditors and sales turnover mismatch during the assessment proceedings. The Pr. CIT observed that the AO did not verify the reasons for the selection of the case for scrutiny and made an addition of ?3 lakhs without proper verification. The Tribunal found that the AO did not thoroughly examine the sundry creditors amounting to ?76,58,117/-, which included labour wages payable, and concurred with the Pr. CIT's findings that the AO's order was erroneous. 3. Verification of Labour Wages Payable and Sundry Creditors: The appellant claimed that the AO had verified the labour wages payable and sundry creditors during the assessment proceedings. The Pr. CIT noted that no documentary evidence, such as labour registers or payment vouchers, was furnished, and most wages were paid in cash without deducting tax at source, making the payments suspicious. The Tribunal agreed with the Pr. CIT that the AO failed to conduct proper verification of the labour wages payable and other sundry creditors, which was the core issue for the case being selected for scrutiny. 4. Adequacy of Enquiries Conducted by the Assessing Officer (AO) During the Assessment Proceedings: The appellant argued that the AO had conducted adequate enquiries and made an addition of ?3 lakhs after due verification. The Pr. CIT found that the AO did not make independent enquiries or verify the authenticity of the payments claimed to be made to the labourers. The Tribunal held that the AO did not conduct proper and adequate enquiries, as there was a lack of documentation and independent verification of the labour wages payable and sundry creditors. The Tribunal stated that the AO's reliance on the information submitted by the assessee without further verification rendered the assessment order erroneous and prejudicial to the interest of the Revenue. Conclusion: The Tribunal upheld the order passed by the Pr. CIT under Section 263 of the Income Tax Act, 1961, and dismissed the appeal filed by the assessee. The Tribunal found that the AO failed to conduct proper and adequate enquiries regarding the sundry creditors and labour wages payable, which rendered the assessment order erroneous and prejudicial to the interest of the Revenue. The Pr. CIT's jurisdiction to initiate proceedings under Section 263 was upheld, and the grounds of appeal were dismissed.
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