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2022 (6) TMI 734 - AT - Income TaxRevision u/s 263 - case was selected for limited scrutiny - Whether the AO has considered the issue is question - HELD THAT - As per notice dated 19.09.2017 issued u/s 143(2) of the Act, the case of the Appellant was selected for limited scrutiny for examination of following issues (i) whether sundry creditors are genuine, (b) whether contract receipts/fees have been correctly offered to tax and (iii) whether sales turnover/receipts has been correctly offered to tax. AO was required to carry out necessary verification and inquiries in relation to the above issues. Appellant has contended that during the assessment proceedings the Appellant had filed necessary documents/confirmation and details reconciliation statement. We have examined the assessment order, the paper-book of the Appellant and copy letter date 11.06.2018 filed by the Appellant along with the annexures. AO has merely asked for age-wise details, and balance confirmation in relation to the sundry creditors. It is correct that the Appellant had provided the aforesaid information/documents during the assessment proceedings, however, but the same are not sufficient to enable the AO to verify the genuineness of sundry creditors. Similarly, the statement of Reconciliation of 26AS filed by the Appellant is also not sufficient to show that the contract fee has been offered to tax correctly. Clearly, the Assessing Officer has not undertaken necessary inquires/verification during assessment proceedings. The Assessment Order is also silent on these issues and therefore, does not support the contentions of the Appellant. We are also not inclined to accept the contention advanced on behalf of the Appellant that provisions of Clause (a) of Explanation 2 to Section 263 of the Act support the case of the Appellant. The expression without making inquiries or verification used in Clause (a) of Explanation 2 to Section 263 of the Act, has to be read in conjunction with the words that follow this expression which should have been made . In the case before us, the Assessing Officer has failed to carry out necessary inquiries and verification in relation to the issues identified for limited scrutiny which should have been made in the facts and circumstances of the present case. PCIT was legally justified in exercising powers of revision under Section 263 of the Act in the facts and circumstances of the present case.
Issues:
Challenge to Order under Section 263 of the Income Tax Act, 1961 - Condensation of delay in filing appeal - Assessment Order set aside for non-verification of reconciliation - Twin conditions for revision under Section 263 - Application of Explanation 2 to Section 263 - Grounds challenging revision by PCIT - Inquiry and verification during assessment proceedings - Justification of PCIT in setting aside Assessment Order. Detailed Analysis: Issue 1: Challenge to Order under Section 263 The appeal challenges the Order passed by the Principal Commissioner of Income Tax under Section 263 of the Income Tax Act, setting aside the Assessment Order passed under Section 143(3) of the Act. The Appellant sought condonation of delay in filing the appeal due to the COVID-19 lockdown, which was accepted. Issue 2: Assessment Order Set Aside The PCIT set aside the Assessment Order as the Assessing Officer failed to verify the credit of tax deducted at source from Professional Receipts and Contract Receipts before accepting them. The PCIT invoked Section 263 due to non-verification and lack of proper inquiry, considering it erroneous and prejudicial to revenue. Issue 3: Application of Explanation 2 to Section 263 The PCIT invoked Explanation 2 to Section 263, stating that the order was erroneous and prejudicial to revenue as the Assessing Officer did not carry out necessary inquiries or verifications. The PCIT referred to judicial decisions emphasizing the importance of the Assessing Officer's application of mind. Issue 4: Grounds Challenging Revision by PCIT The Appellant raised 9 grounds challenging the PCIT's revision under Section 263, arguing that the Assessing Officer conducted proper inquiries during the assessment proceedings. The Appellant contended that the PCIT reviewed the order under the guise of revision, warranting its setting aside. Issue 5: Justification of PCIT's Decision The Departmental Representative supported the PCIT's decision, arguing that the Assessment Order was erroneous and prejudicial to revenue. The PCIT's decision to set aside the issue for fresh consideration was deemed justifiable. Conclusion The Tribunal upheld the PCIT's order under Section 263, finding that the Assessing Officer failed to conduct necessary verifications and inquiries during the assessment proceedings. Therefore, the PCIT's exercise of revisionary powers was legally justified, leading to the dismissal of the appeal challenging the same.
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