2022 (12) TMI 743 - AT - Income Tax

Revision u/s 263 by CIT - lack of enquiry - difference in the gross receipts declared - Labour charges are not subjected to TDS u/s. 194C and are not forming part of receipts as shown in Form 26AS - HELD THAT - We find that it is not a case of lack of enquiry on part of the AO and rather, we find that the matter has been thoroughly examined by the AO and after going through the financial statements, tax information available on the IT portal (Form 26AS), the tax returns filed under VAT and service tax laws, the contract receipts have been accepted by the AO as duly offered by the assessee in its return of income. On perusal of the Profit and Loss account, it is noted that the assessee has declared sales/receipts from job work and as per Form 26 AS, the assessee has been shown as having receipts from three Garrison Engineers (on which TDS has been deducted) and the difference is on account of receipts on which TDS has not been deducted. There is nothing on record to support the findings of the ld. PCIT that the labour charges are not subjected to TDS u/s. 194C and are not forming part of receipts as shown in Form 26AS. The fact that the labour charges are not treated as works contracts under VAT laws doesn't take the same outside the ambit of section 194C of the Act. The receipts thus disclosed by the assessee in its profit/loss account and correspondingly, in the return of income are thus reconciling and in any case, the receipts reported in the return of income are more than disclosed in Form 26AS and thus, on this account, where the AO has accepted the receipts disclosed in the return of income, the order so passed by the AO cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue. Also evident that the assessee has been allotted work by three Garrison Engineers under the Ministry of Defence, namely, Garrison Engineer, Chandigarh, Garrison Engineer, I R D and Garrison Engineer, Jatogh and the execution of work is spread over two states namely, Punjab, Hayana and UT Chandigarh requiring the assessee to seek separate VAT registrations and file separate VAT returns in these states/UT. As per VAT returns, the total receipts have been shown at Rs. 1,11,23,432/- which after adding receipts of Rs. 25,50,037/- towards labour charges (not subject to VAT and hence, not part of disclosure under VAT returns) equates with total receipts of Rs. 1,36,73,469/- as shown in the profit/loss account. On this account as well, we find that there is no error in the order of the AO while accepting the gross receipts as declared by the assessee in the return of income and the order so passed by the AO cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue. We agree with the contention of the ld. AR that the matter relating to wages/labour expenses which was not subject matter of limited scrutiny cannot be raised in revisionary proceedings u/s. 263 for the first time. It is now a settled position as held by the various Benches of the Tribunal that the matter which was not subject matter of limited scrutiny cannot be raised in revisionary proceedings u/s. 263 and thereby enlarging the scope of limited scrutiny and broadening the scope of jurisdiction that was originally vested with the A.O. Thus we are of the considered opinion that there is no justifiable basis to invoke the provisions of section 263 as the order passed by the AO cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue.

Issues Involved:

1. Jurisdiction under Section 263 of the Income Tax Act.
2. Consideration of replies and submissions by the Principal Commissioner of Income Tax (Pr. CIT).
3. Application of mind by the Assessing Officer (AO) during the original assessment.
4. Enquiry during revisionary proceedings by the Pr. CIT.
5. Scrutiny of sales/turnover/receipts by the AO.
6. Erroneous and prejudicial nature of the assessment order.

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The assessee contended that the Pr. CIT wrongly assumed jurisdiction under Section 263 to set aside the assessment order dated 25.08.2018. The assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal agreed with the assessee, noting that the AO had thoroughly examined the matter during the original assessment, including financial statements, tax information, and VAT returns. Therefore, the order passed by the AO could not be held as erroneous or prejudicial to the interest of the Revenue.

2. Consideration of Replies and Submissions by the Pr. CIT:
The assessee argued that the Pr. CIT failed to consider various replies and submissions correctly. The Tribunal found that the AO had issued multiple notices and questionnaires and received responses from the assessee, indicating that the matter was duly examined. The Pr. CIT's failure to consider these submissions correctly was arbitrary and unjustified.

3. Application of Mind by the AO During the Original Assessment:
The assessee claimed that the AO had applied his mind and considered various replies, materials on record, and books of account before passing the assessment order. The Tribunal supported this view, noting that the AO had accepted the contract receipts after a thorough examination, and the receipts disclosed in the return of income were more than those shown in Form 26AS.

4. Enquiry During Revisionary Proceedings by the Pr. CIT:
The assessee contended that the Pr. CIT failed to carry out any enquiry during the revisionary proceedings, which is mandatory. The Tribunal found that the AO had conducted sufficient enquiries during the original assessment, and there was no lack of enquiry. The Pr. CIT's order was thus arbitrary and unjustified.

5. Scrutiny of Sales/Turnover/Receipts by the AO:
The assessee argued that the AO had scrutinized the sales/turnover/receipts in depth. The Tribunal noted that the AO had examined the contract receipts, VAT returns, and Form 26AS, and accepted the gross receipts as declared by the assessee. The Pr. CIT's observation that the AO did not verify the receipts was found to be incorrect.

6. Erroneous and Prejudicial Nature of the Assessment Order:
The Pr. CIT held that the assessment order was erroneous and prejudicial to the interest of the Revenue due to discrepancies in the receipts as per Form 26AS and those declared by the assessee. The Tribunal found that the receipts disclosed in the return of income were more than those shown in Form 26AS, and the AO had accepted the receipts after a thorough examination. Therefore, the assessment order was not erroneous or prejudicial to the interest of the Revenue.

Conclusion:
The Tribunal concluded that there was no justifiable basis to invoke the provisions of Section 263, as the order passed by the AO was neither erroneous nor prejudicial to the interest of the Revenue. The order passed by the Pr. CIT was set aside, and the original assessment order by the AO was sustained. The appeal of the assessee was allowed.

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