2023 (3) TMI 673 - HC - Income Tax

Revision u/s 263 - Large other expenses claimed in profit and loss account, Payments made to related parties under Section 40(A)(2)(b), Current liabilities, Payments made to the contractors and Payment made towards stamp duty - ITAT set aide order passed by the PCIT - HELD THAT - Tribunal with regard to inquiry not being held by the AO under Section 133(6) of the Act, we are of the opinion, that the Tribunal was right, for two reasons. Firstly, this was the most pragmatic view, given the fact that in the construction industry, labourers do move from one worksite to another, quite frequently.Secondly, and this is in our view a more important aspect, the job work was carried out in 2014-15, and therefore, to commence an inquiry after nearly three years would have not led to any fruitful results. In our view, if the facts obtaining in the case are juxtaposed with the admitted fact, that the total value of contract receipts was Rs.141.89 crores, against which the expenses incurred towards job work was only Rs.10.87 crores, the absence of inquiry vis-a-vis job works would not render the assessment order passed by the AO, in these facts, erroneous. The expense incurred on job work was only 7.6% of the total contract value. It is not disputed, that in the preceding period, the expenditure towards job work as percentage of the contract value worked to 8.61%. PCIT, in our view, has in a sense attempted a reappreciation of the material placed before the AO and concluded that the examination of issue at hand should have been conducted in a particular manner. Having regard to the factors referred to hereinabove i.e., the manner in which the payments were made, production of bills, deduction of withholding tax, the amount which was claimed as expenditure when compared with the contract receipts, in our view, the AO s approach could not have been found flawed with by the PCIT, while exercising powers u/s 263 of the Act. A close perusal of the same would show, that they arose in a different fact situation. The judgment of the Division Bench of this Court in Commissioner of Income-tax vs. Ashok Logani 2011 (5) TMI 564 - DELHI HIGH COURT was concerned with a situation, where in a search action conducted against the assessee, Rs.62,30,300/- was found at his residence. At that juncture, the assessee had offered for tax, out of the total amount recorded, Rs.61.30 lakhs as undisclosed income. However, when the return was filed for the period in issue, the same was not offered for tax. AO overlooked this fact, and accepted the return filed by the assessee. It is in these circumstances, that the proceedings u/s 263 of the Act were initiated. According to us, the facts in the said case are, as noted above, clearly distinguishable from those obtaining in the instant case. Likewise, in the case of Commissioner of Income-tax, Central-I, Kolkata vs. Maithan International 2015 (4) TMI 479 - CALCUTTA HIGH COURT the situation that arose was starkly different. Revenue Appeal dismissed.

Summary

Issues:
1. Validity of the order passed by the Principal Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961.
2. Assessment of job work charges and related expenses.

Analysis:
1. The appeal challenged the order dated 30.11.2021 by the Income Tax Appellate Tribunal against the Principal Commissioner of Income Tax's order dated 25.03.2021 under Section 263 of the Income Tax Act, 1961.
2. The respondent/assessee filed its return on 01.10.2015, declaring an income of Rs.7,19,24,790, leading to scrutiny by the Assessing Officer (AO) under CASS.
3. The AO issued notices under Sections 143(2) and 142(1) of the Act, and after assessing the details provided by the respondent, an assessment order was framed under Section 143(3) on 12.10.2017.
4. The Principal Commissioner of Income Tax raised queries on specific expenses, leading to a focus on job work charges amounting to Rs.10.87 crores.
5. The Tribunal set aside the Principal Commissioner's order, prompting the appellant/revenue to challenge it, arguing that the order was erroneous and prejudicial to revenue.
6. The appellant contended that bills submitted by subcontractors were undated, while the respondent highlighted compliance with payment procedures and lower job work expenses compared to the previous year.
7. The Tribunal's findings emphasized the respondent's detailed responses, payment methods, tax deductions, and confirmations received, questioning the necessity of an inquiry under Section 133(6) due to practical difficulties.
8. The Tribunal concluded that the AO's assessment order was not erroneous regarding job work expenses, given the contract value and percentage of expenses.
9. The Tribunal rejected the PCIT's reevaluation, emphasizing the adequacy of the AO's approach based on payment processes, bill production, and expense comparison.
10. Distinctions were drawn from previous judgments involving undisclosed income declarations and accommodation entries, supporting the Tribunal's decision.
11. The Tribunal's decision was upheld, dismissing the appeal against the impugned order.

This detailed analysis covers the validity of the Principal Commissioner's order under Section 263 and the assessment of job work charges, providing a comprehensive overview of the legal judgment.