2023 (6) TMI 1023 - AT - Income Tax

Revision u/s 263 - Accepting the claim of assessee without enquiry - CIT justification in invoking jurisdiction u/s 263 in respect of the issues other than the commission expenses - HELD THAT - As per the documents placed before us by assessee, it is clear and evident that it was a case of complete scrutiny and not limited scrutiny as canvassed by assessee before us. Therefore, argument of assessee that the ld.Pr.CIT s order on issues other than those mentioned for scrutiny selection was beyond the scope of revisionary power, does not survive. Even otherwise, the finding of the error by the PCIT of non-examination of disproportionately large claim of expenses by the assessee in the impugned year, as compared to the preceding year is in relation to and has direct bearing on the aspect of low net profit earned by the assessee which was one of the reasons for scrutiny selection. Therefore, for this reason also the contention of the assessee that other than the issue of commission no other issues could have been dealt by the ld.Pr.CIT, we find, has no merit, and is therefore rejected. Assesses case was selected for scrutiny on account of large commission expenses, the facts before us reveal that the AO merely accepted whatever reply was filed by the assessee, which as noted above by us did not even justify the increase in commission expenses but contrarily revealed infirmities which should have prompted further inquiry by the AO. The finding of the ld.Pr.CIT, we hold, are correct that the assessment order was erroneous on account of no inquiry at all having been conducted on the issue of large commission expenses claimed. Issue of commission expenses and the issue of low net profit, we find that there was no inquiry conducted by the AO at all, and therefore, the ld.Pr.CIT was right in holding that the assessment order was erroneous causing prejudice to the Revenue. The assessee s arguments therefore that the issues were examined during the assessment proceedings is dismissed. Also since we have found the AO to have not conducted any inquiry on the issues for which complete scrutiny was directed in the present case, there cannot be any question of any view formed by the AO on the issues and hence the argument advanced on behalf of the assessee that where two views were possible, revisionary proceedings are unjustified, needs to be rejected. In the present case, the show cause notice issued by CIT pointed out the reasons found by the ld.Pr.CIT for finding the assessment order passed in the present case to be erroneous. Due reply was filed by the assessee, and finding no satisfactory reply given by the assessee, the ld.Pr.CIT went on to hold that the assessment order as erroneous. Therefore, CIT had examined the order passed by the AO on merits, giving assessee due opportunity during the revisionary proceedings to establish its case on merits, but clearly, the assessee failed to do so. Therefore, his order restoring the case to the file of the AO for denovo assessment is in accordance with law, and we do not find any infirmity in the same. Decided against assessee.

Issues Involved:
1. Condonation of Delay in Filing Appeal
2. Validity of Revisionary Jurisdiction under Section 263
3. Examination of Issues by Assessing Officer (AO)
4. Merits of Additions in Assessment
5. Invoking Explanation 2 to Section 263
6. Setting Aside the Issue to AO for Denovo Assessment

Summary:

1. Condonation of Delay in Filing Appeal:
The appeal was delayed by 284 days due to the assessee being ill-advised by his earlier counsel not to file an appeal against the order passed under section 263 of the Income Tax Act, 1961. The assessee later consulted another counsel who advised filing the appeal. The tribunal condoned the delay, noting that the assessee acted on legal advice and there was no negligence or laxity on his part.

2. Validity of Revisionary Jurisdiction under Section 263:
The Principal Commissioner of Income Tax (Pr.CIT) invoked section 263, finding the assessment order erroneous and prejudicial to the interest of the Revenue due to the AO's failure to conduct necessary inquiries. The tribunal upheld the Pr.CIT's invocation of section 263, noting that the AO did not examine the issues for which the case was selected for scrutiny, such as large commission expenses and low net profit.

3. Examination of Issues by Assessing Officer (AO):
The tribunal found that the AO conducted no inquiry into the issues of large commission expenses and low net profit. The AO merely accepted the assessee's submissions without further verification. The Pr.CIT noted specific instances where the AO failed to verify the genuineness of commission payments and other expenses, justifying the invocation of section 263.

4. Merits of Additions in Assessment:
The assessee argued that no additions were warranted on merits. However, the tribunal found that the AO did not examine the disproportionately large expenses claimed by the assessee. The tribunal held that the Pr.CIT was justified in setting aside the assessment order for a denovo assessment, as the AO failed to conduct necessary inquiries.

5. Invoking Explanation 2 to Section 263:
The assessee contended that the Pr.CIT could not apply Explanation 2 to section 263 without invoking it explicitly. The tribunal dismissed this contention, noting that the Explanation only clarifies the scope of section 263. The tribunal referred to the case of Shri Rajkot District Cooperative Bank Ltd. Vs. Pr.CIT, holding that the Pr.CIT need not specifically mention the Explanation if the reason for finding the assessment order erroneous is clearly pointed out.

6. Setting Aside the Issue to AO for Denovo Assessment:
The assessee argued that the Pr.CIT should have examined the order on merits and not set aside the issue for denovo assessment. The tribunal rejected this argument, noting that the Pr.CIT had examined the order on merits and found it erroneous due to the lack of necessary inquiries by the AO. The tribunal upheld the Pr.CIT's order for a denovo assessment.

Conclusion:
The tribunal dismissed the appeal of the assessee, upholding the Pr.CIT's order invoking section 263 and setting aside the assessment order for a denovo assessment due to the AO's failure to conduct necessary inquiries.

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