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2023 (9) TMI 1309 - AT - Income TaxRevision u/s 263 - Validity of reassessment proceedings - PCIT on not satisfying with the reply given by the Assessee, observed that Assessee is involved in infamous NRHM scam and were raided by CBI and the key persons of the assessee company namely Shri Surendra Chaudhary and Shri Narendra Chaudhary were made as accused - HELD THAT - In the present case, Ld. AO carried out an enquiry with regard to issues raised by him on reasons recorded for reopening of the assessment. Ld. PCIT was of the opinion that assessee was involved in NRHM scam and decision of Hon ble High Court of Allahabad in the case of Daffodils Pharmaceuticals Vs. State of UP. 2017 (4) TMI 1624 - ALLAHABAD HIGH COURT and also another matter relating to M/s Daffodils Pharmaceuticals in the case of Surendra Chaudhary Vs. State of U.P. another 2015 (7) TMI 1429 - ALLAHABAD HIGH COURT which are having bearing on the assessment of assessee for the assessment year 2012-13 and he ought to have considered the said Judgments while framing the reassessment. In our opinion, the above judgments are not part of the assessment record and at the time of reassessment, the ld. AO is required to go through the records in accordance with reasons recorded and he cannot presume certain facts which are beyond his records. Even otherwise, the ld. PCIT is expected to examine the assessment records at the time of issuing notice u/s 263 of the Act. At the time of issuing notice u/s 263 of the Act by Ld. PCIT, the above referred Judgments were also not forming part of the assessment records. The findings of the ld. PCIT on this issue are contrary to facts and also against the material brought on record by ld. AO. AO is not expected to carry out enquiry with regard to issues which are not subject matter of the reopening. The findings of the ld. PCIT to give direction to the ld. AO to reframe the assessment order in the light of the Judgments of Allahabad High Court in the case of Daffodils Pharmaceuticals cited (supra) is unwarranted, which is beyond the scope of the jurisdiction which the PCIT can exercise u/s 263 of the Act. Payment of commission to various persons, PCIT expected the ld. AO to verify with various Government officers including CBI officers. In our opinion, this is also not subject matter of reasons recorded for reopening of assessment. As such, the ld. AO is not required to carry out enquiry on this issue while passing assessment order u/s 143(3) r.w.s. 147 of the Act. Even the allowability of depreciation on Flat is also not subject matter of reason recorded for reopening of assessment. This cannot be verified by ld. AO when the main issue for reopening of the assessment is not sustained. The one more issue raised by the PCIT was that payment of commission was passed to public policy in view of the explanation to section 37(1) - It has been noted from the reasons recorded that the ld. AO not alleged about applicability of explanation to section 37(1) of the Act while reopening assessment. Once it is not the issue of reopening assessment, the ld. AO cannot be expected to carry out the enquiry as suggested by the ld. PCIT. AO satisfied about the correctness of the above and after calling for the details from the assessee and came to a conclusion that there was no necessity of any addition on the above issues and duly framed the assessment u/s 143(3) r.w.s. 147 of the Act. In our opinion, on the facts of present case, the pre-requisite condition to exercise jurisdiction by ld. PCIT suo-motu is not satisfied.The phrase prejudicial to the interest of the revenue has to be read in conjunction with the erroneous order passed by the ld. AO. Every loss of revenue has a consequence of an order of the ld. AO cannot be treated as a prejudicial to the interest of revenue. In the present case, the assessment framed by ld. AO u/s 143(3) r.w.s. 147 of the Act and the A.O. had recorded various reasons for reopening assessment and went on framing the assessment on the said basis and collected the information with reference to the reasons so recorded for reopening of the assessment and the A.O. was satisfied with the explanation given by the assessee regarding various issues raised by him. Now the ld. PCIT cannot find fault with the action of the ld. AO and direct A.O. to carry out further enquiry on the materials or judgments of the Hon'ble High Court which are not part of the assessment records. Thus merit in the issues raised by the ld. PCIT in the order passed u/s 263 - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act. 2. Validity of the reassessment order dated 29-12-2019. 3. Allegations of involvement in the NRHM Scam. 4. Difference between turnover and bank credits. 5. Examination of Section 40A(2)(b) transactions. 6. Allowability of depreciation on a residential flat. 7. Compliance with principles of natural justice. Summary: 1. Jurisdiction under Section 263 of the Income Tax Act: The Principal Commissioner of Income Tax (PCIT) assumed jurisdiction under Section 263, considering the reassessment order dated 29-12-2019 as erroneous and prejudicial to the interest of revenue. The Tribunal held that the PCIT can exercise such power only if the order is erroneous and prejudicial to the interests of the Revenue. The Tribunal cited the Supreme Court's observation in Malabar Industrial Co. Ltd. vs. PCIT, emphasizing that both conditions must be satisfied for the PCIT to exercise jurisdiction under Section 263. 2. Validity of the reassessment order dated 29-12-2019: The reassessment was initiated based on discrepancies noted by the Investigation Wing, including a significant difference between turnover and bank credits. The Tribunal observed that the Assessing Officer (AO) had carried out an enquiry on the issues raised in the reasons recorded for reopening the assessment and accepted the returned income. The Tribunal held that the PCIT's direction to reframe the assessment order was unwarranted and beyond the scope of jurisdiction under Section 263. 3. Allegations of involvement in the NRHM Scam: The PCIT referred to judgments from the Allahabad High Court involving the assessee's alleged participation in the NRHM scam. The Tribunal noted that these judgments were not part of the assessment records at the time of reassessment and that the AO is required to go through records in accordance with reasons recorded for reopening. The Tribunal found the PCIT's reliance on these judgments to be contrary to facts and not within the AO's scope during reassessment. 4. Difference between turnover and bank credits: The PCIT highlighted a discrepancy of Rs. 12,98,24,582/- between turnover and bank credits, which the AO allegedly failed to examine thoroughly. The Tribunal held that the AO had satisfied himself with the correctness of the details provided by the assessee and found no necessity for any addition. The Tribunal quashed the PCIT's direction for further enquiry on this issue. 5. Examination of Section 40A(2)(b) transactions: The PCIT argued that the AO did not verify the commission payments falling under Section 40A(2)(b). The Tribunal noted that this issue was not part of the reasons recorded for reopening the assessment, and thus, the AO was not required to carry out further enquiry on this matter. 6. Allowability of depreciation on a residential flat: The PCIT contended that the AO did not verify the claim of depreciation on a residential flat, which is not allowable. The Tribunal held that this issue was also not part of the reasons recorded for reopening the assessment and therefore beyond the AO's scope during reassessment. 7. Compliance with principles of natural justice: The assessee argued that the PCIT's actions violated principles of natural justice. The Tribunal emphasized that the PCIT's findings were contrary to the material on record and that the AO is not expected to carry out enquiries beyond the issues raised in the reasons for reopening the assessment. Conclusion: The Tribunal quashed the order passed by the PCIT under Section 263, stating that the pre-requisite conditions for exercising jurisdiction were not satisfied. The appeal filed by the assessee was allowed.
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