2024 (6) TMI 648 - AT - Income Tax

Revision u/s 263 - CIT held that expenditure claimed by the assessee on account of payment to sub-contractors cannot be treated as genuine and therefore the AO failed to verify the genuineness of the expenses for which the case was selected for scrutiny by conducting a proper inquiry on the said issue - as submitted AO asked the assessee to furnish various details and documents in respect of payment which were subjected to TDS u/s 194C - HELD THAT - AO has specifically mentioned that in compliance of notice u/s 142(1) the assessee filed details and documents electronically which were considered. It is pertinent to note that the work order itself is an agreement between the parties which is duly signed by both the parties and it is a tangible supporting evidences on the point that the parties have agreed to the payments conditions. Even otherwise deferment of the payment cannot be a ground for disallowing the claim of expenses accrued during the year. The observation of the Pr. CIT is all in the nature of suspicion about genuineness of the claim of the assessee whereas the AO undertaken an inquiry on the very issue of genuineness of the expenditure and allowed the claim based on the facts as well as relevant material available on the assessment record. The view taken by the AO accepting claim of the assessee is a reasonable and a possible view. Therefore the AO has taken a possible view after conducting inquiry on the issue. The commissioner can invoke the provisions of section 263 and revised the order of the AO but only when he comes to the conclusion that the order passed by the AO is either contrary to the facts or not permissible under law. Once the assessee has deducted substantial amount of TDS from the payments made to the parties and remitted to proceeds of TDS to Income Tax Department which also contains PAN of the parties then no response on the part of the parties to the notice issued u/s 133(6( cannot be attributed to the assessee for making the disallowance of claim or doubt the claim. Impugned order passed by the Pr. CIT when giving concluding finding is not sustainable without outcome of the inquiry conducted by the AO is available on record - It is pertinent to refer the judgment of D.G. Housing Project 2012 (3) TMI 227 - DELHI HIGH COURT wherein as held that in cases where the order of the AO is erroneous because the order passed is not sustainable in law and the said finding must be recorded by Commissioner to establish and show the error or mistake made by the AO making order unsustainable in law such finding must be clear unambiguous and not debatable in such cases if matter is remanded to the AO it would imply and mean the Commissioner has not examined and decided whether or not the order is erroneous but direct the AO to decide the issue. Once the AO has conducted an inquiry which may be inadequate inquiry in that case it cannot said that the order passed by the AO is erroneous only due to complete lack of inquiry. Once the AO has conducted an inquiry and taken a possible view which is not found to be impermissible under the law or perverse to the fact then the commissioner is not permitted to invoke provisions of section 263 of the Act merely because he does not agree with the view of the AO. Hence the impugned order of the Pr. CIT passed u/s 263 is not sustainable in law and the same is set aside. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction and legality of the order u/s 263.
2. Adequacy of inquiries conducted by the Assessing Officer (AO).
3. Genuineness of expenses claimed by the assessee.
4. Application of Explanation 2 to Section 263.
5. Distinction between "lack of inquiry" and "inadequate inquiry."

Summary:

The appeal by the assessee challenges the revision order dated 28.03.2023 of the Pr. Commissioner of Income Tax (Pr. CIT), Bhopal, passed u/s 263 for the Assessment Year 2018-19.

1. Jurisdiction and legality of the order u/s 263:

The assessee contended that the order of the Pr. CIT u/s 263 is illegal, void, and without jurisdiction. The Pr. CIT invoked Section 263 without considering that the assessment order was framed u/s 143(3) after due inquiry and was neither erroneous nor prejudicial to the interest of the revenue.

2. Adequacy of inquiries conducted by the AO:

The AO issued notice u/s 142(1) and called for exhaustive details regarding payments to sub-contractors, including their PAN, payment details, TDS amount, and supporting documents. The assessee provided these details, and the AO conducted a due inquiry, issuing notices u/s 133(6) to the sub-contractors. The AO accepted the claim of the assessee as genuine after satisfying himself with the inquiry.

3. Genuineness of expenses claimed by the assessee:

The Pr. CIT found the AO's order erroneous and prejudicial to the interest of the revenue, stating that the AO failed to verify the genuineness of expenses claimed by the assessee. The Pr. CIT noted that the assessee did not provide sufficient evidence regarding the identity and details of the sub-contractors and observed that no payments were made to the sub-contractors during the year or the subsequent year. However, the assessee argued that payments were deferred as per the terms of the work order, which required payment only after the performance guarantee period.

4. Application of Explanation 2 to Section 263:

The assessee argued that Explanation 2 to Section 263 does not override the law interpreted by various High Courts, which requires the CIT to conduct an inquiry and record a finding before treating the AO's order as erroneous and prejudicial to the interest of the revenue. The Pr. CIT did not conduct such an inquiry, making the order u/s 263 vitiated and bad in law.

5. Distinction between "lack of inquiry" and "inadequate inquiry":

The Tribunal noted that the AO conducted an inquiry, albeit possibly inadequate, but not a lack of inquiry. The AO issued detailed questionnaires and notices, and the assessee provided relevant details and documents. The Tribunal held that the Pr. CIT cannot invoke Section 263 merely because he disagrees with the AO's view or finds the inquiry inadequate without conducting an inquiry himself and providing a conclusive finding that the AO's order is unsustainable in law.

In conclusion, the Tribunal found that the AO conducted a due inquiry and took a possible view based on the facts and evidence. The Pr. CIT's order u/s 263 was set aside as it was not sustainable in law.

Order pronounced in the open court on 12.06.2024.