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TMI Blog2022 (11) TMI 381X X X X Extracts X X X X X X X X Extracts X X X X ..... head of disallowance of expenses ( Labour Charges, Travelling Expenses and Office Expenses) were made in both the years, albeit in ay: 2014-15, the additions for aggregate of disallowance of expenses were to the tune of Rs. 45,000/-, while in the year under consideration the aggregate of disallowance of expenses under the same heads were to the tune of Rs. 20,000/- . In both these years, the aforesaid disallowances of expenses were on adhoc basis, without pinpointing the particular expenses which could not be verified by the AO. Thus, it appears that there is complete non application of mind by AO while framing assessment u/s 143(3) and the replies filed by the assessee were merely accepted by AO without making any enquiry / verification whatsoever to arrive at the income chargeable to tax. PCIT has rightly invoked provisions of Section 263 and rightly set aside the assessment order passed by AO , and directions were rightly issued by ld. PCIT for denovo assessment. Assessee in the proceedings before ld. PCIT u/s 263 of the 1961 Act gave general replies, but could not repel that the assessment order dated 22.02.2018 passed by the AO u/s 143(3) was suffering from complete non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er examined the books hence the order u/s 263 of the Act is liable to be cancelled. 2-That in any view of the matter the Pr. Commissioner of Income Tax, Allahabad is highly unjustified in saying that the assessment order passed by the assessing officer is erroneous in so for as prejudicial to the interest of revenue when required examination was done by assessing officer. 3-That in any view of the matter finding and observation of the Pr. Commissioner of Income Tax, Allahabad in his order are incorrect illegal and unjustified especially when scrutiny was done. 4-That in any view of the matter after considering the entire fact the assessing officer make the addition of Rs. 20,000/- considering all the facts therefore the observation of the Pr. Commissioner of Income Tax, Allahabad that matter was not properly adjudicated by the assessing officer is not correct hence order u/s 263 of the Act is liable to be cancelled. 5-That in any view of the matter the appellant reserves his right to take any fresh ground before hearing of the appeal. 3. The brief facts of the case are that the assessee is engaged in Liquor Business .The assessee filed its return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evisionary powers under Section 263 issued show cause notice to the assessee,on 26th July, 2018 fixing the date of compliance for 31st July, 2018, which is reproduced herein below: During the course of examination of the assessment records in your case of A.Y. 2016-17, it is found that AO has passed the assessment order u/s 143(3) dated 22.02.2018 without making any inquiry regarding low income from TCS receipts being the reason for selection of the case for full scrutiny. When this case was selected for scrutiny, it was the responsibility of the AO to make intensive inquiry and to cause effective investigation as to whether income from liquor business was correctly shown by the assessee in his return of income. It is however, noticed from the assessment proceeding and assessment order that the assessing officer has not made full and proper inquiry, and has proceeded to complete the proceeding in haste, in a manner which is prejudicial to the interest of the revenue. It is also found from the assessment order and assessment records, that AO has passed the order which is erroneous and in so far as prejudicial to the interest of revenue. The visible facts noticed from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order AO has disallowed Rs. 10,000/ from the labour charges of Rs. 55,610/- and Rs. 5,000/- from travelling expense of Rs 47,864/- and Rs. 5,000/- from head office expenses of Rs. 13,580/-on the ground that such expenses are remained unverifiable because of lack of supporting evidence. Obviously, such lump sum disallowances is nottenable in the eye of law because AO has failed to specify as to which expenditure is not having supporting evidence. If there is no supporting evidence of labour charges, travelling expenses and office expenses, then entire expense was to be disallowed and not of some lump sum expenses like 10,000/-, 5,000/- and 5,000/- This reveals the fact that AO has made the disallowances without application of mind, disrespecting the various decisions of the Hon'ble Appellate Authorities and Court, hence such assessment order is erroneous as well as prejudicial to the interest of revenue. (v) It is also found from the return of income and computation of income that assessee has claimed refund of Rs. 3,28,310/ against the TCS of Rs. 3,80,726/-. It is also seen that in the preceding year also the assessee has claimed refund against the TCS, it mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid down by the department nor is investigation made as expected in scrutiny assessment, hence it is very much visible that assessment has been completed without application of mind, without proper inquiry and without the consequential investigation in the business transactions. It is also very apparent from the assessment record that AO has not made any apparent inquiry about assets and investments whereas this case was selected for full inquiry and scrutiny. It is also visible from the assessment records that AO has not examined the source of cash deposits and utilization of cash correctly in the accounts. 4b. The assessee during revisionary proceedings conducted by Ld. Pr. CIT u/s 263 submitted that the assessee is individual and derives income from liquor business and assessed to tax for last number of years . The assessee claimed that he is maintaining regular books of accounts which are subject to audit . The assessee submitted that in the earlier years assessment made by Revenue under Section 143(3) of the Act, the trading results were more or less accepted by the Department. The assessee explained that for the impugned assessment year, the return of income was sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order dated 22.02.2018 passed by AO u/s 143(3) , by invoking its revisionary powers u/s 263 of the 1961 Act vide revisionary orders dated 13.11.2018, and direction were issued by Ld. Pr. CIT to AO to make full and proper inquiries and apply the provisions of the law while make fresh assessment denovo in light of observations made by Ld. Pr. CIT in its revisionary order dated 13.11.2018 under Section 263 of the Act, by holding as under: I have considered the assessment proceedings of the assessing officer, it is found that assessing officer has not made proper investigation with regard to low income of TCS receipts being the reason for the selection of the case from scrutiny in the notice dated 26.07.2018 specific points has been raised for initiation of the notice u/s 263 of the I.T. Act but assessee has not made full and proper compliance of issue for scrutiny and it is found that the reply of the assessee is general in nature whereas in the notice u/s. 263 dated 26.07.2018 specific points of order sheet, verification of expenses and details of TCS have been mentioned an intensive inquiry should have been made by the AO. In the notice eight points have been highlighted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence. Obviously, such lump sum disallowances is not tenable in the eye of law because AO has failed so specify as to which expenditure is not having supporting evidence. If there is no supporting evidence of labour charges, travelling expenses and office expenses, then entire expense was to be disallowed and not of some lump sum expenses like 10,000/-, 5,000/- and 5,000/-. This reveals the fact that AO has made the disallowances without application of mind, disrespecting the various decisions of the Hon'ble Appellate Authorities and Courts; hence such assessment order is erroneous as well as prejudicial to the interest of revenue. It is also found from the return of income and computation of income that assessee has claimed refund of Rs. 3,28,310/- against the TCS of Rs. 3,80,726/-. It is also seen that in the preceding year also the assessee has claimed refund against the TCS, it means profit is not being shown properly that is why this case was selected for deep scrutiny, but AO has failed to do so. It can be seen from the profit and loss account that assessee has shown license fees of Rs. 27,38,000/- in profit and loss account and not trading account. If this direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeding is as per the procedure laid down by the department nor is investigation made as expected in scrutiny assessment, hence it is very much visible that assessment has been completed without application of mind, without proper inquiry and without the consequential investigation in the business transactions. Thus, obviously the assessment order passed by the AO u/s. 143(3) of the I.T. Act dated 22.02.2018 is erroneous in so far as prejudicial of the interest of the revenue. The assessing officer is therefore, directed to make full and proper inquiry and apply the provisions of law properly while making the fresh assessment in the light of above observation. Needless to say that while making the fresh assessment, the assessing officer should give full and proper opportunity of being heard to the assessee for his presentation and submission of necessary evidences. Thus, in the background of above findings, observations and references, assessment order dated 22.02.2018 is set aside u/s. 263 of the I.T. Act for denovo assessment. 5. Aggrieved by revisionary order dated 13.11.2018 passed by ld. PCIT u/s 263 of the 1961 Act, the assessee has filed first appeal with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see also relied upon the order of ITAT, Amritsar Bench in the case of Jiwan Kumar v. PCIT, Bhatinda, reported in (2017) 82 taxmann.com 221(Amritsar-tribunal). It was submitted that Section 263 was amended and an Explanation-2 was inserted by the Finance Act, 2015. Our attention was also drawn to the order of Delhi-tribunal in the case of Vodafone Essar South Ltd. v. CIT, New Delhi , reported in (2011) 12 taxmann.com 233 (Delhi). The ld. Counsel for the assessee also relied upon following judgments/orders: 1. ITAT Allahabad - Bhrigurshan Gupta v. DCIT Mirzapur,in ITA No. 443/Alld/2012 Ors., order dated 06.04.2018 2. ITAT, Allahabad- Kaushal Kishore Singh v. ITO, in ITA No. 133/Alld/2013, order dated 03.05.2016 3. ITAT, Jodhpur-Rajesh Kumar v. DCIT reported in (2017) 189 TTJ(Jd)(UO)5 4. ITAT, Jodhpur -Shiv Lal Chaudhary v. PCIT reported in (2017) 188 TTJ(Jd)(UO) 57 5. Hon ble Bombay High Court judgment and order in the case of CIT v. Paville Fashions Private Limited , reported in (2017) 398 ITR 603 (Bom.HC) 6. ITAT, Amritsar Bench-Vikrant Mehra v. ITO (2016) 48 ITR (Trib.) 382 ( Amritsar) 7. Hon ble Bombay High Court judgment and order in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d submitted that prices of liquor are fixed by Government, and both purchase as well sale price cannot be changed . The ld. Counsel for the assessee made prayers for quashing of the revisionary order dated 13.11.2018 passed by ld. PCIT u/s 263. 6. We have carefully considered rival contentions and perused the material on record including cited case laws. The short question which has arisen in this appeal is as to the validity of revisionary proceedings invoked by ld. PCIT u/s 263 of the 1961 Act, which culminated into an revisionary order dated 13.11.2018 passed by ld. PCIT u/s 263, wherein ld. PCIT set aside the assessment order dated 22.02.2018 passed by AO u/s 143(3) for assessment year 2016-17 and directions were issued by ld. PCIT to AO to frame denovo assessment . The assessee is in the business of Liquor. The assessee had filed return of income on 10.09.2016 electronically declaring income of Rs. 6,20,740/- . The case of the assessee was selected by Revenue for framing scrutiny assessment under the category of Full Scrutiny u/s 143(3) read with Section 143(2) for the impugned assessment year 2016-17. As it transpired from record before us, the AO had issued notice dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have been paid in cash, from 04.02.2016 to 11.03.2016 (paper book page 24). The assessee enclosed challans paid during the period January-March 2015, aggregating to Rs. 23,99,000/- which is stated to be for financial year 2015-16, although paid in financial year 2014-15. The aforesaid challans for Rs. 27,38,000/- which were claimed to have been paid in the previous year 2015-16 (ay: 2016-17) as per ledger account filed by the assessee(challans were not enclosed by the assessee ) apparently relates to the assessment year 2017-18(previous year 2016-17), and the AO never asked for the paid challans to satisfy whether the expenses towards License Fee of Rs. 27,38,000/- as claimed were actually incurred or not. Moreover, these license fee of Rs. 27,38,000/- paid during the year apparently pertains to financial year 2016-17 (ay: 2017- 18)(no challans enclosed) but claimed as expenses during the year under consideration viz. ay: 2016-17 , although as per tax audit report filed by the assessee, it is stated that the assessee is following mercantile system of accounting , but apparently the assessee claimed License Fee on cash basis ( even challans of Rs. 27,38,000/- were not enclosed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts, and consequentially entire income thereof is brought to tax. The assessee has shown a meager Net Profit rate of 1.3% of the turnover, and TCS to the tune of Rs. 3,28,309/- was claimed as refund as against total TCS of Rs. 3,80,726/. This was also the reason for putting the case under scrutiny, but the AO never looked into this aspect of declaration of meager profits by the assessee as the income chargeable to tax. This was happening year after year, and the AO was under duty to investigate the affairs of the assessee by making deeper probe to unravel truth, which AO failed to do so and merely replies of the assessee were accepted by AO. The reason for scrutiny assessment was the low income shown by the assessee vis- -vis TCS receipts and large amount of refund claimed out of TCS, and even this aspect the AO failed to investigate and verify. Merely stating that the GP/NP ratio is better than the preceding years is not sufficient. The AO is both adjudicator as well investigator. The 1961 Act is an code in itself and there are several provisions under the 1961 Act such as compliances of provisions of Section 37(1) of the Act to substantiate that the expenses were incurred whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO while framing assessment u/s 143(3) vide assessment order dated 22.02.2018, and the replies filed by the assessee were merely accepted by AO without making any enquiry / verification whatsoever to arrive at the income chargeable to tax. In our considered view, the ld. PCIT has rightly invoked provisions of Section 263 of the 1961 Act , and rightly set aside the assessment order passed by AO , and directions were rightly issued by ld. PCIT for denovo assessment. The assessee in the proceedings before ld. PCIT u/s 263 of the 1961 Act gave general replies, but could not repel that the assessment order dated 22.02.2018 passed by the AO u/s 143(3) was suffering from complete non application of mind , and that merely contentions of the assessee were accepted by AO without any verification whatsoever. The order passed by ld. PCIT , dated 13.11.2018 is reproduced hereunder , in which he validly raised the issues for invoking revisionary powers u/s 263 of the 1961 Act: I have considered the assessment proceedings of the assessing officer, it is found that assessing officer has not made proper investigation with regard to low income of TCS receipts being the reason for the selection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of some of the vouchers, ITR, copy of bank statements but has not obtained any information from the seller of liquor and has not made investigation about the initial cash deposits which are in lakhs and about their sources. In assessment order AO has disallowed Rs. 10,000/- from the labour charges of Rs. 55,610/- and Rs. 5,000/- from travelling expense of Rs. 47,864/- and Rs. 5,000/- from head office expenses of Rs. 13,580/ on the ground that such expenses are remained unverifiable because of lack of supporting evidence. Obviously, such lump sum disallowances is not tenable in the eye of law because AO has failed so specify as to which expenditure is not having supporting evidence. If there is no supporting evidence of labour charges, travelling expenses and office expenses, then entire expense was to be disallowed and not of some lump sum expenses like 10,000/-, 5,000/- and 5,000/-. This reveals the fact that AO has made the disallowances without application of mind, disrespecting the various decisions of the Hon'ble Appellate Authorities and Courts; hence such assessment order is erroneous as well as prejudicial to the interest of revenue. It is also foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y apparent from the assessment record that AO has not made any apparent inquiry about assets and investments whereas this case was selected for full inquiry and scrutiny. It is also visible from the assessment records that AO has not examined the source of cash deposits and utilization of cash correctly in the accounts. While making lump sum disallowance, AO has failed to reject the books of accounts and verocity of accounting system and has proceed to lump sum disallowances which proves the fact that neither assessment proceeding is as per the procedure laid down by the department nor is investigation made as expected in scrutiny assessment, hence it is very much visible that assessment has been completed without application of mind, without proper inquiry and without the consequential investigation in the business transactions. Thus, obviously the assessment order passed by the AO u/s. 143(3) of the I.T. Act dated 22.02.2018 is erroneous in so far as prejudicial of the interest of the revenue. The assessing officer is therefore, directed to make full and proper inquiry and apply the provisions of law properly while making the fresh assessment in the light of above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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