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TMI Blog2022 (11) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... es and based on this conclusion, the AO held that a rate of 8% should be applied being percentage of commission earned on providing the accommodation entries. Thus, in view of the questionnaires issued by the AO and the replies submitted by the assessee, the conclusion reached by the AO of rejecting the assessee's claim apparently proves that the AO had made proper inquiries and had also duly applied his mind to the facts of the case. Contention of the Ld. PCIT that no enquiry was made by the AO is factually incorrect. Having said that, in the present case, PCIT has not specifically pointed out as to what further inquires or verification should have been carried out by the AO in this regard. Merely because the Ld. PCIT felt that further inquiry should have been made does not make the order of the AO erroneous and prejudicial to the interest of the Revenue. It is not a case where the AO has upheld the applicability of section 44AD as alleged by the Ld. PCIT. Rather, the AO has rejected the assessee's claim of business income under section 44AD of the Act and has determined the true nature of assessee's activities as that of an accommodation entry provider rather th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction (Pvt.) Ltd. and Rs. 9,69,388/- from M/s. SPS Structures Ltd. during the year under consideration. Allegedly, no actual work had been done by this assessee firm as per the information. The AO proceeded to make inquires u/s. 133(6) of the Income Tax Act, 1961 [in short 'the Act'] but the assessee firm did not furnish the required details. Therefore, the AO proceeded to issue notice u/s. 148 of the Act. In response to this notice, the assessee filed its return of income declaring income of Rs. 20,340/- from business u/s. 44AD of the Act. The assessee also filed objections against issuance of notice u/s. 148 of the Act. 2.2. During the course of assessment proceedings, the AO observed that a perusal of material available on record revealed that a search action had been undertaken on M/s. S.P. Singla Group of cases on 09.08.2018 and that post-search proceedings had revealed that this group had created a network of sub contractor firms having their registered addresses either at the residential/office premises of the auditor of the group Shri G.K. Garg or at the residential address of the company's main Accountant Shri Manoj Kumar. The AO further noted that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 8% on the total receipt of Rs. 33,00,133/-, as shown in the income Tax Return, may not be taken as income of the firm. The assessee was also required to show cause as to why the expenses of Rs. 1,76,400/- and Rs. 2,68,578/- being remuneration and interest respectively paid to partners may not be disallowed for the reason that the assessee had failed to provide a copy of partnership deed in this regard. 2.7. In response, it was the assessee's submission that it had carried out the work as a subcontractor and had filed the return of income u/s. 44AD of the Act on gross receipts of Rs. 33,00,133/- on which tax had duly been deducted at source by the two concerns from which the payments had been received i.e. M/s. S.P. Singla Constructions (Pvt.) Ltd. and SPS Structures Ltd. It was also submitted by the assessee that the statement of auditor of the S.P. Singla Group Shri G.K. Garg had no bearing on the assessment of the assessee as no material had been seized or obtained during the post search investigation and further that the statement of the auditor did not specifically mention that the assessee firm had not carried out the work as sub-contractor. 2.8. However, all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission income and the difference of Rs. 30,36,122/- (33,00,133 - 2,64,011) has been taken into account as income by the AO while framing the assessment. From the aforesaid facts and circumstances of the case, it is noticed that the AO has failed to verify/enquire the aforesaid facts and has not made any enquiry in this regard. Therefore, the assessment order dated 30.12.2019 passed by the AO u/s. 147/143(3) of the Act is erroneous in as much as it is prejudicial to the interests of the Revenue. 3.1. In response to the aforementioned Show Cause Notice, the assessee submitted before the Ld. PCIT that the assessee firm had carried out the work as sub-contractor for which the payment had been received and that the return of income had been filed u/s. 44AD of the Act on the total turnover. It was further submitted that even if it was to be accepted that the assessee firm had provided accommodation entries to the tune of Rs. 33,00,133/-, by no stretch of imagination, one can earn commission equal to the amount of accommodation entry provided as commission is earned at a certain percentage of the total transaction. It was submitted by the assessee before the Ld. PCIT that thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed u/s. 263 of the Act by raising the following grounds of appeal:- 1. That order passed u/s. 263 of the Income Tax Act, 1961 by the Learned Principal Commissioner of Income Tax, Patiala is against law and facts on the file in as much he has failed to show as to how the assessment order passed by the Learned Assessing Officer is erroneous in as much as prejudicial to the interest of revenue. 2. That the Learned Pr. CIT was not justified to hold that the order was passed by the Learned Assessing Officer without making enquiries and verifications and without properly examining the case thereby ignoring the fact that the matter had already been considered by the Learned Assessing Officer while framing the assessment. 3. That the Learned Pr. CIT failed to appreciate the import of detailed submissions made before him during the course of proceedings u/s. 263 while coming to the conclusion that the order passed by the Learned Assessing Officer is erroneous in as much as prejudicial to the interest of Revenue. 4.1. The Ld. AR submitted that the other appeals were also having identical facts, identical assessment orders, identical Show Cause Notices and identical ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejecting the assessee's claim of being a sub-contractor and by applying a rate of 8% for commission on gross receipts which was one of the possible view and the Ld. PCIT cannot, under the provisions of section 263, direct that the AO should take another view i.e. of taxing the gross amount, as receipts. 4.3. The Ld. AR also placed reliance on the decision of the Coordinate Chandigarh Benches in case of sister concerns, M/s. Shiv Shakti vs. Pr. CIT others (ITA No. 481-485/CHD/2022 dated 30.09.2022) and submitted that under identical facts and circumstances of the case, the matter has been decided in favour of the respective assessees. 4.4. The Ld. AR reiterated that the other seven appeals were having identical grounds and that the reason for reopening, the assessment orders, the show cause notices issued u/s. 263 of the Act and the orders passed u/s. 163 of the Act were identical and, therefore, his arguments would be the same in those four appeals as well and the same were not being repeated for the sake of brevity. 5. In response, the Ld. CIT DR read out extensively from the impugned order passed by the Ld. PCIT and pointed out that it was apparent that the AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was stated that the S.P. Singla Group was involved in booking bogus expenses through a network of firms who were shown as sub-contractors. It was stated in the said statement that although these sub-contractors did not execute any work, they were given payments which were debited as expenses in the books of accounts of S.P. Singla Group. The name of the assessee firm also figured in the list of such sub-contractor firms. Based on this information, the AO reopened the case of the assessee in terms of section 147 of the Act and in response thereto the assessee filed its return of income in terms of Section 44AD of the Act and also claimed deduction of salary and interest paid to partners. The assessee firm expressed its inability to provide any other documents or details except some worked contracts to justify its claim of having work as a sub-contractor. In fact, the assessee firm also did not furnish a copy of the partnership deed. Under these circumstances, the AO held that the assessee firm had not worked as a sub-contractor for the S.P. Singla Group companies but had rather worked as an accommodation entry provider. The AO proceeded to hold that a rate of 8% was to be applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val of doubts, it is hereby declared that, for the purposes of this sub-section,-- (a) an order passed on or before or after the 1st day of June, 1988] by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall include-- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer [or the Transfer Pricing Officer, as the case may be,] conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; [(iii) an order under section 92CA by the Transfer Pricing Officer;] (b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder this section is stayed by an order or injunction of any court shall be excluded. 6.4 From the perusal of the aforesaid section, it is apparent that the powers of the revision can be exercised suo motu by the Ld. Commissioner. The Ld. Commissioner may call for and examine the records and any proceedings under the Act and for this purpose he need not show or record any reason. If, after calling for and examining the records, the Ld. Commissioner considers that the order of the AO as erroneous in so far as it is prejudicial to the interest of the Revenue, he is bound to give opportunity to the assessee of being heard and it is only after giving that opportunity, he may pass such order thereon as the facts of the circumstances of the case may warrant. It is also settled law that for invoking the provisions of section 263 of the Act, both the conditions i.e. the order passed by the AO being erroneous as well as being prejudicial to the interest of Revenue must be satisfied. If one of them is absent, the provisions of section 263 cannot be invoked. Further, an order can be said to be erroneous if there is incorrect assumption of facts or an incorrect application of law by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO is factually incorrect. It is not a case, where no inquiry had been made by the AO. Merely because the Ld. PCIT felt that further inquiry should have been made does not make the order of the AO erroneous and prejudicial to the interest of the Revenue. 6.6 We also note that there is no incorrect application of law by the AO in the present case and further, the AO, after making inquiries and examining the records, has taken a view which is one of the possible views, and since this view is not unsustainable in law, it cannot be said that the order passed by the AO was erroneous in so far as being prejudicial to the interest of Revenue. Even at the cost of repetition, we reiterate that inadequacy of inquiry does not give jurisdiction to the Ld. PCIT to invoke his revisionary powers and set aside the assessment and nor does this section provide such powers to the Ld. PCIT that he can impose his view on the AO dictating him how a particular assessment is to be concluded. 6.7 It is further seen that the Ld. Pr. CIT has ignored the replies of the assessee and he has not discussed as to why he does not agree with the contentions of the assessee. The Ld. Pr. CIT has merely r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner to pass order u/s. 263 of the Act merely because the Commissioner had a different opinion in the matter. It is a settled law that the Ld. Pr. CIT cannot pass the order u/s. 263 on the ground that thorough inquiry should have been made by the Assessing Officer. 6.11 Although, there has been an amendment in the provisions of section 263 of the Act by which Explanation 2 has been inserted w.e.f. 1.6.2015 but the same does not give unfettered powers to the Ld. Commissioner to assume jurisdiction under section 263 to revise every order of the Assessing Officer to re-examine the issues already examined during the course of assessment proceedings. The Mumbai ITAT Bench has dealt with Explanation 2 as inserted by Finance Act, 2015 in the case of Narayan Tatu Rane vs. ITO reported in (2016) 70 taxman.com 227 to hold that the said Explanation cannot be said to have overridden the liability as interpreted by Hon'ble Delhi High Court, according to which the Ld. Commissioner has to conduct the inquiry and verification to establish and show that the assessment order was unsustainable in law. The ITAT Mumbai Bench has further held that the intention of the legislature could not hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission earned on providing the accommodation entries. Thus, in view of the questionnaires issued by the AO and the replies submitted by the assessee, the conclusion reached by the AO of rejecting the assessee's claim apparently proves that the AO had made proper inquiries and had also duly applied his mind to the facts of the case. Therefore, the contention of the Ld. PCIT that no enquiry was made by the AO is factually incorrect. Having said that, in the present case, the Ld. PCIT has not specifically pointed out as to what further inquires or verification should have been carried out by the AO in this regard. Merely because the Ld. PCIT felt that further inquiry should have been made does not make the order of the AO erroneous and prejudicial to the interest of the Revenue. 8. We also note that it is not a case where the AO has upheld the applicability of section 44AD as alleged by the Ld. PCIT. Rather, the AO has rejected the assessee's claim of business income under section 44AD of the Act and has determined the true nature of assessee's activities as that of an accommodation entry provider rather than provider of sub-contractor services as so claimed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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