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TMI Blog2024 (6) TMI 648X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that in case the authority had perused the records of the assessment proceeding, it would have considered the merit in Appellant's submission that detailed enquiry and investigation was made by the LD AO qua expenses in form of payment to Sub-contractors on which TDS was deducted u/s 196C. 5. The Learned PCIT has erred in concluding that the assessment order passed by the AO is prejudicial to the interest of the revenue and is erroneous in the nature. 6. That the impugned order is contrary to the extant judicial position wherein it has been settled that the revisionary power by the LD PCIT/CIT can be held to be correct only if the LD CIT examines and verifies the transactions under question by himself and arrives at a finding on merits that the concerned order is erroneous and prejudicial to the interest of revenue. However, in the instant case, the LD PCIT has at the foremost, failed to even examine and verify whether the interest of revenue has been prejudiced. An examination of the order of PCIT reveals that it is without any merits and does not even venture out to ascertain the interest of revenue or any supposed prejudice/error. 7. That there is a distinction bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perly applying the mind to the facts and records of the case and therefore, the same deserves to be quashed. 11. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. 2. The assessee company was engaged in the business of construction/contractor of PWD for construction of Road etc. The assessee filed its return of income for the year under consideration on 31.10.2018 declaring total income of Rs. 3,41,44,890/-. The case was selected for limited scrutiny assessment under e-assessment Scheme of 2019 on the issue of Verification of Genuineness of Expenses . The assessment was completed u/s 143(3) r.w. section 143(3A) 143(3B) of the Act on 06.03.2021 at total income by accepting the return income of the assessee. Thereafter, the Pr. CIT while examining assessment record found that the order passed by the AO is erroneous in so far as it was prejudicial to the interest of revenue as the AO did not examine certain aspect of the case properly. The Pr. CIT accordingly issued show cause notice u/s 263 on 20.02.2023 which was replied by the assessee vide reply dated 03.03.2023. The Pr. CIT did not accept reply filed by the assessee and held that the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractors to whom the assessee has shown the contract payments outstanding. He has then referred to the show cause notice issued by the Pr. CIT and reply of the assessee at page no.3 to 15 of the paper book which is also reproduced by the Pr. CIT at page no.3 of the impugned order. 3.1 In reply to the show cause notice issued u/s 263 the assessee has again explained all the details which were produced before the AO leaving no doubt that the AO conducted a proper inquiry on this issue. Ld. Counsel then contended that the assessment was framed as per e-assessment scheme of 2019 and the order passed by the AO was subjected to verification and approval of the higher authorities at e-assessment center and thus more than one income tax authority was involved in the assessment proceedings. The Pr. CIT has invoked the provisions of section 263 on the premises that the assessee has not produced supporting evidences relating to identity of these persons, their address, PAN, and other records as called for by the AO. The said observation of the Pr. CIT is contrary to the facts and record. He has referred to the contract between the PWD and assessee as well as work orders issued in favor of subc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Estate and Developers Pvt. Ltd. vs. Pr. CIT in ITA No.181/Ind/2023 and submitted that this tribunal has considered an identical issue of assessment framed as per e-assessment scheme of 2019 on the identical issue of verification of genuineness of the expenses and held that the AO has made a proper inquiry and given a clear finding about the issue based on the various documents produced before the AO then invoking of provisions of section 263 by the Pr. CIT is not warranted on the ground that the AO failed to conduct an proper inquiry. He has further contended that once the AO has taken a possible view after proper inquiry and examination of the supporting evidences then the Pr. CIT is not permitted to invoke provisions of section 263 merely because he does not agree with the view taken by the AO. The Ld. Counsel then contended that even otherwise order passed by the Pr. CIT u/s 263 is not valid and liable to be quashed as the Pr. CIT himself was not sure about correctness of the claim of the assessee and set aside the matter to the record of the AO for denovo assessment. He has relied upon the decision of this Tribunal dated 11th July 2023 in case of Maa Narmada Agrotech and Infra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 3,41,44,890/- .The case was selected for scrutiny for verification of issue(s) mentioned above. 5.1. Therefore, on the issue of verification of genuineness of the expenses the case was selected for scrutiny. In para 2 of the assessment order the AO has stated that notice u/s 143(2) 142(1) were issued and in-compliance thereto, the assessee filed details and documents electronically which are considered. The AO has not given elaborate finding on the issue but recorded that on the basis of the Income Tax Return filed and submissions made by the assessee in the course of assessment proceedings the total income of the assessee is assessed to return income. The notice issued u/s 142(1) raised various quarries as under: Sir/ Madam Mis, Subject: Furnishing of details and documents With respect to the amount paid during the year under consideration, on which tax has been deducted u's 194C of the Income-tax Act, you were requested vide notice and letter dated 04/02/2020, 09/10/2020, 10/11/2020 and 24/12/2020 to furnish the following details and documents. However, till date the required details and documents have not been furnished by you. Her.ce, you are again requested to furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Labour work Yogendra Mishra BCKPM1300E 0 1872450 18724 0 0.00 Labour work Pawan Singh BJFPR5637F 70300 71050 711 0 0.00 Labour work 5.3 Thus, the assessee produced the PAN of all these subcontractors in whose names payments were made and expenditure was booked on account of sub-contract/ labour work. The assessee also produced ledger account of all sub-contractors. It is clear from the assessment order as well as notice issued u/s 142(1) and reply filed by the assessee along with supporting documents that the AO has conducted an inquiry on the solitary issue of verification of genuineness of expenses selected for limited scrutiny. Therefore, it is not a case of lack of inqiry on the part of the AO however, it may be a case of inadequate inquiry. The Pr. CIT invoked the provisions of section 263 by issuing a show cause notice dated 20.02.2023 which is reproduced as under: 1 . 2. During the assessment proceedings, it was observed by the AO that the assessee company has made large payments to various contractors w/s 194C. As per Form 3CD total payments to sub-contractors are to the tune of Rs. 1,22,75,870/-. Details were called for in this regard. From the details of payments made, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these pointes were not made. This statement of the Pr. CIT is in contradiction of the statement of the AO recorded in para 2 as under: 2. Accordingly, notices u/s 143(2) and 142(1) of the Income Tax Act 1961 are issued and duly served upon the assessee. In compliance thereof, the assessee filed details and documents electronically which are considered. Thus, the AO has specifically mentioned that in compliance of notice u/s 142(1) the assessee filed details and documents electronically which were considered. 5.5 The next observation of the Pr. CIT is that the AO issued letter u/s 133(6) to these three sub-contractors for providing details such as nature of service, PAN, copy of ITR etc. however, no compliance was made by any of the sub-contractor. This fact of issuing notice u/s 133(6) itself proves that the AO has conducted the inquiry on this issue and therefore, outcome of the inquiry conducted by the AO was available on record. The next objection of the Pr. CIT was regarding the non-payment of the amounts to these three persons during the year as well as during the next financial year. It is pertinent to note that as per the terms and conditions of the work order awarded to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in assessment-order Para No. 1 and 2 that the issue of scrutiny namely Verification of Genuineness of Expenses has been examined and no addition is made and the returned income is accepted. This finding by AO is fully supported from various documents placed in the Paper-Book as discussed in foregoing paras of this order, which clearly show that the AO has issued multiple questionnaires u/s 142(1) and made repeat enquiries to examine the expenses claimed by assessee in general and payments made to M/s AD Enterprises in particular. The assessee also filed complete replies to those questionnaires. To this extent, there cannot be any dispute or rebuttal by revenue. Clearly, therefore, it is discernible that the AO has considered those replies/submissions and thereafter taken a plausible view. Further, the action of AO in accepting the replies/ submissions of assessee cannot not lack bona fides and cannot be said to be faulty specially when the assessment of assessee has been made by National e-assessment Centre, Delhi. With regard to various objections raised by PCIT in revision-order and also contended by Ld. DR qua M/s AD Enterprises, we find that the Ld. AR for assessee is very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not warrant application of section 263. Therefore, the revision-order passed by Ld. PCIT is not a valid order. We, thus, quash the revision-order and restore the original assessment-order passed by AO. The assessee succeeds in this appeal. 5.6 Thus, the Tribunal has given a finding that 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. 5.7 There is another aspect in this case regarding 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 Hon ble Delhi High Court in case of ITO vs. D.G. Housing Project 20 taxmann.com 587 wherein the Hon ble High Court has 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 establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted inquiry and taken a view but the said jurisdiction and power of commissioner is restricted only in the case, where the view taken by the AO is absolutely wrong and against provision of law. No such allegation has been made by the Pr. CIT in the impugned order that the view taken by the AO in allowing the claims and accepting the explanation of the assessee is absolutely not permissible under the law. Even otherwise we find that the assessee has duly explained discrepancies in the total receipts declared by the assessee in comparison to the receipts appearing in form 26AS and explained the reasons with supporting evidence that the said difference is due to the time difference in recognizing the revenue by the assessee and booking of expenditure by the contractee. It is matter of record that the assessee filed the reconciliation before the AO as well as before the Pr. CIT. Therefore, it was incumbent upon the Pr. CIT to verify the details produced by the assessee as well as reconciliation of difference in the receipts and to give a finding about the correctness of the claim of the assessee. The assessee has given the relevant details and explained difference of Rs. 1.97 cr bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he considers that any order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of the revenue. Explanation (2) to section 263 of the Act further clarifies that an order passed by the A.O. shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if in the opinion of the Principal Commissioner or Commissioner (a) the order is passed without making enquiries or verification which should have been made (b) the order is passed allowing any relief without enquiring into the claim (c) the order has not been made in accordance with the order, direction or instruction issued by the Board u/s 119 or (d) order has not been passed in accordance with any decision, which is prejudicial to the assessee rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. In the present case, Principal CIT has revised the order on the ground that the A.O. has failed to make enquiries or verification, which should have been made. Ld. Principal CIT has not specified that what enquiries the A.O. has not made. There is no material suggesting that the Principal CIT has expressed his view about insuff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d inadequate investigation , it will be difficult to hold that the order of the A.O., who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/enquiry. The order of the A.O. may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the A.O. to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT held and records reason why it is erroneous. An order will become erroneous because on remit, the A.O. may decide that order is erroneous. Therefore, CIT must after recording reasons, hold that order is erroneous the jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It was further observed that the material, which the CIT can rely includes not only the records as it stands at the time when the order in question was passed by the A.O. but also record as it stands at the time of the examination by the CIT. Nothing appears/prohibits CIT from collecting and relying new/additional material which evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portunity to produce, or cause to be produced, any evidence which you feel is necessary in support of the said return of income on 26/09/2016 at 11:00 AM in the Office of the undersigned. Thus it is clear that the case was selected for limited scrutiny on the issue of purchase of property and deduction claimed under the head Capital Gains. Both these issues are inter-connected as the deduction under section 54F was claimed by the assessee in respect of purchase of property and construction of residential house on the said land. The AO, thereafter issued notice under section 142(1) dated 14.07.2017 along with a questionnaire. These facts are also evident from the assessment order in para 1 and 2 as under :- Thereafter, the case was transferred to the office of the undersigned from the ITO Ward 4(1) Jaipur on 26.05.2017 and due to change of incumbent of charges, notice u/s 142(1) along with questionnaire issued on 14.07.2017 fixing the case of hearing on 20.07.2017 which was duly served upon the assessee on 15.07.2017. In response thereto, the CA/AR of the assessee Sh. Ajay Jain attended the proceedings from time to time and furnished required details/documents and also produced book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of investment made in the agricultural land and deduction under section 54F of the IT Act. Therefore, the question of lack of enquiry does not arise when the AO has taken up the scrutiny and issued the notice under section 142(1) along with a questionnaire calling for all the details relevant to the acquisition of the land as well as of construction of house. It is also not in dispute that the assessee produced the relevant details and evidences and specifically the purchase documents for acquiring the agricultural land as well as the valuation report towards the cost of construction. The ld. PCIT has also not doubted the facts as brought on record by the assessee and considered by the AO while passing the assessment order. The provisions of section 263 were invoked by the ld. PCIT due to the reason that he has a different view regarding the allowability of deduction under section 54F in respect of the investment made for purchase of agricultural land and construction of house. There is no quarrel on the point that lack of enquiry renders the order of the AO as erroneous so far as prejudicial to the interests of the revenue. However, when there is no allegation and even otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of allowability of deduction under section 54F. Since the ld. PCIT was not agreeing with the view of the AO regarding the claim of deduction under section 54F, at the outset, he was required to give a concluding finding on the issue. On the contrary, the ld. PCIT has remitted the issue to the AO in para 7 as under :- 7. In view of the above I hold that the order passed by the AO in this case for the A.Y. 2015-16 on 18.12.2017 is erroneous in so far as it is prejudicial to the interests of revenue. The order dated 18.12.2017 passed u/s 143(3) of the Act deserves to be set-aside. AO will pass the order after taking into account all necessary facts and details connected with the claim of deduction u/s 54F of the Act and the claim of indexed cost of construction/improvements on the land sold by the assessee amounting to Rs. 18,18,483/- (pertaining to F.Y. 2007-08) and of Rs. 13,46,834/- (pertaining to F.Y. 2010-11). Thus while passing the revision order, the ld. PCIT himself was not sure about the correctness of the claim and has remanded the matter to the record of the AO for passing a fresh order. Hence he has not given a concluding finding whether the order of the AO allowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer, no question of law really arises for consideration in this appeal. 9. It is true that in a given case not holding of any enquiry, which is relevant for assessment may indicate non-application of mind by Assessing Officer or furnish the ground for taking action under section 263 by the CIT. In this connection, reference may be made in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 831 (SC), wherein the CIT opined that the has passed the order of nil assessment without application of mind. The High Court accepted this part of the assertion made by the CIT in his order that the ITO has failed to apply his mind to the case in all perspectives and the order passed by him was erroneous. The High Court has also found that the assessment order was passed without application of mind. The High Court rightly held that the exercise of jurisdiction by the CIT under section 263(1) was justified. 10. From the record of the proceedings, in the present case, no presumption can be drawn that the Assessing Officer had not applied its mind to the various aspects of the matter. In such circumstances, without even prima facie laying foundation for holding that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of ITO vs. D.G. Housing Projects Ltd. 343 ITR 329 in para 18 as under :- 18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, [2000] 243 ITR 83 / 109 Taxman 66 (SC), had observed that the phrase 'prejudicial to the interest of Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue. The Hon'ble High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The bills for construction are lacking details and contain no detail of work done and each payment made therefor was in cash for less than Rs. 20,000/-. (f) The Inspector physically verified the property and found there is only boundary wall with gate and on whole land there was little construction, with walls and Tin shed roofing and construction is about 700-800 Sq.ft as against 1504 Sq.ft. construction claimed by assessee. The Ld. A.O. in assessment order gave scanned photographs stated to have been taken by Inpsector on site visit. The A.O. thus concluded that investment was purely in land and not a residential house as required u/s 54F of I. T. Act, 1961 and so assessee is not entitled to claimed deduction u/s 54F. As per our considered view, benefit of Section 54F cannot be denied on the ground that land on which construction done was agriculture in nature. Reliance is placed on the judgements in case of Vishnu Trading Co. 259 ITR 724 (Raj.), Narendra Mohan Uniyal 34 SOT 152 (Del.), Shyam Sunder Mukhija Vs. ITO 38 ITD 125 (JPR) and ACIT Vs. Om Prakash Goyal (2012) 53 SOT 158 (JPR). In the case of Narendra Mohan Uniyal (Supra) it is held that It is crystal clear from the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r judgements on the issue. Thus, agreement to purchase copy of which submitted proves domain and control of assessee on the land in the hands of assessee and satisfies the connotation of purchase of land for construction of residential house. WE found from the record that the assessee had invested Rs. 1,15,00,000/-in construction of residential house and, therefore entitled to claimed deduction u/s 54F. The Ld. A.O. is wrong and has erred in law in disallowing the claimed deduction of Rs. 83,54,434/- u/s 54F the Act, which deserves to be allowed. 5. We found that in the previous year relevant to the above said assessment year the assessee invested a sum of Rs. 1,15,00,000/- in purchase of land for construction of a residential house. The deduction u/s 54F amounting to Rs. 83,54,434/- has been claimed on account of said investment in the land; copy of the agreement to purchase and registered purchase deed were verified before the A.O.. The assessee got constructed a residential house in the F.Y. 201213 i.e. within the statutory time limit allowed by the Act i.e. before the due date of February, 2014. Copy of bills for construction of house alongwith Map of the house was filed before ..... X X X X Extracts X X X X X X X X Extracts X X X X
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