Dream Business Solution Private Limited, New Delhi V. PCIT-1, New Delhi

ITA 382/DEL/2021

AI Insights

The case involves Dream Business Solutions Private Limited appealing against the order of the Principal Commissioner of Income Tax (PCIT), which sought to revise the assessment order passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act for the Assessment Year 2015-16. The PCIT invoked section 263, claiming the original assessment was erroneous and prejudicial to the interest of the Revenue due to inadequate enquiries regarding substantial expenses claimed by the assessee. The Tribunal examined whether the PCIT was justified in invoking revision jurisdiction under section 263 and concluded that the AO had indeed made adequate enquiries, thus quashing the PCIT's order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130369 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 07-05-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 05-04-2021
• Other Referred Cases: ITO vs. D.G. Housing Projects Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Principle of natural justice; TDS
• Section: 263; 142(1); 22

Judgement Text

Page 1 of 11 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’: NEW DELHI BEFORE, SHRI SAKTIJIT DEY, VICE PRESIDENT AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No.382/Del/2021 (ASSESSMENT YEAR 2015-16) Dream Business Solutions Private Limited D-2/144, UGF, Gali No.3 Mahavir Enclave New Delhi-110 015 PAN-AAECD 8347A Vs. Principal Commissioner of Income Tax-1 New Delhi (Appellant) (Respondent) Appellant by Mr. Tarandeep Singh, Advocate Respondent by Mr. Sapna Bhatia, CIT- DR Date of Hearing 08/05/2023 Date of Pronouncement 04/08/2023 ORDER PER M. BALAGANESH AM: This appeal of the Assessee arises out of the order of the Learned Principle Commissioner of Income Tax, Delhi, [hereinafter referred to as ‘Ld. PCIT’] in Revision No. DIN & Order No. ITBA/REV/F/REV5/2020-21/1031842253(1) dated 28/03/2021 against the order passed by Dy. Commissioner of Income Tax, ITA No.382/Del/2021 Dream Business Solution Pvt. Ltd. vs. PCIT Page 2 of 11 Circle-7(2), New Delhi, (hereinafter referred to as the ‘Ld. AO’) u/s 143(3) of the Income Tax Act (hereinafter referred to as ‘the Act’) on 27/04/2017 for the Assessment Year 2015-16. 2. The assessee has raised the following grounds of appeal: “1. That on facts and in law the order dated 28 th March 2021 passed by the Principle Commissioner of Income Tax-1, New Delhi {hereinafter referred to as “PCIT”} under section 263 of the Act is void ab initio and bad in law. 1.1 That on facts and in law the PCIT has erred in not providing a proper opportunity of being heard and has thereby has violated the settled principles of natural justice. 2. That on the facts and in law the PCIT has erred in holding that assessment order dated 27 th April 2017 passed by the AO is erroneous and prejudicial to the interest of revenue. 2.1 That on facts and in law the PCIT has erred in setting aside the assessment order dated 27 th April 2017 passed by the AO. 3. That on facts and in law the PCIT has erred in holding/observing that: (i) Assessment order dated 27 th April 2017 is passed without making required enquiries and verification which should have been made. (ii) Proper verification was not done by the AO to verify the details of expenses submitted by the assessee. (ii) The amount of expenses incurred is very high and there was an extraordinary increase in business and expenses shown by the assessee. 4. That on facts and in law the PCIT has erred in invoking provisions of Explanation 2 to section 263 of the Act. That the appellant craves leave to add, alter, amend and/or modify any of the grounds of appeal before or at the time of hearing of appeal.” ITA No.382/Del/2021 Dream Business Solution Pvt. Ltd. vs. PCIT Page 3 of 11 3. The only effective issue to be decided in this appeal is as to whether the Ld. PCIT was justified in invoking the revision jurisdiction u/d 263 of the Act in the facts and circumstances of the instant case. 4. We have heard the rival submissions and perused the material available on record. The assessee is engaged in the business of conference and event management and travel business. The return of income was filed on 30/09/2015 declaring total income of Rs.1,83,48,420/-. The assessment was completed u/s 143(3) of the Act on 27/04/2017 accepting the returned income. This assessment was sought to be revised by the Ld. PCIT by invoking revision jurisdiction u/d 263 of the Act by treating the order of the Ld. AO as erroneous in as much as it is prejudicial to the interest of the Revenue. A show cause notice issued by the Ld. PCIT on 03/02/2021 u/s 263 of the Act is enclosed in page 1 to 2 of the PB. The main crux of the show cause notice is that the assessee has claimed total expenditure of Rs.58,23,64,185/- on account of Event, Package Tour, Service Fees and Sale of Air Ticket expenses. In the opinion of the Ld. PCIT, the assessee has merely furnished the ledger copy of these expenses which were allowed by ITA No.382/Del/2021 Dream Business Solution Pvt. Ltd. vs. PCIT Page 4 of 11 the Ld. AO without making any enquiry and verification. Accordingly, the Ld. PCIT treated the order of the AO as erroneous and prejudicial to the interest of the Revenue. 5. The assessee prima-facie objected to the assumption of jurisdiction by the Ld. PCIT u/s 263 of the Act on the ground that adequate enquiries were indeed made by the Ld. AO during the course of assessment proceedings by issuing notice u/s 142(1) of the Act and the replies were filed by the assessee in response thereto. The assessee also placed on record the details of various enquiries carried out by the Ld. AO in the assessment proceedings before the Ld. PCIT vide its submissions in response to show cause notice issued u/s 263 of the Act before the Ld. PCIT which are enclosed in pages A to I of the PB. The Ld. PCIT, however, disregarded the submissions of the assessee and held the order passed by the Ld. AO as erroneous and prejudicial to the interest of the Revenue, as, in his opinion, it was framed without making enquiry at all. ITA No.382/Del/2021 Dream Business Solution Pvt. Ltd. vs. PCIT Page 5 of 11 6. Now, the short point that is required to be addressed herein is whether at all any enquiry was carried out by the Ld. AO on the allowability of expenses towards Event management, Package Tour, purchase of air tickets etc. In this regard, we find that the Ld. AO had issued notice u/s 142 (1) of the Act on 20/02/2017 wherein vide question No.6, he had sought for a detailed note on the nature of business activities with past history and business process involved. In the said questionnaire, the Ld. AO vide question No.2 had also sought detailed justification for large other expenses claimed in the profit and loss account. According to the Ld. DR, this questionnaire was stated to be a mere general questionnaire issued by the Ld. AO. We find that the assessee vide its Authorized Representative’s letter dated 16/03/2017 had furnished the detailed reply as required by the Ld. AO. This reply is enclosed in pages 15 to 16 of the PB. In the said reply, vide Para -17, the assessee had furnished the details of Salaries, Staff Welfare Expenses, Events, Package Tour, Services fees, Sale of Air Tickets expenses, Rent, Power and Fuel, Business Promotion, Printing and Stationery, Conveyance, Communication Expenses, Recruitment Expenses, Travelling Expenses, Legal and Professional ITA No.382/Del/2021 Dream Business Solution Pvt. Ltd. vs. PCIT Page 6 of 11 Charges, Consultancy Charges, Computer Repair and Maintenance, Officer Repair and Maintenance, Interest. The assessee also furnished the details of miscellaneous expenses reflected in the Profit and Loss Account together with the entire books of account for verification of the Ld. AO. We find from the pages 17 to 22 of the PB, the assessee had filed yet another reply vide letter dated 26/04/2017 independently furnishing the following details of income from – (a) Events, Package Tour and Sale of Air Tickets; (b) Details of events, Package Tours, Service Fees and Sale of Air Tickets expenses. In the case of events where expenses were incurred in excess of Rs. 100 lacs, the assessee has also furnished details of entries of Tax Deduction at Source (TDS) thereon. (c ) The assessee also referred to the relevant annexures of tax audit report and also furnished the TDS returns filed to corroborate the transactions reflected in the tax audit report. (d) The books of account were also produced for verification of the Ld. AO. ITA No.382/Del/2021 Dream Business Solution Pvt. Ltd. vs. PCIT Page 7 of 11 7. From the aforesaid details more particularly the details of various expenses in tabular form enclosed in pages 21 to 22 of PB, we find that the assessee had given the nature of expenditure, the entire details of the client for whom the said expenditure has been incurred; expenditure incurred on the various heads together with the respective amounts thereon. Hence, it is clear that assessee had furnished the client wise income and corresponding expenses incurred thereon client wise, before the Ld. AO. The Ld. AO after making enquiries of the same and being satisfied with the details furnished by the assessee, concluded that the claim of the assessee to be genuine. Accordingly, he had decided not to make any disallowance of expenses thereon. 8. The only grievance of the Ld. PCIT is that the Ld. AO had not made any enquiries while framing the assessment. Whereas from the aforesaid narration of facts, it is evidently clear that more than adequate enquiries were indeed made by the Ld. AO while completing the assessment. We find that the Ld. PCIT in para 8.1 in his order had directly invoked the provisions of Explanation-2 to section 263 of the Act by stating that when the order is passed without making inquiries which should have been made, the said ITA No.382/Del/2021 Dream Business Solution Pvt. Ltd. vs. PCIT Page 8 of 11 order could be treated as erroneous and prejudicial to the interest of the Revenue warranting revision u/s 263 of the Act. From the perusal of the provisions of section 263 r.w.Explanation-2 thereon of the Act and also the scheme of the Act, in our opinion, the Ld. PCIT is not given unbriddled powers to treat the order of the Ld. AO as erroneous and prejudicial to the interest of Revenue pursuant to the Explanation-2 to section 263 of the Act. In fact, it is the duty of the Ld. PCIT to first objectively satisfy the conditions prescribed in section 263(1) of the Act by holding that the order of the Ld. AO is erroneous and prejudicial to the interest of the Revenue. If this is not done, then it would result in a situation, where every order of the Ld. AO could, in the opinion of the Ld. PCIT, be construed as erroneous and prejudicial to the interest of the Revenue. This would result in arbitrary exercise of revisionary jurisdiction by the Ld. PCIT u/s 263 of the Act. This can never be the intention of the legislature. It is trite law that an Explanation cannot be an alien to the main provision. The Explanation is meant only to explain the provisions already contained therein. Hence, the main provision should be satisfied by the Ld. PCIT. Moreover, even if Explanation-2 is being sought to be invoked by the Ld. PCIT by stating that in the ITA No.382/Del/2021 Dream Business Solution Pvt. Ltd. vs. PCIT Page 9 of 11 opinion of the Ld. PCIT, the requisite enquiries had not been carried out by the Ld. AO, then it is bounden duty of the Ld. PCIT to atleast state what are the requisite enquiries that are to be carried out by the Ld. AO and where the Ld. AO has failed in his duty. In the instant case, no such recording of facts and no finding thereon is given by the Ld. PCIT in his order with objective reasons. 9. We have already observed hereinabove that adequate enquiries were indeed carried out by the Ld. AO in the assessment proceedings with regard to the impugned expenditure of Events, Package Tours, Service Fees, Sale of Air Tickets expenses etc. Now, when enquires were already made by the Ld. AO while framing the assessment, if the Ld. PCIT is of the opinion that the enquiries carried out by the Ld. AO were inadequate, then it is the duty of the Ld. PCIT to conduct an enquiry before proceeding to treat the order of the Ld. AO as erroneous. Reliance in this regard is placed on the decision of Hon’ble Jurisdictional High Court in the case of ITO vs. D.G. Housing Projects Ltd. reported in 343 ITR 329 (Del.), wherein it was observed as under: “16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such ITA No.382/Del/2021 Dream Business Solution Pvt. Ltd. vs. PCIT Page 10 of 11 cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer 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 Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.” 10. In view of the above observations and respectfully following the judicial precedents relied upon herein above, we have no hesitation ITA No.382/Del/2021 Dream Business Solution Pvt. Ltd. vs. PCIT Page 11 of 11 in quashing the revision order passed by the Ld. PCIT u/s 263 of the Act. Accordingly, grounds raised by the assessee are allowed. 11. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 4 th August, 2023. Sd/- Sd/- (SAKTIJIT DEY) (M. BALAGANESH) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 04/08/2023 Pk/sps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI