Simply holding that AO was required to make more enquires no ground for revision u/s 263 – ITAT

Simply holding that AO was required to make more enquires is not a valid ground to hold assessment order as erroneous and prejudicial – ITAT

ABCAUS Case Law Citation:
ABCAUS 3892 (2024) (03) ITAT

In the instant case, the assessee had challenged the revisionary order u/s 263 passed by the PCIT holding the assessment order was erroneous and prejudicial to the interest of the Revenue in so far the  claim of deduction u/s 80-JJAA of the Income Tax Act, 1961 (the Act).

The case of the assessee was selected for Limited scrutiny on three issues inter alia large amount of deduction under Chapter VI-A.

The Assessing Officer (AO) in the scrutiny assessment proceedings u/s 143(3) of the Act, after examining the aforesaid issues accepted the returned income of the assessee.

Thereafter, the PCIT noted from the assessment records that the assessee had claimed a large amount of deduction claimed u/s 80JJAA of the Act.

Revision u/s 263

He further observed from Form 10 DA, that total of 775 employees had been added by the assessee in the relevant Financial Year. He observed that to cater the employment of 775 employees, the assessee would have required extra space alongwith furniture and computer systems which might have increased the financial expenses of the assessee. He further observed that the assessee, however, had not shown any extra expenses for creating the infrastructure   for newly added employees.       

He further  observed that in addition to the infrastructure expenses, the assessee might have incurred expenses for advertisement, interviews, hospitality expenses etc. He observed that the assessee  had simply  provided the list of employees which was  not sufficient  for  fulfillment of  the  requirements u/s 80 JJAA of  the Act. He observed that the AO had not made adequate enquiries in this respect.

The PCIT did not get satisfied with the submissions of the assessee to the show cause and held that the assessment order passed by the AO u/s 143(3) was erroneous and prejudicial to the interests of the Revenue as the AO had failed to make enquiries and verifications which should have been made by him. He, accordingly, set aside the assessment order for denovo assessment.

Before the Tribunal the assessee submitted that it had filed various details and explanations during the assessment proceedings. It was submitted that the assessee was also providing manpower services and majority of employees had been placed under the other company. It was submitted that there was no extra burden upon the assessee company for creating infrastructure etc.

The Tribunal observed that adequate enquiries were made by the AO on   issue under consideration and the PCIT had not pointed out what additional enquiries were required to be made by the AO on this issue. Moreov er, the assessee had duly explained before the PCIT that the assessee had outsourced the employees, therefore, the expenditure on account of additional infrastructure was not incurred. The PCIT had simply held the order erroneous on this issue by making general observation that the AO was required to make more enquiries, which is not a valid ground to hold the assessment order erroneous and prejudicial to the interests of the Revenue.

The Tribunal held that the exercise of the revision power by the PCIT was not justified and the revisional order was not sustainable in the eyes of law.

Accordingly, the revisional order was quashed and appeal of the assessee was allowed. 

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