M/S BANKE BIHARI FOODS (P) LTD,PATNA vs. PR. CIT-1, PATNA

The assessee has taken 13 grounds of appeal, but its grievances revolve around a single issue, namely ld. CIT has erred in taking cognizance under section 263 of the Income Tax Act and thereby setting aside the assessment order dated 08.06.2019 passed under section 143(3) with a direction to pass a denovo assessment and in rest of the grounds, the assessee has raised peripheral arguments qua the center point in dispute.

Brief facts of the case are that the assessee is a Private Limited Company engaged in manufacturing and trading business of wheat products (Flour Mill). It has filed its return of income on 31.08.2017 declaring total income of Rs.1,44,56,270/- . The case of the assessee was selected for scrutiny assessment and a notice under section 143(2) was issued and served upon the assessee. The basic reason for selecting the case for scrutiny under CASS was – “High Revenue from operations (including other income) and no scrutiny in preceding five assessment years - business expenses”.

This was the reason for selecting the case for scrutiny assessment. The ld. Assessing Officer thereafter issued a questionnaire under section 142(1) on 15.04.2019. The copy of Assessment Year: 2017-2018 M/s. Banke Bihari Foods (P) Limited the questionnaire is available on pages no. 11 to 16 of the paper book. After conducting inquiry, he passed the scrutiny assessment under section 143(3) on 08.06.2019. He accepted the returned income of the assessee.

The ld. Commissioner perused the assessment record and formed an opinion that “assessment order is erroneous as much as it is prejudicial to the interest of the revenue”. He issued a show-cause notice under section 263 and the copy of the show- cause notice is available on page H of the paper book. In brief the ld. Commissioner has assigned the following reasons:-

“During examination of cash book, sales invoices and comparison chart, following points were noted: Sales invoices for the period 01.11.2016 to 08.11.2016 (a) were submitted to justify the cash deposit. Out of 8 days, there was one closing day on 06.11,2016. Out of these 7 days, you furnished exactly 50 sales invoices per day for 6 days (starting from sales invoice no. 2801) and 75 sales invoice for one day, Scrutiny of cash book reveals that in the month of (b) October, 2016, maximum opening balance was Rs.31,28,556/- on 26.10,2016 and minimum opening balance was Rs. 1,77,342/- on 10.10.2016. Further, it was noticed that the closing balance on 31.10.2016 was Rs.28,38,585/- but thereafter a sudden increase upto Rs.1,56,89,056/- on 08.11,2016 was seen i.e closing balance of cash book increased by Rs.1,28,50,471/- in a period of 8 days.

In view of the fact that the AO completed the assessment without making enquiries, verifications and investigations regarding the aforesaid issue, the assessment order passed u/s 143(3) of the IT Act, 1961 dated 08.06.2019 for A.Y. 2017-18 has been found to be erroneous in so far it is prejudicial to the interests of the revenue within the meaning of section 263 of the Income Tax Act, 1961.

For the above referred reasons and the facts on record, I deem it fit to direct the Assessing Officer to make a assessment de novo taking into account the findings on the issue discussed herein above. The AO’s order u/s 143(3) of the IT Act, 1961 dated 08.06.2019 for A.Y. 2017-18 is cancelled and set aside with a direction to the AO to make enquiries, verifications and investigations regarding the aforesaid issue and finalize the assessment in accordance with the provisions of the law.

The ld. Counsel for the assessee while impugning the above finding contended that the basic reason assigned by the ld. CIT is Assessment Year: 2017-2018 M/s. Banke Bihari Foods (P) Limited that during demonetization period, assessee has made huge deposit, which are not conducive to its cash book and such a fact has been accepted by the ld. Assessing Officer without making any inquiry. The ld. Counsel for the assessee further contended that the ld. Commissioner has failed to appreciate the record in right perspective and has recorded factually incorrect finding. In order to demonstrate that a proper enquiry was conducted by the ld. Assessing Officer, he took us through questionnaire issued on 15.04.2019 under section 142(1) of the Income Tax Act. The copy of such notice is available on page no. 11 of the paper book. The ld. Assessing Officer has annexed Annexure-A along with this questionnaire and invited explanation of the assessee on 14 points. We deem it appropriate to take note of these points, which read as under:- (1) Please state briefly the nature of business activity; (2) Complete Set of Income Tax Return along with ITR-V; (3) Computation of income for F.Y. 2016-17 relevant to AY 2017-18; (4) Copy of Financial Statement i.e. Tax Audit Report including Form-3CA & 3CD along with Balance Sheet, Profit & Loss Account, Form-26AS for FY 2016-17; (5) Details of all Bank Account along with Bank Account Statement for FY 2016-17; (6) Complete ledgers of all expenses claimed in Profit & Loss Account with ledger of addition of fixed assets made during FY 2016-17; (7) Details of Unsecured Loan raised during FY 2016-17 along with name, PAN, address, ITR, amount, ledger, confirmation and bank account statement of lenders; (8) Details of Share Premium raised during FY 2016-17 along with name, PAN, address, ITR, amount, ledger, 6

The assessee has filed a detailed reply and copy of such reply is available on pages no. 14 to 16. In this reply, the assessee has submitted that certain books of account are voluminous in nature, hence it filed them separately. Thereafter the assessee has filed one more reply. Copy of such reply is also available. The ld. Assessing Officer apart from this questionnaire, had issued notices under section 142(1) on 13.05.2019 and 24.05.2019. He made specific enquiries about the details of bank statements, details of sundry creditors and also the deposits made during demonetization. A specific question has been raised under Point No. 11 in the show cause notice dated 15.04.2019.

We have heard the ld. Representatives and with their assistance gone through the record carefully. Before we embark upon an enquiry on the facts and issues agitated before us to find out whether the action u/s 263 of the Act, deserves to be taken against the assessee or not, it is pertinent to take note of this section. It reads as under:- “263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

A bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is Assessment Year: 2017-2018 M/s. Banke Bihari Foods (P) Limited prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show-cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263.

A perusal of the impugned order would suggest that it is based on two-fold of reasoning. In the first-fold of reasoning, ld. Commissioner has doubted the very claim made by the assessee about sales which has generated the alleged cash. In paragraph no. 8, clause (a), he has reproduced the sales invoice number, number of sales and amount of invoices. His suspicion is why exact identical numbers of sale invoices (i.e. 50 each day) were entered by the assessee on seven days. In other words, the assessee has shown fifty sale invoices continuously for seven days.

The next suspicion expressed by him is about the cash balance available in the cash book in the year 2015, vis-à-vis in the year 2016. On due consideration of the above reasoning, we are of the view that ld. Commissioner has not analytically examined the details. Firstly, the ld. Assessing Officer has not rejected the book result. Neither the ld. Commissioner has doubted the books of account of the assessee. Just for the sake of assigning the reason, he has raised a suspicion about the sale invoices. If he has such a doubt, then instead of referring the number of sales, he should have examined the sale deals and should have examined those parties to whom sales were made, whether they have purchased or not. He should also make

The second aspect, which has been assumed by the ld. Commissioner, is that ld. Assessing Officer has not enquired. He has totally ignored the questionnaire issued by the ld. Assessing Officer and the replies were submitted by the assessee. The assessee has produced sales invoice, stock details, details of income accounts and all other relevant details required for the determination of its taxable income. The ld. Commissioner did not find any fault to those details.

Under the next reasoning, he made comparison of cash books in the year 2015 vis-à-vis in the year 2016. In this comparison, he has just made a narration what was the maximum opening balance and minimum opening balance available. We fail to appreciate the relevancy of this comparison. If an assessee has a stock and he sold the stock, then how

The next reason harbored by the ld. Commissioner is that it appears assessee has shown undue sales in the year 2016. The assessee has submitted comparative chart. The cash sales in the year 2015 are more than the 2016. The ld. Commissioner did not compare these figures available on page 6 of the impugned order rather he chose to compare the cash balance in the Cash Book. The stand of the assessee is that deposits were made out of cash sales. If the ld. Commissioner has a doubt about these sales, then course of enquiry ought to be different.

The ld. Assessing Officer has gone into all these details. The assessee has no control over the Assessing Officer in drafting the assessment order. If ld. Assessing Officer has recorded a finding dealing with these all inquiries, then it is an ideal situation. But if he failed to record such details, then before doubting the result, it is to be appreciated what questionnaire was issued, what replies were given by the assessee. There might have some oral discussion before accepting the results. Thus ld. Commissioner ought to have gone through those details. He cannot say that inquiry was not made. Once a questionnaire is raised and replies are there on the record, it is to be construed that inquiry was made. The Hon’ble Delhi High Court in the case of ITO –vs.- D.G. Housing Project reported in 343 ITR page 329 has propounded 17

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 13.03.2023.