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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Shri Rajpal Yadav & Ms. Annapurna Gupta
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH (Conducted Through Virtual Court) Before: Shri Rajpal Yadav, Vice President And Ms. Annapurna Gupta, Accountant Member ITA No. 1406/Ahd/2018 Assessment Year 2011-12
Alps Leisure Holidays The DCIT, Pvt. Ltd. Vadodara Central Circle-1(1)(1), PAN: AAFCA1549Q Vs Vadodara (Appellant) (Respondent)
Revenue by: Shri Ajay Atri, CIT-D.R. Assessee by: None Date of hearing : 01-12-2021 Date of pronouncement : 14-12-2021 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:-
The present appeal has been filed by the assessee against the order passed by the Ld. Principal Commissioner of Income Tax,Vadodara-1, (in short referred to as Pr. CIT), dated 30-03-2018, in exercise of his revisionary jurisdiction u/s. 263 of the Income Tax Act, 1961(hereinafter referred to as the “Act”).
None appeared on behalf of the assessee nor any application seeking adjournment was filed before us. We have noted that despite
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several opportunities granted to the assessee fixing the hearing on various dates, the appeal remained un-represented. Taking note of the same and the fact that even today none appeared on behalf of the assessee nor application was filed seeking adjournment, it was decided to proceed with adjudicating the appeal ex-parte.
We have gone through the order of the ld. Pr. CIT and we find that the ld. Pr. CIT found the order passed by the Assessing Officer in the present case u/s 143(3) of the Act to be in error for having accepted the explanation of the assessee of the source of bogus share capital surrendered during survey, without conducting any independent inquiries and verifying the same. He noted from the records that the assessee had been subjected to survey on 25-26 Feb, 2014, during the course of which he had admitted to bogus share capital, share application money and unsecured loan introduced in the assessee company and surrendered an amount of Rs. 1 crore for the impugned assessment year. He noted that the assessee had also agreed to disallow depreciation on bogus addition to fixed assets amounting to Rs. 18,78,925/- for the impugned year. Ld. Pr. CIT noted that during assessment proceedings, the assessee had explained that the source of the bogus share capital was the money infused from the payment made by it to various firms/individuals on account of bogus expenditure which was capitalized. The Pr. CIT found that the Assessing Officer accepted this explanation of the assessee without making any due
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efforts and proper enquiries linking the disclosure of unaccounted/ undisclosed income in the form of bogus expenditure allegedly routed through investment in the form of share capital. He was of the view that the inference drawn by the AO accordingly that any addition on account of credit to the capital work in progress made by the assessee, in lieu of the said explanation, would tantamount to double addition ,was erroneous causing prejudice to the Revenue. Accordingly a show cause notice was issued to the assessee u/s. 263 of the Act , reproduced at para 3 of the order as under:- "On verification of the case records, it is noticed that a survey action was conducted on 25/02/2014 wherein it was admitted that for the year under consideration bogus expenditure of Rs.56,78,000/- and Rs.43,00,000/- in respect of two parties viz, Krishna Enterprises and Jagdamba Plumbing respectively was incurred. Further, it was also admitted that aforementioned bogus expenditure was routed to source funds for introduction of Share capital, Share Application money/share premium and unsecured loan. Above admission accepted by the Assessing officer without making due efforts and proper inquires to link disclosure of unaccounted and undisclosed income in the form of bogus expenditure claimed to have been made and the routing of such bogus expenses to source funds for introduction of Share capital Further the inference drawn by crediting the capital expenditure/capital work in progress with the amount of bogus expenditure and any addition on account of credit out of the said bogus expenditure being re-routed would amount to double addition and accepting of such claim by the Assessing officer without any independent finding to link the two and without any inquiry to establish the same by material evidences on record has rendered the assessment erroneous in so far as it is prejudicial to the interest of revenue.”
Due reply was filed by the assessee to the show cause notice contending that all details and explanation with regard to the aforesaid explanation of the assessee was filed to the Assessing Officer and it could not be said that the claim was accepted without making any inquiries. The Ld. Pr. CIT, however, rejected the contention of the
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assessee reiterating that the Assessing Officer had failed to make independent inquiry with regard to the same. He accordingly set aside the order passed by the Assessing Officer with a direction to frame assessment afresh particularly after making proper inquiries on the impugned issue. The findings of the ld. Pr. CIT at para 4 to 6 of the order is as under. “4. During the course of proceedings u/s. 263 of the Act the assessee was asked to explain the link between the bogus expenditure, its payment to the concerned parties and its re-routing to the accounts of the Directors, relatives, etc., from where the funds were routed to the account of the company. Shri Alpesh Gandhi, Director of the company attended on 28/03/2018 and contended that the issue was discussed by the Assessing officer during the course of assessment proceedings and all details were submitted in support of the, same., the assessee filed copies of submissions dated 20/04/2015, 09/06/2015, 01/01/2016, 30/01/2016 & 12/03/2016. On perusal of the same, it is seen that assessee has submitted before the Assessing officer the details of the parties related to the bogus expenditure along with the details of disbursement of the amounts, their withdrawals by the parties concerned, names of the parties in whose accounts the money was re-routed and the details of amounts transferred with date and the name of the party (director, unsecured loans, creditors, etc.), However, on perusal of the assessment order and records, it is seen that the Assessing officer accepted the above submissions without verification with reference to the concerned bank accounts and also did not examine the submission with reference to the credit made to the capital work in progress. In the absence of the same, the credit to capital work in progress was unexplained and liable to be added U/s. 68 of the Act 5. In the case of K.A. Ramaswamy Chettiar (220 ITR 657) the Hon’ble Madras High Court has held that when the ITO is expected to make an enquiry of a particular item of income and if he does not make an enquiry as expected, that would be a ground for the Commissioner of Income Tax to interfere U/s,263 with the order passed by the ITO, since such an order passed by the ITO is erroneous and prejudicial to the interest of the revenue. In the case of Swamp Vegetable Products vs. Commissioner of Income Tax (1990) 187 ITR 412 (All), it was held by Hon'ble Allahabad High Court as under: - "It is beyond dispute that, U/s. 263 of the IT Act, the CIT does have the power to set aside the assessment order and send the matter for a fresh assessment if he is satisfied that further enquiry is necessary, and that the order of the ITO is prejudicial to the interest of the Revenue." 6. As per clause (a) to Explanation 2 to Section 263 of the Income Tax Act, an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if in the opinion of the Pr. CIT or CIT, the order is passed without making inquiries or verification which should have been made. In the instant case, the failure on the part of the A.O. with regard to examination/verification of the issues discussed in Para. 4 herein above has rendered the assessment erroneous, in so far as, it is prejudicial to the interest of revenue. Therefore, in exercise of the powers conferred by the Section 263 of the Income-tax Act, 1961, the assessment is set-aside with the directions that the assessment should be framed afresh as per law by the A.O. after proper enquiries / verification on the aforementioned issues, examining the accounts and records of the assessee and after allowing reasonable opportunity of being heard to the assessee.”
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Aggrieved by the same, the assessee has come up in appeal before us raising the following grounds:- “1. On the facts and in the circumstances of the case, the learned Principal CIT erred in assuming his jurisdiction u/s. 263 of the I.T. Act, whereas the mandatory conditions for assuming such jurisdiction are totally absent, with the result that the impugned order passed u/s.263 is bad in law. 2. On the facts and in the circumstances of the case, the learned Principal CIT erred in arriving at a conclusion without any basis whatsoever to the effect that the reassessment order passed by the Assessing Officer was erroneous as well as prejudicial to the interest of the revenue. 3. On the facts and in the circumstances of the case, the learned Principal CIT erred in assuming jurisdiction u/s. 263 of the I.T. Act since the AO has taken a possible view after examining and considering the reply and arguments of the assessee as rendered during the course of reassessment proceedings. 4. On the facts and in the circumstances of the case, the learned Principal CIT erred in cancelling the assessment order passed by the Assessing Officer on 14.03.16 u/s.143 (3) r.w.s. 147 of the I.T. Act and directing the Assessing Officer to frame assessment afresh u/s 263 of the IT Act.”
We have heard the Ld. DR and also gone through the order of the Ld. Pr. CIT. The error noted by him in the order of the AO is his acceptance of the explanation given by the assessee as such without making any inquiry ,of the source of own money introduced by way of bogus share capital/unsecured loan, as being from bogus expenditure booked on account of capital work in progress. As a consequence of the afore stated explanation the assessee had credited his capital work in progress account with the bogus bills earlier debited to it. On account of non verification of the explanation of the assessee by the AO, the Ld. Pr. CIT was of the view that the credit to the capital work in progress account remained unexplained and was liable to be added therefore u/s 68 of the Act.
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6.1 We are unable to concur with the Ld. Pr. CIT and we find that in the guise of exercising revisionary powers the Ld. Pr. CIT is taking a different view on the matter and in fact dictating the extent of inquiry which ought to have been conducted by the AO, without pointing out as to how the AO’s view accepting the claim and explanation of the assessee, vis a vis source of bogus capital introduced, was flawed or suffered from any infirmity considering the facts and circumstances of the case.
6.2 Admittedly the assessee during survey had surrendered bogus capital introduced. It was incumbent on the assessing officer therefore, during assessment proceedings, to have sought an explanation and inquire into the source of the same also.
6.3 A reading of para 4 of the order of the Ld. Pr. CIT, as reproduced above, reveals that the assessee had , besides explaining the source as being from bogus expenditure incurred on capital account, had submitted before the Assessing Officer all details relating to the explanation including the parties related to the bogus expenditure, the details of disbursement of the amounts, their withdrawals by the parties concerned, the name of the parties in whose accounts money was re- routed and the details of amounts transferred with date and name of the party (director, unsecured loan, creditors etc.).
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6.4 The assessee we find therefore had not only admitted to and surrendered on account of its own money introduced by way of bogus share capital/share application/ unsecured loan , but had explained the manner of introducing the same by way of booking bogus expenditure and rerouting the payment made on account of the same in the form of share capital etc giving all details of the modus operandi ,including the name of parties involved in the same and the dates of the entire money trail. Thus a full and complete disclosure was made by the assessee, who had come completely clean with regard to the bogus transactions undertaken, revealing all possible details of the same.
6.5 Nothing has been pointed out by the Ld. Pr. CIT in the above explanation and the details filed by the assessee, so as to raise any suspicion regarding the same. With the disclosure being so complete in all aspects and there being nothing to doubt the same, the acceptance of the explanation by the AO, we find ,in the present circumstances cannot be said to be out of place or unreasonable.
6.6 In the said backdrop the contention of the Ld. Pr. CIT that the AO should have inquired and verified the entire explanation of the assessee, going to the extent of verifying whether the claim of bogus expenditure booked on capital account was correct or not, we find ,is nothing but substituting the AO’s discretion with regard to the extent of inquiry to be conducted, which we have found to be reasonable, with
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his own, taking a different view on the material already considered by the AO while accepting the same This is beyond the ambit of revisionary power conferred u/s 263 of the Act which can be exercised only if the AO’s order is found to be in error so as to cause prejudice to the Revenue. It cannot be exercised to dictate the extent of inquiry to be conducted by the AO without pointing out the how the failure to do so by the AO was erroneous causing prejudice to the Revenue.
6.7 Moreover ,we find ,that even the Ld. Pr. CIT did not exercise the powers granted to him u/s 263 of the Act and make his own inquiries before arriving at his finding of error in the order of the AO on account of lack of inquiry. Section 263 empowers the Commissioner /Pr. Commissioner to revise an order by the AO on finding it to be erroneous and causing prejudice to the Revenue. The section requires the powers to be exercised after giving due opportunity of hearing to the assessee and after making inquiries which are deemed necessary. Where the error is on account of no inquiries or verification made, there still has to be a finding as to how the non inquiry resulted in the order being erroneous causing prejudice to the Revenue. No inquiry simpliciter cannot render the order erroneous if the facts on record do not point out any reason for conducting further inquiry. The Commissioner/Pr. Commissioner has to make inquiries of his own and basis that it should be pointed out that the absence /lack of any inquiry or verification had lead to the order passed by the AO to be erroneous.
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In the case of CIT vs. Sunbeam Auto Ltd. reported at (2009) 227 CTR (Del) 133 the Hon’ble Delhi High court observed that an inadequate inquiry by itself will not give power to revise an order when the CIT merely harbors a different view /opinion on the matter :
"As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter." The High Court in the said decision further went on to observe that : "There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed." In the case of CIT vs Anil Kumar (2010) 194 Taxman 504 (Del) ,the Hon’ble Delhi High Court had an occasion to deal with an identical issue wherein it was noted that complete details were filed by the assessee before the Assessing Officer ,the said details were also there before the CIT in proceedings u/s 263 but he had failed to point out any defect in the same so as to arrive at a conclusion that non examination of the said details had resulted in the AO’s order being erroneous. In this backdrop the Hon’ble court held that it would not give occasion to pass orders u/s 263 of the Act.
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6.8 Even the Hon’ble jurisdictional High Court in the case of CIT vs R.K Construction Co.(2008) 313 ITR 65 (Guj) has held order passed u/s 263 to be not valid where all necessary details were found to be submitted to the AO who had taken a particular view on the basis of the evidences before him and basis which the CIT took a different view. The Hon’ble High Court held that there was nothing on record to suggest that the view taken by the AO was unsustainable in law.
15.We have heard learned standing counsel appearing for the Revenue as well as learned senior counsel appearing for the assessee. We have perused the orders passed by the AO under s. 143(3) of the Act and also the order passed by the CIT under s. 263 of the Act. We have also gone through the order passed by the Tribunal. We have also perused the records produced before the CIT as well as the Tribunal and detailed chart giving particulars of sub-contractors examined by the AO as per the directions of CIT in revision proceedings and also summary of details relating to various sub-contractors. The details of sub-contractors examined by the AO as per the directions of CIT in revision proceedings, inter alia, include the names of these sub-contractors, their permanent account numbers, their permanent addresses, amount given to them, name of work entrusted to them, nature of such work and statements recorded by the AO, etc. These details reveal that during the course of examination under s. 131, no question was put to many of these sub-contractors as to the variation in their signatures. Similarly, no question was put to them for the reasons of discounting with the Shroff. It is the stand of the assessee right from the beginning that all these sub-contractors were mainly working for the assessee and they did not have any office set up and since they were working for the assessee, they have used assessee’s address for correspondence, especially with the Government for timely communication. These persons are eligible under s. 44AD to file their returns under presumptive scheme of taxation. All these persons were produced before the AO in revision proceedings and no question was put to them though their statement on oath was recorded. All these persons have confirmed in revision proceedings that the money was not returned by them to any person and have been used for their personal benefit. The payments were made to these persons by banking challans (channels) and tax was deducted at source in accordance with law. The assessee has also given complete details with respect to labour expenses called for in assessment proceedings. These details were duly verified by the AO with the books and records. No adverse observation was made by the AO and hence, no addition was made in the regular assessment. The AO has also randomly selected two labourers and examined them and their statements were recorded under s. 131 of the Act. Since all necessary details were furnished by the AO (assessee), there was no reason for the CIT to invoke the revisional jurisdiction under s. 263 of the Act. The CIT has not stopped merely by issuance of notice
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under s. 263. Once compliance is made, he went on issuing notice after notice and certain adverse inferences were drawn by him from the details collected by him during the revisional proceedings. Those details were thoroughly checked and examined by the Tribunal and arrived at a factual finding that there was no illegality committed by the assessee in entrusting the work to sub-contractors nor there was any illegality in making all due payments to them. The Tribunal has also given specific finding to the effect that there was no evidence on record that these contractors were related to the assessee or were associates or sister concern of the assessee. The Tribunal has also given finding that the Revenue has not discharged the onus that the payment to sub-contractors were not genuine. Thus the Tribunal has come to the conclusion that no disallowances can be made merely on the basis of suspicion, howsoever strong may it be, and the suspicion cannot take the place of actuality. 16. As far as law is concerned, the AO has taken a particular view on the basis of evidence produced before him. On the basis of the said material and materials which were collected by the CIT in revisional proceedings, the CIT has taken a different view. However, in the revisional proceedings under s. 263, it is not open for the CIT to take such a different view in view of the decisions of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (supra). There is nothing on record to suggest that the view taken by the AO is unsustainable at law. This Court has also taken the same view in case of CIT vs. Arvind Jewellers (supra) whereby the order passed by the CIT under s. 263 of the Act was quashed and set aside.” Even Explanation 2 to section 263, listing various instances where orders of AO are to be treated as erroneous causing prejudice to the Revenue, states orders passed without making inquiries or verification which should have been made(italics provided by us), as one of the instances. Meaning thereby that lack of inquiry by itself is not sufficient for exercising revisionary jurisdiction but it is lack of inquiry “which should have been made”. The ITAT Mumbai Bench, in the case of Narayan Tatu Rane vs. ITO (2016) 70 taxmann.com 227 (Mumbai- Trib) held that Explanation 2 to section 263 of the Act does not authorize or give unfettered powers to the Commissioner to revise each and every order. That revision proceedings cannot be initiated if the assessing officer has passed the order after carrying out inquiries which
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a reasonable and prudent officer would have carried out. The relevant findings are as under: 20.Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer.
6.9 In view of the above, the finding of error in the order of the AO by the Ld. Pr.CIT, on account of alleged lack of inquiry, without pointing out the necessity for conducting the same, we find is nothing but having a different opinion on the matter, and therefore, we do not agree that the lack of inquiry resulted in the order passed being erroneous so as to cause prejudice to the Revenue.
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6.10 The exercise of the revisionary jurisdiction in the present case we hold is therefore not in accordance with the law. The order passed by the ld. Pr. CIT u/s. 263 of the Act is accordingly set aside.
The appeal of the assessee is therefore allowed.
Order pronounced in the open court on 14-12-2021
Sd/- Sd/- (RAJPAL YADAV) (ANNAPURNA GUPTA) VICE PRESIDENT ACCOUNTANT MEMBER Ahmedabad : Dated 14/12/2021 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद