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आदेश/Order
PerR.L. Negi, Judicial Member:
The assessee has filed the present appeal against the order dated 31.03.2021 passed by Principal Commissioner of Income Tax, Ludhiana- 1 [for short ’the PCIT’] for the assessment year 2015-16, whereby the
Ld. PCIT has set aside the assessment order passed u/s 143(3)of the Income Tax Act, 1961 [for short ’the Act’] holding the same erroneous and prejudicial to the interest of the revenue and directed the AO to pass assessment order afresh after conducting proper enquiry.
ITA No.27-Chd-2021- M/s Kay Em Kay Industries, Ludhiana 2 2. The brief facts emanating from the record and pleadings of
the parties are that the assessee filed its return of income for the
assessment year under consideration declaring total income of Rs.
3,72,470/-. The case was selected for scrutiny and the AO passed
assessment order u/s 143(3) of the Act and accepted the returned
income. Subsequently, the Ld. PCIT set aside the assessment order
exercising power u/s 263 of the Act.
The assessee has challenged the impugned order passed by the Ld. 3.
PCIT on the following grounds: -
That order passed u/s 263 of the Income Tax Act, 1961 by the ld. Principal Commissioner of Income Tax (Central), Ludhiana is against law and facts on the file in as much he has failed to show as to how the assessment order passed by the Ld. Assessing officer is erroneous in as much as prejudicial to the interest of Revenue.
That the Ld. Pr. CIT was not justified to hold that lack of enquiry on the part of the Ld. Assessing Officer is clearly established from perusal of the record without pin-pointing as to what sort of enquiry should have been made by him.
That the Ld. Pr. CIT was failed to appreciate the import of detailed submissions made during the course of proceedings u/s 263 while coming to the conclusion that the order passed by the Ld. Assessing officer is erroneous in as much as prejudicial to the interest of the Revenue.
Before us, the Ld. counsel for the assessee submitted that the
action of the Ld. PCIT is contrary to the settled principles of law and
contrary to the evidence on record. The Ld. counsel further contended
that the Ld. PCIT has wrongly held that the AO has passed the
assessment order without making proper enquiry. The Ld. counsel
ITA No.27-Chd-2021- M/s Kay Em Kay Industries, Ludhiana 3 invited our intention to page 28 to 30 of the paper book, which is the
copy of notice/letter dated 02.03.2017 and 07.06.2017 issued by the AO
to the assessee calling details and documents in connection with
assessment proceedings u/s 143(3) of the Act. The Ld. counsel further
invited our attention to the copy of point-wise reply to the said letters
submitted before the AO, which are available at page 31 &32,33 &34,35
and 36 & 37 of the paper book, to demonstrate that the AO has passed
the assessment order after conducting enquiries and accepting
explanations of the assessee on each and every point discussed by the
Ld. PCIT in order u/s 263 of the Act. The Ld. counsel further pointed
out that the assessee in its reply to the notice u/s 263 of the Act made
detailed written submissions on merits and on the law points. The Ld.
counsel placing reliance on the judgement of the Hon'ble Supreme Court
in the case of Malabar Industrial Co.Ltd. vs. CIT 243 ITR 83 (SC),
judgment of the Hon'ble Calcutta High Court in the case of Dwjee
Dadabhoy and Co. Vs. SP Jain 31 ITR 872(Cal), Hon'ble Karnataka
High Court in the case of CIT vs. Narayana Pal 98 ITR 422 (Karn.) and
Hon'ble Bombay High Court in the case of CIT vs. Gabriel India
Ltd.203 ITR 108(Bom) submitted that since the order passed by the Ld.
PCIT is not in accordance with the ratio laid down by the Hon'ble
Supreme Court and the Hon'ble High Courts referred above, the same is
liable to be set aside.
ITA No.27-Chd-2021- M/s Kay Em Kay Industries, Ludhiana 4 5. On the other hand, the Ld. departmental representative DR
supporting the order passed by the Ld. PCIT, submitted that since the
AO had passed the assessment order without any proper enquiry, the Ld.
PCIT has rightly set aside the assessment order holding the same
erroneous and prejudicial to the interest of the revenue. The Ld. DR
invited our attention to the Explanation 2 to section 263 of the Act
which contemplates that an order passed by the AO 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 PCIT the order is passed with making enquiries
or verification which should have been made. The Ld. DR further
relying on the cases referred and relied upon by the Ld. PCIT in the
order, submitted that since the impugned order is in consonance with the
settled principles of law, no further action is required in this matter.
The Ld. DR accordingly submitted that the appeal of the assessee is
devoid of any merit and liable to be dismissed.
We have heard the rival submissions of the parties and also
perused the material on record including the cases relied upon by the
parties. As pointed out by the Ld. counsel, the Ld. PCIT has revised the
assessment order passed by the AO basically on the ground of
insufficient enquiry. As pointed out by the Ld. counsel, the assessee has
furnished the details of various expenses debited to P &L Account along
with comparative chart and vouchers in response to the query No. 3,
raised by the AO vide notice/letter dated 02.03.2017. Further, the
ITA No.27-Chd-2021- M/s Kay Em Kay Industries, Ludhiana 5 assessee has placed on record the details of loan and advances. Reply of
the assesee to query No.19 raised by the AO reads as under:-
“Point No.19 As regards details of loans and advances, the detail of the same has been given in schedule ‘F’ attached to Balance Sheet. The loans and advances include advance to others, advance tax, VAT recoverable, TDS recoverable, advance to suppliers, etc. The assessee firm has charged interest on some of the advances given to others. However, interest on advances on which no interest has been charged, has been disallowed by the assessee firm. Accordingly, interest expenditure has been reduced to that extent. Necessary evidence in support of the same are enclosed. As desired, details of sundry sum payable amounting to Rs. 5,26,274/- are enclosed along with proof of payment.”
Similarly, the assessee has stated in reply to query No 5raised by
the AO regarding payments exceeding Rs. 50,000/-in contravention of
section 40A(3) of the Act, that during the year under consideration, the
assessee firm has not made payment exceeding Rs. 20,000/- in
contravention of section 40A(3) of the Act.
Perusal of the copies of the notices issued by the AO during the
course of assessment proceedings and the reply filed along with
documents and details filed in response to the said notices suggests that
the AO has passed the assessment order after due verification and
application of mind on the issues raised by the Ld. PCIT.
ITA No.27-Chd-2021- M/s Kay Em Kay Industries, Ludhiana 6 In the case of Malabar Industries Co Ltd.vs CIT (supra), the Hon’ble
Supreme Court has held that CIT has to be satisfied of twin conditions,
that the order sought to be revised is erroneous and that the order is
prejudicial to the interest of the revenue. The Hon’ble Court further
held that power u/s 263 cannot be invoked to correct each and every
type of mistake committed by the AO. In the case of ITO vs. DG
Housing Projects Ltd.343 ITR 329 (Delhi) the Hon’ble Delhi High Court
has held that revisional power u/s 263 of the Act is normally exercised
in the case of no enquiry and not in the case of inadequate enquiry. In
the present case the Ld. PCIT has revised the assessment order on the
ground of lack of enquiry or inadequate enquiry, which is contrary to
the evidence on record. Further the Ld. PCIT has referred and relied
Explanation 2 to section 263 of the Act, inserted w.e.f. 01.06 2015 to
substantiate his action. The Mumbai Bench of the Tribunal in the case
of Narayan Tatu Rane vs. ITO Mumbai, 70 taxmann.com 227(Mumbai-
Trib.) has held that the explanation does not authorize or gives
unfettered powers to the commissioner to revise each and every order
passed by the AO if in his opinion same has been passed without making
enquiries or verification which should have been made. In the present
case since the AO has passed the assessment order after due application
of mind and after accepting the explanation given by the assessee, the
same cannot be termed as erroneous. We are therefore of the considered
view that the order passed by the AO is not ex facie erroneous,
ITA No.27-Chd-2021- M/s Kay Em Kay Industries, Ludhiana 7 therefore the Ld. PCIT has wrongly directed the AO to pass assessment
order afresh.In our considered view the observation of the Ld. PCIT
that AO has passed the order without making proper enquiries is not
factually correct.
Hence, in view of the discussions made in the foregoing paras in
the light of the cases referred and relied upon by the assessee, we hold
that the findings of the Ld. PCIT that the AO has passed the assessment
order without making proper enquiry is contrary to the evidence on
record. Therefore, the order passed u/s 263 is not in accordance with the
settled principles of law. Hence, we find merit in the contention of the
Ld. counsel for the assessee that the impugned order passed by the Ld.
PCIT is bad in law. We accordingly allow the appeal of the assessee and
set aside the impugned order passed by the Ld. PCIT.
In the result, the appeal of the assessee is allowed.
Order pronounced on 2nd Nov., 2021.
Sd/- Sd/-
( N.K. SAINI) (R.L.NEGI) उपा�य� /Vice President �या�यकसद�य/ Judicial Member Dated : 02.11.2021 “आर.के.”
आदेशक���त,ल-पअ.े-षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकरआयु/त/ CIT
ITA No.27-Chd-2021- M/s Kay Em Kay Industries, Ludhiana 8 4. आयकरआयु/त (अपील)/ The CIT(A) 5. -वभागीय��त�न2ध, आयकरअपील$यआ2धकरण, च4डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड�फाईल/ Guard File
आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar