MIDWAY MOTORS \PRIVATE LIMITED,CUTTACK vs. PR.CIT-1, BHUBANESWAR

It was submitted by the ld. AR that there is delay of 411 days in filing the present appeal, which was due to death of the accountant of the assessee, who was looking after the tax matters of the assessee. The affidavit filed by the assessee has not been found to be false and the reasons given are found to be reasonable. Consequently, the delay of 411 days in filing the appeal is condoned and appeal of the assessee is disposed off on merits.

It was submitted by the ld. AR that the original assessment in the case of the assessee was completed u/s.143(3) of the Act on 22.12.2019 accepting the returned income. It was the submission that the assessment order was the subject matter of revision u/s.263 of the Act by ld. Pr.CIT. It was the submission that the ld. Pr.CIT issued a show cause notice on 10.08.2021 and again on 10.11.2021 to which the assessee had responded by replying on 27.01.2021. it was the submission that the ld. Pr.CIT had raised the issue of the share application money received by the assessee to an extent of Rs.6 crores which was mistakenly shown under the head unsecured loans. The second issue raised was in regard to the other expenses claimed to an extent of Rs.3,59,30,793/-. It was the submission that the assessee had responded to the issue of share application money pending allotment which was shown under the head unsecured loans wherein it was specifically mentioned that the share application money was shown as Rs.6 crores as on 31.03.2017 and 59 lakhs shares have been issued at Rs.10/- each during the financial year 2017-2018 being the immediately succeeding assessment year and the share capital as on 31.03.2018 had been shown at Rs.6 crores. In regard to the expenses it was informed that the amounts were shown in the note 2.25 in the balance sheet. It was the submission that the ld. Pr.CIT in para 3.6 of his order mentioned that the note 2.25 was not to be found. It was the submission that the said Note 2.25 was part of the balance sheet and the AO in the course of original assessment had specifically raised the questions in regard to the said expenditures for which the ld. AR drew our attention to the notice issued u/s.142(1) which reads as under :-

It was submitted by the ld. AR that all these details having been produced before the ld. Pr.CIT, the ld. Pr.CIT did not do any enquiry or verification of any of the evidence produced but by simply saying that the assessee has merely furnished list of share applicants and nothing more which needs through examination, held the assessment order as erroneous insofar as it is prejudicial to the interest of revenue and direct the AO to examined the said issues after granting adequate opportunity of being heard. It was the submission by the ld. AR that in view of the decision of the coordinate bench of this Tribunal in the case of Earth Minerals Company Ltd. passed in order dated 29.08.2022, which has been confirmed by the Hon’ble Jurisdictional High Court in ITA No.24 of 2023, dated 06.03.2022, which followed the decision of the Hon’ble Jurisdictional High Court in the case of Orissa State Police Housing & Welfare Corporation Ltd. [2022] 139 taxmann.com 207 (Orissa), the order passed u/s.263 of the Act being one made without proper enquiry is liable to be quashed.

In reply, ld. CIT-Dr submitted that the assessment order is a non- speaking order and it is a very cryptic order which shows the non- application of mind by the AO. It was the submission that the revenue was not aware of the details of the shareholders and, therefore, the ld. Pr.CIT was right in invoking his powers u/s.263 of the Act to direct an enquiry. It was further submission that the provisions of Section 263 of the Act granted the Pr.CIT discretionary powers in regard to whether to conduct enquiry himself or to direct the AO to do the enquiry. It was further submitted that para 14 of the order of the Hon’ble Jurisdictional High Court in the case of Orissa State Police Housing & Welfare Corporation Ltd. (supra), clearly agrees that the enquiry by the ld. Pr.CIT is not mandatory when he invokes his powers u/s.263 of the Act. It was the submission that the order passed u/s.263 of the Act is liable to be upheld.

We have considered the rival submissions. A perusal of the order of the ld Pr.CIT shows that in regard to the issue of the share capital, more so the share application money pending allotment which has been shown under the head non-current liabilities shows that the assessee has given an explanation in respect of the said share application money received. In regard to the issue of the other expenses also the assessee has given the reply along with the details. In regard to the issue of other expenses, it is also noticed that the issue has been examined by the AO in the course of original assessment by issuance of the notice u/s.142(1) of the Act and a view has also been taken by the AO. This view admittedly has not been shown to be erroneous much less prejudicial to the interest of revenue. A further perusal of the order of the ld. Pr.CIT shows that he has initiated the proceedings on 10.08.2021 and again on 11.10.2021 notice has been issued. The assessee has responded on 26.11.2021. The ld. Pr.CIT did have time till 31.03.2022, however, he proceeded to pass the order on 11.01.2022. When passing his order on 11.01.2022, he has mentioned nothing about enquiry which he has done. A perusal of para 4 at page No.3 of the order shows that the ld. Pr.CIT makes the following comments “From the note for the department, the AO has stated that the thrust of the scrutiny was to examine the cash deposits & evidently no examination has been done during scrutiny on the above issues.” If this is the note that is available on the file, it was very much available to the AO to initiate reassessment proceedings. This has not been done. If the ld. Pr.CIT invokes his powers u/s.263 of the Act on this issue, then it becomes incumbent on the Pr.CIT to do at least a primary enquiry in regard to the reply filed by the assessee. This is because in regard to the share application money, the assessee has categorically mentioned that the amount has been shown in Annexure4 & 4A, the balance sheet in Annexure-2 filed along with reply contained the details of the shares allotted. In regard to the expenses, ld. pr.CIT in para 3.6 shows that the note 2.25 was not to be found but a perusal of the balance sheet which has been produced in the paper book in note 2.25 shows the operating and other expenses break up and the figures in the notice issued u/s.142(1) of the Act tally with the said note 2.25 then how was the AO able to issue this notice u/s.142(1) of the Act without the availability of note 2.25. Thus, clearly the order passed u/s.263 of the Act has been made without doing any enquiry whatsoever after obtaining the reply of the assessee. A perusal of the decision of the Hon’ble Jurisdictional High Court in the case of Orissa State Police Housing & Welfare Corporation (supra), shows that the Hon’ble Jurisdictional High Court has used the words “ even if such enquiry may not be mandatory, there has to be some basis on which the CIT can form such a view”. Thus, the argument of the ld.CIT-DR that enquiry by the ld. Pr.CIT is not mandatory, is not without fetters. If the ld. Pr.CIT deems it not necessary to do his enquiry, his order must show how the mistakes or errors pointed out by him in the assessment order passed by the AO is prima facie erroneous and prejudicial to the interest of revenue. The powers u/s.263 of the Act are not without fetters. In the present case as it is noticed that the order u/s.263 of the Act has been passed without conducting any enquiry after receiving the reply from the assessee, respectfully following the principle laid down by the Hon’ble Jurisdictional High Court in the case of Orissa State Police Housing & Welfare Corporation (supra) and the decision in the case of Earth Minerals Company, referred to supra, the order passed u/s.263 of the Act is found to be unsustainable and consequently quashed.