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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI S. RIFAUR RAHMAN, HONBLE & SHRI RAHUL CHAUDHARY, HONBLE
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of the Learned Principal Commissioner of Income Tax, Mumbai-1 [hereinafter in short “Ld. Pr.CIT”] dated 24.03.2022 for the A.Y.2016-17 passed u/s. 263 of the Income-tax Act, 1961 (in short “Act”).
(A.Y: 2016-17) Siddharth Carbochem Products Ltd., 2. Brief facts of the case are, assessment for A.Y 2016-17 was completed on 14.12.2018 accepting the total income as returned income at ₹.80,60,080/-. Subsequently on the basis of information received from Income Tax Officer, Ward-1(2), Thane that, the purchases effected by assessee from a shell company called M/s. Madison Infraprojects Pvt. Ltd. (in short “MIPL”) amounting to ₹.30,36,67,675/- was not genuine. Hence, prima facie there was reason to believe that the assessee's income has escaped the assessment. The case was reopened u/s. 147 and re-assessment was completed u/s.143(3) r.w.s. 147 of the Act on 25.12.2019 assessing total income at ₹.80,60,080/-.
3. While examination of the records, Pr.CIT, Mumbai -1, observed that, three companies’ M/s. Siddharth Carbochem Products Pvt. Ltd., M/s Rishab Metals & Chemicals Pvt Ltd., and M/s Khandesh Spinning & Weaving Mills are related parties and are dealing with MIPL for accommodation entries. However, while completing the reassessment proceedings u/s 143(3) r.w.s. 147 of the Act the Assessing Officer failed to verify circular nature of the transactions of purchases amounting to ₹.30,36,67,675/- made with MIPL and its whole impact. Further, he observed that MIPL had not submitted any documentary evidence like
(A.Y: 2016-17) Siddharth Carbochem Products Ltd., transport receipts, details of vehicle expenses, copies of octroi receipts, delivery challans etc. Merely accepting the submissions received from MIPL u/s. 133(6) the Assessing Officer has erred in not verifying the facts on record and the order passed u/s.143(3) r.w.s. 147 is erroneous, in so far as it is prejudicial to the interests of the revenue.
4. Further, he observed that while passing the above said order, the Assessing Officer did not attempt to verify the genuineness of transactions, its nature and impact with respect to the facts on record. In view of the above observations, Ld. Pr.CIT issued a notice u/s. 263 of the Act to the assessee giving an opportunity of being heard while proposing why the Assessment Order passed is not to treat as erroneous.
5. In response, assessee filed written submissions through ITBL, for the sake of clarity it is reproduced below: -
“We are in receipt of the above said notice dtd 20.01.2022, calling on us to furnish our reply in respect to your aforesaid notice u/s 263 of the Income Tax Act. 1961. Our Response is produced hereunder" 1. The reasons cited for proceedings u/s. 263 i.e., non verification of transactions in respect of purchases from Madison has been dealt with by the Income Tax Department on various Occasions (A.Y: 2016-17) Siddharth Carbochem Products Ltd., 1. Complete Scrutiny Assessment u/s 143(3) done by the Department in 2018 in which Transactions with Madison were Verified 2. B' Reopening of Assessment u/s 148 in Year 2019 for Verification of Transactions with Madison. In this round of assessment, all the reasons stated in the notice issued by your Honour u/s 263 were precisely the reasons for reopening of Assessment (Ref page 18 - 20 of Paper Book). Our Objections were disposed and rejected (Ref page 21-44 of Paper Book). All Transactions with Madison were called for from us and verified (Ref page 53 - 80 of Paper Book). Notice u/s 133(6) was issued to Madison (Ref page 49-50 of Paper Book) and their response was verified (Ref page 51 - 52 of Paper Book), Order under 143(3) came to be passed a 2nd time (Ref page 81 - 84 of paper Book).
2. Assessment under Sales Tax dtd. 25.06.2018 The assessee would also like to provide the details of MVAT Assessment Order passed by the State Sales Tax Authorities in the detailed paper book. The said assessment Order is final and is a vital evidence for proving the genuineness of the said transaction. The given records strongly vouches for a genuineness of the given sales and purchases effected by the company for the year under consideration.
Assessment under section 143(3) r.w.s. 147 dtd 25.12.2019 The Ld.AO on 27.03.2019 issued a notice of reopening u/s 148 with due approval from your office PCIT-01. The Ld AO gave reasons for reopening based on the information received from ITO Ward 1(2) of the Income Tax Department, relating to the company M/s Madison Infraprojects Private Limited, declaring the transaction amounting to Rs 30,36,67,675/- as a sham transaction. The assessee strongly opposed the said reopening proceedings initiated by the Ld AO by way of Objections to the said reopening as the said facts relating to Madison Infprojects Pvt Ltd were duly scrutinized in the Assessment Proceedings u/s 143(3)
(A.Y: 2016-17) Siddharth Carbochem Products Ltd., The given objections were disposed by the Ld AO via Order of disposal of Objections. Thereafter Notice us 142(1) was issued dtd 20 11 2019 asking for comprehensive documents including the following: Details of Invoice wise purchases Description of item Invoice Value Delivery Challans. Lorry receipts relating to Madison Infraprojects P. Ltd. Hence the Purchase Transactions being referred in your notice have been verified on 2 occasions by the Department in 2018 and 2019 and orders came to be passed u/s 143(3) and 143(3) rws 147.
Furthermore, these transactions have been verified by the Sales Tax and VAT Authorities (Ref page 62-68 of Paper Book) 3. Furthermore, these transactions have been audited as a part of Tax Audit by independent Auditor (Ref page 85 100 of paper Book) and by Statutory Auditor (Ref page 101-111 of Paper Book). Hence, we request your Honour to drop these proceedings as our books have been accepted after scrutiny and assessment by various authorities as above. There is no error done in any of the proceeding. Without prejudice to the aforesaid, it is submitted as under 1. Findings of the 1st Assessment u/s 143(3) dtd 14.12.2019 The assessee also would like to submit that the 1 Assessment order was made U/s 143(3) after complete scrutiny and the learned AO had asked for complete details relating to accounts and records of the company including data relating to purchases, sales, creditors, debtors, Income Tax Audit Report us 44AB, VAT Returns, ledger confirmation etc. The assessee also submitted the complete details asked for in satisfaction of the Ld AO this included complete data relating to the company M/s Madison Infraprojects Private Limited.
(A.Y: 2016-17) Siddharth Carbochem Products Ltd., The Ld AO after due examination of records available with him, applying his mind passed an order u/s 143(3), accepting the return filed by the assessee company without any addition. Details relating to Assessment Proceedings u/s 143(3) are annexed in for your perusal in the detailed paper book enclosed along with the given submission. In response to the said notice, Assessee Company provided a detailed reply dtd. 03.12.2019 including explanation relating to the information sought by the LD AO. Further reply was also provided dtd. 11.12 2019 whereby further clarification was provided by us, as was required in the Assessment proceedings. After due consideration of the given submissions and explanations relating to the delivery challans, lorry receipts and fright inward and outward for the transactions with M/s Madison Infraprojects Private Limited and applying his mind. The Ld.AO passed a final order u/s.143(3) r.w.s.
The details relating to reopening proceedings is annexed in the paper book enclosed.
Calling of Information u/s 133(6) from M/s Madison Infraprojects Private Limited The Ld AO during the said reopening proceedings camed out an independent investigation to verify the records and genuineness of the transaction effected by the assessee from the company. The Ld AO without intimating the assessee issued a notice u/s 133(6) to M/s Madison infraprojects Private Limited dtd 19.11.2019 asking for certain information. The said information included the following: Copies of Delivery, challans, lorry receipts octroi receipts against every Tax Invoice Stock Register Log book stating day wise trip, lorry number. etc. The said details along with explanation were duly serviced by the company M/s Madison Infraprojects Private Limited.
(A.Y: 2016-17) Siddharth Carbochem Products Ltd., After independent investigation by the Ld AO, and application of mind, the assessment order under section 143(3) r.ws 147 came to be passed. The copies of the given notice and reply thereon is annexed herewith in the paper book enclosed hereunder. It is further submitted that the Assessment Order made by the Ld.AO us 143(3) and u/s 143(3) r.w.s. 147 is also not prejudicial to the revenue as the assessee has made a profit on the transaction carried out with Madison and has also paid taxes to the revenue and the details were submitted to the Ld AO which were examined and accepted in both the Orders. The assessee humbly submits that the AO while making the assessment had examined the accounts, made enquiry, applied his mind to the facts and circumstances of the case and passed assessment order. The AO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such conclusion should not be termed to be neither erroneous nor prejudicial to the revenue.
Furthermore, Reliance is placed on the following Judicial Pronouncement a) As held by BOMBAY HIGH COURT in a well-known decision of BOMBAY HIGH COURT in case OF CIT vs Gabriel India Ltd (203 ITR 108), in the judgment it is said that- An order cannot he termed as erroneous unless it is at variance with the law. If an AO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous simply because the order should have been written more elaborately. The lack of enquiry making the order erroneous, has to be coupled with prejudice to the interest of the revenue. As explained by BOMBAY HIGH COURT in above case, there must be some prima facie material on record to show that the tax which was lawfully eligible had not been imposed or that by application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been impose On perusal of the Assessment proceedings, it is evident that all the points raised in the notice u/S 263 have been considered by the AO during both the assessments, and had taken a stand as justified under the law. The absence of narratives in the asst order should not lead to conclusion that order is made without proper verification.
(A.Y: 2016-17) Siddharth Carbochem Products Ltd., b) in case of HONDA SIEL power products ltd, the DELHI HIGH COURT held that while passing an order u/s 263 the CIT has to examine not only the assessment order, but the entire record of profits, since the assessee has no control the way an assessment order is drafted and since, generally, the issue which are accepted by the AO do not find mention in assessment order and only those points are taken note of on which the assessee explanation are rejected and addition /disallowance are made, the mere absence of discussion would not mean that the AO had not applied his mind to the said provisions, In this connection, reference is invited to the decisions in CIT vs MULCHAND BAGRI (108 CTR 206 CAL), CIT vs D.P KARAI (266 ITR 113 GUJ) AND PAUL MATHEWS VS CIT (263 ITR 101 KARL).
Limitation of Proceedings u/s 263 Without prejudice to the above contentions, the assessee would humbly like to put forward that the Notice issued u/s 263 is beyond the limitation time of 2 years from the end of the financial year from the date of passing of order. In the given case the 1st Assessment Order passed u/s 143(3) examining the issue relating to Purchases from Madison has been passed on 14.12.2018, hence the Revision Proceedings u/s 263 is time barred 7. Conclusion In view of above discussion, we hereby request you to drop the proceedings u/s 263 as the AO had already verified and found as genuine the Purchase transactions from Madison. Neither is the assessment erroneous nor prejudicial to the revenue. in case, your lordship desires more information or are not totally satisfied with our aforesaid explanation, we request for a personal hearing in this matter."
6. After considering the submissions of the assessee, Ld. Pr.CIT came to the same conclusion that Assessing Officer has not verified the transactions with MIPL and further, he observed that MIPL is a paper company as although the company has turnover of more than ₹.60 crores
(A.Y: 2016-17) Siddharth Carbochem Products Ltd., it has expenses amounting to ₹.1,65,415/- only while its net profit is only ₹.29,935/-. Further, he observed that Assessing Officer should have actually visited the premises of the supplier company to verify its genuineness, if necessary. Further, he observed that assessee has recorded sales to only two entities, one of which is the assessee and both these entities are having registered office at the same address. Further, he rejected the contention of the assessee that limitation period for issue of revision u/s. 263 of the Act is barred. Ld. Pr.CIT by relying on amended Explanation (2) clause (a) to section 263(1) of the Act, and by relying on certain case law came to the conclusion that assessment was completed without necessary enquiries as warranted on facts of the case is erroneous in so far as it is prejudicial to the interests of revenue.
After observing the above Ld. Pr.CIT remitted the issue back to the file of the Assessing Officer to reframe the assessment denovo after conducting all necessary enquiries and verification as warranted facts of the case, after giving proper opportunity of being heard to the assessee.
Aggrieved assessee is in appeal before us raising following grounds in its appeal: - (A.Y: 2016-17) Siddharth Carbochem Products Ltd., “1. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax, has erred in exercising jurisdiction under section 263 of the Act and passing the impugned order dated 24th March, 2022, without fulfilling the jurisdictional conditions provided in section 263 of the Act.
2. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax, has erred in issuing the notice U/S 263, beyond the limitation time of two years from the end of the financial year from the date of passing of the order U/S.143(3) of the ACT. In the given case the 1st assessment order was passed U/S 143(3) on 14.12.2018, hence the revision proceedings U/S 263 is time barred 3. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax has erred in holding that the assessment order date 25th December, 2019 passed under section 143(3) r.w.s. 147 of the Act is erroneous and prejudicial to the interest of the revenue? 4. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax has erred in holding that the Assessing Officer has failed to conduct an enquiry as warranted and, hence, Explanation 2 to section 263 of the Act is applicable.
5. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax has erred in holding that Madison Infraprojects Pvt. Ltd. is a paper company.
6. The Appellants crave leave to add, alter, amend, delete, modify the grounds of appeal.”
At the time of hearing, Ld. AR brought to our notice original assessment completed u/s. 143(3) of the Act which is placed on record in the Paper Book and in which Assessing Officer has verified the transactions, which Ld. Pr.CIT has alleged as bogus. Further, he brought to our notice assessment completed u/s. 143(3) r.w.s. 147 of the Act in which the assessment was reopened only in order to verify the transactions alleged with MIPL and assessee has submitted all relevant
(A.Y: 2016-17) Siddharth Carbochem Products Ltd., documents before the Assessing Officer. He submitted that Assessing Officer has duly verified the same and accepted the submissions made by the assessee which is one of the possible view taken by the Assessing Officer after due verification of all the relevant documents submitted before him. He brought to our notice initiation of proceedings u/s. 263 of the Act in which same issue is raised by the Ld. Pr.CIT and even before him assessee has submitted all relevant documents. Further, he brought to our notice all the notices u/s. 142(1) raised by the Assessing Officer in original as well as re-assessment proceedings and the relevant submissions of the assessee in both the assessment proceedings are placed on Paper Book. He submitted that Ld. Pr.CIT has not brought on record any new material except observing certain issues which assessee has explained in detail and he prayed that initiation of proceedings u/s. 263 of the Act is not proper and Assessing Officer has taken one of the possible view and now Ld.Pr.CIT is imposing his view on the Assessing Officer which is against the principles of 263 proceedings.
On the other hand, Ld. DR submitted that Assessing Officer has not verified relevant documents particular when these transactions carried are circular transactions. In this regard he relied on Page No. 48 and 50 of (A.Y: 2016-17) Siddharth Carbochem Products Ltd., the Paper Book and he supported the findings of the Ld. Pr.CIT for invoking Explanation 2(a) of section 263(1) of the Act.
Considered the rival submissions and material placed on record, we observe that the issue of circular transactions and other purchases and sales transactions with MIPL were main issue in the original assessment as well as re-assessment. From the record, we observe that assessee has submitted all relevant informations/documents related to these transactions before the Assessing Officer not in one proceeding but in two subsequent proceedings and the Assessing Officer has applied his mind in verifying these transactions with MIPL specifically. He came to the conclusion that the transactions are proper and he has taken one of the possible view by satisfying himself and it is another matter that Assessing Officer has not discussed anything in details in his order. However, Ld. Pr.CIT while verifying the assessment records and came to the conclusion that order is erroneous considering the fact that Assessing Officer has not verified and applied proper verification while completing the assessment proceedings, as per records suggest that verification is not to his satisfaction. But it is not the case of the Ld. Pr.CIT that Assessing Officer has not carried the verification, but not according to his satisfaction.
(A.Y: 2016-17) Siddharth Carbochem Products Ltd., Further, we observe that he has come to the conclusion that Assessing Officer, if required, should have visited personally to the offices of the assessee as well as the suppliers to verify. In our view, it is conscious call on the part of the Assessing Officer, but this specific direction given by Ld. Pr.CIT is only a suggestion and when Ld. Pr.CIT takes up the case he has to complete the proceedings to the logical conclusion and by bringing on record how the case of the assessee is erroneous as well as how it is prejudicial to the interest of the Revenue. However, he merely remitted this issue back to the file of the Assessing Officer with his own version of verification and suggestion to complete the assessment denovo. It is against the soul of provisions of section 263 of the Act. Therefore, we do not find any reason to remit back the same issue to the same Assessing Officer to verify the same transactions which Ld. Pr.CIT has not satisfied with the verification, may be erroneous but he has to give clear finding himself that how it is prejudicial to the interest of the Revenue. Various courts have held that it is the duty of the Ld. Pr.CIT normally bring on record how it is erroneous but also how it is prejudicial to the interest of the Revenue, he has to satisfy twin conditions laid down under the provisions of section 263 of the Act. Therefore, remitting issue back to the file of the Assessing Officer with the new directions of verification is (A.Y: 2016-17) Siddharth Carbochem Products Ltd., not proper and not justified. Accordingly, ground raised by the assessee is allowed.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 15th February, 2023