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Income Tax Appellate Tribunal, KOLKATA-PATNA ‘e-COURT’, KOLKATA
Before: Dr. Manish Borad & Shri Sonjoy Sarma
Per Dr. Manish Borad, Accountant Member:- This appeal filed by the assessee is directed against the order of ld. Principal Commissioner of Income Tax
Assessment Year: 2018-2019 Sriram Enterprises (Central), Patna dated 14th March, 2022 for assessment year 2018-19.
The grounds of appeal raised by the assessee read as under:- (1) For that the grounds hereto are without prejudice to each other (2) For that the order passed by Id Principal Commissioner of Income-tax (Central), Patna is bad both in law and on facts. (3) For that the order passed by Id Principal Commissioner of Income-tax (Central), Patna is based on presumption, surmise and conjectures. (4) For that the Id Principal Commissioner of Income-tax (Central), Patna passed the order ignoring the fact that all the points which were raised in the notice had duly been examined by the Id AO (5) For that the order passed by Id Principal Commissioner of Income-tax (Central), Patna is wholly perverse in as much as the same are contrary to and at variance with material available on record. (6) For that in any view of the matter the order passed by the Id Principal Commissioner of Income-tax (Central), Patna to the extent as aforesaid is bad and therefore fit to be set aside.
3. The Registry has pointed out that the appeal is time barred by 313 days. In order to explain the delay, the assessee has annexed an application alongwith the appeal for condonation of delay.
3.1. Shri Roshan Kumar Agrawal, Partner of the assessee- Company has filed application for condonation of delay, wherein it has been pleaded that Shri Manoj Kumar Singh
Assessment Year: 2018-2019 Sriram Enterprises was entrusted to file in time, but he was seriously sick for a prolonged period and unfortunately expired and, therefore, appeal could not be filed within time and thereafter in the process of searching a new Tax Consultant, the appeal become time-barred by 313 days. After taking into consideration the explanation given by the partner of the assessee-company and objection raised by the ld. D.R., we condone the delay and proceed to decide the appeal on merit.
Brief facts of the case are that the assessee is a partnership firm engaged in the business of Government Civil Contractor & Sub-contractor and involved in the infrastructure development and maintenance such as roads, bridges, railways tunnels, etc. Income of Rs.4,25,44,130/- declared in the e-return for A.Y. 2018- 19, furnished on 30.09.2018 and the same has been processed under section 143(1) of the Act on 28.11.2019. During the year under consideration, survey proceedings under section 133A were carried out on 21.03.2018. Thus, the assessee’s case was selected for compulsory scrutiny followed by service of notice under sections 143(2) and 142(1) of the Act. Detailed questionnaires issued under section 142(1) of the Act to which necessary submissions/details/information/documents were furnished electronically and hard-copy was also placed. The ld. Assessing Officer after examining these details and after calling for more information and considering the Net Profit rate trend, which is on higher side accepted the returned income. Thereafter ld. Pr. CIT
Assessment Year: 2018-2019 Sriram Enterprises called for the assessment records and observed that on one hand, the assessee paid the advance tax of Rs.1,10,00,000/- but after claiming TDS and TCS, has claimed a net refund of Rs.1,79,11,640/-. Ld. PCIT also noted that the trade payables were almost 35% of the total turnover. Ld. PCIT also examined the details of sundry creditors exceeding Rs.5,00,000/- each and noted that the ld. Assessing Officer has failed to carry out necessary inquiry/verification about the creditworthiness and genuineness of the expenditure. Accordingly show-cause notice under section 263 of the Act was issued. We are extracting below the relevant part of the show-cause notice, (list of sundry creditors, above Rs. 5 lakhs is not extracted):- To M/s Sriram Enterprises (PAN: AARFS8853J), Sri Ram Tower, M.P.D. Road, Near Bhagwan Pustakalaya, Naya Bazar, Bhagalpur - 812002. Sir, Sub : Show-cause notice u/s 263 of the I.T. Act, 1961 in your case for the A.Y. 2018-19 against order u/s 143(3) of the I.T. Act, 1961 dated 02.09.2021 - Reg. - Please refer to the above. The assessment order u/s 143(3) of the LT. Act, 1961 for Assessment Year 2018-19 in your case was passed by the AC IT, Central Circle-1, Patna on 02.09.2021 ’ accepting the returned total income of Rs. 4,25,44,130/- as the assessed income for the year. On examination of the available assessment records, it is seen that the ACIT, Central Circle-1, Patna, the assessing officer in your case, did not inquire properly the Trade Payables. As per details, you claimed total Trade Payables at Rs. 28,99,43,867.43. The details of these Trade Payables are Liability for Goods & Services from total 104 persons amounting to Rs. 13,95,65,310/-, Liability for Subcontract from total 11 persons amounting to Rs. 14,53,78,938/- and Liability for Fixed 4
Assessment Year: 2018-2019 Sriram Enterprises Assets from total 4 persons amounting to Rs. 49,99,619.34. A list containing only names and amounts of sundry creditors was provided by you. However, on perusal of Profit & Loss A/c it has been found that you claimed expenses for consumption of raw materials amounting to Rs. 35,48,88,327.94 and Sub-Contract Charges amounting to Rs. 19,02,77,614/-. The Liability for Goods & Services is 39% of expenses for consumption of raw materials and Liability for Sub-Contract is 76% of sub-contract charges which is unusual. x x x x x x x x x x x x …………… Detail of Sundry Creditors above Rs.5,00,000/- (Sr. No.1 to 64) x x x x x x x x x x x x ………………………. The assessing officer failed to carry out necessary inquiry/verification on the issue to reach to a logical, factual conclusion which he was duty bound to perform as an assessing officer. The above inaction on the part of the assessing officer clearly makes the order passed by the assessing officer on 02.09.2021 erroneous so far as interest of revenue is concerned, as an issue involving substantial ramification of revenue was erroneously concluded without proper inquiry/verification. Thus, the above omission on the part of the assessing officer is hit by explanation 2(a) of the Section 263 of the Income Tax Act, 1961 as the order of the assessing officer was passed without making inquiries or verification which should have been made. Sd/- (Sanjeev Sharma) Pr. Commissioner of Income Tax (Central), Patna.”
5. In reply to the show-cause notice, assessee filed a written submission on 15.02.2022 along with the list of liabilities. The assessee also submitted detail of each of the sundry creditors specifying the transactions entered into with them, from whom purchase of TMT/HR Coil,
Assessment Year: 2018-2019 Sriram Enterprises purchase of WMM/GSB, purchases of stone chips etc. were shown and the same has been reproduced in the impugned order at pages no. 15 to 29. The ld. PCIT thereafter noticed that information is submitted in respect of only 26 entities against 64 entities mentioned in the show-cause notice, who are sundry creditors above Rs.5,00,000/-. Therefore, he was not satisfied with the replies to the show-cause notice. Ld. PCIT, therefore, held that the order of ld. Assessing Officer is not only as erroneous but also prejudicial to the interest of revenue and directed the ld. Assessing Officer to pass fresh assessment order observing as under:- It is also seen that information is submitted in respect of only 26 entities against 64 entities mentioned in the show cause notice who are sundry creditors above Rs. 5,00,000/- for the A.Yr. 2018- 19 (F.Y. 2017-18) in respect of the assessee. On perusal of the reply and above discussion also clearly indicates that the assessee has not responded to the issues raised vide the show cause notice u/s 263 of I. T. Act, 1961. The huge amount of sundry creditors, backed up by unreliable and insufficient evidences submitted by the assessee does not satisfy the query raised in the show cause notice. It is reiterated that the Assessing Officer did not made any efforts to verify the genuineness of the transactions leading to sundry creditors.Mere receipt of list sundry creditors from the assessee cannot be said as enquiry in the matter. The A.O. should have verified the issue further on the basis of the list provided by the assessee during the assessment proceeding. The issue involved huge ramification of revenue. Considering that the suppliers of material will not supply anything without an advance or immediate payment, that too, for suppliers who themselves are shown as traders. Persons located far away for example in Kolkata allegedly supplied tonnes of materials only to the assessee and based on alleged verbal orders. As discussed above, the invoices received, as printed, from various parties are identical in use of paper and printing. No proper trader or genuine person will make a genuine supply by issue of bills with continuous invoice numbers as has been in the case of the assessee. 6
Assessment Year: 2018-2019 Sriram Enterprises The above facts and surrounding circumstances like payment of advance tax suggest that the assessee has obtained accommodation entries just to reduce its taxable income. Apparently, no material is received until proved by the assessee with documentary evidence and record of consumption or stock. Also, the Assessing office would require to verify the genuineness of the vehicles used in the transportation of the materials.
In view of the facts and legal position and as per the materials on record, it is concluded that the A.O. had failed to verify the issue, as discussed above, and the consequent order passed by him is not only erroneous but also prejudicial to the interest of the revenue. The main condition to be satisfied for invoking action u/s 263 is that the A.O. has failed to make required enquiry and investigation in issues having a substantial bearing on the income of the assessee. Consequently, in exercise of the jurisdiction conferred by section 263 of the Act, the said order of assessment u/s 143(3) dated 02.09.2021 passed by the A.O. is cancelled. The assessing officer is directed to pass a fresh assessment order considering all the issues including the issues raised in the cancelled order and as mentioned in this order and re-compute the assessee’s income after making proper enquiries/verification in respect of the issue discussed above, and after giving the assessee due opportunity of being heard. Issue copy of the order to the assessee”.
Being aggrieved, the assessee is now in appeal before the Tribunal.
Ld. Counsel for the assessee submitted that the assessee-company is regularly engaged in the business of civil construction and turnover has raised consistently from Rs.41.41 cr, during A.Y. 2016-17 to Rs.82.39 cr, during A.Y. 2018-19. He further submitted that books of account are regularly maintained and duly audited and have not been rejected by the ld. Assessing Officer and Net Profit rate around 6.66% has been declared as against Net Profit rate of 5.64% in the immediately preceding 7
Assessment Year: 2018-2019 Sriram Enterprises assessment year. It is submitted that the Gross Revenue Turnover of the assessee-firm has neither been disputed by the ld. Assessing Officer nor by the ld. Pr. CIT. Sundry creditors have been alleged to be excessive even though the assessee had filed complete details during the course of assessment proceedings as well as before the ld. Pr. CIT. He submitted that when the assessee is showing fair Net Profit rate consistently for past many years and the same has been accepted by the revenue authorities in the past, there seems no reason to doubt the expenditure, when revenue is not in dispute. He also submitted that the ld. Assessing Officer has conducted extensive inquiry, which covers the heads of Profit & Loss Account and Balance- sheet and after being satisfied with the details filed by the assessee took one of the possible view as permissible in law, which are duly backed by the documentary evidences filed by the assessee. Ld. Counsel stated that it is not a case of no inquiry or inadequate inquiry and ld. Assessing Officer has conducted extensive enquiry and made proper application of mind. He further referred to the judgment of the Hon’ble Patna High Court in the case of Shyam Bihari -vs.- Commissioner of Income Taxrecord & Another (2012) 345 ITR 283, wherein the Hon’ble Jurisdictional High Court has held that in the nature of business of civil construction, 6% Net Profit rate is reasonable. Ld. Counsel for the assessee submitted that the assessee’s Net Profit rate is much better than the rate held to be reasonable by Assessment Year: 2018-2019 Sriram Enterprises the Hon’ble Jurisdictional High Court and, therefore, even if the book results are not accepted, no prejudiced would be caused to Revenue. He thus submitted that the order of ld. Assessing Officer is neither erroneous nor prejudicial to the interest of the revenue.
On the other hand, ld. D.R. vehemently argued referring to the finding of ld. PCIT and stated that the assessee failed to furnish complete replies about the sundry creditors asked by the ld. PCIT, which indicate that the creditworthiness and genuineness of the sundry creditors were doubtful and, therefore, ld. Assessing Officer needs to examine them afresh in light of the directions given in the impugned order.
We have heard rival contention and perused the records placed before us. Assumption of jurisdiction under section 263 of the Act and correctness of the Revisionary proceeding are in challenge before us. Section 263 of the Act has a direct bearing on the controversy, therefore, 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. 9
Assessment Year: 2018-2019 Sriram Enterprises Explanation- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."
Assessment Year: 2018-2019 Sriram Enterprises 8.1. On 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 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 Assessment Year: 2018-2019 Sriram Enterprises fundamental tests propounded in various judgments relevant for judging the action of the ld. Pr. CIT taken u/s 263.
8.2. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) has laid down following ratio with regard to provisions of section 263 of the Act:
“There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)”.[Emphasis Supplied] 8.3. Hon’ble Apex Court in the case of CIT vs. Max India Limited as reported in 295 ITR 0282 has held that: “ 2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase "prejudicial to the interest of the Revenue" under s. 263 has to be read in conjunction with the expression "erroneous" order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to Assessment Year: 2018-2019 Sriram Enterprises the interest of the Revenue. For example, when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law.” 8.4. Hon'ble Madhya Pradesh High court in the case of CIT vs. Associated Food Products (P) Ltd as reported in 280 ITR 0377 has held that:
In view of the aforesaid pronouncement of law and taking into consideration the language employed under s. 263 of the Act, it is clear as crystal that before exercise of powers two requisites are imperative to be present. In the absence of such foundation exercise of a suomoto power is impermissible. It should not be presumed that initiation of power under suomoto revision is merely an administrative act. It is an act of a quasi-judicial authority and based on formation of an opinion with regard to existence of adequate material to satisfy that the decision taken by the AO is erroneous as well as prejudicial to the interests of the Revenue. The concept of "prejudicial to the interests of the Revenue" has to be correctly and soundly understood. It precisely means an order which has not been passed in consonance with the principles of law which has in ultimate eventuate affected realization of lawful revenue either by the State has not been realized or it has gone beyond realization. These two basic ingredients have to be satisfied as sine qua non for exercise of such power. On a perusal of the material brought on record and the order passed by the CIT it is perceptible that the said authority has not kept in view the requirement of s. 263 of the Act inasmuch as the order does not reflect any kind of satisfaction. As is manifest the said authority has been governed by a singular factor that the order of the AO is wrong. That may be so but that is not enough. What was the sequitur or consequence of such order qua prejudicial to the interest of the Revenue should have been focused upon. That having not been done, in our considered opinion, exercise of jurisdiction under s. 263 of the Act is totally erroneous and cannot withstand scrutiny. Hence, the Tribunal has correctly unsettled and dislodged the order of the CIT. [Emphasis supplied]
Assessment Year: 2018-2019 Sriram Enterprises 8.5. In the light of the provisions of section 263 of the Act and a settled position of law, powers u/s 263 of the Act can be exercised by the Pr. Commissioner/Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and also prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the judgment of Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71 taxmann.com 272 (Bombay). 8.6. This view is further supported by the decision of the Hon'ble Gujarat High Court in the case of Shri Prakash Bhagchand Khatri in Tax Appeal No. 177 with Tax Appeal No.178 of 2016, wherein the Hon'ble Gujarat High Court was seized with the following substantial question of law:- "Whether the Tribunal is right in law and on facts in upholding the order passed by the CIT under section 263 of the Act on merits and still storing the issue of allowability of deduction under section 54 of the Act to the file of Assessing Officer even though the working of allowability of deduction under section 54F is available in the order under section 263 which is not disputed by the assessee before ITAT."
Assessment Year: 2018-2019 Sriram Enterprises 8.7. We find that the Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar reported in 335 ITR 83 has held that where it was discernible from record that the A.O has applied his mind to the issue in question, the ld. CIT cannot invoke section 263 of the Act merely because he has different opinion. Relevant observation of the High Court reads as under:
"63. We find the Hon'ble Delhi High Court in the case of Vikas Polymer reported in 341 ITR 537 has held as under: “We are thus of the opinion that the provisions of s. 263 of the Act, when read as a composite whole make it incumbent upon the CIT before exercising revisional powers to: (i) call for and examine the record, and (ii) give the assessee an opportunity of being heard and thereafter to make or cause to be made such enquiry as he deems necessary. It is only on fulfillment of these twin conditions that the CIT may pass an order exercising his power of revision. Minutely examined, the provisions of the section envisage that the CIT may call for the records and if he prima facie considers that any order passed therein by the AO is erroneous insofar 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 enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirements of the section are manifestly for a purpose. Merely because the CIT considers on examination of the record that the order has been erroneously passed so as to prejudice the interest of the Revenue will not suffice. The assessee must be called, his explanation sought for and examined by the CIT and thereafter if the CIT still feels that the order is erroneous and prejudicial to the interest of the Revenue, the CIT may pass revisional orders. If, on the other hand, the CIT is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the Revenue, he may choose not to exercise his power of revision. This is for the reason that if a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, but neither the query nor the answer were reflected in the assessment order, this would not Assessment Year: 2018-2019 Sriram Enterprises by itself lead to the conclusion that the order of the AO called for interference and revision. In the instant case, for example, the CIT has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment. Assuming it to be so, in our opinion, this does not justify the conclusion arrived at by the CIT that the AO had shirked his responsibility of examining and investigating the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the CIT was duly reflected in the respective assessments of the partners who were I.T. assessees and the unsecured loan taken from M/s Stutee Chit & Finance (P) Ltd. was duly reflected in the assessment order of the said chit fund which was also an assessee.”
Since in the instant case the A.O. after considering the various submissions made by the assessee from time to time and has taken a possible view, therefore, merely because the DIT does not agree with the opinion of the A.O., he cannot invoke the provisions of section 263 to substitute his own opinion. It has further been held in several decisions that when the A.O. has made enquiry to his satisfaction and it is not a case of no enquiry and the DIT/CIT wants that the case could have been investigated/ probed in a particular manner, he cannot assume jurisdiction u/s 263 of the Act. In view of the above discussion, we hold that the assumption of jurisdiction by the DIT u/s 263 of the Act is not in accordance with law. We, therefore, quash the same and grounds raised by the assessee are allowed." 8.8. 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.
(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.
Assessment Year: 2018-2019 Sriram Enterprises (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law
(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.
(vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.
(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction.
(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision
Assessment Year: 2018-2019 Sriram Enterprises of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 8.9. Apart from above stated broader principles, one more principle needs to be added in view of the judgment of Hon’ble Delhi High Court in the case of ITO vs. D.G. Housing Projects Ltd. [2012] 343 ITR 329 (Delhi) that the CIT as to examine and verify the issue himself and give a finding on merits and form an opinion on merits that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue. Relevant extract is reproduced below:
“In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent’s computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further 18 Assessment Year: 2018-2019 Sriram Enterprises enquiry to verify and find out whether the order passed is erroneous or not.”
In the light of the judicial prudence in regard to the revisionary proceedings, most important judgments passed by the Hon’ble Apex Court in the case of Malabar Industries 243 ITR 83 and the judgment of Hon’ble Delhi High Court in the case of D.G. Housing Projects Limited (2012) 343 ITR 329, we need to inquire the facts of the case. Firstly, we examine whether ld. PCIT has rightly assumed jurisdiction under section 263 of the Act. Now for assuming jurisdiction ld. PCIT has to satisfy himself whether the order of ld. Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue. Now in the instant case, the assessee was subjected to survey proceedings and the case of the assessee was selected for compulsory scrutiny. Certainly, it is not a normal scrutiny case but a special scrutiny where all the details in the course of survey as well as statements recorded in the survey proceedings have to be examined at length by the ld. Assessing Officer and even immediate Senior Officer to Assessing Officer has also to be updated about such proceedings. We note that after selecting the case for scrutiny, ld. Assessing Officer has detailed questionnaires contained in Annexure-6 to the notice under sub-section 1 of section 142 of the Act dated 17.02.2021, which is placed at page 28 of the paper book and the information called reads as under:-
Assessment Year: 2018-2019 Sriram Enterprises Reason for selection :- (1) Claim of Large Value Refund (2) High ratio of refund to TDS. (3) Large refund claimed out of advance tax (Business). With respect to Income for the year under consideration and the claim of refund during the year, kindly submit the below specified details: Furnish computation of income for the relevant AY.
Provide a brief note about the nature of business activity carried out by 2. you during the year under consideration. Furnish the details of deductions, exemptions and rebate claimed during 3. the year along with supporting documents. Furnish the statement of set off/adjustment of current year/carried 4. forwarded loss against any income of the year under consideration. Provide the comparison of income reported, 5. deductions/exemptions/rebate claimed, current year/carried forwarded loss set-off/adjusted, advance tax paid, self-assessment tax paid, TDS deducted, total tax paid, refund claimed for the current year under consideration and previous two years. Provide the comparison of sales/turnover, gross profit, net profit, GP 6. ratio, NP ratio for the year under consideration and previous two years. Provide the justification of large refund claimed in ITR vis-a-vis TDS 7. deducted for the assessment year under consideration.
8. Reason for refund claimed, however advance tax was made on the basis income, reason for deviation with documentary evidences (calculations). Please reconcile your income with 26AS, 3CD and ITR alongwith detailed 8. clarification/justification and supporting evidences.
10. In reply to the notice dated 15.12.2020, the assessee furnished submissions on 26.12.2020 and the contents of the same are extracted below:-
Assessment Year: 2018-2019 Sriram Enterprises Assessment Year: 2018-2019 Sriram Enterprises Assessment Year: 2018-2019 Sriram Enterprises Assessment Year: 2018-2019 Sriram Enterprises
Now after conducting the first round of inquiry issuing notice under section 142(1) on 15.12.2020, the ld. Assessing Officer considering the reply of the assessee furnished on 26.12.2020 called for further more information vide letter dated 17.02.2021. In the said notice, the assessee was asked to produce books of account, reply to the various Bank accounts, which were inventorised during the survey proceedings, brief note about the business activity of the firm, details of ongoing projects, year-wise and project-wise investment, computation of Work-in-Progress, reply of the statement on oath recorded during survey proceedings and further called for the reply to the following issues:- You are requested to furnish:- 1. Year-wise investment made in the construction of said building with sources out of which investment in construction of said building has been made and 2. Why the investment in the said building may not be treated as your undisclosed investment as it is not disclosed in your balance sheet. 24
Assessment Year: 2018-2019 Sriram Enterprises
The building was valued by the Registered Valuer at Rs. 2.71 crores, please furnish its valuation as per books of account and explain the difference, if any. 17. During course of survey cash amounting Rs. 16,76,500/- was found. Since no books of accounts was found, hence, please explain why the cash found should not be treated as unexplained money u/s 69A of the Income Tax Act,1961. In this connection, question 9 of statement on oath recorded of Shri Roshan Kumar Agarwal partner of M/s Sri Ram Enterprises on 27.03.2018 after issuing of summon u/s 131(1) and its reply is appended below:-
In reply to question no. 13 of statement on oath of Sri Roshan Kumar Agarwal recorded during u/s 131(1) on 27.03.2018, he admitted to disclose income of Rs. 7,00,00,000/- approx, in AY-2018- 19 (FY-2017-18) and committed to pay tax of Rs. 1,25,00,000/- by 31.03.2018 and said that balance tax will be paid in next Financial year, which is appended below: - You are requested to explain how the income of Rs. 7,00,00,000/- has been offered for taxation in AY-2018-19(FY-2017- 18) over and above income disclosed last year and how the taxes thereon has been paid.
Please submit Trading account, P & L accounts and Balance sheet as on date of survey and consolidated trading, P & L, B/sheet for the period 01.04.2017 to 31.03.2018. 20. Please furnish details of investment made in immovable/movable properties during the year the F.Y. 2017-18 and explain with corroborative documents and evidence the sources out of which such investment has been made. 21. You are also requested to furnish name, complete address, PAN of all the sundry ^reditors/debtors/Loan/Advances and furnish copy of ledgers in your books of accounts in case of sundry creditors. In case of unsecured loan furnish confirmation and in case of unsecured loan added during the year, if any, establish the identity, genuineness and creditworthiness of the persons who have given loans. 22. Please furnish depreciation chart with copy of invoices/bills of items added in assets during the year. 25
Assessment Year: 2018-2019 Sriram Enterprises
Copy of Sales Tax/VAT/CGST return for the AY-2018-19 supporting evidence of payment of other taxes.
Submit computation of income. 24. Please furnish ledgers of expenses made during the year under the heads - rent of Rs. 1,17,70,210/- with copy of rent agreement, whether TDS has been deducted thereon, sub contract and site expenses of Rs. 20,15,02,121/-, repairs to machinery of Rs.2,30,73,982/-,and nature and details of royalty paid of Rs.5,54,69,356/-. 25. If have not taken the photocopies of impounded material earlier then you are requested to take it within seven days of receipt of this letter failing which it will be presumed that you have already taken the photocopies thereof and neither any further opportunity will be given to obtain the same nor it will be provided to you. 26. If any of the above questions has been replied to earlier during the course of scrutiny proceedings then the same may not be replied to. And a reference to the same may be made in your comprehensive reply of this questionnaire. 27. This may be treated as communication of change of incumbent as per section 129 of the Income Tax Act, 1961.
We observe that in the notice dated 17.02.2021, the ld. Assessing Officer specifically asked the assessee to furnish name, address, PAN of all the sundry creditors/debtors, loan/advances and furnish copy of ledgers in the books of account in the case of sundry creditors. We further note that in compliance thereto, the assessee furnished detailed reply online on 25.02.2021. The covering sheet of this reply is available at pages 42 to 44 of the paper book. The assessee has furnished each and every information called for by the ld. Assessing Officer. Considering this chronology, where detailed inquiry has been initiated by the ld. Assessing Officer calling various 26
Assessment Year: 2018-2019 Sriram Enterprises information to which necessary compliance is made, that ld. Assessing Officer again inquired certain more issues including the issue referred to by the ld. PCIT in the impugned order and again there is a detailed reply filed by the assessee. It clearly shows that adequate inquiry has been conducted to examine the business transaction including genuineness and creditworthiness of sundry creditors. It is neither a case of inadequate inquiry or incomplete enquiry, but it is purely a case of extensive inquiry where ld. Assessing Officer has made proper application of mind and examined each and every aspect of the transactions and after being satisfied with the correctness, genuineness of these details taken one of the legally permissible view. Therefore, since adequate inquiry has been conducted on the issue raised by the ld. Pr. CIT in the impugned order, there remains no scope for ld. PCIT to assume jurisdiction under section 263 of the Act and therefore, the impugned proceedings deserve to be quashed on account of wrong assumption of revisionary powers u/s. 263 of the Act.
Even on merit of the case, we notice that ld. PCIT has only referred to sundry creditors doubting their genuineness. Details of most of the sundry creditors have been furnished alongwith the nature of transactions, opening and closing balances, GST/VAT charged and the mode of payment. The ld. PCIT has only looked into the Assessment Year: 2018-2019 Sriram Enterprises sundry creditors’ side but completely overlooked the sundry debtors’ side. The assessee is mainly a Government Contractor and revenue during the year has not been disputed at any stage. Admittedly when the contracts are executed, at the close of year, there is huge outstanding amount of sundry debtors and similarly there are outstanding amount of sundry creditors. It is practically impossible that the assessee makes the payments to all the sundry creditors and waits for the funds to be realised from the sundry debtors. In such kind of business, there is a time gap in realising the sales and also to make the payments of sundry creditors. Ld. PCIT rather than focussing the sundry creditors should have taken note that the assessee is consistently carrying on the business activities. The turnover has substantially increased from Rs.41.41 cr, during A.Y. 2016-17 to Rs.82.39 cr, during A.Y. 2018-19. Net Profit rate has also been offered at 6.66%. Though in the non-audit case, Net Profit rate of 8% is considered as fair but the same is not applicable for the assessee having huge turnover, which is much above the tax audit limits. Hon’ble Jurisdictional High Court in the case of Shyam Behari (supra) has also found the Net Profit rate of 6% to be reasonable in the business of civil construction. Thus, even for the sake of arguments, even if the book result has not accepted and the best judgment assessment is to be framed, then also, no addition in the hands of assessee be made in the given circumstances,
Assessment Year: 2018-2019 Sriram Enterprises since Net Profit rate of 6.66% has already been offered to tax. Thus, even on merit also, the impugned order does not stand. We accordingly hold that the impugned proceedings are bad in law and illegal and thus quash the impugned order under section 263 of the Act and restore the assessment order for A.Y. 2018-19 dated 02.09.2021. All the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on May 8th , 2024.