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Income Tax Appellate Tribunal, -SURAT-BENCH-SURAT
Before: SHRI SANDEEP GOSAIN & SHRI O.P.MEENA, ACCOUTANT MEMBER
Shri Rasesh Shah, CA िनधा�रती क� ओर से /Assessee by Shri O.P. Vaishnav , CIT(D.R.) राज�व क� ओर से /Revenue by 05.02.2020 सुनवाई क� तारीख/ Date of hearing: 05.02.2020 उ�ोषणा क� तारीख/Pronouncement on आदेश /O R D E R
PER O. P. MEENA, AM:
This appeal filed by the assessee is directed against the order of Learned Principal Commissioner of Income-tax- Valsad [in short “the Pr. CIT ”] dated 17.03.2017 pertaining to Assessment Year 2012- 13 passed under section 263 of Income Tax Act,1961 ( in short ‘the Act’).
By way of ground No. 1 to 6 of appeal, the assessee submitted that the Pr. CIT-Valsad has erred in law and on facts in passing the order under section 263 of the Act although the Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 2 of 19 assessment order was passed under section 143 (3) was neither erroneous nor prejudicial to the interest of revenue and in setting aside the assessment by giving direction to make further, enquiries about veracity / correctness of the claim made by the assessee regarding brokerage / commission paid to related parties under section 40A(2)(b) of the Act and unsecured loan.
Succinctly, facts as culled out from the orders of lower authorities are that the assessee is authorized dealer of Hero Honda Company and engaged in trading of two-wheeler. The assessee has filed its return of income on 01.01.2013 declaring total income of Rs.33,20,520 which was assessed at Rs.35,20,760 vide order dated 24.12.2014 under section 143(3) of the Act. Subsequently, the ACIT- Circle- Navsari has sent a proposal for revision of said assessment under section 263 of the Act. On examination of proposal and records, the Pr. CIT noticed that the claim of brokerage/ commission at Rs.55,30,100 despite the facts among the recipient of brokerage/ commission person / parties are covered by the provisions of section 40A(2)(b) of the Act and only disallowed Rs. 2 Lakh as on ad-hoc basis. Hence, the AO has not examined these parties which are also found to have advanced unsecured loan of Rs. 5 Lakh given to Abdul Razak Memon. There are discount expenses of Rs. 5.91 Lakh and petrol Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 3 of 19 expenses of Rs. 2.47 Lakh which has not been examined. The AO has also not examined creditworthiness and genuineness of brokerage/ commission payments and expenses. In view of these facts, the Pr. CIT viewed that the assessment order is erroneous and prejudicial to the interest of the Revenue as the AO not having made minimum enquiries which were needed to be made in the facts and circumstances. Therefore, a show-cause notice under section 263 was issued on 17.01.2017 and & 15.02.2017. The assessee vide letter dated 07.03.2017 replied which has been considered by the Pr.CIT. 01.02.2016 to the assessee to be replied by 11.02.2016. The Pr. CIT noted that expense given by the assessee is on same line as given in A.Y. 2011-12. The Pr. CIT observed that the amount of brokerage/commission claimed to have been paid to related parties of is not details of the services rendered by these related parties have been paid. Since the AO has not carried out verification in the case of brokerage/ commission paid to Famida R Memon Rs. 40,500, Bayaben K Memon Rs. 4,06,000, Rshmaben R Memon Rs. 4,08,000 and Arbaz I Memon Rs. 4,50,000. All these prtd are related parties covered by the provision of section 40A(2)(b) of the Act. Hence, the order of the AO is erroneous and prejudicial to the interest of the Revenue. On the issue of Rs. 5 Lakh loan given to Abdul Razak Memon, Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 4 of 19 the assessee A.R. indirectly admitted no justification of said loan. There defect in confirmation of loan mostly taken from related parties. the list of sundry creditor and debtors the AO has taken only names of the parties. The AO has not carried out any verification, not even on sample basis in respect of brokerage/ commission payments. Hence, the complete lack of enquiry/verification by the AO made the assessment order is erroneous as well as prejudicial to the interest of revenue on this count/issue. With regard to unsecured loan, no valid loan confirmation were filed before the AO in respect of any of the land creditors, and no loan confirmation of whatever filed during the current proceedings. This failure of its AO makes the assessment order is erroneous as well as prejudicial to the interest of the revenue on this count/issue. The Pr. CIT observed that on these issue the assessment for the assessment year 2011-12 also set-an assessee in default. In view of these facts and after citing a sum judicial decisions, the Pr. CIT held that the order of the AO is erroneous as well as prejudicial to the interest of revenue on account of lack of any enquiry about the claim made by the assessee regarding brokerage/commission, unsecured loans and vehicle booking advance. Therefore, the assessment was set-aside on all three issues Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 5 of 19 which is to be made afresh after giving proper opportunity to the assessee.
Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee, vehemently contended that the AO has duly verified and applied his mind to issues under consideration, therefore, the order of the AO is neither erroneous nor prejudicial to the interest of the revenue. The learned counsel for the assessee, submitted that the ld. CIT can assume jurisdiction under section 263 of the Act only if the order of the AO is erroneous in so far as it is prejudicial to the interest of the revenue. Both the conditions have to be fulfilled before action under section 263 is initiated. The learned Counsel further submitted that facts in proceeding under section 263 of the Act are same as considered in assessment year 2011-12, in which this Tribunal has allowed the appeal of the assessee. Therefore, the issue is covered by the decision of Tribunal in the assessee own case for A.Y.2012-13. Hence, his argument are same as taken in A.Y. 2011-12 and also Pr.CIT has mentioned the said order in his order under section 263 of the Act for this assessment year also. Thus, all the details are disclosed and the Pr. CIT has not discussed as to how the assessment order passed by the AO is prejudicial to the interest of the Revenue.
Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 6 of 19 Learned Counsel placed reliance on the judgement of Hon`ble Rajasthan High Court in the case of CIT vs. Jain Construction [2013] 257 ITR 336 (Raj.) of which head notes reads as: Held, that safeguard provided to assessee in section 263 is that mere erroneous orders are not revisable but revisional authority has to further establish with material on record that such erroneous order is also prejudicial to the interest of revenue-twin conditions of assessment order being erroneous and it also being prejudicial to the interest of revenue, keeps initial burden on Commissioner, who invokes such jurisdiction- Premises for invoking the revisional jurisdiction on the ground that the Assessing Authority made insufficient inquiry or improper enquiry and paid to verify closing the stock in record of the assessee, before passing assessment order, falls flat by a bare perusal of assessment order itself-Thus, Tribunal was justified in holding that Commissioner was in error invoking revisional jurisdiction u/s. 263 – Mere alleged insufficiency of inquiry in of opinion of Commissioner By Assessing Authority, would not permit him to in walk revisional jurisdiction u/s. 263 – Therefore, essential twin condition for invoking revisional jurisdiction, were not satisfied – Order of tribunal upheld Revenue `s appeal dismissed. The details of vehicle advance were filed but the Pr. CIT has not given any finding as to how the order in prejudicial to Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 7 of 19 the interest of the Revenue. The learned counsel for the assessee submitted that though the Pr. CIT has not specifically invoked explanation 2 to section 263, still observed the section 263 can be invoked even where full facts are disclosed but the AO has not examined these details as per correct proposition of law. However, the learned counsel for the assessee submitted that no such addition have been made in subsequent assessment years. Where two views are possible, even then revision jurisdiction cannot be invoked as held by the Hon`ble Supreme Court in the case of CIT vs. CIT v. Max India Ltd. [2007] 295 ITR 282 (SC) reiterated that the phrase "prejudicial to the interests of the Revenue" as used in section 263(1) of the Act must be read in conjunction with the expression "erroneous" and unless the view taken by the Assessing Officer is found to be unsustainable in law, the powers under section 263 of the Act cannot be invoked.
Per contra, the Ld. CIT (DR) submitted this is a case of inadequate inquiry. However, the issue are covered in favour of the assessee by the order of Tribunal dated 10.12.2019 in I.T.A.No. 1141/Ahd/2016 for A.Y. 2011-12.
We have heard the rival submissions of both the parties and perused the material available on record. Both parties have agreed Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 8 of 19 that issue is identical as in A.Y. 2011-12 and is squarely covered by the decision of tribunal in assessee own case for assessment year 2011-12 passed on 10.12.2019. We find that the tribunal in I.T.A.No. 1141/AHD/2016 for assessment year 2011-12 has given its findings in para 10 to 16 which is reproduced as under: “10. We have heard the rival submissions of both the parties and perused the material available on record. We have gone through all the judgements cited by the parties before us. We note that section 263 of the Act enables supervisory jurisdiction to the CIT over the AO. The CIT is empowered to act u/s. 263 of the Act when he considers that AO's order is erroneous in so far as it is prejudicial to the interest of Revenue. It is a settled position of law that the aforesaid twin condition i.e. AO's order is erroneous and prejudicial to the interest of revenue is sine qua non for assumption of revisionary jurisdiction by CIT. As per the scheme of the Act, AO has a dual role to discharge while assessing the income of an assessee. He is both an investigator as well as an adjudicator. If the AO fails in discharging any of the two said duties i.e. as an investigator or that of an independent/impartial adjudicator, the CIT's supervisory jurisdiction is attracted because the order of the AO would be erroneous for lack of inquiry. Thus if he does not investigate, it would be erroneous for failure of AO to adjudicate as an independent/impartial adjudicator which means that if the AO passes assessment order in Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 9 of 19 violation of natural justice, or there is bias or arbitrariness etc. then also the order of AO would be erroneous. When we say that lack of inquiry makes an AO's order erroneous, one has to keep in mind the difference between lack of inquiry and inadequate inquiry. Lack of inquiry makes the AO's order erroneous, but inadequate inquiry does not make the order of AO erroneous.
Thus, in order to exercise the powers under section 263(1) of the Act, the Commissioner of Income tax must be satisfied that the assessment order made by the Assessing Officer was (a) erroneous; and (b) prejudicial to the interests of the Revenue. The learned counsel for the assessee, submitted that the ld. CIT can assume jurisdiction under section 263 of the Act only if the order of the AO is erroneous in so far as it is prejudicial to the interest of the revenue. Both the conditions have to be fulfilled before action under section 263 is initiated. The perusal of para No 5 of assessment order would show that the AO has duly made enquiry regarding brokerage expenses of Rs. 49, 05, 800 20 and discussed the same in the body of assessment order by mentioning that on verification of vouchers and bills relating to these expenses produce during the course of assessment proceedings, it is noted that certain vouchers were not properly filled in to show that expenses were incurred for the business of the assessee. Further, considering the quantum of brokerage expenses and vehicle sales (7507 Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 10 of 19
Nos), it appears that the assessee has paid brokerage on each of vehicles of approximate Rs.650. When the assessee itself dealer, they need not to pay brokerage of each vehicle. Considering the circumstances and facts of the case, Rs.75,000/- was disallowed out of brokers expenses and added to the total income of the assessee. Thus, the AO had duly made enquiries and applied his mind to the facts and made disallowance also. Therefore, where the AO has taken a plausible view and where two views are possible , the order cannot be said to be erroneous and prejudicial to the interest of the Revenue. We observe that the Pr. CIT noted that the AO has not examined the unsecured loan obtained from five parties. However, it is seen that out of 5 parties of unsecured loan, confirmation were duly submitted in respect of 4 parties. All the five unsecured loan are being old one and these are appearing as opening balance as on 01.04.20010 in the audited books of accounts. Therefore, even if the loans were unexplained, no addition could have been made for the assessment year under consideration. The perusal of paper book page number 57 to 59, which is copy of Ledger account and submitted that unsecured loan in respect of Banuben I. Menon is coming from 01.04.2009, which showed opening balance as on 01.04.2009 at Rs. 9,11,798 and closing balance as on 31.03.2010 at Rs. 10,10,272 . The assessee has paid Rs. 3 Lakh during the year under consideration and closing balance as on Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 11 of 19 31.03.2011 was at Rs. 8,05,712. Thus, there were no new unsecured loan taken during the last two years and only payment has been made during these years living the closing balance at Rs.8, 05, 712. Similarly, in the case of Baya Kadar Memon, copy of acknowledgement of return of income was filed which is appearing at Paper Book Page No. 49-51 and confirmation at Paper Book Page No.
The copy of ledger account is appearing at Paper Book Page No. 60 to 62 which showed that unsecured loan were coming as opening balance as on 01.04.2009 at Rs. 5,59,986 was shown (PB-62) on which interest of Rs. 67,198 was credited in F.Y. 09-10 and opening balance as on 01.04.2010 is shown at Rs. 6,20,464 on which interest of Rs. 55,469 was credited di current year on which TDS was also made and closing balance as on 31.03.2011 is shown at Rs. 6,75,933(PB- 60). Similarly, in the case of Femida Arifbhai Memon, the ledger account is appearing at Paper Book Page No. 63, which also showed opening balance of Rs. 6,20,464 as on 01.04.2010 and thus, this unsecured loan is old one, and after payment of Rs. 3,75,000 and credit of interest of Rs.55,469 during year under consideration, closing balance as on 31.03.2011 is shown at Rs.2,95,386.(PB-63) for confirmation and contra confirmation has been filed. She is assessed to tax and copy of acknowledgement of return of income was filed which is appearing at Paper Book Page No. 45 to 48. Unsecured loan in the case of Arif I. Memon, copy of Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 12 of 19 ledger account and confirmation filed which is appearing at Paper Book Page No. 65 to 67 and copy of acknowledgement of return of income placed at Paper Book Page No. 53-54 and contra confirmation at Paper Book Page No.
This shows that this loan is coming from 01.04.2009 at Rs.8,18,879 and closing balance as on 31.10.2010 at Rs. 9,07,318 and closing balance 31.11.2011 is shown at Rs. 10,16,196. Similarly, unsecured loan in respect of Navinbhai are also old one and opening balance as on 01.04.2010 is at Rs. 3,00,000 only.(PB-68). We alo find that the AO vide notice under section 142(1) dated 31.07.2011 (PB-16-18) has called for details of unsecured loan vide point no. 3 of questionnaire of which reply was duly furnished by the assessee appearing at Paper Book Page No. 14-15. Thus, the AO has duly examined the details of unsecured loan and no addition was made on this account. Therefore, the order passed by the AO on this score was neither erroneous nor prejudicial to the interest of revenue . With regard to advance for booking of vehicle the submission of the assessee made before Pr. CIT is appearing at Paper Book Page No. 8, which was supported by the receipts issued to the parties in current year, sales made in next year and sale bills issued in the next year. It has been contended that total booking advance of Rs. 1,75,20,679 received during the year under consideration of which sales were recorded during next year and only an amount of Rs. 8,97,889 was Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 13 of 19
returned back to the customers due to cancellation of bookings. The details of booking advance from 01.04.2010 to 31.03.2011 is appearing at Paper Book Page No. 69 to79. Further, detailed statement of booking advance and sales against these advance in next year are appearing at Paper Book Page No. 80 to 100 in respect of 709 number of vehicles and only amount were returned back is at Rs. 8,97,889 due to cancellation. Thus, the income from booking advance has been duly accounted in next year and reflected in audited books of accounts. The reason for increased of advance is also found is due to introduction of new bike by the Hero MotoCorp Company named as Splendor Pro & Passion Pro during the year under consideration and to get delivery the customers rushed with booking money by making advance payment. Thus, all the details are disclosed and the Pr. CIT has not discussed as to how the assessment order passed by the AO is prejudicial to the interest of the Revenue. The Hon`ble Rajasthan High Court in the case of CIT vs. Jain Construction [2013] 257 ITR 336 (Raj.) of which head notes reads as: Held, that safeguard provided to assessee in section 263 is that mere erroneous orders are not revisable but revisional authority has to further establish with material on record that such erroneous order is also prejudicial to the interest of revenue-twin conditions of assessment order being erroneous and it also being prejudicial to the interest of revenue, keeps initial burden on Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 14 of 19
Commissioner, who invokes such jurisdiction- Premises for invoking the revisional jurisdiction on the ground that the Assessing Authority made insufficient inquiry or improper enquiry and paid to verify closing the stock in record of the assessee, before passing assessment order, falls flat by a bare perusal of assessment order itself-Thus, Tribunal was justified in holding that Commissioner was in error invoking revisional jurisdiction u/s. 263 – Mere alleged insufficiency of inquiry in of opinion of Commissioner By Assessing Authority, would not permit him to in walk revisional jurisdiction u/s. 263 – Therefore, essential twin condition for invoking revisional jurisdiction, were not satisfied – Order of tribunal upheld Revenue `s appeal dismissed. The details of vehicle advance were filed but the Pr. CIT has not given any finding as to how the order in prejudicial to the interest of the Revenue. We also note that the Pr. CIT has not specifically invoked explanation 2 to section 263. Further, such claim was found acceptable in next year. Where two views are possible, even then revision jurisdiction cannot be invoked as held by the Hon`ble Supreme Court in the case of CIT vs. CIT v. Max India Ltd. [2007] 295 ITR 282 (SC) reiterated that the phrase "prejudicial to the interests of the Revenue" as used in section 263(1) of the Act must be read in conjunction with the expression "erroneous" and unless the view taken by the Assessing Officer is found to be Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 15 of 19 unsustainable in law, the powers under section 263 of the Act cannot be invoked.
The Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) 109 Taxman 66 (SC) had interpreted the provisions of section 263(1) in the following words :"A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo-moto-moto under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent— if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue— recourse cannot be had to section 263(1) 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 Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 16 of 19 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 Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue ; or where two views are possible and the Income-tax Officer 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 Income-tax Officer is unsustainable in law."
Following the aforesaid judgment, the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282 (SC) reiterated that the phrase "prejudicial to the interests of the Revenue" as used in section 263(1) of the Act must be read in conjunction with the expression "erroneous" and unless the view taken by the Assessing Officer is found to be unsustainable in law, the powers under section 263 of the Act cannot be invoked.
The order passed by the AO, in our opinion, shall be deemed to be erroneous in so far as it prejudicial to the interest of the Revenue, if the Pr. CIT would have specifically pointed out which of inquiries or verification should have been carried out by the AO in this regard and the AO failed to carry out those inquiries and verification as desired by the Pr. Commissioner of Income-tax. Since the Pr. CIT has not suggested the basis Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 17 of 19 of inquiry or verification to be carried out by the AO, the order passed by the AO cannot be deemed to be erroneous in so as far as it is prejudicial to the interest of the Revenue.
In the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) [2010] 189 Taxman 436 (Delhi) it was held that if there is some enquiry by the Assessing Officer in the original proceedings, even if inadequate, that cannot clothe the Commissioner with jurisdiction under section 263 merely because he can form another opinion. At the most, the case of the assessee can be regarded to be lack of inquiry in accordance with Commissioner of Income tax if he has different opinion how to proceed with assessment of the case.
In the light of the previously mentioned judicial precedents and facts of the present case, what has to be seen is whether the AO has made enquiries about brokerage/ commission, unsecured loan and booking advance. As we discussed in above para of this order shows that necessary enquiry was made and the AO duly applied his mind and reached a vide letter dated conclusion, which is supported by necessary evidence on record. Merely just because the view taken by the AO was not found acceptable does not mean that the AO has failed to make requisite enquiries. If the answer is affirmative then second question arises whether the acceptance of the claim by the AO was a plausible view or on the facts of the finding on the facts that the said Supreme Auto vs. Pr. CIT- Valsad /I.T.A.No.1164/Ahd/2017/A.Y. 12-13 Page 18 of 19
finding of the AO can be termed as sustainable in law. We find that vide questionnaire, the assessee furnished detail as required. In view of these facts and circumstances, we find that the AO has made due enquiries. Therefore, now we have to see whether the view taken by the AO was plausible view. Thus, the view taken by the AO was plausible view, which cannot be disturbed by the Ld. Pr. Commissioner of Income-tax. Therefore, we find that twin condition were not satisfied for invoking the jurisdiction under section 263 of the Act. Therefore, in absence of the same the ld. CIT was not correct in exercise the jurisdiction under section 263 of the Act and cancelling the assessment and accordingly, we quash the impugned order passed under section 263 of the Act and allow the appeal of the assessee.