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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
This appeal is filed by the assessee against the revisionary order passed under Section 263 of the Income-tax Act, 1961 (the Act) by the Pr. Commissioner of Income Tax, Mumbai, 5 (the learned PCIT) for A.Y. 2012-13, wherein it has been held that the assessment order passed under Section 143(3) read with section 147 of the Income-tax Act, 1961 (the Act) dated 26th December, 2019 by the learned Assessing Officer at total income of
The assessee is aggrieved with that order and has raised effectively following four grounds of appeal:-
“1. The Ld. PCIT, Mumbai-5 has erred in passing the order under section 263 of the Income Tax Act by holding that the Assessment Order passed by Income Tax Officer 13(3)(3), Mumbai u/s 143(3) r.w.s. 147 of the Act dated 26th December 2019 is erroneous and prejudicial to the interest of the revenue.
2. The Ld. PCIT, Mumbai-5 has erred in holding that AO has failed to make necessary enquiry and bring on record all facts without appreciating that specific query was raised in the re-assessment proceeding on issue under consideration towards explanation of credit amount of Rs. 26,05,92,993/- and all relevant details in response thereof was filed.
The Ld. PCIT, Mumbai-5 has passed an unsustainable order, which is based purely on assumptions and presumptions. The order is absolutely arbitrary and full of surmises, without considering the relevant material and assuming irrelevant material. Consequently the order passed is a perverse order on the facts and circumstance of the case
The Ld. PCIT, Mumbai-5 failed to appreciate that the assessment order was neither erroneous nor prejudicial to the interest of the revenue and thus order u/s 263 is bad in law, illegal, ultra-vires, in
Subsequently, the learned PCITexamined the record of the assessee and issued notice under Section 263 of the Income-tax Act, 1961 (the Act) on 12th March, 2022 stating that “2. On perusal of the records, it is observed that there are large value non-cash transactions of ₹26,05,92,293/- in the bank account no.6984051112225 of ICICI bank of Morsel Traders Pvt. Ltd which is merged with the assessee during the F.Y. 2011-12. Further, ITS of the assessee does not show the bank account maintained in ICICI bank account no.6984051112225. It is also informed that the companies (i.e. Arunodaya Exports Pvt. Ltd., Dastur Trading Pvt. Ltd., Jugraj Trading Pvt. Ltd., Modern Denim Limited) which have been made large transfers in the bank account are showing low income, low payment of tax andmatching sales and purchases figures and
Accordingly, he proposed to revise the order holding that order passed by the learned Assessing Officer is erroneous and prejudicial to the interest of the Revenue.
The assessee replied the above notice wherein submissions were made that :-
i. The learned Assessing Officer raisedqueries with respect to the credit entries in the bank account of ICICI Bank Ltd, on 9September2019. This was replied by the assessee vide letters dated 23October 2019, 22Nov 2019 and 4December 2019. ii. Before the learned Assessing Officer,the breakup of credit entries received in the bank account of Morsel Traders Pvt. Ltd. Were explained. iii. Ld. AO was also shown notes of Amalgamation pursuant to the order of the Honourable High court. iv. Ld. AO was submitted reconciliation of form no.26AS of the amount credited. v. Ld. AO was also shown journal entries accounted for in the books of accounts arising because of Amalgamation of Morsel Trading Pvt ltd. ix. Ld. AO verified the party wise sales recorded in the books of Morsel Traders Pvt. Ltd., which contained realization from four different companies mentioned in the reasons for reopening. These companies were shown as advance against sales and later on sales are booked by debiting the account of the four x. The learned Assessing Officer also verified the fixed deposits wherefrom interest is earned. It is FDR of Morsel Trading Pvt Ltd lying with bank of Rajasthan Limited. Bank of Rajasthan merged with ICICI bank later on, so the amount is realized in the bank account of ICICI bank of Morsel Trading P Ltd. xi. Further, the learned Assessing Officer has alsoissued a notice under Section 133(6) of the Act to all the parties from whom money is deposited in the ICICI bank account of Morsel Traders Pvt Ltd. This was for the reason that there was allegation that all the above four companies had low income and high turnover. All parties during the course of assessment proceedings duly replied along with confirmation letters and furnishing details asked for such as confirmation, annual accounts, copies of return of income etc.
Thus, the assessee contended that i. The learned Assessing Officer has made all the due enquiries, which could have been made before passing the reassessment order.
Therefore, order passed by the learned Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue. 011. The learned PCIT examined the submission. He held that the learned Assessing Officer has not inquired into ‘source of advance and whether all these advances have been culminated into sales subsequently or not.’ He held that it was imperative on the part of the learned Assessing Officer to conduct enquiry into the source of advance and subsequent treatment of the assessee of the same in its books of account. The learned Assessing Officer has not conducted this inquiry and hence, the assessment is erroneous and prejudicial to the interest of the Revenue. Accordingly, he passed an order under Section 263 of the Act on 25March 2022 holding that the learned Assessing Officer in this case has failed to conduct all necessary enquiries as warranted on facts of the case and therefore, the assessment order is erroneous insofar as it is
The learned Authorized Representative challenging the order under Section 263 of the Act submitted as under:-
i. The learned Assessing Officer has made complete enquiry during the course of re- assessment proceedings and as well as in original assessment proceedings with respect to the amalgamation of two companies with the assessee pursuant to the order of the Hon'ble High Court. ii. He referred to the reasons of reopening and submitted that reasons for reopening were with respect to the fact that whether the amount received from four different companies was properly shown as realization of sales or not. He submitted that Arunodaya Exports Pvt. Ltd., Dastur Trading Pvt. Ltd. and Jugraj Trading Pvt. Ltd. were the debtors of the assessee company where outstanding sum of ₹4,83,75,000/-, 3,19,00,000/-, ₹3,80,00,000/- was received in the bank iii. He further submitted that sources of deposit of ₹8.58 crores received from Modern Denim Limitedassessee has shown confirmation letter from that company and Assignment agreement of IFCI and UTI of debt purchased. Debts were realized against which amount was received from Modern Denim Limited by Morsel Trading co Pvt Ltd. iv. Therefore, the learned Assessing Officer verified the source of the receipt from all the four parties. v. He also referred to letter dated 25March 2015, submitted during original assessment proceedings where the detail of the merger was shown to the learned Assessing Officer. Vide letter dated 24March 2015, the journal entries of the merger of the companies and statement of ICICI bank account no.1125 was also produced before the learned Assessing Officer. vi. He further referred to the statement of all these four companies stating their PAN, address and the amount of outstanding was submitted in the re-assessment proceedings. viii. He referred to page no.230, where the party wise sales record in the books of Morsel Traders Company was shown. He submitted that sales of ₹14,06,86,705/- was made to the above parties of Denim and other fabrics in the last two years. It was also submitted that the ledger account of all the parties placed at page no.228 to page no.264 along with their return of income, their annual accounts and confirmation of their statements were also produced before the learned Assessing Officer. ix. He further referred to page no.268 and 269 of the Paper Book which was part of submission during the course of reassessment proceedings as per letter dated 14th December, 2019, wherein the fixed deposit account held by Morsel Traders Pvt. Ltd. with bank of Rajasthan showing various fixed deposit receipts which were accounted for on the merger of the company in the books of the assessee. xi. He further referred to page no. 44 of the paper book and page no.70 of the paper book wherein ICICI bank of Morsel Traders Pvt. Ltd and Axis bank of M/s Sanchayita Tradelink Pvt. Ltd was shown to the learned Assessing Officer. He further referred to explanation given to the learned Assessing Officer that for assessment year 2012-13 there was no requirement in the income tax return to report all the bank account held by the assessee company and therefore, assessee company mentioned only the bank account in which any refund was to be credited. xiv. He submitted that the learned PCIT on the same details did not say that what else is required to be enquired according to his opinion. The LD AO examines source of advances and its sales conversion later on. xv. He submitted that provision of section 263 does not give power to the learned PCIT to hold the order of the learned Assessing Officer erroneous on flimsy ground, without xvi. He further submitted that as there is one regular assessment and one reassessment already made, learned PCIT does not have anything more than this to say that the order of the learned Assessing Officer is erroneous. He submitted that there is no mentioned that what are those enquiries learned Assessing Officer should make in the facts of the case. xvii. He referred to the decision of the co-ordinate Bench of Narayan tatu Rane [70 taxmann.com 207]and three decision of the Hon'ble Bombay High Court in case of CIT vs. Gabriel India Ltd. [1993] 71 Taxman 585 (Bombay), CIT vs. Nirav Modi [2016] 71 taxmann.com 272 (Bombay)and CIT vs. Fine Jewelry (India) Ltd.[2015] 55 taxmann.com 514 (Bombay). xviii. He further submitted that as there is one regular assessment and one reassessment already made, learned PCIT does not have anything more than this to say that the order of the learned Assessing Officer is erroneous. He submitted that there is no mentioned that what are those enquiries learned Assessing Officer should make in the facts of the case.
The learned CIT Departmental Representative vehemently supported the order of the learned PCIT and submitted that the learned Assessing Officer has failed to make the enquiry about source of the advances and therefore, the order of learned Assessing Officer is erroneous as no requisite enquiries were made.
We have carefully considered the rival contentions and perused the orders of the lower authorities. According to the provision of Section 263 of the Income-tax Act, 1961 (the Act), the learned PCIT is authorized to call and examine the record of any proceedings under this Act, if he considers that any order passed therein by the learned Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue, he may after giving the assessee an opportunity of hearing, and after making or causing to be made such enquiries as he deems necessary, pass such order as the circumstances of the case justified. Explanation 2 inserted by Finance Act, 2013, with effect from 1st June, 2015 creates a deeming fiction to hold an order ‘erroneous insofar as it is prejudicial to the interest of the Revenue’, if in the opinion of the learned PCIT, order is passed
In the present case, the case of the assessee was reopened by issue of notice under Section 148 of the Act on 28th March, 2019 on the basis of the information that sum of ₹26,05,92,293/- is credited in bank account no. 698405111225 of M/s Morsel Traders Pvt. Ltd. Needs to be verified with respect to the sources of the funds. Further ICICI bank account of Assessee [of Morsel Traders Pvt Ltd] was not shown where the list of bank accounts of the person is required to be mentioned in the return of Income.
M/s Morsel Traders Pvt. Ltd. Is a company amalgamated with the assessee company as per the order of the Hon'ble Bombay High Court dated 29June 2012. Effective dated is 1st April 2011.
Assessee has shown that it is has received Rs 26,05,92,293/- in bank account held with ICICI Bank of Morsel Traders Pvt Limited. The above amount is advances received for sale of goods from four parties, realization of Debt purchased from IFCI and UTI of Modern Denim Limited, Realization of FDR of Morsel Traders Pvt Limited of bank of Rajasthan Limited.
As assessment was reopened for that reason, all these details were submitted before LDAO, who
Brief breakup of the sum received in the bank account is ₹8,58,00,000/- received from Modern Denim Limited with respect to purchase of debt from financial institutions such as IFCI and Unit Trust of India. For the above sum,the learned Assessing Officer examined debt purchase agreement with both the above companies i.e. IFCI and Unit Trust of India. There was a deed of assignment between IFCI Limited and Morsel Traders Pvt. Ltd. According to that, IFCI provided certain financial facilities to Modern Denim Limited for manufacturing of Denim fabrics. This debt was outstanding for ₹17.50 crores along with the interest the above debt reached at the level of Rs. 117 crores which was assigned to Morsel Traders Pvt. Ltd. at a consideration of ₹2.50 crores and against that assessee realized ₹8.50 crores through Modern Denim Limited. For this, ₹9,18,00,000/- was received up to 31March 2012. Assessee submitted confirmation from Modern Denim Limited, which is placed at page no.270 of the Paper Book.
Similarly, on 17th Day of August, 2010, an assignment agreement between the administrator of the specified undertaking of the Unit Trust of India and Morsel Traders Pvt. Ltd, wherein outstanding
Therefore, ₹8.50 cores received by Morsel Traders Pvt. Ltd in the ICICI bank account of ₹8.50 crores was explained.
The assessee also received in the account of Morsel Traders Pvt. Ltd. of ₹ 3.80 crores from Jugraj Trading Pvt. Ltd., ₹ 4,83,75,000/- from Arunodaya Exports Pvt. Ltd. and ₹3,19,00,000/- from Dastur Trading Pvt. Ltd. For which, the assessee submitted the details of sales recorded in the books of Morsel Traders Pvt. Ltd. confirmed by all the above entities by producing their confirmation, audited financial statements and copies of the income tax returns. Further, party wise sales recorded in the books of Morsel Trading Pvt. Ltd. for F.Ys. 2009-10 and 2010- 11 was also demonstrated.
A sum of ₹5,65,17,293/-, is the maturity amount of fixed deposits held with bank of Rajasthan. Bank of Rajasthan was subsequently a merged with ICIC bank limited. Morsel Traders Pvt. Ltd. was having fixed deposits with those banks and later on maturity of those fixed deposits, the amount was credited in the bank account of Morsel Traders Pvt. Ltd. with ICICI bank ltd.
Thus, aggregate amount of ₹26,05,92,293/- was credited in the ICICI bank account of Morsel Traders
Thus, all the transactions of credit entries in the bank account were inquired in to and verified by the learned Assessing Officer and subsequently, on 26th December, 2019, the income of the assessee was assessed under Section 143(3) read with section 147 of the Act at ₹2,73,520/-.
The learned PCIT held that the source of advances culminated into the sales or not was required to be examined. The learned Assessing Officer, wherein party wise sales recorded in the books of Morsel Trading Pvt. Ltd. during F.Ys, has already examined this fact. 2009-10 and 2010-11 was produced before the learned Assessing Officer. The advances of Jugraj Trading Pvt. Ltd. of ₹3,80,00,000/- culminated into the sales recorded in the books of Morsel Trading Pvt. Ltd. of ₹ 4,25,57,561/-. The advances of
The order of the learned PCIT does not mention what are the further enquiries the learned Assessing Officer should have made. It is also not stated that opinion formed by the learned Assessing Officer during the reassessment proceedings and how it is erroneous. Unless the learned PCIT find out that what are the enquiries, which should have been made but has not been made by the learned Assessing Officer, the provision of explanation 2(a)
It is not the case of the learned PCIT that the learned Assessing Officer should have issued summons to all those parties despite having all these information through enquiry from the assessee as well as from the third parties. Even otherwise either on the inquiry of the LD AO or by the order of LD PCIT it is suggested.
The LD PCIT did not make any minimum inquiry to show that fund received from the companies is not genuine; companies are not in existence, despite sales booked by Morsel Traders Pvt Ltd offered as income.
We find that the learned Assessing Officer has made enquires with which the learned PCIT did not find fault with or did not thought it proper to suggest any further enquires.
It is not the intent and purpose of explanation 2 (a) to section 263 of the Act that based on enquiries by the Ld. AO, if a plausible view is taken even then the order can held to be erroneous and prejudicial to the interest of the Revenue where the learned PCIT does not show that how such enquires are inadequate, incomplete, or not properly made.
Accordingly, we hold that the order of the learned PCIT is not sustainable in law and hence, it is quashed.
In the Result, the appeal of the assessee is allowed.
Order pronounced in the open court on 19.12.2022.