AUTO ENGINEERS SERVICES CENTRE,NEW DELHI vs. PR. CIT, NEW DELHI

The facts in brief are that the assessee is doing business as a petrol pump dealer of Indian Oil Corporation, whereby it purchases petrol and diesel from Indian Oil Corporation after making advance payments and selling the same on retail basis. For the year under consideration, the assessee had filed its return of income on 13.09.2015 at an income of Rs.25,84,760/-. Thereafter, the case was selected for limited scrutiny through CASS on the following reasons:  Low income shown by large contractors. The Appellant filed reply before the Ld. AO.  Mismatch in amount paid to related persons u/s 40(A)(2)(b) reported in Audit Report and ITR. The Appellant filed reply before the Ld. AO.  Higher turnover reported in Service Tax Return compared to ITR and assessee deposited large amount of cash in savings bank account. The Appellant filed reply before the Ld. AO.”

Thereafter, the ld. Assessing Officer issued questionnaires and notices on the above mentioned issues and also called for books of account and agreements from Indian Oil Corporation which were duly produced and examined by the Assessing Officer. Thereafter, the Assessing Officer after perusing the relevant purchase and sale bills and vouchers in respect of expenses etc, completed the assessment at an income of Rs. 26,56,570/- vide order dated 09.10.2017, after making certain additions on account of expenses debited to the P&L account.

Thereafter, the ld. Pr.CIT in his revisionary jurisdiction u/s 263 has made following observations regarding assessment order: “3. On examination of case records, it has been found that the assessee has shown sale of petrol/diesel/other products of Rs.41,86,33,405/- and the purchases were of Rs. 40,56,74,431/-, The AO has not called for any details of the purchase of goods. Hence, enquires were not conducted from the parties from whom purchases were made so that genuineness of purchases have not been verify by the AO. Hence AO has not made adequate enquiry and verification to verify the purchases. 4. Further, on perusal of column no 35(b) of 3CD form of audit report, it has been found that there was shortage of goods namely M.S of 24356 liter and H.S.D of 5528 I liters. The AO has also not made any enquiry about huge shortage of products. The shortage of products should be verified with the records/ documents duly certified by oil company.

In response, the assessee had filed a very detailed reply which has been incorporated from pages 4 to 8 of the impugned order. It has also objected that, since the case was selected for limited scrutiny on the three points which have been duly examined, then there was no occasion to go for other rowing and fishing inquiry as per the instruction of the CBDT with regard to limited scrutiny assessments. However, the ld. Pr.CIT has set aside the assessment order, holding to be erroneous and prejudicial to the interest revenue on the following reasons: 8. The reply has stated that the reply on low income shown by large contractor has been filed during the assessment. It has also been stated that the purchases were made from Indian Oil Corporation. But there is no evidence on the case record which shows that the purchases and trading results were enquired and verified by the AO. 9. In regard to the case law cited by the assessee, it is submitted that the facts of the case are not identical to the case law cited by the assessee. The reply of the assessee is not found satisfactory and therefore rejected. 10. Thus, the assessment order dated 9.10.2017 passed u/s 143(3) is both erroneous and prejudicial to the interest of revenue. It is absolutely clear that during the assessment proceedings for AY 2015-16, neither relevant details about low income were called for nor any relevant inquiries were conducted by the AO. There was no application of mind on issues in hand as narrated above. This has rendered assessment order “erroneous”. If due to an erroneous order of the AO the revenue is losing tax lawfully payable by a person, it would be certainly prejudicial to the interest of revenue, as held in the case of CIT Vs Leisure Wear Exports Ltd. (2012) 341 ITR 166 (Del.). In case of Malabar Industrial Co. Ltd. Vs CIT (2000) 243 ITR 87 (SC) Hon’ble Apex Court held that there was no material to support the claim of appellant and yet AO accepted the entry in the statement of account in absence of any supporting material and without making any inquiry. It is incumbent on the officer to investigate the facts stated in the return. The order becomes erroneous if such as enquiry has not been made as held in case of Duggal & Co. V/s CIT (1996) 220 ITR 456 (Del.).

Before us, ld. counsel submitted that, in so far as reply for low income shown by large contractor, assessee has filed all details of purchase and sale and expenses including books of account which was duly examined and verified by the Assessing Officer during the assessment proceedings. Apart from that, in the case of the assessee the entire purchases are verifiable as the same is made from Indian Oil Corporation and sale was duly supported by sales register which was produced before the Assessing Officer. Thus, the observation and the finding of the ld. PCIT is incorrect on the facts and in law. He further submitted that finding of the ld. Pr. CIT is unsustainable in law for the following reasons:

Besides this, he also relied upon the following judgments. (i) Commissioner of Income Tax vs. Sunbeam Auto Ltd reported in (2010) reported in 332 ITR 167 (Delhi). (Delhi High Court). (ii) Commissioner of Income-tax vs. Anil Kumar Sharma, (2010) 194 taxman 504. (Delhi High Court)

On the other hand, ld. CIT-DR submitted that nowhere the Assessing Officer has mentioned, in his assessment order, the reasons for low income shown by the assessee nor he was able to explain the points raised by the ld. Pr. CIT in his order. There has been no enlargement of limited scrutiny proceedings by the ld. PCIT, because Assessing Officer was required to examine the fall in GP ratio and the trading result including the points noted by him. Thus, there is no infirmity in the order of the Pr. CIT and has rightly set aside the order to be examined afresh on the points raised in the impugned order.

We have heard the rival submissions and also perused the relevant findings given in the impugned order as well as material referred to before us at the time of hearing. First of all, as stated above and also noted by the ld. Pr.CIT, the assessee’s case was selected for limited scrutiny on the ground that; i) low income shown by large contractors; ii) mismatch in amount paid to related persons reported in ITR; and iii) higher turnover reported in service tax return compared to ITR and assessee has deposited large amount of tax in his bank account. All these points for which case was selected for scrutiny through CASS has duly been examined and inquired by the Assessing Officer which is evident from various questionnaire issued by the Assessing Officer and also the reply submitted by the assessee. As stated by the Assessing Officer in the assessment order, that he has examined the books of account, purchase and sale bills and also the expenses debited to the P&L account. One of the allegations of the ld. Pr.CIT is that Assessing Officer has not called for any details of the purchases of goods nor conducted inquiry from the parties from whom purchases were made. First of all, assessee is having a petrol pump and dealer in petrol and diesel. Its entire purchases is from Indian Oil Corporation Ltd. after making advance payments, there cannot be any doubt about purchases or Assessing Officer was required to carry out any inquiry from Indian Oil Corporation once certificate was issued by IOC. All the quantities of petrol and diesel purchase and the payments for the purchases have been duly mentioned in audited accounts as well as in the books of accounts which has been duly supported by the invoices issued by the Indian Oil Corporation. Thus, there cannot be any doubt or any adverse inference with regard to purchases.

Secondly, ld. Pr.CIT has mentioned that there was shortage of goods namely M.S. of 24356 ltrs. and H.S.D of 5528 ltrs. Before us, ld. counsel has clarified that first of all nowhere the ld. Pr.CIT has brought on record that there was some extra shortage in this year because generally there is certain percentage of loss of diesel and petrol due to evaporation and other factors which is normal in the case of petrol pumps and also acknowledged by the Indian Oil Corporation. The GP ratio also was not as low as pointed out by the ld. Pr.CIT, because assessee was entitled commission income from the sale of petrol or diesel from IOC and only very minor amount of margin. If purchases and sales are fully verifiable and there is no discrepancy in stock, then resultant GP cannot be questioned unless there is some discrepancy in purchase or sale which has not been found or pointed out even by the ld. Pr.CIT. Merely stating that there is a fall in GP ratio is not sufficient, if the Assessing Officer has examined all the purchases and sales and the regular books of accounts along with certificates and invoices issued by the Indian Oil Corporation and the agreement with IOC, then he cannot doubt the trading result. One of the factors mentioned for limited scrutiny was contract income which is only Rs. 11 lac which is from the oil tanker IOC which too has been examined by the ld. Assessing Officer. Thus, without bringing out any specific material on record or ld. Pr.CIT himself carrying out any inquiry to find out what was the inadequate inquiry carrying out by the Assessing Officer or there was any lack of inquiry, he cannot set aside the assessment order. Simply stating that Assessing Officer has not examined the purchases or GP without verifying the records, the assessment order cannot be cancelled in such a casual manner. He has also not specified what else were required to be examined for the low income when the contractor receipt itself is only 11 lacs and assessee’s main business and income is from purchase and sale of petrol and diesel of retail basis. Thus, under these circumstances and facts it cannot be held that either the assessment order is erroneous or prejudicial to the interest of revenue and therefore, the order of the ld. Pr.CIT is set aside and the impugned order u/s 263 order is quashed.

In the result, the appeal of the assessee is allowed.