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Income Tax Appellate Tribunal, ‘A’ BENCH, KOLKATA
Before: Shri Rajpal Yadav, Vice-(KZ) & Shri Manish Borad
Per Rajpal Yadav, Vice-President (KZ):- The present appeal is directed at the instance of the assessee against the order of ld. Commissioner of Income Tax-X, Kolkata dated 26.03.2010 passed for the assessment year 2005-06.
While fixing the appeal for out of turn hearing, we have recorded the following finding on the application filed by the assessee, which reads as under:- “‘A’ Bench ITA No. 176/KOL/2022 Assessment Year: 2005-06 In the case of M/s. KINNOR KINNOREE -Vs- CIT-X 27.05.2022 : The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income Tax-10, 1
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Kolkata dated 26th March, 2010 passed under section 263 of the Income Tax Act in assessment year 2005-06. The assessee has filed an application for grant of out of turn hearing on 23.05.2022. Ld. counsel for the assessee submitted that initially, the assessee has challenged the above order in Writ Petition bearing No. WPA23793 of 2010 before the Hon’ble Calcutta High Court. This Writ Petition has been disposed of by the Hon’ble High Court on 22nd March, 2022. The Hon’ble High Court has given a liberty to the assessee to file an appeal before the Tribunal within four weeks from the date of order, then the issue regarding period of limitation will not be raised by the Tribunal. The assessee has presented the appeal on 19th April, 2022, which is within four weeks from 22.03.2022. Therefore, the appeal is treated with in limitation in terms of Hon’ble Calcutta High Court’s decision.
The assessee has contended that though the Hon’ble High Court has disposed of the Writ Petition but kept the Interim Order alive upto ten weeks from the date of the order. Therefore, according to the assessee, this appeal be heard on priority basis before the expiry of ten weeks. It is pertinent to observe that the assessee has filed the present application after expiry of eight weeks from the order of the Hon’ble High Court. The appeals challenging orders passed under section 263 are required to be heard out of turn as per the standing instruction of the Hon’ble President, ITAT dated 14th June, 2016. The present impugned order passed under section 263 is dated 26.03.2010. Twelve years have already expired. Therefore, we deem it appropriate to fix the hearing out of turn. Ld. counsel for the assessee has requested the Bench that the appeal be listed in the last week of June, 2022. Accordingly, we direct the registry to list the appeal for hearing on 27th June, 2022. It is also directed that paper book should be filed in advance before the date of hearing with a copy to the Revenue. Sd/- Sd/- Rajesh Kumar Rajpal Yadav Accountant Member Vice-President (KZ)”
The grievance of the assessee is that the ld. CIT has erred in taking cognizance under section 263 of the Income Tax Act and thereby setting aside the assessment order dated 28.12.2007 passed under section 143(3) of the Income Tax Act for framing a fresh assessment order.
Brief facts of the case are that the assessee was engaged in the sale of Saree, Pyajama, Punjabi, Dhuti etc. It has filed its return of income on
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28.10.2005 disclosing total income of Rs.11,38,730/-. According to the facts emerging out from the assessment order, a notice under section 143(2) was issued by Shri F.C. Mondal, ACIT, Circle-30, Kolkata. Subsequently the case was assigned to Additional Commissioner of Income Tax, Range-28, Kolkata, who again issued fresh notice under section 143(2) on 20.11.2007. After hearing the assessee, he passed the scrutiny assessment under section 143(3) on 28.12.2007. It is pertinent to observe that in the assessment order, dates of hearing have been mentioned starting from 08.06.2007. The total dates of hearing taking place before the ld. Assessing Officer are seven, as appearing in Column No. 11 of the Cause Title before the ld. Assessing Officer.
The ld. Commissioner has observed that he has examined the assessment record and found it erroneous as much as prejudicial to the interest of Revenue. He accordingly took cognizance under section 263 of the Income Tax Act and issued show-cause notice. The reasons for taking action under section 263 are being reproduced in the first and second page of the impugned order and we deem it appropriate to take note of such reason, which reads as under:- “Assessment records in the above case were examined. It is seen the assessment for the AY 2005-06 was assessed u/s143(3) on 28.12.2007 on a total income of Rs.11,71,760/- with tax effect of Rs.21,166/- as under:-
On examination of the assessment records, it was seen that the following expenditure were debited to the P&L A/c.:- (1) Commissioner paid to: (a) Panjabi & Pajama Rs.45,01,527/- Card Sales (b) Silk Saree Card Sales Rs.14,23,003/- (c) Cotton Saree Card Rs.10,57,050/- Sales Rs.70,90,580/- (2) Payment of labour charges to:- (a) Rahman Tailors Rs.4,10,272/- (b) Rima Tailor Rs.3,75,628/-
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Rs.7,85,900/- (3) Payment of Advertisement: Rs.2,81,700/-
In the above cases, Column 27 of the audit report submitted in Form 3CD shows that no TDS has been made by the assessee. Therefore, all the above mentioned amounts were required to have been added to total income u/s 40(a)(ia) of the I.T. Act, 1961.
As per section 40(a)(ia) of the I.T. Act if no tax was deducted from payment to contractors/sub-contractors u/s 194C, the expenditure was not deductible from the earnings of the AY 2005- 06. Since in this case the assessee had failed to deduct the tax at source from the expenditure on item (1), (2) &(3) above, the aggregate expenditure of Rs.81,58,080/- (Rs.70,90,580/- + Rs.7,85,900/- + 2,81,700) would not allowable for deduction from the AY 2005-06.
Further out of the sundry creditors totaling Rs.3121 294.02, not a single cross verificaion has been made.
Hence, there was a failure on the part of the Assessing Officer to carry out the necessary enquiries and as such the assessment order was erroneous and prejudicial to the interest of revenue. It is therefore, proposed to set aside the assessment so that the points discussed above may be examined by the AO to be decided on merit after giving a reasonable opportunity of being heard to the assessee.
You are hereby given an aopportunity to show casue as to why the case may not be set aside. Kindly file your written submission in this regard. Your case is fixed for hearing on 06-01-2010 at 1:30 p.m.”.
In response to the above show-cause notice, Shri A.K. Ghosh, Advocate appeared on behalf of the assessee. He submitted the reply of the assessee. At that relevant point of time, a dispute arose whether 40(a)(ia) is applicable on payments already made or amounts, which are payable. According to the assessee, this section is applicable on the amounts, which are payable and not on the amounts, which already paid. On this dispute, there was lot of debate at the level of the Tribunal in 2009 and ultimately a reference was made to the Special Bench of the Tribunal at Visakhapatnam in the case of Merilyn Shipping & Transports,
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Visakhapatnam –vs.- Addl. CIT reported in 136 ITD 23 (VSP). The Special Bench has decided that this clause is applicable only on the amounts payable. However, this view did not meed the approval of Higher Appellate Authority. Hence, this contention of the assessee was rejected by the ld. Commissioner. He held that assessment order is erroneous and prejudicial to the interest of Revenue without touching the issues raked up in the show-cause notice. The finding of the ld. Commissioner in the impugned order reads as under:- “On perusal of the submission of the assessee it is seen that the assessee has failed to furnish a cogent and factual submission with regard to the expenditures claimed to have incurred as discussed above. The assessee’s contention that the entire observations are “simply misinterpretation ” does not hold any water. The assessee’s reading of Sec 40a(ia) is also thoroughly incorrect as Section 40a(ia) applies in cases not only where any amount remains payable but should actually be paid before the filing of return or the end of the relevant assessment year. Further the assessee’s written submission in response to the show cause notice issued on 26-11-09 is silent on the points referred to in the show-cause notice and therefore it is clear that the assessee has no explanation to offer thereto.
I have carefully considered the'submission of the assessee. The show cause notice has clearly spelt out the points which would conclusively show that the order passed by the AO is erroneous in so far as it is prejudicial to the interest of revenue. The submission of the assessee is general and the same no way disproves the points raised in the show cause notice, n view of this, I find no merit in the submission of the assessee.
From the above, it is quite clear that the AO had passed a stereotyped order, and make enquiries which are called for in the circumstances of the case. The order is s in view of the decisions in Rampyari Devi V. CIT 1968) 67 ITR 84 (SC) and Tara 'garwal V. CIT(1973) 88 ITR 232 (SC). He failed to make necessary enquiry. The order is also prejudicial to the interest of revenue in view of decisions in Malabar Industrial Co.Ltd. 243 ITR 83 (SC).
The assessing Officer had accepted assessee’s submission without examining the points discussed above.Thus , the AO failed to make necessary enquiry which was expected of him before concluding the assessment. The assessment is, thus, erroneous and prejudicial to the interest of revenue. Ref. CIT V. South India Shipping Corpn. Ltd. (1009) 233 ITR 546, Rampyari Devi Saraogi V. CIT (1968) 67 ITR 84 (SC) and Tara Devi Agarwal V. CIT (1973) 323 (SC).
In this connection, the relevant judicial pronouncements need to be reviewed. It is beyond dispute that u/s. 263, the Commissioner does have the power to set aside the assessment order and send the matter for a fresh assessment if he is satisfied that further enquiry is necessary, and that the order of the AC is prejudicial to the interests of Revenue - Swarup Vegetable Products Industries Ltd. V:; LIT (1991) 187 ITR 412, 415-16 (All)
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In the facts of Umashankar Rice Mill v. CIT(1991) 187 ITR 638, 639 (Orissa), the Tribunal was held justified in upholding the prowsional order of the Commissioner who felt the there should be a further enquiry.
The Commissioner is fully empowered to adopt any one of the three courses indicated by the provisions of Sec. 263 and the Commissioner’s power cannot be faulted because he cancelled the assessment and directed a fresh assessment. CIT V. Seshasayee Paper & Boards Ltd. (2000) 242 ITR 490, 496 (Mad).
It would be sufficient if he comes to the conclusion on materials that the order of the Officer was erroneous and prejudicial to the interest of Revenue and if such a conclusion is arrived at on materials on record, it is not necessary for him it record his final conclusion on the merits of the case and it is open to the Commissioner to record his prima-facie opinion in that matter and set-aside the order of assessment and direct the officer to pass a fresh assessment order in accordance with law. The view that the Commissioner should record his final conclusion on the question, if accepted w'ould take away the powers conferred report the Commissioner u/s. 263 to pass such order as the circumstances of the case would justify. CIT V. South India Shipping Corporation Ltd. (1998) 233 ITR 546,555 (Mad).
Therefore, when the Commissioner prima-facie came to the conclusion that, the order passed by the Officer was not in accordance with law and the assessment records disclose that the Officer had not undertaken the enquiry which was expected of him before allowing the claim of the assessee for weighted deduction,' it is held that the Tribunal was not justified in holding that the Commissioner lacked the jurisdiction to exercise his power of revision. Thus, there is nothing in Section 263 to show that the Commissioner should in all cases record his final conclusion on the points in controversy before him. CIT V. Seshasayee Paper Boards Ltd. (2000) - 242 ITR 490, 497-98 (Mad).
The Commissioner may consider an order of the Assessing Officer to be erroneous not only if it contains some apparent error of reasoning or of law or of fact on the face of it because it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries which are called for in the circumstances of the case istration on the point, see Rampyari Devi Saraogi V. CIT(1968) 67 ITR 84 and Tara Devi Agarwal –vs- CIT (1973) 88 ITR 323 (SC).
It is not necessary for the Commissioner to make further enquiries before canceling the assessment order of the Assessing Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Assessing Officer should have made further enquiries before accepting the statements made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral to give decision on the basis of evidence produced before it, an assessing officer is not only an adjudicator but is also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further enquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke enquiry. The meaning to be given to the work “erroneous” in Section 263 emerges out of this context. The word erroneous in that section includes cases where there has been a failure to make the necessary enquiries (See Vee Enterprises V. Addl. CIT)1975) 99 ITR 375, 386 (Del). It is incumbent on the Officer to investigate the facts stated in the return, when circumstances would make such an enquiry prudent and the work “erroneous” in Section 263 includes the failure
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to make such an enquiry. The order becomes erroneous because such an enquiry was not made and not because there is any – wrong with the order if all the facts stated therein are assumed to be correct. Duggle & Co. V. CIT(1996) 220 ITR 456, 549 (Del) .Also see CIT V. Pushpa Devi (1988) 173 ITR 445 (Pat).
The above-stated decisions postulate that when the Officer is expected to make an enquiry of a particular item and if he does not make an enquiry as expected, that would be a ground for the Commissioners to interfere with the order passed by the Officer since such an order passed by the Officer is erroneous and prejudicial to the interests of Revenue. (K.A Rarnaswamy Chettiar V. CIT(1996) 220 ITR 657, 665 (Mad).
In the Supreme Court case 243 ITR 83, 88,-89, the CIT noted that the ITO passed the order of Nil assessment without application of mind. The Supreme Court was of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under section 263 was justified. In CIT V. Active Traders (P) Ltd. (1995) 214 ITR 583,586-87, (Cal
Commissioner was held justifieo in setting aside the assessment made without making proper and detailed enquiry into the genuineness and creditworthiness of the persons who subscribed to the equity capital of the assessee Company.
CIT V. M.N. Dastur & Co. (P) Ltd. (2000) ITR 10, 19 (Cal) Tribunal was held not justified in law in canceling the order of the Commissioner u/s. 263.
The revisional power u/s. 263 is of wide amplitude and it is in the nature of supervisory jurisdiction. On fulfillment of the requisite conditions of section 263(1), the Commissioner can exercise the power of revision even in a case where the issue is debatable and it must always be borne in min’d that the provisional power under section 263 is not comparable with the power of rectification of mistake under section 154 of the Act [CIT v. M.M. Khambhatwala (1992) 198 ITR 144,146 (Guj). In fact, it is well settled that an incorrect assumption of the facts or application of law will satisfy the requirement ot the order being erroneous and prejudicial to the interests of revenue. In the same category would fall the orders passed without application of mind. The Commissoner may consider and order of the Assessing Officer to be erroneous not only if it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo-typed order which simple accepts what the assessee has stated in his return and fails to make enquiries which are called for in the circumstances of the case.
It is well known that simply because the facts have been disclosed by the assessee, in the course of assessment proceedings, it does not give the immunity from revisional jurisdiction which the Commissioner can exercise under section 263 and as such even in a case where the facts have been disclosed by the assessee to the assessing authority and the correct provisions of law have not been examined by the assessing authority, the power under section 263 can be invoked. If any authorities are dt all needed to be cited in support of the aforesaid trite principles, then one can advert with advantage to the decisions in Rampyari Devi Saraogi vs. CIT (1968) 67 1TR 84 SC) : Tara Devi Aggarwal vs. CIT (1973) 88 ITR 323 (SC) : Malabar Industrial Co. Ltd. vs. CIT(1992) 198 ITR 611 (ker) : CIT vs. Emery Stone Mfg. Co. (1995) 213 ITR 843 (Raj) : B.S. Bajaj & Sons vs. CIT (1996) 222 ITR 418 (P&H) : Patel Cotton Co. Ltd. vs. ACIT (1998) 64 ITD 273 (Mum) : BLu Mai Pyare Lai vs. ACIT(2001) 79 IT'D 169
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(Chd): Morinda Cooperative Sugar Mills Ltd. vs. DCIT (2001) 78 ITD 189 (Chd) : Export House (2002) 256 ITR 603 (P&H) : Diamond World vs. CIT (2004) 267 ITR 467 (Raj): Ind. Sphinx Precision Ltd. vs. CIT Shimla (2007) 11 SOT 498 (Chd). When the AO fails to ask for details or applies the law correctly then the C.I.T. has powers to set aside the order as is decided in the following cases: (1) Gee Vee Enterprises vs. Addl. CIT [(99 ITR 375 (Del)] It is the duty of AO to investigate facts. Other becomes erroneous when necessary enquiry had not been made. (2) Malabar Industrial Co. Ltd. vs. CIT [243 ITR 83(SC] An incorrect assumption of facts or on incorrect application of law will statisfy the requirement of the order being erroneous. (3) Indian Textiles vs. CIT [157 ITR 112 (Mad)]. AO granted relief without proper verification and such order is an order prejudicial to the interest of revenue. From the records, it is abundantly clear that no worthwhile enquiry was made nor any meaningful investigation was carried out -egarding.the claim of the assessee as stated above. The Assessing Officer was expected to inquire these points and he has failed to make enquiry as expected. This would be a*ground for interference with the order passed by the essing Officer since such an order passed by the Officer is erroneous and prejudicial to crests of Revenue as is decided in the Court cases cited above. I have carefully considered the records and the submission of the assessee. I have also'heard the assessee, I consider the order passed by the AO u/s. 143(3) on 22/11/2007 for the revenue for the reasons stated above. Accordingly, the assessment is set-aside and AO is directed to make a fresh assessment as per law in accordance with the observation/directions given in this order and after making proper enquiries of the above points as called for in the circumstances of the case. Sd/- (S. MAMIDI) C.I.T.Kol-X, Kolkata”
While impugning the order of ld. Commissioner, ld. Counsel for the assessee contended that the assessee has collected copies of the submission filed before the ld. Assessing Officer through RTI and in response to the notice under section 142 of the Income Tax Act, the assessee has filed submission dated 28.11.2007. Copy of this letter is available on pages 7-10 of the paper book. He took up through these pages. According to the ld. Counsel for the assessee, no TDS was required to be deducted at its end. The ld. Commissioner in his show-cause notice
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has divided the expenditure under three Heads. Under the 1st Head, an amount of Rs.70,90,580/- has been referred by the ld. Commissioner of Income Tax on which TDS was to be deducted. He submitted that actually it is not a commission rather it is a sale on Credit Card. He explained the position shown to the ld. Assessing Officer not only with the help of this letter but supporting evidence from the Bank Statement. On page no. 12 of the paper book, he placed on record the details of Credit Card bill. How these amounts have been received? How sales have been made and what are the Bank charges? Thus according to him, no TDS was required for making such sales. Similarly he pointed out that under the 2nd Head, ld. Commissioner made reference for labour charges of Tailors. There is no relationship of a contractor as well as contractee. The Tailors were given payments on job work basis and a single job work bill was not more than Rs.20,000/-. He filed the break-up of all these payments and the details of bills from pages no. 15 onwards. He also explained with regard to the payments mentioned at Point No. 3, i.e. payment for advertisement. The bills of all advertisements are placed on the record. It has been demonstrated that bills are not more than Rs.20,000/-, rather a bill dated 31.10.2004 in favour of Frequency Advertising Private Limited is only Rs.5,000/-. He took us through all these bills and explained that TDS is not required to be deducted. With regard to the 4th Point mentioned in the show-cause notice about Sundry Creditors, he submitted that ld. Commissioner himself did not call for any details, rather ld. Assessing Officer has verified the audited accounts and gone through the details of Sundry Creditors.
On the other hand, ld. D.R. submitted that assessment order is totally silent about all these enquiries. It is just one and half pages assessment order without exhibiting any inquiry made at the end of the ld. Assessing Officer. Therefore, the ld. Commissioner has rightly taken cognizance of the record and rightly directed the ld. Assessing Officer to pass fresh assessment order.
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We have duly considered the rival contentions and gone through the record carefully. Before we embark upon an enquiry on the facts and issues agitated before us to find out whether the action u/s 263 of the Act, deserves to be taken against the assessee or not, 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. [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 10
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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.”
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 fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, 11
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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. (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 of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
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Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 and Gee Vee Enterprises Ltd vs. Addl. Commissioner of Income Tax (99 ITR 375). In the case of Sun Beam Auto, the Hon'ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon'ble Delhi High Court are worth to note:
“12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open”. 12. In the case of Gee Vee Enterprise vs. Commissioner of Income Tax reported in 99 ITR page 375, the Hon’ble court has expounded the approach of ld. Assessing Officer while passing assessment order. The observation of the Hon’ble court on pages 386 of journal read as under:-
“…it is not necessary for the Commissioner to make further inquiries before
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cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very diffident from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only on adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but called for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry… It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word ‘erroneous’ in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.” 13. In the light of above, let us examine the facts of the present case. We have taken cognizance of the show-cause notice, we deem it appropriate to take note of the assessee’s submission dated 28.11.2007 filed before the ld. Assessing Officer, which reads as under:- “Before The Addl. Commissioner of Income Tax, Range-28, Kolkata. 2, Gariahat Road (South) Kolkata-700 068. Re : In the matter of M/S. Kinnar Kinnaree, 98, Rash Behari Avenue, Kolkata-700029. Sub. : In the matter of scrutiny assessment proceeding u/s. 143(3) of the I.T. Act for the assessment year 2005-06. P.A.N. : AAFFK1754N Sir, That in early occasion of hearing you have raised certain queries/details which are assessed as under : 1. Query : Why TPS Not deducted on commission paid against card sales of Rs.70,90,580/- REPLY :
ITA No. 176/KOL/2022 Assessment Year : 2005-2006 M/s. Kinnor Kinnoree
That we have not paid any commission against credit card sale and it is not applicable and there is no question to deduct TDS on credit card sale. ITEM L/F AMOUNT(Rs.)
Panjabi & Pajama Credit card sale 102 46,10,527.00 Silk Saree Credit Card Sale 121 14,23,003.00
Cotton Saree Credit Card Sale 112 10.57.050.00
Total Credit card sale 70,90,580.00
Total bank Credit Card Received 70.23.726.86
The said amount relates to sales proceeding through credit card to different customers and the above amount relate to sale, therefore, no TDS is liable to be deducted against such credit card sales. In the audited balance sheet there is no expenses has been shown as commission paid as no TDS was deducted. Our total credit card sales for above said goods of Rs.70,90,580/-, copy of ledger account is enclosing herewith. It would be pertinent amply clear that while effecting such sales against use of credit card crediting such amount against sales use to deduct “Discount” from gross sale proceeds and the balance is being credited to our amount. In the process during the material period an amount of Rs.66,853.14 was deducted by our banker and the same was accounted for under the head of Commission paid .
Therefore, your goodself is requested Rs.70,90,580/- should not be added and allow the same.
We are enclosing Statement of credit card sale, ledger account, Citi Bank & Standard Chartered Bank account wherein reflected the card sale. Query : Why TDS Not deducted on payment of labour charges amounting to Rs.785,900/- REPLY : Rahman Tailors Rs.4,10,272/-
Rima Tailors Rs.3.75.628/-
Rs.7.85,900/- The payments of Rs.785,900/- to the labourers/karigars are made through Sardars and for this there was no contract between the Sardars and the assessee. It is only done for better administrative convenience and smooth functioning of the business as and when required to engage the karigars, therefore, the provision of section 194C/40(a)(ia) was not attracted in respect of the said payments.
That provisions of section 194C(2) would not be applicable in its case as there was no contract between it and two Labour Sardars; that the Labour Sardars could not be termed as labour contractors for the purposes of section 194C as they worked along with fellow labourers and they received the payment by virtue of the muster roll as placed on record. That the payments were made to each and every individual labourer with the assistance of Labour Sardars whom the labourers of a particular area chose to act as their leader (sardar) for purposes of identification and
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safeguarding their interest. It was explained that it for the benefit of both the assessee and the labourers that the Labour Sardar act as a confirming party to the payments made to the individual labourers.
That I am producing all the details of vouchers where name of all the labourers are there for test check.
The amendment made in section 40(a)(ia) by the Finance Act No. 2 dated 10th September, 2004, the payments to contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work) will be deductible only if tax is deducted therefrom, at source under Chapter XVII-B and such tax has been paid during the previous year or in the subsequent year before expiry of the time prescribed under section 200 of the Act. The provision was made effective from 1 -4- 2005 by the provision of section 11 of the Finance (No. 2) Act, 2004 which is relevant to assessment year 2006- 07. But in the instant case, the assessment year under dispute is 2005-06 and the relevant previous year is 1-4- 2004 to 31-3-2005 and during this year, the provision of section 40(a)(ia) of the Act was non-existent and the same was not applicable in the instant case.
Therefore,your goodself is requested Rs.7,85,900/- should not be added and allow the same.
We are enclosing Bills. Voucher, Ledger account for your kind perusal.
Query : Why TPS Not deducted on payment of advertisement charges amounting to Rs.281,700/- REPLY : That in profit & loss account, an amount of Rs.2,81,700/- only was debited towards advertisement charges, our of which Rs.2,75,500/- was paid to M/s. Frequency Advertising Pvt. Ltd. and Rs.6,700/- were paid to different organizations as would be evidenced from the copy of ledger account which is enclosed.
That the assessee not deducted TDS on advertisement for the payment made to M/s. Frequency Advertising Pvt. Ltd. amount to Rs.2,75,500/-. That provisions of section 194C would not be applicable in this case as there was no contract between it and M/s. Frequency Advertising Pvt. Ltd.. In the present case no amount is payable on account of advertisement. It is clear that the provision of Section 194C(1), the provisions of Section 40a(ia) for making disallowance of expenditure on advertisement for non-deduction of TDS will not apply., no disallowance should be made u/s. 40(a)(ia).
Therefore,your goodself is requested Rs.281,700/- should not be added and allow the same.
We are enclosing Bills. Voucher, Ledger account for your kind perusal.
That all the queries have been reconcile and the bills & vouchers, ledger account, bank statement, audited balance sheet have been duly produced before your goodself, for your verification. Thanking you, Yours faithfully, Sd/-
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KINNAR KINNAREE Partner Kolkata Dated : 28.11.2007”
Apart from this submission, the assessee has placed on record supporting material to this submission. A perusal of all these material would indicate that assessee has explained the issues before the ld. Assessing Officer. It is a different thing that ld. Assessing Officer did not translate his satisfaction in the assessment order. It is pertinent to observe that how to draft assessment order is in the discretion of the ld. Assessing Officer and assessee has not controlled over it. But a perusal of the ld. Commissioner’s order would indicate that ld. Commissioner has not applied his mind on any of the details available on the assessment record. We failed to note what type of examination he has made when assessee has demonstrated that these are Credit Card sales. Such plea was supported with the Bank details, then ld. Commissioner ought to have cross verified all these aspects from the assessment record including the Bank details and thereafter should have doubted about the finding of the ld. Assessing Officer. The amounts referred under three Heads do not require deduction of any TDS and in this situation, no disallowance under section 40(a)(ia) is called for. The ld. Commissioner has failed to examine the issue analytically in right perspective and, therefore, it is not sustainable in the eyes of law. We allow the appeal of the assessee and quash the impugned order.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on August 30th , 2022.
Sd/- Sd/- (Manish Borad) (Rajpal Yadav) Accountant Member Vice-President (KZ) Kolkata, the 30th day of August, 2022 Copies to : (1) M/s. Kinnor Kinnoree, 98, Rash Behari Avenue, Kolkata-700029
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(2) Commissioner of Income Tax-X, 2, Gariahat Road (South), Dakshinapan, Kolkata-700068
(3) The Departmental Representative (4) Guard File