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Facts
The assessee's appeal challenges an order by the Principal Commissioner of Income-Tax (PCIT) invoking Section 263 powers, deeming the Assessing Officer's (AO) order erroneous and prejudicial to revenue. The PCIT's view was that the AO failed to conduct adequate inquiries into the genuineness of sales and purchases of steel scrap, particularly concerning M/s Yug Tradelink Pvt. Ltd., which was deemed a bogus entity.
Held
The Tribunal held that the AO had conducted sufficient inquiries and taken a legally plausible view. The PCIT's action was seen as an attempt to substitute his own opinion for that of the AO, which is not permissible under Section 263 when there is no lack of inquiry, even if the inquiry could be considered inadequate.
Key Issues
Whether the PCIT correctly invoked Section 263 powers to revise the AO's order when the AO had conducted inquiries and taken a plausible view, or if the PCIT was merely substituting his opinion for the AO's.
Sections Cited
263, 143(3), 68, 131(1)(d)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: MRS. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
Year: 2015-16 Vs. Vivaa Tradecom Pvt. Ltd., Principal Commissioner of Shade No. 20, Shree Shhakti Income-tax-4, Estate & Workhouse, Piplaj Ahmedabad Pirana Road, Saijpur-Gopalpur, Ahmedabad-302405 [PAN : AAICA 3968 J] अपीलाथ�/ (Appellant) �� यथ�/ (Respondent) Assessee by : Shri Sudhir Mehta, AR Revenue by : Shri A.P. Singh, CIT-DR सुनवाई क! तार�ख/Date of Hearing : 21.11.2024 घोषणा क! तार�ख /Date of Pronouncement: 12.02.2025 आदेश/O R D E R PER SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Principal Commissioner of Income-Tax-4, Ahmedabad [herein-after referred to as “PCIT”] dated 21.02.2020, in exercise of his revisionary powers under Section 263 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year (AY) 2015-16.
The assessee has taken the following grounds of appeal:-
1. The Learned Principal Commissioner of Income Tax have erred in law and on facts to invoke the revision u/s 263 of the Income Tax Act, 1956 to hold that the order passed u/s 143(3) of the act dated 29.12.2017 is held to be erroneous and prejudicial to the interest of the revenue though the issue raised u/s 263 of the Act by the PCIT have been verified the evidence and sufficient material placed on record and gone through by the assessing officer during scrutiny assessment. Therefore, Assessment Order was neither erroneous nor prejudicial to the interest of the revenue.
2. The Learned Principal Commissioner of Income Tax has erred in law to invoke the provision u/s 68 of the Act in respect of credit entries made in the books of accounts of assessee for the sales made to M/s. Yug Tradelink Pvt. Ltd. Further commission U/s 131 (1) (d) was issued to DDIT, Investigation Wing, Vadodara to verify the genuineness transactions. So, of in present case there is double verification by highest legal authorities. Also, suo motu revision by Principal Commissioner of Income Tax even otherwise will be face a big question mark on investigation done by investigation wing, Also enquiry report has already been submitted by Investigation Wing on 29-12- 2017.
3. Also on face of Assessment order, there is nothing to point "prejudicial to interest of revenue" just merely Assessee did not elaborate the material on records or did not cross verify cannot be held prejudicial to interest in revenue. While Assessing officer received all tangible materials which was being asked during assessment and clearly looking through payment done by M/s Yug Tradelink Pvt. Ltd, it is seen that it was done through account payee cheque and it is also mentioned "purchase by & head direct expense" in books of account. So, when there is sufficient material placed with Assessing officer, then Principal Commissioner of Income Tax should not again invoke the revision the case and should not check again on re- appreciating the materials on record.
The Learned Principal Commissioner of Income Tax have erred in law and on facts to direct AO to carry out thorough inquiries on the issues noticed during the course of assessment proceedings in pursuant to the order u/s 263 of the Act.”
The appeal filed by the assessee is barred by limitation of 55 days. The Assessee has filed Condonation Application, along with affidavit, explaining the reasons for delay. The Bench was satisfied that the assessee had a reasonable cause for non-filing of the appeal within the stipulated time; therefore, the delay was condoned and the Appeal was admitted for hearing.
4. The brief facts of the case are that the assessee filed original return of income declaring loss of Rs. (-) 89,92,807/-. During the course of assessment, the Assessing Officer made addition of Rs.4,01,941/- on account of excess claim of bonus and disallowance of Rs.3,47,446/- being bogus book losses. On going through the records, the PCIT observed that the Assessing Officer made disallowance of loss of Rs.3,47,446/- arising out of scrap purchased from M/s. Global Metals and sold to M/s Yug Tradelink Pvt. Ltd. The additions were made on the basis of report of DDIT(Investigations), Vadodara to enquire into the genuineness of the sales made to M/s. Yug Tradelink Pvt. Ltd. As per the report of DDIT(Investigations), the identity and genuineness of M/s Yug Tradelink Pvt. Ltd. could not be established and, after considering this report, the Assessing Officer concluded that the transactions made in Steel Scrap Trading were merely paper transactions and the loss so claimed was bogus in nature. Accordingly, the Assessing Officer disallowed the loss of Rs.3,47,446/- after due discussion on this issue in the body of the assessment order. However, the PCIT was of the view that, in the instant case, the assessee had made purchases from M/s. Global Metals and made corresponding sales to M/s Yug Tradelink Pvt. Ltd.; and in the entire transactions of purchase and sales, the assessee had deliberately booked loss from trading of steel scrap. The PCIT was of the view that since the assessee- company has admitted to have entered into sham transactions of purchase and sale of steel scrap (as agreed vide order-sheet entry dated 29.12.2017), then the Assessing Officer had erred in restricting the issue to the extent of disallowance of loss of Rs.3,47,446/- without verifying of the entries of purchase and sales, and the outstanding dues as reflected in the balance-sheet. The PCIT was of the view that when the sales made to M/s Yug Tradelink Pvt. Ltd., Vadodara were held to be bogus, then all the debit entries made in the ledger account, as appearing in the books of accounts, were required to be treated as unexplained cash credits in the hands of the assessee. The PCIT was of the view that, in the instant facts of the case, the Assessing Officer has erred in making due inquiries regarding the genuineness of purchases made by the assessee, once the sales were held to be bogus in nature. Accordingly, the PCIT held that since the Assessing Officer had not made adequate inquiry into the genuineness of the purchases made, there was an error in restricting the addition only to the bogus losses claimed by the assessee. Accordingly, the PCIT held that the assessment order was erroneous and prejudicial to the interest of the Revenue and accordingly directed to set aside the same.
The assessee is in appeal before us against the aforesaid order passed by the PCIT.
The Ld. Counsel for the assessee drew our attention to paragraph No.5 of the assessment order, in which the Assessing Officer had asked the assessee to produce details of purchase and sale bills for the purpose of verification. The Assessing Officer asked the assessee to submit month-wise details of purchases and sales of steel scrap and also asked the assessee to submit ledger confirmation of M/s Global Metals and M/s Yug Tradelink Pvt. Ltd. The Assessing Officer observed that in the report issued by the DDIT (Inv.), Vadodara, it is found that the company to whom the sales had been made by the assessee viz. M/s Yug Tradelink Pvt. Ltd. was not a genuine company and is not carrying on any business activity. Keeping in view the above facts, the Assessing Officer disallowed the loss of Rs.3,47,446/- claimed by the assessee on sale of steel scrap.
On going through the case records, we observe that there is evidently no lack of inquiry by the Assessing Officer. The Assessing Officer had called for various details with regard to sales and purchase of steel scrap from the assessee during the course of assessment proceedings. On the basis of information available on record, the Assessing Officer held that the loss of Rs.3,47,466/- on account of sale to M/s Yug Tradelink Pvt. Ltd. is a bogus loss and hence the same was liable to be disallowed. In the given facts, we note that, evidently, there is no apparent lack of inquiry by the Assessing Officer on this issue. Further, the Assessing Officer, in our considered view, has taken a legally plausible view and it is a well settled legal principle that 263 proceedings cannot be resorted to only with a view to supplant the view of the PCIT with that of the Assessing Officer.
Regarding the scope of proceedings u/s 263 of the Act, an inquiry made by the Assessing Officer is considered inadequate by the Principal Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer’s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There are a number of judgments by various High Courts in this regard.
The Hon’ble Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 on the ground of inadequate inquiry:-
“12.….. 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. — —— From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.
15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of ‘lack of inquiry’.”
In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113) :-
“The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.
The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words:
“20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld. Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.
We observe that this is not a case where there was an omission on the part of the Assessing Officer to examine the aspect of disallowance of bogus losses on sale of steel scarp. The Assessing Officer had put specific questions before the assessee during the course of assessment proceedings and had taken the assessee’s reply on record. Further, the Assessing officer had also discussed this aspect as part of the assessment order and thereafter took a legally plausible view, taking into consideration assessee’s set of facts.
Therefore, in our view, this is not a case where no enquiry has been made by the Assessing Officer during the course of assessment proceedings. It is also not the case of the PCIT that the Ld. AO failed to apply his mind to the issues on hand or he had omitted to make enquiries altogether or had taken a view which was not legally plausible in the instant facts. As held by various Courts, PCIT cannot, in 263 proceedings, set aside an assessment order merely because he has different opinion in the matter. In our view, Section 263 of the Act does not visualise a case of substitution of the judgment of the PCIT for that of the Assessing Officer who passed the order unless the decision is held to be wholly erroneous. As noted in various judicial precedents highlighted above, the PCIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-visit the entire assessment and determine the income himself at a higher figure.
Accordingly, in our considered view, we find no infirmity in the order of the Assessing Officer and we hold that the present 263 proceedings are liable to be set aside.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 12.02.2025 at Ahmedabad.