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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Sri Aby T. Varkey & Sri Manish Borad
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA (Before Sri Aby T. Varkey, Judicial Member & Sri Manish Borad, Accountant Member) I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd.........................................................Appellant [PAN: AABCK 3114 F] Vs. Pr. CIT, Kolkata-2................................................................Respondent Appearances by: Sh. S.K. Tulsiyan, Adv. and Ms. Puja Somani, appeared on behalf of the Assessee. Md. Ghayas Uddin, CIT (D/R), appeared on behalf of the Revenue. Date of concluding the hearing : February 28th, 2022 Date of pronouncing the order : April 6th, 2022 ORDER Per Manish Borad, Accountant Member: This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2011-12 is directed against the order of ld. Pr. Commissioner of Income-tax, Kolkata-2 [in short ld. ‘Pr. CIT’] dated 26.03.2021 vide Appeal No. ITBA/REV/F/REV5/2020-21/1031806468(1) which is arising out of the assessment order framed u/s 143(3) of the Income Tax Act, 1961 (in short the “Act”) dated 30.11.2018 by ITO, Ward-4(4), Kolkata. 2. At the outset the ld. Counsel for the assessee submitted that there is a delay of 92 days in filing of the appeal. This delay was stated to be neither deliberate nor intentional but was due to the COVID-19 pandemic prevailing at that time. We take note of the pandemic situation where the movement of people were restricted and because of such practical situation, it was always not possible to follow the time of limitation regarding filing of appeal before various forums. This fact was also observed and taken cognizance by the Hon’ble Supreme Court of India, in Civil Original Jurisdiction, Suo Moto Writ Petition (Civil) No. 3 of 2020 dated 8th March, 2021 excluding the limitation
I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd.
period from 15.03.2020 to 14.03.2021. The assessee has also filed separately condonation petition. The ld. D/R agreed for the condonation of delay of 92 days. After hearing the parties and taking guidance from the decision of the Hon’ble Supreme Court (supra), we condone the delay of the assessee and proceed to hear the case on merits.
The assessee is in appeal before this Tribunal raising the following grounds:
“1. That the order passed by Ld. Principal Commissioner of Income Tax, Kolkata-2 under section 263 of the Income Tax Act, 1961 setting aside the assessment order dated 30th November, 2018 passed by the Income Tax Officer, Ward - 4(4), Kolkata under section 143(3) read with section 147 of the Income Tax Act, 1961 is without jurisdiction, against law and facts of the case and therefore illegal and is liable to be quashed. 2. That, on the facts and circumstances of the case and in law, the Id. Principal Commissioner of Income Tax, Kolkata-2 erred in assuming jurisdiction under section 263 though the Assessment Order dated 30th November 2018 passed under section 143(3) read with section 147 of the Act was neither erroneous nor prejudicial to the interest of revenue. 3. That, the Ld. Principal Commissioner of Income Tax, Kolkata-2 was not justified in setting aside the assessment order dated 30th November 2018 although the Appellant Company, in response to the show cause notice issued under section 263 of the Act explained that there was no error committed by Ld. Assessing Officer in concluding the original assessment proceedings. 4. That, the Ld. Principal Commissioner of Income Tax, Kolkata-2, further erred in not appreciating that the judicial and official acts have been regularly performed by the Assessing Officer while taking a possible view in the matter and furthermore without application of mind as the AO did not have the jurisdiction to make enquiries which were not subject matter of reopening and hence jurisdiction invoked u/s. 263 of the Act was beyond the sanction of law. 5. That, on the facts and in the circumstances of the case, the impugned order passed by the Ld. Principal Commissioner of Income Tax, Kolkata-2 is perverse and is liable to be quashed. 6. That the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds.” 4. Brief facts of the case as on records are that the assessee is a private limited company and engaged in the business of manufacturing of UPVC pipes and fittings. Income of Rs.16,62,450/- declared in the return of income on 26.08.2011. The case was selected for scrutiny and assessment u/s 143(3) of the Act was passed on 31.03.2014 wherein addition of
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd.
Rs.29,22,851/- was made on account of unexplained investment. Subsequently, notice u/s 148 of the Act was issued to the assessee on 31- 03-2018 on the ground that the assessee company is beneficiary of unaccounted money of Rs.60,00,000/-received from M/s. Pushkar Trading and Holding Pvt Ltd. Copy of the notice issued u/s 148 of the Act and copy of the reasons recorded is enclosed at page 1-3 of the paper book. The relevant extract of the reasons recorded is reproduced below:
"Subsequently information was received from Investigation (Wing) Kolkata that a search and seizure operation u/s 132 and survey operation u/s 133A of the Income-tax Act, 1961 was conducted at the various premises of group concerns of Super Sonic and Jhunjhunwala Group with two entry operator namely Bhartia Group and Newatia Group at Kolkata, Hyderabad, Jamshedpur and Indore on 03.01.2018. During the search operation statement of Sri Subhash Kumar Bhartia was recorded u/s 132(4) of the Income Tax Act. He has stated in his statement that M/s Chaturang Commercials Pvt. Ltd., Liberal Spinners Pvt. Ltd., Oven Commercial Pvt. Ltd., Chanda Cast Iron Industries Pvt. Ltd., Pushkar Trading and Holdings Pvt. Ltd. are shell companies controlled and managed by him and these companies were formed for providing accommodation entry to the various beneficiaries in the form of bogus share capital & share premium and unsecured loan etc. Further bank accounts of above five companies were scrutinized. It was seen that M/s unsecured loan etc. Further bank accounts of above five companies were scrutinized. It was seen that M/s. Karan Polymers Pvt. Ltd. has taken accommodation entry of Rs. 60,00,000/- from M/s. Pushker Trading and Holding Pvt. Ltd. The undersigned has reasons to believe that the assessee company is the beneficiary of unaccounted money of Rs.60,00,000/- which is its undisclosed income for the A.Y. 2011-12. In this case, a return of income was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act was made. Accordingly, in this case, the only requirement to initiate proceeding u/s 147 is reason to believe which has been recorded above in supras.” 4.1. During the assessment proceedings, objections were raised by the assessee for re-opening of the case and the said objections were disposed off by the Assessing Officer (in short ld. “AO”) by passing specific order. During the course of re-assessment proceedings another notice u/s 142(1) of the Act dated 05.10.2018 was issued. Relevant copy of the notice is reproduced below for ready reference:
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd.
“Further, during the course of reassessment proceedings, another notice u/s 142(1) of the Act dated 05-10-2018 was issued to the assessee. The relevant extract of the notice is reproduced below: “During the course of assessment proceedings, on examination of records, it is observed that your company’s name was appeared in the case of S.K.Hawala Scam and you are one of the beneficiary who has taken benefit of Rs. 10,00,000/- during the financial year 2010-11.” 4.2. The assessee filed detailed written submission in support of the information asked by the ld. AO with regard to the transaction with M/s. M/s. Pushkar Trading and Holding Pvt. Ltd. and, further, the assessee denied to have entered into any transaction in the alleged S.K. Hawala Scam and also stated that it is not beneficiary to alleged benefit of Rs.10,00,000/-. Considering the assessee’s submissions and explanations, re-assessment proceedings were completed and no additions were made on both the issues raised for the re-opening.
4.3. Thereafter, ld. Pr. CIT invoked the revisionary powers u/s 263 of the Act by issuing notice dated 23.02.2011 alleging that the order u/s 147 r.w.s. 143(3) of the Act dated 30.11.2018 is erroneous and prejudicial to the interest of the Revenue. Relevant extract of the show cause notice u/s 263 of the Act is reproduced below:
“Whereas the undersigned had called for and examined the record of your case and it is considered that the impugned assessment order passed u/s 143(3)/147 of the I T Act, 1961 by the ITO, Ward- 4(4), Kolkata on 30.11.2018 for A.Y. 2011- 12 is prima facie, erroneous in so far as it is prejudicial to the interests of the revenue for the following reasons: "In the instant case, an information was received from the Investigation wing Kolkata that M/s Karan Polymers Pvt. Ltd., the Assessee Company had taken accommodation entry of Rs. 60,00,000/- from M/s Pushker Trading and Holdings Pvt. Ltd. Thereafter letter was received from the office of the Pr. Commissioner of Income Tax-2, Kolkata on 26.04.2018 regarding "Action taken report in cases of beneficiaries of S.K Hawala Scam in respect of information provided by Pr. DIT(Inv.), Delhi". As no action was taken earlier the same was included in the note sheet by the then jurisdictional ACIT Circle - 4(1), Kolkata for investigation during the course of assessment proceeding already re-opened on the basis of information received from the ADIT (Inv), Unit - 6, Kolkata on 29.03.2018. The information was that the Assessee Company was involved in S.K. Jain Haw ala Scam and is one of the beneficiaries who had got credited fund of Rs. 10,00,000/- in its bank account during the financial year 2010-11. The above information was received from the Pr. DIT (Inv.), Delhi.
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd.
In response of notice u/s 143(2) & 142(1) of the I.T. Act, 1961, Assessee Company filed submission during the course of assessment proceedings and stated the Assessee Company had received Rs. 30,00,000/- from M/s Pushker Trading and Holdings Pvt. Ltd by RTGS against Equity Share Application on 13.10.2010 and refunded the said amount on 25.10.2010 to aforesaid party as shares were not allotted. To verify the Assessee Company's contention notice u/s 133(6) of the l.T. Act, 1961 was issued to M/s Pushker Trading and Holding Pvt. Ltd. In reply to notice u/s 133(6) of the I. T. Act, 1961, M/s Pushker Trading and Holding Pvt. Ltd. had confirmed the transaction with Assessee Company. On perusal of reply u/s 133(6) of the IT. Act, 1961 received from M/s Pushker Trading and Holding Pvt. Ltd. no adverse inference was made by the A. O in this regard. Further, the Assessee Company filed another submission on 08.10.2018 stating that the Assessee Company did not know any S.K. Hawala Scam and denied the alleged transaction of Rs. 10,00,000/-. In support of its claim, Assessee Company submitted an affidavit before notary public, Kolkata & 24 Parganas along with bank statement maintained with State Bank of India, 39, Shakespeare Sarani Branch, Kolkata, (A/c No. 10502871178 & Punjab National Bank, Cotton Street Branch (A/c No. 0089002100114242). On examination of the bank statements provided by the Assessee Company during the course of assessment proceeding, no such transaction with S.K. jain apparently could be found by the A.O. During the course of assessment proceedings, assessee company was requested to explain each credit entry of Rs. 10,00,000/- reflected in the bank statement of State Bank of India, 39, Shakespeare Sarani Branch, Kolkata by the A.O. but in absence of any incrimination document in record regarding alleged transaction of Rs.10,00,000/- made by the Assessee Company in relation to S.K. Jain Hawla Scam no detail enquiry was made by the A.O before passing of the order. Further on examination of assessment records, it is observed that Assessee Company had received share application money of Rs.2,85,67,000/- from various entities during the F.Y. 2010-11 relating to A.Y. 2011-12. But as case was re-opened on another ground as stated in para 3 above and no such information was received from the Investigation wing, no scrutiny was made by the AO in this regard. Therefore, the assessment completed appears to be erroneous in so far as prejudicial to the interests of revenue as no scrutiny.” 4.4. In response to the notice issued u/s 263 of the Act, the assessee filed a detailed reply. In the reply, the assessee submitted that the notice issued u/s 263 of the Act is not as per law and therefore it was requested to drop the proceedings initiated u/s 263 of the Act. Copy of the reply is enclosed at page 8-19 of the paper book.
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd. 4.5. However, the learned PCIT did not appreciate the submissions filed by the assessee and passed the order u/s 263 of the Act dated 26-03-2021 wherein the assessment order passed u/s 143(3)/147 dated 30-11-2018 for the subject assessment year was set aside to the file of the Assessing Officer with a direction to pass a fresh assessment order holding that the said order is erroneous and prejudicial to the interest of the revenue on the following grounds:
The Assessing Officer failed to make proper enquiries in respect of the information received from the Directorate of Investigation, Kolkata on accommodation entry of Rs.60,00,000/- taken by the assessee from M/s Pushkar Trading and Holding Pvt. Ltd.
The Assessing Officer has failed to appreciate that the assessee was involved in S.K.Jain Hawala Scam. The A.O. has failed to make proper enquiries which should have been carried out in the instant case in respect of information in cases of beneficiaries of S.K. Jain Hawala Scam.
The Assessing Officer did not make any enquiry in respect of the share application money of Rs.2,85,67,000/- received during the FY 2010-11.
Aggrieved, the assessee is now in appeal before this Tribunal. Written submission containing 20 pages has been filed wherein the assessee has relied on plethora of judgments. Paper book containing 66 pages is also filed and documents placed therein are mentioned below:
Notice u/s 148 of the Act dated 31-03-2018.
Reasons recorded.
Return filed in response to notice issued u/s 148 of the Act.
Show Cause Notice u/s 263 of the Act dated 23-02-2021.
Reply filed to the notice issued u/s 263 of the Act.
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd. 6. Assessment Order passed u/s 143(3) of the Act dated 31-03-2014.
Appellate order dated 28-07-2016.
Notice issued u/s 142(1) of the Act dated 19-07-2018 and the reply filed by the assessee during reassessment proceedings.
Notice issued u/s 142(1) of the Act dated 07-09-2018 and the reply filed by the assessee during reassessment proceedings.
Relevant bank statement of the assessee evidencing transactions with M/s Pushkar Trading and Holding Pvt Ltd and confirmation of accounts received by the party.
Objection filed by the assessee and disposal order by AO.
Reply filed by the assessee dated 22-10-2018.
Notice issued u/s 142(1) of the Act dated 05-10-2018 w.r.t. S K Hawala Scam and reply filed by the assessee.
Notice issued during original assessment proceedings and reply filed by the assessee.
Audited Accounts for the year.
5.1. During the course of proceedings before us, the ld. Counsel for the assessee submitted that since ld. AO has not made any addition with respect to the issue raised in the reasons recorded, the proceedings u/s 147 r.w.s. 143(3) of the Act ceased to survive. For this proposition, reliance was placed on the judgment of Hon’ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. [2011] 331 ITR 0236, Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs. CIT [2011] 336 ITR 0136 and that of the Hon’ble Bombay High Court in the case of PCIT vs. Lark Chemicals (P) Ltd. [2018] 99 taxmann.com 311 (Bom.). Based on the ratio laid down in these judgments, ld. Counsel for the assessee stated that since the very cause for re-opening the case of the assessee on the basis of reasons recorded failed it was not open for the ld. AO to independently assess any
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd. other income and if he intends to do so, a fresh notice u/s 148 of the Act has to be given. Therefore, since the assessment order u/s 147 of the Act dated 30.11.2018 cease to survive, time limit of initiating the proceedings u/s 263 of the Act raising new issues which were not the subject matter of the re-assessment proceedings as contemplated under sub-Section (2) of Section 263 of the Act, which is two years, would begin to run from the date of the original assessment order and not from the date of re-assessment order. Reliance was placed on the judgment of the Hon’ble High Court of Madras in the case of Indira Industries vs. PCIT [2018] 95 taxmann.com 103 (Madras). Third contention which is on merits of the case is that for all the three issues raised in the show cause notice detailed enquiry has been conducted by the AO and one of the permissible view has been taken by the AO and, therefore, the order of the ld. AO sought to be revised is neither erroneous nor prejudicial to the interest of the Revenue. Reliance was, also placed on the following decisions:
Narendrakumar Mansukhbhai Patel (Gujarat HC)
Madan Mohan Tiwari Vs ITO (ITAT Delhi)
Inder Kumar Bachani (HUF) vs ITO (ITAT Lucknow)
Suraj Pulses Processors (ITAT Delhi)
CIT vs Alagendran Finance Ltd (SC)
Per contra, ld. D/R vehemently argued supporting the finding of the ld. Pr. CIT and also referred to the written submissions dated 28.02.2021 running into 14 pages stating that the ld. AO has not conducted any enquiry about the transaction with M/s. Pushkar Trading and Holding Pvt. Ltd., there is no whisper about the S.K. Jain Hawala Scam case in the assessment order. Reliance was also placed on the decision of Ahmedabad Tribunal in the case of ACIT vs. Nakoda Fashion (P.) Ltd. [2018] 92 taxmann.com 46 (Ahmedabad - Trib.) in support of the contention that the assessee failed to discharge the onus to prove the identity and creditworthiness of the cash creditors to advance money and the genuineness of the transaction. It was
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prayed that the assessment order passed u/s 143(3)/147 of the Act dated 30.11.2018 may be held as erroneous and prejudicial to the interest of the Revenue.
We have heard rival contentions and perused the records placed before us. The assessee has raised various grounds of appeal contending that the impugned order u/s 263 of the Act is without jurisdiction, against law and liable to be quashed.
We find that the assessee’s case for AY 2011-12 was firstly assessed u/s 143(3) of the Act vide order dated 31.03.20104. Thereafter, notice u/s 148 of the Act was issued for one reason that the assessee company is the beneficiary of unaccounted money of Rs.60,00,000/- taken in the form of accommodation entry from M/s. Pushkar Trading and Holding Pvt. Ltd. In the course of re-opening proceedings another issue relating to an alleged transaction of Rs. 10,00,000/- with S.K. Jain Hawala Scam was taken up by the AO. Ld. AO was satisfied with the submissions and made no addition. Ld. Pr. CIT invoked the revisionary powers and after issuing show cause notice u/s 263 of the Act, considering submissions of the assessee, held the assessment order dated 30.11.2018 as erroneous and prejudicial to the interest of the Revenue on the following three grounds:
“1. The Assessing Officer failed to make proper enquiries in respect of the information received from the Directorate of Investigation, Kolkata on accommodation entry of Rs.60,00,000/- taken by the assessee from M/s Pushkar Trading and Holding Pvt. Ltd. 2. The Assessing Officer has failed to appreciate that the assessee was involved in S.K.Jain Hawala Scam. The A.O. has failed to make proper enquiries which should have been carried out in the instant case in respect of information in cases of beneficiaries of S.K. Jain Hawala Scam. 3. The Assessing Officer did not make any enquiry in respect of the share application money of Rs.2,85,67,000/- received during the FY 2010-11.” 9. With the assistance of ld. representative, we have gone through the record. Section 263 has a direct bearing on the controversy, therefore, 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
I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd.
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 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." 9.1. On 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
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd.
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.
9.2. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) has laid down following ratio with regard to provisions of section 263 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 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 ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd.
cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)”.[Emphasis Supplied] 9.3. Hon’ble Apex Court in the case of CIT vs. Max India Limited as reported in 295 ITR 0282 has held that:
“ 2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase "prejudicial to the interest of the Revenue" under s. 263 has to be read in conjunction with the expression "erroneous" order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law.” 9.4. Hon'ble Madhya Pradesh High court in the case of CIT vs. Associated Food Products (P) Ltd as reported in 280 ITR 0377 has held that:
In view of the aforesaid pronouncement of law and taking into consideration the language employed under s. 263 of the Act, it is clear as crystal that before exercise of powers two requisites are imperative to be present. In the absence of such foundation exercise of a suomoto power is impermissible. It should not be presumed that initiation of power under suomoto revision is merely an administrative act. It is an act of a quasi-judicial authority and based on formation of an opinion with regard to existence of adequate material to satisfy that the decision taken by the AO is erroneous as well as prejudicial to the interests of the Revenue. The concept of "prejudicial to the interests of the Revenue" has to be correctly and soundly understood. It precisely means an order which has not been passed in consonance with the principles of law which has in ultimate eventuate affected realization of lawful revenue either by the State has not been realized or it has gone beyond realization. These two basic ingredients have to be satisfied as sine qua non for exercise of such power. On a perusal of the material brought on record and the order passed by the CIT it is perceptible that the said authority has not kept in view the requirement of s. 263 of the Act inasmuch as the order does not reflect any kind of satisfaction. As is manifest the said authority has been governed by a singular factor that the order of the AO is wrong. That may be so but that is not enough. What was the sequitur or consequence of such order qua prejudicial to the interest of the Revenue should have been focused upon. That having not been done, in our considered opinion, exercise of jurisdiction under s. 263 of the Act is totally erroneous and cannot withstand scrutiny. Hence, the Tribunal has correctly unsettled and dislodged the order of the CIT. [Emphasis supplied]
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd. 9.5. In the light of the provisions of section 263 of the Act and a settled position of law, powers u/s 263 of the Act can be exercised by the Pr. Commissioner/Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and also prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the judgment of Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71 taxmann.com 272 (Bombay).
9.6. This view is further supported by the decision of the Hon'ble Gujarat High Court in the case of Shri Prakash Bhagchand Khatri in Tax Appeal No. 177 with Tax Appeal No.178 of 2016, wherein the Hon'ble Gujarat High Court was seized with the following substantial question of law:-
"Whether the Tribunal is right in law and on facts in upholding the order passed by the CIT under section 263 of the Act on merits and still storing the issue of allowability of deduction under section 54 of the Act to the file of Assessing Officer even though the working of allowability of deduction under section 54F is available in the order under section 263 which is not disputed by the assessee before ITAT." 9.7. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy vs. ITO, 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.
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd. (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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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd.
9.8. Apart from above stated broader principles, one more principle needs to be added in view of the judgment of Hon’ble Delhi High Court in the case of ITO vs. D.G. Housing Projects Ltd. [2012] 343 ITR 329 (Delhi) that the ld. CIT has to examine and verify the issue himself and give a finding on merits and form an opinion on merits that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue. Relevant extract is reproduced below:
“In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent’s computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.” 10. On examination the facts of the instant case in light of the above stated principles based on various judgments and decisions referring hereinabove as well as those referred to by ld. Counsel for the assessee and the Revenue firstly, it is to be examined that whether ld. AO conducted the enquiry in relation to the issue raised in the show cause notice issued by the ld. Pr. CIT. As far as the issue of taking accommodation entry of Rs.60,00,000/- from M/s. Pushkar Trading and Holding Pvt. Ltd., we find that this was the issue on the basis of which re-assessment proceedings were initiated and a specific notice was given to the assessee. On receiving
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd. the notice u/s 142(1) of the Act dated 19.07.2018 on the alleged accommodation entry of Rs.60,00,000/- taken from M/s. Pushkar Trading and Holding Pvt. Ltd. the assessee filed detailed submission on 02.08.2018 which is placed on record at page 28 & 29 of the paper book and again submission given on 10.09.2018 placed at page 30 to 34 and enclosing therein the copy of bank statement of M/s. Pushkar Trading and Holding Pvt. Ltd. which indicates that the assessee received a sum of Rs. Rs.30,00,000/- through RTGS on 13.10.2010 and the same was repaid on 25.11.2010 through RTGS. This fact is verifiable from the bank statement of the assessee company. This fact was, further, stated in another reply filed on 22.10.2018 place on record at page 37 to 38 of the paper book when the ld. AO sought some more information about the alleged transaction. These series of facts prove beyond doubt that the ld. AO has conducted a detailed enquiry about the issue of alleged transaction of the assessee with M/s. Pushkar Trading and Holding Pvt. Ltd. and after examining the documents filed by the assessee, ld. AO was satisfied that the assessee has not entered into any bogus/accommodation entry/transaction with this party and there is no element of undisclosed income and further, the transaction was not of Rs.60,00,000/- but it was transaction of Rs.30,00,000/- as the loan received on 13.10.2010 and the same amount repaid on 25.11.2010. We are of the considered view that the order of the AO dated 30.11.2018 cannot be termed as erroneous and prejudicial to the interest of the Revenue on the basis of this issue of the alleged transaction with M/s. Pushkar Trading and Holding Pvt. Ltd.
As regards the second issue raised in the show cause notice relating to the alleged transaction of Rs.10,00,000/- in S.K. Hawala Scam, we find that in the course of re-assessment proceedings itself a specific notice was issued by the ld. AO on 05.10.2018 seeking the information from the assessee that whether it has entered into any transaction in S.K. Hawala Scam, and whether the assessee is one of the beneficiary of the benefit of Rs.10,00,000/- taken in the financial year 2010-11 in this S.K. Hawala Scam.
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd. 11.1. We find that the assessee vide reply dated 08.10.2018 placed at page 41 of the paper book has specifically stated that it has no information about any such S.K. Hawala Scam and nor it is a beneficiary of the alleged amount of Rs.10,00,000/-. Copies of bank statements were filed which were examined by the ld. AO, and after doing necessary examination concluded that no addition needs to be made in the hands of the assessee on this issue. Since there is a detailed enquiry conducted by the ld. AO and he has accepted one of the permissible view after examining the records it cannot be said that it is a case of no enquiry or incomplete enquiry and therefore, there is no room for ld. Pr. CIT to assume jurisdiction u/s 263 of the Act on this issue.
Now, we take up the third issue mentioned by the ld. Pr. CIT in the alleged show cause notice that the ld. AO did not make any enquiry in respect of the share application money of Rs.2,85,67,000/- received in the financial year 2010-11.
12.1. As far as this issue is concerned firstly we observe that the alleged proceedings are against the order of the ld. AO u/s 143(3) r.w.s. 147 of the Act dated 30.11.2018. This re-assessment proceeding was carried out for the specific reasons recorded attached to the notice issued u/s 148 of the Act. No addition has been made on the issues mentioned in the reasons recorded which in itself precludes the ld. AO from making any other addition in view of the ratio laid down by Hon’ble Bombay High Court in the case of Jet Airways (I) Ltd. (supra) wherein it has been held that “If after issuing a notice u/s 148 of the Act, the ld. AO accepts the contentions of the assessee and holds that the income for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income, and if he intends to do so, a fresh notice u/s 148 of the Act would be necessary, the legality of which would be tested in the event of a challenge by the assessee”. Since ld. AO had not made any addition for the reasons recorded, no addition could be made on any other issue without issuing a
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd. fresh show cause notice u/s 148 of the Act. Under these circumstances, invoking the provisions of Section 263 of the Act was bad in law.
12.2. Even otherwise, the second contention of the assessee also has merit that in view of the ratio laid down by the Hon’ble Madras High Court in the case of Indira Industries (supra), if a notice u/s 263 of the Act raises new issue which are not the subject matter of re-assessment proceedings, then two year period contemplated under sub-Section (2) of Section 263 of the Act would begin to run from the date of original assessment and not from the date of re-assessment. In the instant case the original assessment was completed on 31.03.2014 and if this date is taken as the basis for computing the limitation period for invoking provisions of Section 263 of the Act, the impugned proceedings would be time barred.
12.3. Even on merits, from perusal of the audited financial statement placed at page 49 to 66 of the paper book, schedule of share capital in schedule-A at page 56 that as on 31.03.2010 we find that the paid up capital of the assessee company was Rs.2,68,07,000/- and the paid up share capital as on 31.03.2011 is Rs.2,85,67,000/-. So, net increase in the capital during the year is only Rs.17,60,000/- whereas ld. Pr. CIT has wrongly adopted figure of increase in share application money of Rs.2,85,67,000/- been received during the financial year 2010-11. The actual position is that there is an increase in equity share capital at Rs.17,60,000/- during the year whereas there is an increase in share premium amount received during the year at Rs.4,22,40,000/-. In the show cause notice u/s 263 of the Act, ld. Pr. CIT has stated that ld. AO did not make any enquiry in respect of the share application money of Rs.2,85,67,000/- received during the Financial Year 2010-11. This observation has three defects, firstly, the figure of Rs.2,85,67,000/- is the share capital of the company as on 31.03.2011 and it is not a share application money. Secondly, the increase in share capital is only Rs.17,60,000/-. Thirdly, as far as share application money is concerned there is an increase of Rs.4,22,40,000/-. None of these three facts seem to have been examined by ld. Pr. CIT before issuing the show cause notice. Even otherwise, all these details were placed before ld. AO and
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd. these form part of the financial statement for which replies were filed in regular course of proceedings itself (as stated by the ld. Counsel for the assessee). Thus, in view of the ratio laid down by Hon’ble Delhi High Court in the case of D.G. Housing Projects Ltd. (supra) since ld. Pr. CIT has not examined the issue on merit before holding the order of the AO as erroneous and prejudicial to the interest of the Revenue, the proceedings carried out u/s 263 of the Act deserves to be quashed.
We, therefore, under the given facts and circumstances of the case and respectfully following the judgments referred herein above, are of the considered view that out of the three issues raised in the show cause notice u/s 263 of the Act, in two issues ld. AO has conducted complete enquiry during re-assessment proceedings and on the third issue, the very basic facts adopted by ld. Pr. CIT for involving provision of Section 263 of the Act suffers from defect and, therefore, the proceedings u/s 263 of the Act are bad in law. Further, in view of the settled legal position, legally also, no addition can be made on any new issue without issuing a fresh show cause notice u/s 148 of the Act if no addition has been made by the AO in the re- assessment proceedings on the issue raised in the reasons recorded. We, therefore, hold that ld. Pr. CIT erred in invoking the jurisdiction u/s 263 of the Act and thus the impugned proceedings are quashed and the re- assessment order dated 30.11.2018 is restored.
In the result, the appeal of the assessee is allowed as per the terms indicated herein above. Kolkata, the 6th April, 2022.
Sd/- Sd/- [Aby T. Varkey] [Manish Borad] Judicial Member Accountant Member Dated: 06.04.2022 Bidhan (P.S.)
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I.T.A. No.: 270/Kol/2021 Assessment Year: 2011-12 Karan Polymers Pvt. Ltd.
Copy of the order forwarded to: 1. Karan Polymers Pvt. Ltd., 56E, Hemanta Basu Sarani, Dalhousie, Stephen House, 4th Floor, Room#57 ABC, Kolkata-700 001. 2. Pr. CIT, Kolkata-2. 3. CIT(A)- 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata.