MOTIWALA & SONS,NEW DELHI vs. PR.CIT- 17, NEW DELHI

PER N.K. BILLAIYA, ACCOUNTANT MEMBER,

2. The sum and substance of the grievance of the assessee is that the ld. PCIT wrongly assumed jurisdiction u/s 263 of the Act.

"A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent—if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue— recourse cannot be had to section 263( 1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error by the Assessing Officer, it is only when an order is erroneous that the be attracted. An incorrect assumption of facts or an incorrect will satisfy the requirement of the order being erroneous'.

“During the course of survey operation, the stock of gold and diamond jewellery was found in the business premises of the assessee firm. The valuer valued the entire jewellery in the presence of the partner. As per books, the value of gold and diamond jewellery was at Rs. 17,52,77,030/- whereas the same was valued by the approved valuer at Rs. 33,48,49,952/-. This resulted into excess/unaccounted stock of gold and diamond jewellery at Rs. 15,95,72,922/-. Against this, the firm has disclosed only Rs. 6 crore and for the remaining amount of Rs. 9,95,72,922/-, no proper enquiries were made nor the AO took pains to investigate the matter.

It is worthwhile to mention that for the proper enquiry in this case, it was important to ask the assessee whether he maintains his stock register on LIFO (last in first out) or FIFO (first in first out) method. Otherwise/how can AO would have come to the conclusion that the gold in stock was old or new. Secondly, no purchase bills were provided to the survey team on the date of survey. The AO should have made a complete enquiry for the amount of excess stock at Rs. 9,95,72,922/-; called for a documentary evidence for purchase of gold and diamond and verified the genuineness This was necessary to. accept the assessee's contention. The Assessi-n-i Officer did nothing as far as enquiry and verification of excess stock no disclosed by the assessee firm in its return of income is concerned.

In view of the facts stated above, the assessment order passed by the Assessing Officer is liable to be cancelled. You are, therefore, requested to show cause as to why assessment order dated 30,3-2016 passed by the AC should not be cancelled and the AO is directed to pass a fresh order after making proper enquiry and verification.”

“Dated : 01/02/2016 M/s- Motiwala & Sons 2633, Bank Street. Karo! Bagh, New Delhi

Sir/Madam,

During the course of assessment proceedings In your ease for the A Y 2013-14, it has found that T your premise on 15.02.2013. In this connection, youare required to furnish the following information produced before me at my office at the above mentioned office address on or before 08.02.2016 at 11.30 A.M.:

1. On perusal of the statement of Sh. Kanwaljit Singh, Partner M/s Motiwala & Sons recorded at the time ct survey, it was noticed that excess stock of Rs. 15.95 crores was found at your premise. Phase explain this discrepancy.

2. Please explain the method of stock valuation adopted by you while arriving at the additional income of Rs. 6 crores.

On the day of survey, it was found that no stock register was maintained. Also it was noticed that of Rs. 11 crores was made by the firm in January, 2013. In view of the above facts, how do you justify the average cost method of stock valuation adopted by you?”

“The Asstt Commissioner of Income Tax Circle 51(1), New Delhi Income Tax office Civic Centre, New Delhi Ref: Motiwala& Sons/A.Yr.2013-14/ PAN AABFM3409L Sub: Reply of Notice received u/s 142(1) of the I. Tax act dated 01/02/2016

Sir/Madam,

As required by your good self I CA M.S. Kathuria the authorized representative Submit as follow:

1. The difference in the figure of stock is due to the following reason. The valuer has taken the value at the Market value and weighed the stock along with threads, stones, Mena and wax etc. He valued it at the prevalent Marketmate of gold on the date of the survey, but the stock shown in Books is at the cost or Market value whichever is less. The assessee is following the same method of valuation which is regularly employed since long. So the difference of Rs 15.95 in the stock valuation is due to Market rate taken by the valuer and the cost of the stock taken by the assessee.

2. The stock surrendered is valued at the cost i.e. Rs 2805/-per gm i.e the rate prevalent on the date of the survey. 21,390.380 Gms. X Rs. 2805/- per Gm.= 6,00,00,000/-

Here, this is submitted that the surrendered value of stock of Rs 6,00,00,000/- has been arrived by valuing stock at market rate . However the cost of this is Rs.21, 390.380 gms x Rs. 1770.26 = Rs. 3,78, 66,534 .00. Hence, your good self is requested to take the value of surrendered stock at Rs 3.78 & not 6 cr & hence accordingly reduce profit By Rs. 2,21,33,466/'- & issue resulted tax refund of Rs 68,39,241/-

3. The stock register is already maintained by the assessee. It is evident from the Tax Audit report i.e. form 3CD. In the month of January 2013 the purchases were made of Rs 10, 15, 29,411 /- out of which Diamonds were purchased of 8, 61, 48,411/- and gold purchased of Rs. 1, 53, 81,000/'-.

The assessee valued the stock of Diamond at cost and at FIFO Method. The Major purchase of the month was of diamond and the Balance was of Gold. The method of valuation of stock of Gold on weighted Average is fully justified as the assessee is adopting the uniform method of valuation of stock for years together.

I hope the above information is sufficient to your satisfaction.

Your's truly For M.S. Kathuria Associates Chartered Accountants CA. M.S. Kathuria (FCA)”

Sir/Madam During the course of assessment proceedings in your case for the A.Y 2013-14, it has found-that the survey was conducted at your premise or. 15.02.2013. In this connection you are required to furnish the following information produced before me at my office at the above mentioned office address or before 25.02.2016.at 11:30 A.M Yours faithfully

(Sheeta! Sarin) Asstt. Commissioner of Income-tax Circle(Mffi QTEM. SelhT.I N) Asstt.Commissioner of income Tax Circle-51{1), 14th Floor, E-2 Block, Pratyaksh Kar Bhawan 1. During the course of survey, the assessee was confronted with a difference of Rs. 15,95,73,560/-. In response the assessee contended at his statement the difference of valuation is namely on account of difference of value of Board adopted by the valuers. Please justify the difference in valuation and the basis of arriving at a figure of Rs.6.00 crores as concealed income.

Party from whom Date of Description Quantity Rate of purchase was made Purchase of items Purchase Purchase

4. Please produce the copy of challan of tax deposited with Sales Tax Department.

Please produce annexure 2A and 2B of form no.30 and 31 of DVAT 5. return party-wise purchases and sales for A.Y. 2013-14.”

“The Asstt. Commissioner of Income Tax Circle 51(1) New Delhi Income Tax office Civic Centre , New Delhi

Ref: Motiwala& Sons/A.Yr.2013-14/PAN AABFM3409L Sub: submission of information required by your goodself.

Sir/Madam, As required by your good self I CA M.S. Kathuria the authorized representative is SGbmittingJhe following information: 1. Justification of difference of valuation of stock as on the 15/2/2013-shown by valuers and "value of stock taken by the client on that date.

In this regard the reconciliation statement is attached herewith. 2 While preparing Stock valuation reconciliation it is observed that as per the stock of gold (converted in to 22 ct) counted by the valuers was 60,161.109 grms. While the survey team forced the assessee to surrender 6 crores value "of gold at market value on the date of the survey, i.e. Rs. 2805 x 21,390.380 = 6,00,00,000/-. It is observed that the surrendered quantity should have been 17,448.953 gms (60,161.109gms - 42712.156gms.). And not 21,390.380 gms. The market value of 17,448.953 gms comes to (17,448.953 gms. X Rs. 2805/-) 4,89,44,313/- This means that there was excess surrender of Rs. l,10,55,687/-(6,00,00,000/- - 4,89,44,313/-). The_ above calculation resulted in excess tax charged To the tune cf Rs. 34,16,207/-. Which should be refunded to the client . Moreover the stock of 17,448.953 gms. Should have been valued at the weighted average cost i.e Rs. 1770.26 per grm. and not at market value i.e. Rs, 2805/- per grm. Which is resulted into excess valuation of Rs. 1,80,55,130/- (17448.953 gms. X Rs.1034.74 [2805.00-1770.26]). The above resulted in excess payment of tax to the tune of Rs. 55,79,035/-. So the excess amount of tax charged by the department i.e. Rs. 89,95,242/-(Rs. 34,16,207/- + 55,79,035/-) should be refunded to the client.

I hope the above information is sufficient to your satisfaction. ' Yours Truly For M.S. Kathuria Associates”

PARTICUCARS AMOUNT GOLD 1327184,560.78 DIAMOND 95,867,316.82 PEARL 1,782.00 STONE 396,508,41 228,450,168.01 PACKING MATERIAL 180,270.00 TOTAL 228,630,438.01

DIAMOND STOCK AS ON 31/03/2013 RATE OPENIN PURCHAS SALE CLOSIN STK IN IN Cts IN Cts STK IN G E G 516.91 14690.97 1561.29 13646.59 TOTA Cts Cts L

GOLD STOCK AS ON 31/03/2013 -

PURIT OPENING PURCHAS SAtE CLOSING STOCK INGms IN Grm STOCK Y E 22 CT -38518.240 12808.150 10550.142 40775.248 STOCK SURRENDER U/S 133 A 21390.380 TOTAL 62166.628

PEARL STOCK AS ON 31/03/2013 RATE OPENING PURCHAS SALE CLOSING STK IN STK IN STK IN STK IN E 90.60 0.00 0.00 90.60 TOTA Grm Grm Grm Grm L STONE STOCK AS ON 31/03/2013 RATE OPENIN PURCHAS SALE CLOSIN STK IN IN Cts IN Cts STK IN G E G Cts Cts TOTAL 99295.79 8148.00 3492.27 103951.52

Ref: Motiwala& Sons/A.Yr.2013-14/PAN AABfM3409L Sub: Ssubmission of information required by your goodself. Sir/Madam, As required by your good self , I CATV!.S. Kathuria the authorized representative is Submitting the following information.

For M.S. Kathuria Associates Chartered Accounta'nts (C.A. M.S. Kathuria) FCA

“15. In the case of Commissioner of Income Tax vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del), Delhi High Court was considering the aspect, when there is no proper or full verification, and it was held as under:-

"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 a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113): " . . . From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is „erroneous in so far as it is prejudicial to the interests of the Revenue‟ . It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub- section (1). 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. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10) . . . 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 a conclusion and such a conclusion cannot be formed 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 . . . We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be „ erroneous‟ simply because in his order he did not make an elaborate discussion in that regard.""

16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing

Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition orrequirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.”

“the phrase “prejudicial to the interest of the Revenue” has to be read as conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income- tax Officer is unsustainable in law.”

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

The order is pronounced in the open court on 29.11.2018.