DURGESH AUTOFIN P.LTD,BIJNOR vs. PRCIT, MUZAFFARNAGAR

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI Before Sh. N. K. Saini, AM and Ms. Suchitra Kamble, JM ITA No. 2539/Del/2018 : Asstt. Year : 2013-14 Durgesh Autofin P. Ltd., Vs Pr. Commissioner of Income Tax, C/o Sh. Pankaj Kumar, Director, Muzaffarnagar-251002 S/o Late Sh. Tejpal Singh, Mandi Kotla, Near Nehru Murti, Chandpur, Bijnot, Bijnor, Uttar Pradesh (APPELLANT) (RESPONDENT) PAN No. AACCD0768P Assessee by : Sh. Vivek Bansal, Adv. Revenue by : Ms. Rachna Singh, CIT DR Date of Hearing : 29.08.2018 Date of Pronouncement : 09.10.2018 ORDER Per N. K. Saini, AM: This is an appeal by the assessee against the order dated 13.03.2018 of ld. Pr. CIT, Muzaffarnagar u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act).

2 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. jurisdiction under Section 263 of the Act and setting aside the order passed under Section 143(3) of the Act by the Asstt. Commissioner of Income Tax, Circle-1, Muzaffarnagar (AO) for AY.: 2013-14. 2. The learned Pr. CIT has erred in holding that the assessment order dated 29 March 2016 passed by the AO is erroneous in so far as it is prejudicial to the interest of the revenue in respect of two issues. First issue related to an addition made u/s 41(1) of the Act of amounting to Rs. 3,88,79,832/- being 10% of total amount outstanding against Sundry Creditors of a sum of Rs. 38,87,98,316/-. Second issue being related to an amount of Rs. 33,60,500/- for which the AO initiated penalty proceeding u/s 271D of the Act and penalty was also levied equal to the amount of credits. 3. The learned Pr. C1T while holding that assessment order dated 29-03-2016 is erroneous in so far as it is prejudicial to the interest of revenue has failed to appreciate:- a) that the assessment order passed u/s 143(3) by the AO dated 29.03.2016 is not erroneous in so far as it is prejudicial to the interest of revenue, therefore, twin conditions laid down u/s 263 of the Act for invoking powers conferred therein on Pr. CIT were not fulfilled. b) that while framing the assessment order, the AO had made extensive enquiry regarding Sundry Creditors and sought explanation from the assessee from time to time for which the replies were submitted along with all the evidences. After considering these replies, the AO adopted one permissible view by adding 10% thereof being amount almost equal to the amount of credits in the year under consideration excluding opening balances, and thus invocation of power u/s 263 is on

3 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. the basis of change of opinion, which is not permissible in law. c) that substantial part of the credit outstanding in the name of Sundry Creditors was in the shape of old brought forward opening balances which could not be added in the year under consideration and other part was relating to outstanding balance of purchase of raw material which also could not be added and for the remaining credits during the year under consideration, the evidence fulfilling the requirement to prove the genuineness of the credit was filed, therefore, AO could not have added the amount outstanding in the name of Sundry Creditors in its entirety, therefore, the assessment order passed by the AO cannot be considered to be erroneous in so far as it is prejudicial to the interest of revenue. d) that so far it relates to an amount of Rs. 33,60,500/-, complete evidence of 177 creditors was filed before the AO and AO was satisfied with the genuineness of the credits did not invoke Section 68 of the Act and choose to invoke provisions of violation of Section 269SS and had proceeded to levy penalty u/s 271D which is also levied for which appeal was filed before CIT(A) Muzaffarnagar and which appeal was finally heard on 09-01-2018. In this manner the AO has adopted one permissible view. Therefore, to this extent also it cannot be held that the order passed by the AO was erroneous and prejudicial to the interest of revenue which are the twin conditions necessary to invoke power u/s 263 of the Act. In any case, for this issue the assessment order cannot be said to be prejudicial to the interest of revenue as it is not a case of any loss to the revenue as penalty levied is 100% of the deposit as against 30% tax to be levied if treated as unexplained credit.

4 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. e) that both the additions namely addition regarding Sundry Creditors and levy of penalty u/s 271D on the loans of Rs. 33,60,500/- were challenged by the Assessee in appeals filed before CIT(A) Muzaffarnagar which were finally heard on 09-01- 2018 and the assessee was awaiting order of CIT(A) which according to CBDT circulars was to be issued by CIT(A) within 15 days of final conclusion of hearing. This fact was brought to the notice of Pr. CIT who has conveniently ignored the same. The order passed by Pr. CIT is against the intent and purpose of clause (c) of Explanation 1 to section 263 of the Act. f) that extensive enquiry having been made in respect of both the above mentioned issues by the AO during the course of assessment proceedings, it cannot be termed as a case of "lack of enquiry" or non-application of mind by the AO, therefore also power u/s 263 has been wrongly exercised by the Pr. CIT. h) that the order passed u/s 263 vitiated on the ground of non following of principles of natural justice as no reasonable opportunity of hearing was provided to the assessee. i) That in respect of issues other than two issues pointed out in the show-cause notice, the impugned order is vitiated as no opportunity of hearing was provided by the Pr. CIT as the so called other issues were neither subject matter of show-cause notice nor any opportunity of hearing on the other issues was provided on the date when the matter was considered and decided by Pr. CIT on 08.03.2018. j) that the Pr. CIT, without conducting necessary enquiry and without giving and recording a finding that the order/Inquiry made by the AO is erroneous, cannot remand the matter/issue to the AO as the

5 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. same would tantamount to directing the AO to find out that whether the assessment order passed by him is erroneous. 4. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. 5. The appellant prays that appropriate relief be granted based on the above mentioned grounds of appeal and the facts and circumstances of the case." 3. From the above grounds, it is gathered that the only grievance of the assessee in this appeal relates to the action of the ld. Pr. CIT u/s 263 of the Act in setting aside the order passed by the AO u/s 143(3) of the Act.

6 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. the assessee on behalf of number of persons who had given cash loan less than Rs.20,000/-. The AO pointed that there were number of anomalies in the vouchers passed while accepting cash loan which were as under: “1. All the vouchers are found unnumbered 2. All the vouchers have been apparently written in one go. 3. In none of them there is signature of any lender/share applicant. 4. Some of the vouchers are made in old yellowish paper as palpably appearing from yellowness of paper & some vouchers are made on fresh white paper vouchers.” The AO initiated the penalty proceedings u/s 271D of the Act for the said loans received in violation of provisions of Section 269SS of the Act.

7 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. iv) All the said persons have admitted modest savings & therefore investment from 40,000 to more than Rs 50,000/- remained inexplicable by them & also at the end of the assessee company. v) Significantly, it is admitted by all of them that in their entire life, they have not invested any money in shares of any other company. vi) The said persons are not in a position to comprehend the meaning of shares or the benefit of having the same. vii) Admittedly, no shares have been allotted to them till date despite elapse of so much time. viii) When the same have been confronted with the fact that since, no shares were allotted to them & therefore, there is no question of having benefit in any form like dividend or any provisions of having any receipt as to interest income on the alleged share application money , virtually no reply was there with them. ix) All the alleged share applicants have cited the reason that as the same are relatives of Directors, the money was given & thus no criterion on merit was there in order to invest in the said company. This all shows that unaccounted money has been introduced by the Directors of the company in the names of their relatives. x) As admitted, not a single penny has been received by them in lieu of any profit or returning back of the alleged money invested. All of them have stated that they have never demanded the money back due to relations. This all shows that no normal element is there & in fact the money never belonged to them as allegedly invested in their names.” 6. The reliance was placed on the following case laws: � CIT Vs N. R. Portfolio (P) Ltd. (2014) 42 Taxmann.com 339 (Del.) � Riddhi Promoters (P.) Ltd. Vs CIT-7 (2015) 58 Taxmann.com 367 (Del.)

8 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. 7. The AO during the course of assessment proceedings also noticed that the assessee had shown loss of Rs.2.32 Crores on sales of Rs.7.11 Crores and the sundry creditors had been shown at whopping figure of Rs.38.87 Crores. The AO asked the assessee to furnish the details of sundry creditors along with complete addresses and also issued notices u/s 133(6) of the Act to the entities. The AO observed that the notices issued u/s 133(6) of the Act to the sundry creditors were either received back with comments such as “no such concern found at the given address” or remained unresponded and that only a very few concerns had furnished reply. He also pointed out that only for a few persons, some alleged confirmations as to the copies of accounts as appearing in the books of the assessee company had been filed which were self-serving documents. According to the AO, there were numerous anomalies which were palpable from accounts & financial statements and that in the financial statements, sales had been shown at Rs.7.11 Crores including excise duty in the profit and loss accounts while as per the sales ledger, the sale had been at 12.46 Crores. The AO rejected the books of accounts by invoking the provisions of Section 145(3) of the Act and also observed that no plausible explanation along with evidence had been filed to justify the declared results. The AO made the addition of Rs.2,17,09,248/-, the said figure denotes the retuned loss. The AO also made the disallowance of Rs.3,88,79,832/- on account of cessation & remission of liability u/s 41(1) of the Act by observing in para 8 of the assessment order dated 29.03.2016 as under:

9 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. “Addition on account of cessation & remission of liability u/s 41(1). As already discussed in detail, the sundry creditors shown at such a large figure of as much as of Rs 38.87 Crores largely remained unproved. Further as specifically called from this end vide order sheet entries, not a single creditor produced before the under signed. Further, no evidence in the form of bank statements showing debit entries has been filed to prove that in subsequent years amount has been paid in order to prove the said sundry creditors to some extent it is duly appreciated at this end that due to closure of the factory, a concern is bound to face some difficulty in proving the outstanding sundry creditor. However, serious discrepancies as cropped up and very poor response to the notices u/s 133(6), it cannot be ignored that liability as shown in respect of sundry creditors remained to be proved. However taking a very liberal view, an addition to the extent of only 10% of the amount shown against the alleged sundry creditors is being made vide this order. Thus the addition on this count comes to Rs 3,88,79,832/- (10% of Rs 38,87,98,316/-) and the same is being added to the income of assessee company for the year under hands u/s 41(1) of the Income Tax Act, 1961. While making the above addition, inter-alia, reliance is being placed on following case laws: i) M/s Rama Steel Rolling Mills & General Engg Works Vs ITO [2013] 35 Taxmann.com 262 (Rajasthan)-In this case Hon'ble High court has held that unproved credits can be treated as remission of trading liability & can be brought to tax u/s 41(l) of the I.T. Act, 1961. ii) [2014] 47 taxmann.com 268 (Punjab & Haryana)/[2014] 225 Taxman 67 (Punjab & Haryana) Mrs Adarsh Sood v CIT Faridbad -wherein it is held

10 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. that 'Trading liability to pay back ceased to exist, same is to be treated as taxable income.’ iii) Suresh Kumar T. Jain Vs ITO (ITAT, Bang) 128 ITD 74-Assessee failed to prove the genuineness of brought forward trade creditors -Addition upheld.” (Addition of Rs. 3,88,79,832/-) 8. The AO also observed that the assessee had debited a sum of Rs.1,14,775/- in the ledger account under the head ‘fees & taxes’ relating to filing fees paid to ROC for increase in authorized capital. The AO held that the said amount was capital expenditure and made the disallowance of Rs.1,14,775/-. Accordingly, assessment was framed at an income of Rs.3,93,71,607/- instead of returned loss of Rs.2,17,09,248/-.

11 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. ii) As per clause 24(a) of the Audit Report the assessee has accepted loans aggregating to Rs.33,60,500/- which have been accepted other than by account payee cheques or drafts in violation of provisions of section 269SS. The AO has not examined the identity, creditworthiness of the persons from whom these loans were taken by the assessee in view of section 68 of the Income Tax Act, 1961.” 10. In response, the assessee vide written submission dated 08.03.2018 submitted as under: "(b) ........A.O, had conducted enquiry regarding outstanding balance of unsecured loans and asked the assessee to furnish evidence. The assessee furnished reply in respect to each and every query of the A.O. Completed details of the parties along with their addresses were provided to the A.O. It was also submitted that since the creditors/loans were voluminous in number and it is not possible for assessee to approach to each of them because they are now out of touch of the assessee as the factory having been closed. However, complete address of the parties is with the department and you are very kindly requested to issue the commission to the respective A.O.s or issue notice u/s 131(1) to ascertain the actual position. Therefore, in these circumstances, A.O. has considered it appropriate to add 10% of the total amount outstanding in the names of sundry creditors. Though, it is the case of the assessee that addition made by the A.O., even to the extent of 10% of the sundry creditors, is unsustainable in law but that does not mean that the order passed by the A.O, in this regard is erroneous and prejudicial to the interest of revenue. According to well established law, to bring an order passed by the A.O. within the ambit of section 263, twin conditions laid down in Section 263 have to be fulfilled simultaneously and if the assessment order passed by the A.O. u/s 143(3), though erroneous but is not prejudicial to the interest of revenue, will not qualify to fall within the ambit of

12 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. section 263 of the Act. The term "prejudicial to the interest of revenue" depicts the lawful loss of revenue. Simply because A.O. has not made addition which in the opinion of reviewing authority was required to be made and which addition is not in accordance with law, the assessment order cannot be termed as order prejudicial to the interest of revenue. The reliance in this regard is placed on the decision of Malabar Industries [2000] 243 ITR 83(SC). To substantiate the above contentions, the assessee refers to the copies of the replies submitted to the A.O. along with enclosures. The filing of these submissions before the A.O. may be verified from the assessment record." 11. The ld. Pr. CIT after considering the submissions of the assessee observed that the AO had issued notices u/s 133(6) of the Act to 45 parties at the addresses provided by the assessee, out of those notices, one party denied any transaction with the assessee and maximum number of the notices received back unserved from the postal department and in the cases where the notices u/s 133(6) of the Act were not received back, no response was received by the AO and that not a single creditor was produced before the AO for examination. The ld. Pr. CIT further observed that no evidence in the form of bank statement showing debit entries had been filed to prove that in the subsequent years amount had been paid, under these circumstances, the identity, creditworthiness and genuineness of the transactions were not proved and no basis had been given by the AO for making additions only @ 10% of the sundry creditors of Rs.38,87,98,316/- shown by the assessee in the balance sheet. According to him, the AO should have made the addition of the entire amount of sundry creditors shown by the assessee. The ld. Pr. CIT also observed that clause 24(a) of the audit report revealed

13 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. that the assessee had accepted loans aggregating to Rs.33,60,500/- other than by account payee cheques or drafts in violation of provisions of Section 269SS of the Act and the AO had not examined identity, creditworthiness of the persons from whom those loans were taken by the assessee.

In this regard, the assessee submitted before the ld. Pr. CIT as under: "So far as it relates to second ground to invoke section 263 relating to acceptance of loan aggregating to Rs.33,60,500/- for which the A.O. has invoked the provisions of section 269SS, it has been observed in the show cause notice that A.O. did not examine the identity, creditworthiness of the persons from whom these loans were taken by the assessee in view of section 68 of the Act. It is respectfully submitted that these amounts were received from 177 persons. The details regarding each of the persons involved were submitted to the A.O. along with their identity and documentary evidence of holding of agricultural land. Therefore, the evidence submitted by the assessee was sufficient to establish identity as well as creditworthiness of the creditors. The only objection of the A.O. was that this submission of the assessee was contrary to the clause 24(a) of the Audit Report as in the same instead of writing name of all 177 persons, the names of 12 persons were mentioned. It may be further submitted that for the purpose of levy of penalty u/s 269SS the matter was sent by the A.O. to the Add. CIT who has already imposed penalty u/s 271D on account of violation of Section 269SS. In view of evidence having been filed before the A.O. in respect of all 177 depositors, it cannot be said that A.O. did not examine the issue of applicability of section 68 for these depositors. The A.O. has consciously taken a decision to invoke the provisions of Section 269SS and violation thereof instead of invoking the provisions of section 68

14 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. of the Act, the evidence submitted by the assessee with regard to all the 177 creditors was sufficient to establish the genuineness of these credit in the hands of the assessee. It may be mentioned here that in view of levy of penalty u/s 271D, which is equivalent to the amount of deposit, it cannot be said that order passed by the A.O. is in any case prejudicial to the interest of the revenue as if section 68 is invoked then the tax leviable would be much lower than that amount.” 12. The ld. Pr. CIT after considering the above explanation of the assessee observed that the claim of the assessee that it had accepted those loans from 177 persons had been rejected by the AO by giving detailed reasons in the assessment order and the tax audit report submitted by the assessee. He further observed that although the AO invoked the provisions of Section 269SS of the Act. Even then, the he should have examined identity and creditworthiness of the persons, whose names were mentioned in the list given by the Auditor in column 24(a) of the Audit Report furnished to the AO. The ld. Pr. CIT held that the order passed by the AO was erroneous in so far as it was prejudicial to the interest of the revenue. The reliance was placed on the following case laws: � Swarup Vegetable Products Industries Ltd. Vs CIT (1991) 187 ITR 412 (All.) � Umashankar Rice Mill Vs CIT (1991) 187 ITR 638 (Ori.) � Jagdish Kumar Gulati Vs CIT 269 ITR 71 (All.) � Gee Vee Enterprises Vs Addl. CIT 99 ITR 375 (Del.) � Rampyari Devi Saraogi Vs CIT (1968) 67 ITR 84 (SC) � Tara Devi Aggarwal Vs CIT (1973) 88 ITR 323 (SC) � Duggal & Co. Vs CIT (1996) 220 ITR 456 (Del.) � Sh. Virendra Kumar Gupta Vs CIT in ITA No. 2595/Del/2009, order dated 21.01.2011

15 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. 13. Accordingly, the Pr. CIT set aside the assessment order framed by the AO by observing that the AO failed to examine the case properly on the issues which rendered the assessment order erroneous in so far as it was prejudicial to the interest of the revenue. He directed the AO to pass a fresh assessment order in accordance with the provisions of law.

16 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. to time and finally heard on 09.01.2018 and thereafter the Pr. CIT Muzaffarnagar issued show-cause notice dated 22.01.2018. In response to the said notice, the assessee furnished the detailed reply and also requested for adjournment since the counsel for the assessee was out of station. However, the ld. Pr. CIT did not accede to the request for adjournment and passed the impugned order on 13.03.2018. It was stated that the ld. Pr. CIT invoked the provisions of Section 263 of the Act on the ground that the AO had not examined the two issues relating to the sundry creditors and the loans received and assessed the income at a lower amount. However, there was no such failure on the part of the AO to examine the above mentioned two issues and also the income had not been assessed at a lower amount as had been alleged in the show-cause notice. The ld. Counsel for the assessee submitted that it was brought to the notice of ld. Pr. CIT, Muzaffarnagar that most of the sundry creditors were brought forward relating to the purchases made by the assessee which could not have been added in the year under consideration and that while examining this issue, the AO had made intensive inquiries relating to the outstanding balances in the names of the sundry creditors and that attention of the ld. Pr. CIT was drawn to the notice dated 20.12.2015, in response to which, the reply was filed by the assessee on 22.02.2016 alongwith which the assessee had filed complete party- wise list of the sundry creditors with complete addresses and copies of the purchase bills vide which the raw material/consumables were purchased. It was stated that the assessee furnished the confirmations from 16 parties, thereafter, the AO vide order sheet

17 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. entry dated 03.03.2016 required the assessee to furnish confirmations from 11 parties and the assessee stated that the confirmatory letters of 7 persons had already been furnished with reply dated 29.02.2016 and in addition to those confirmatory letters, the assessee further furnished confirmatory letters of three more parties alongwith the reply to other queries. It was contended that the assessee vide letter dated 18.03.2016 brought to the notice of the ld. Pr. CIT that the assessee furnished confirmed copies of account of all the loan givers with complete addresses, similar was the position in respect of the creditors for which the photocopies of all the bills were enclosed and it was requested to the AO that he may issue the commission to the respective AOs by issuing notice u/s 131(1) of the Act to ascertain the actual position. It was contended that the ld. CIT(A) ignored the submissions made vide letter dated 18.03.2016. It was also contended that the specific reference to the replies and evidences furnished by the assessee and the efforts made by the AO to ascertain the position clearly brought on record to say and explain that it was neither a case where no enquiry were made nor it was a case where the income of the assessee could have been said to have assessed at a lower amount. It was submitted that the ld. Pr. CIT herself in para 4 of the impugned order had mentioned that the AO issued notices u/s 133(6) of the Act to 45 parties and had also stated about the consequences of such enquiry. Therefore, from the impugned order passed by the ld. Pr. CIT itself it was evident that it was a case where full enquiry was made by the AO who was knowing well that the addition of whole amount of outstanding balance in the name of

18 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. sundry creditors could not have been made as brought forward opening balances had to be excluded because the same had already been accepted in the assessment order u/s 143(3) of the Act passed on 11.03.2015 for the assessment year 2012-13 (a reference was made to page nos. 78 to 80 of the assessee’s paper book). It was further submitted that the AO also knew that having rejected the books of account u/s 145(3) of the Act, he would not be able to make other disallowances, therefore, to be on safer side he adopted the route of making 10% addition of outstanding balance of sundry creditors, in other words, the AO had taken a possible view and as such the ld. Pr. CIT was not justified in observing that the AO had not made any inquiry. It was further submitted that the outstanding balances in the names of the sundry creditors were on account of purchase of raw material which had been utilized in production of finished goods and the copies of all the purchase bills were filed before the AO on which not only full particulars and addresses of the parties from whom those purchases were made, were described but also full particulars of registration under various Acts such as sales tax and excise duties were also mentioned. Therefore, it could not have been said that merely because some of the notices were not served and most of the notices issued by the AO were not responded, the creditors were unexplained to be added u/s 68 of the Act. It was stated that the assessee in addition to furnishing the copies of purchase bills also furnished the confirmations from the parties for whom the AO had asked to furnish the same. Therefore, merely on the basis that no response of letters was received by the AO from the party to whom the notices u/s 133(6) of the Act were

19 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. sent, could not be adversely viewed against the assessee. It was submitted that the opening balance outstanding as on 01.04.2012 which pertained to the raw material purchased by the assessee in the earlier years, could not have been added as unexplained credit as the same did not pertain to this year.

20 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. the requirements laid down in the said Section and the consideration of the ld. Pr. CIT as to whether an order is erroneous in so far as it is prejudicial to the interest of the revenue, must be based on material on record of the proceedings called for by him and if there is no material on record on the basis of which it could be said that the ld. Pr. CIT acting in a reasonable manner could not have come to such a conclusion, the very initiation of proceedings by him would be illegal and without jurisdiction to demonstrate that during the course of assessment proceedings intensive inquiries were made by the AO in respect of both the issues considered by the ld. Pr. CIT. The ld. Counsel for the assessee submitted that a notice u/s 142(1) of the Act was issued by the AO on 28.12.2015 wherein vide point no. 12, the AO asked the assessee to furnish complete party-wise list of the sundry creditors with complete addresses, a reference was made to page nos. 50 & 51 of the assessee’s paper book which is the copy of the said notice. It was further submitted that to comply with the above notice, the assessee filed reply dated 12.01.2016 and submitted certain details, thereafter another reply was filed on 20.01.2016 and party-wise list of the sundry creditors was furnished, in support of the above, a reference was made to page nos. 53 to 55 of the assessee’s compilation. It was also submitted that when the AO asked the assessee to furnish confirmatory letters from sundry creditors, the assessee submitted confirmatory letters from 16 parties vide letter dated 29.02.2016 and also requested the AO to call the information u/s 133(6) of the Act, a reference was made to page no. 57 of the assessee’s paper book. It was emphasized that the AO vide order

21 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. sheet entry dated 03.03.2016, asked the assessee to furnish confirmation from 11 parties and in response, the assessee submitted that confirmations were already filed in respect of 7 persons vide letter dated 29.02.2016, the confirmations from 3 more persons were furnished and it was stated that the assessee was trying to locate the persons as most of the industries/traders had closed their business, explanation was also given in respect of objection of the AO in violation of the provisions of section 269SS of the Act by stating that the assessee had taken loans only below Rs.20,000/- from various persons, so there was no such violation, in support of the above contention, our attention was drawn towards page nos. 58 & 59 of the assessee’s compilation. It was further submitted that the assessee in response to order sheet notings dated 03.03.2016, submitted on 10.03.2016 that it was trying to collect confirmatory letters within 10 days and request was made to allow the said time, our attention was drawn towards page nos. 60 to 67 of the assessee’s compilation which is the copy of the aforesaid letter dated 10.03.2016. It was further submitted that since the creditors were voluminous in number and it was not possible to produce all of them, the assessee made a request to the AO to issue a commission to examine the sundry creditors, a reference was made to page nos. 68 to 70 of the assessee’s compilation wherein the relevant submissions vide para nos. 9 & 10 were as under: "9. That as regard the production of all the creditors and unsecured loaners, it is submitted that the assessee had furnished the confirmed copies of a/c of all the loaners giving complete address and similar is the

22 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. positions in respect of creditors were in the photo copy of bills have been enclosed. It is not the practice of the department to call for 100% creditors/loaners. However, in case, were your honour has a dought that these credit/loan is not genuine, the same may kindly be confronted to the assessee so that the same may be approached to appear before your honour. Since the creditors/loaners are in voluminous in number and it is not possible for the assessee to approach to each of them because they are now out of touch of the assessee, the Factory having been closed. However complete address of the parties is with the department and you are very kindly requested to issue commission to the respective A.Os or issue notice u/s 131(1) to ascertain the actual positions. 10. That the list where credit balance as on 01/04/12 is shown as on 31/03/13 is enclosed herewith. The confirmatory letter in respect of 5 persons are also enclosed herewith as such total are of confirmatory letters-------my honour is 24 which may kindly considered.” 17. It was further submitted that the explanation given in respect of the provisions of Section 269SS of the Act, invoked by the AO vide para 11 of the aforesaid letter was as under: “11. That as regard the confrontation regarding alleged old balances in some cases of Rs.20000/- or more it is submitted that all the loaners are agriculturist only which are only 18 members out of 177 members. The assessee hopes that your honor will find the above in order.” 18. The ld. Counsel for the assessee submitted that the list of sundry creditors showing credit balances as on 01.04.2012 and 31.03.2013 were furnished alongwith confirmatory letters.

23 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. Therefore, from the query raised by the AO and the replies given by the assessee, it could be ascertained that the AO had made intensive inquiries, issued letters to the sundry creditors u/s 133(6) of the Act, he also asked to give the reasons for non-service of certain letters issued by him u/s 133(6) of the Act and the assessee had been filing confirmatory letters in respect of most of the parties, thus, ample evidences were furnished to the AO which could lead him to form a view that addition of the entire amount outstanding in the name of sundry creditors was not sustainable in law. Therefore, he adopted a safe mode by restricting the addition to the extent of 10% of the amount outstanding in the name of sundry creditors which was almost equivalent to the difference between opening and closing balances outstanding in the names of sundry creditors. It was also stated that the closing balances as on 31.03.2012 were accepted, therefore, the opening balances as on 01.04.2012 could not have been added to the income of the assessee. It was also stated that the present case was not a case of lack of inquiry and even if it was inadequate enquiry, the ld. Pr. CIT could not have discarded a quasi-judicial decision taken by the AO. The reliance was placed on the following case laws: � CIT Vs Sunbeam Auto Ltd. (2009) 227 CTR 133 (Del.) � ITO Vs D.G. Housing Projects Ltd. (2012) 343 ITR 329 (Del.) � CIT Vs Shree Manjunathesware Packing & Products Camphor Works (1998) 231 ITR 53 (SC) � DIT Vs Jyoti Foundation (2013) 357 ITR 388 (Del.) � CIT Vs Kamal Galani (2018) 95 Taxmann.com 261 (Guj.) � CIT Vs Jawahar Bhattacharjee (2012) 341 ITR 434 (Gauhati)

24 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. � CIT Vs Arvind Jewellers (2003) 259 ITR 502 (Guj.) � Malabar Industrial Co. Ltd. Vs CIT (2000) 243 ITR 83 (SC) � CIT Vs Max India Ltd. (2007) 295 ITR 282 (SC) 19. It was contended that detailed enquiries were conducted by the AO on both the issues and the ld. Pr. CIT had exercised her revisionary power only on the ground that the AO had failed to examine the case properly, such observation of ld. Pr. CIT was based on apprehensions and surmises, but without any basis to carry such apprehension. It was also stated that the ld. Pr. CIT herself did not make any enquiry, therefore, the remand to the AO to pass fresh assessment order would be abuse of powers given u/s 263 of the Act.

25 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. persons, the names of 12 persons were mentioned. Thus, in the opinion of the AO, it was only a case of violation of Section 269SS of the Act which provides that the cash loans could not have been obtained/taken exceeding a sum of Rs.20,000/-. It was stated that the names of 12 persons were written in the audit report on the ground that cash loans from 177 persons were received through 12 persons, therefore, the auditor had written the names of 12 persons only. On that basis, the AO expressed that those loans were in violation of Section 269SS of the Act and levied the penalty u/s 271D of the Act vide order dated 05.12.2016, a reference was made to page nos. 242 to 250 of the assessee’s compilation which is the copy of the said order passed by the Addl. CIT, Range-1, Muzaffarnagar u/s 271D of the Act. It was contended that according to the AO, the course of levy of penalty u/s 271D was more beneficial to the interest of the revenue, as the evidences were submitted by the assessee, it was clear that requirements of Section 68 of the Act were met and making addition u/s 68 of the Act would not be liable to be sustained, on the other hand, the amount of penalty levied u/s 271D of the Act would be equal to the amount of cash loans which was more than the tax by making addition u/s 68 of the Act, which would be 30% of the cash loans. It was also contended that even in the order of levying the penalty u/s 271D of the Act, it had been admitted by the Addl. CIT that evidences regarding each of the 177 persons were submitted to the AO during the course of assessment proceedings. It was stated that the ld. Pr. CIT did not apply her mind while going through the assessment record and if the same was properly examined then she

26 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. could have come to know that the assessee filed evidence to prove the genuineness of each of the credits which was in the shape of document proving the identity of the creditor as well as his creditworthiness, which was in the shape of identity proof and documents of his land holding, so, it was not a case of lack of inquiry where the AO did not apply his mind but it was a case of mere substitution of view of the AO by the ld. Pr. CIT. Moreover, the action taken by the AO could not have been termed to be prejudicial to the interest of the revenue as the AO on the facts of the case had taken a view that those loans having been taken from 12 persons as described in the audit report in violation of Section 269SS of the Act, the revenue will be more in the case of levy of penalty. It was further submitted that the ld. Pr. CIT while setting aside the assessment order, had not provided proper opportunity of hearing which is evident from the impugned order wherein it had been mentioned that the first notice issued on 29.01.2018 was not complied due to non-service of notice and thereafter on telephone it was informed to the assessee that this case had been fixed for hearing on 08.03.2018, on the said date the assessee filed written submissions. It was further submitted that apart from the issues raised in the show-cause notice, the assessee never required to explain/show cause that why the order passed by the AO on other issues may not also be considered erroneous and prejudicial to the interest of the revenue and moreover, it had not been shown by the ld. Pr. CIT in the impugned order that how and in what manner the order passed by the AO was erroneous and prejudicial to the interest of the revenue. Therefore, the action of the ld. Pr. CIT was

27 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. clearly indicated to the fact that the powers u/s 263 of the Act had been exercised in an arbitrary manner, without any basis and even without forming such an opinion that the assessment order passed by the AO on so called “other issues” was erroneous in so far as it was prejudicial to the interest of the revenue and without confronting the assessee with such an opinion, the exercise of power u/s 263 of the Act was contrary to the provisions contained in the said section and therefore, the impugned order of the ld. Pr. CIT in setting aside the other issues alongwith two issues mentioned in the show-cause notice was vitiated in law and deserves to be quashed.

28 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. additions @10% out of the sundry creditors of Rs.38,87,98,316/-. It was stated that the ld. Pr. CIT after going through the case records noticed that as per clause 24(a) of the audit report, the assessee had accepted loans aggregating to Rs.33,60,500/- other than by account payee cheques or drafts in violation of provisions of Section 269SS of the Act and the claim of the assessee that it had accepted those loans from 177 persons had been rejected and that the AO should have examined identity and creditworthiness of the persons whose names were mentioned in the list given by the auditor in Column 24(a) of the Audit Reports submitted to the AO. Therefore, the assessment order framed by the AO was rightly found to be erroneous in so far as it was prejudicial to the interest of the revenue. It was further submitted that the ld. Pr. CIT has powers u/s 263 of the Act to set aside the assessment order and to send the matter back to AO for fresh assessment and to make further enquiry, as the assessment order passed by the AO was erroneous in so far as it was prejudicial to the interest of the revenue.

The reliance was placed on the following case laws: � Swarup Vegetable Products Industries Ltd. Vs CIT (1991) 187 ITR 412 (All.) � Umashankar Rice Mill Vs CIT (1991) 187 ITR 638 (Ori.) � Jagdish Kumar Gulati Vs CIT 269 ITR 71 (All.) � Gee Vee Enterprises Vs Addl. CIT 99 ITR 375 (Del.) 22. It was further submitted that the AO accepted the version of the assessee without making any enquiry or verification and it is well settled law that mere failure to make inquiries makes an order erroneous and the ld. Pr. CIT may consider an order of the AO to

29 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. 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 simply accepted what the assessee had stated in his return and failed to make enquiries which are called for the circumstances of the case. The reliance was placed on the following case laws: � Rampyari Devi Saraogi Vs CIT (1968) 67 ITR 84 (SC) � Tara Devi Aggarwal Vs CIT (1973) 88 ITR 323 (SC) 23. It was contended that the impugned order passed by the ld. Pr. CIT was well within the ambit of law and in keeping with the provisions of the Income Tax Act, 1961. It was further contended that the present case was a clear cut case wherein no enquiry had been made by the AO and hence, it was erroneous within the meaning of clause (a) of explanation 2 to Section 263 of the Act. The reliance was placed on the following case laws: � CIT Vs DLF Powers Ltd. in ITA 973/2011, order dated 29.11.2011 (Del.) � BLB Ltd. Vs ACIT in Writ Petition (Civil) No. 6884/2010, order dated 01.12.2011 � CIT Vs Gabriel India Ltd. (1993) 203 ITR 108 (Bom.) � CIT Vs Jawahar Bhattacharjee (2012) 341 ITR 434 (Gau.) (F.B.) � Malabar Industrial Co. Ltd. Vs CIT (2000) 243 ITR 83 (SC) 24. It was further submitted that the word “prejudicial to the interest of the revenue”, can only mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized and in this case the ld. Pr. CIT

30 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. has rightly invoked the revisional jurisdiction in accordance with the provisions of Section 263 of the Act on examining the records, directed the AO for fresh determination of the assessment and that there was adequate material to justify the findings given by the ld. Pr. CIT that the assessment order passed by the AO was erroneous in so far as it was prejudicial to the interest of the revenue. The reliance was placed on the following case laws: � Dawjee Dadabhoy and Co. Vs S.P. Jain 31 ITR 872 (Cal.) � Pratap Footwear Vs ACIT (2003) SOT 638 (Jabalpur- Trib.) � CIT Vs Bhagwan Das (2005) 272 ITR 367 (All.) � PVS Multiplex India Ltd. Vs CIT 815 Taxpundit 50 � CIT Vs Nagesh Knitwears Pvt. Ltd. (2012) 345 ITR 135 (Del.) � Malabar Industrial Company Ltd. Vs CIT (2000) 243 ITR 83 (SC) � Nabha Investments Pvt. Ltd. Vs Union of India (2000) 246 ITR 41 (Del.) � ITO Vs DG Housing Projects Ltd. (2012) 343 ITR 329 (Del.) 25. It was further submitted that the expression “prejudicial to the interest of the revenue” is of wide import and is not confined to merely loss of tax and that the term “erroneous” means a wrong/incorrect decision deviating from law and that the word ‘erroneous’ includes failure to make enquiry. It was stated that the AO had accepted the contention of the assessee without proper enquiry, therefore, the ld. Pr. CIT rightly held that the assessment order passed by the AO was erroneous in so far as it was prejudicial to the interest of the revenue. The reliance was placed on the following case laws:

31 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. � Gee Vee Enterprises Vs Addl. CIT (1975) 99 ITR 375 (Del.) � Rampyari Devi Saraogi Vs CIT (1968) 67 ITR 84 (SC) � Tara Devi Aggarwal Vs CIT (1973) 88 ITR 323 (SC) � ITO Vs D.G. Housing Projects Ltd. (2012) 343 ITR 329 (Del.) � CIT Vs Goetze (India) Ltd. 361 ITR 505 (Del.) � NIIT Vs CIT(Central) (2015) 60 Taxmann.com 313 (Del.) � Deepak Maurya in ITA No. 4271/Del/2014 � Financial Inclusion Trust in ITA No. 3268/Del/2014, order dated 14.08.2017 of the ITAT Delhi Bench “B”, New Delhi 26. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is an admitted fact that the AO framed the assessment u/s 143(3) of the Act vide order dated 29.03.2016. Thereafter, the ld. Pr. CIT exercised his revisionary powers u/s 263 of the Act and issued the notice dated 22.01.2018 for revision of the aforesaid assessment order and mentioned in the said notice as under: “2. On examination of the records, it has been noticed that: i) The AO has made the addition under section 41(1) at Rs.3,88,79,832/- @ 10% out of total sundry creditors of Rs.38,87,98,316/-. It is observed that no confirmation was received in compliance of notices issued u/s 133(6) of Income Tax Act, 1961 from the parties. Not a single creditor was produced before the AO. Further, no evidence in the form of bank statement showing debit entries has been filed to prove that in subsequent years amount has been paid. Therefore, the addition of Rs.38,87,98,316/- should have been made by the AO.

32 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. ii) As per clause 24(a) of the Audit Report the assessee has accepted loans aggregating to Rs.33,60,500/- have been accepted other than by account payee cheques or drafts in violation of provisions of section 269SS. The AO has not examined the identity, creditworthiness of the persons from whom these loans were taken by the assessee in view of section 68 of the Income Tax Act, 1961. 3. In view of para 2 above, the assessment order passed by the ACIT, Circle-1, Muzaffarnagar is erroneous and prejudicial to the interest of revenue since the AO has not examined the above mentioned issues and assessed the income at lower amount.” 27. From the contents of the aforesaid notice, it would be clear that the ld. Pr. CIT considered the assessment order passed by the AO as erroneous in so far as it was prejudicial to the interest of the revenue on two counts: i) that the AO while making the addition on account of sundry creditors has not considered that no evidence in the form of bank statement showing debit entries had been filed to prove that in the subsequent year amount had been paid. ii) The AO had not examined the identity, creditworthiness of the persons from whom loans were taken in view of Section 68 of the Act.

In the present case, it is an admitted fact that the ld. Pr. CIT exercised his revisionary powers u/s 263 of the Act, the said power may be summarized as under: "(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interests of the Revenue. Both the conditions must be fulfilled.

33 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd.

(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it is 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 for the requirement or 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 interest 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, it cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under the 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 determines the income, the CIT, while exercising his power under Sec. 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 him and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. (viii) The CIT, before exercising his jurisdiction under Sec. 263, must have material on record to arrive at a satisfaction.

34 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. (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 allowed 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." 28. Reverting to the facts of the case, it is an admitted fact that the AO during the course of assessment proceedings issued the notice u/s 142(1) of the Act dated 28.12.2015 (copy of which is placed at page nos. 50 to 52 of the assessee’s paper book) and asked the assessee to furnish following details/explanation: “(1) Comprehensive note on the history & business activities of the case. (2) Please furnish copy of cash book & bank book for the period 01.03.2013 to 31.03.2013. (3) You are requested to furnish photocopies of all TDS certificates as issued by you for FY 2012-13 in r/o TDS deducted under section 194C, 194-I & 194J of the I.T. Act, 1961 & also photocopies of all TDS certificates as issued to you for FY 2012-13. (4) Furnish photocopies of all purchase invoices & sale invoices for the period 16.03.2013 to 31.03.2013. (5) Complete details of unsecured borrowings & share application money including copy of account as appearing in your books for FY 2012-13. In case of receipt/accretion of fresh loan & also for the share application money received during the year under consideration, prove the identity, genuineness of transactions & creditworthiness of the said entities, adducing evidences in the form of their confirmation, bank statement, copy of acknowledgment of filing return for AY 2013-14. In case of corporate/firms entities,

35 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. furnish copies of their financial statements for the year ending 31.03.2013. (6) Details of inventory, quantitative & value wise of opening & closing stock. (7) Furnish ledger a/c of following expenses (a) Freight (b) Professional expenses (c) Freight on sales (d) Insurance apportioned cost (e) Power & Fuel. (8) Furnish comprehensive reasons for declaring such a huge loss of Rs.2.32 crores for the year under consideration. (9) Complete details of squared up accounts. (10) Details of all bank accounts held. Furnish copy of bank statements for the current accounts for the period 16.03.2013 to 31.03.2013. (11) Furnish 26AS as pertaining to you for FY 2012-13. (12) Complete party wise list as to Sundry creditors with complete addresses. (13) Break up of expenses payable of Rs.11,51,963/-. (14) Party wise break up of advance to suppliers. (15) Month wise break up as to sales & purchases & also furnish ledger account as to sales & purchase for the month of March 2013. (16) Explain nature of business & furnish detailed note on manufacturing process involved giving process wise Input-Output ratio. Also furnish input-output ratio at the final stage & justify the same. (17) Copy of service tax, Excise & Vat Tax return filed by you for FY 2012-13.”

36 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. 29. From the aforesaid questionnaire issued by the AO having the jurisdiction on the assessee, it would be clear that the details of purchase invoices and sale invoices, unsecured borrowings & share application money, details of inventories, photocopies of expenses, reasons for loss and complete details of sundry creditors etc. were asked. In response, the assessee vide replies dated 20.01.2016, 22.02.2016 & 29.02.2016 (copies of which are placed at page nos. 54 to 57 of the assessee’s compilation) furnished the complete party-wise list of sundry creditors with complete address, copies of bills through which raw material/consumable had been purchased and confirmatory letters. The assessee also informed that due to heavy loss and the close down of the business on 25.01.2013 significant payments could not be made to the creditors. The assessee vide letter dated 29.02.2016 furnished confirmatory letters (copy of which is placed at page no. 57 of the assessee’s paper book) from the following 16 parties: “1. M/s Shri Shantinath Buildwell Pvt. Ltd. 9454381.00 2. M/s Isha Trading Co. 293411.00 3. M/s N. P. Scrap Traders 1313185.00 4. M/s Paras Scrap Traders 999632.00 5. M/s Shanu Scrap Traders 948224.14 6. M/s M. S. Iron Traders 1203947.50 7. M/s Royal Scrap Traders 500113.00 8. M/s Sonu Cement Stores 394420.00 9. M/s Nidhi Trading Co. 5163380.00 10. M/s Ganga Enterprises 1445273.00 11. M/s Lakshya Traders 1557081.00 12. M/s Vardhman Interprises 4837590.00 13. M/s Shri Baba Vishwanath Iron Pvt. Ltd. 2808151.00 14. M/s A One Trading Co. 1255488.00 15. M/s Visa Steels Ltd. 2934951.18 16. M/s Shri Sidhbali Impex Pvt. Ltd. 13521113.81”

37 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. 30. In the said letter dated 29.02.2016, the assessee also requested the AO to call the informations u/s 133(6) of the Act, if so desired, therefore, it cannot be said that the AO had not made intensive enquiries relating to the outstanding balances in the name of the sundry creditors. In the present case, it is also noticed that the ld. Pr. CIT herself in para 4 of the impugned order has mentioned that the AO had issued notices u/s 133(6) of the Act to 45 parties at the addresses provided by the assessee and out of those only one party denied any transaction with the assessee. It is also noticed that the ld. Pr. CIT although mentioned that not a single creditor was produced for examination but she ignored this vital fact that the assessee vide letter dated 18.03.2016 made a request that the commission may be issued to the respective AOs or notices u/s 131(1) of the Act may be issued to ascertain the actual position. However, no cognizance has been taken. In the instant case, the AO rejected the books of accounts by invoking the provisions of Section 145(3) of the Act and disallowed 10% of the outstanding balances of sundry creditors in spite of the fact that all the creditors were related to the purchases of raw material which had been utilized in production of the finished goods and were accepted in the preceding year and it was not the case of the department that the assessee either inflated the purchases or suppressed the sales. In our opinion, when the purchases were considered to be genuine and utilized in the production of finished goods then the creditors relating to those purchases cannot be considered to be bogus or non-genuine. In the present case, nothing is brought on record to suggest that there was the cessation of the

38 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. liabilities and the assessee did not own/accept the creditors which were relating to the purchases made in the regular course of business, the AO during the course of assessment proceedings conducted intensive enquiries which is apparent from the fact that the he had issued notices u/s 133(6) of the Act to all the sundry creditors and the assessee also furnished confirmatory letters from the creditors. In the present case, it is claimed that most of the creditors were relating to the earlier years which were accepted as genuine, the said claim is evident from page no. 76 of the assessee’s paper book which is the copy of the age wise list of Sundry Creditors which revealed that the majority of Sundry Creditors as on 31.03.2012 amounting to Rs.35,21,29,184.06 were still outstanding as on 31.03.2013 i.e. relevant for the assessment amounting to year under consideration and other new creditors relate to the current year, the outstanding sundry creditors as on 31.03.2013 were at Rs.38,87,98,316.29, in other words, the increase in creditors in comparison to the earlier year was of Rs.3,66,69,132.23 (Rs.38,87,98,316.29 – Rs.35,21,29,184.06) while the AO had made the disallowance of Rs.3,88,79,832/- which was more than the increase in the sundry creditors from the preceding year. In our opinion, the ld. Pr. CIT was not justified in treating those creditors pertaining to the earlier years as non-genuine for the year under consideration, particularly when, creditors which were related to the earlier years and were outstanding in the books of account of the assessee maintained in the regular course of business. In the present case, the AO had made the additions of 10% of the creditors for the reason that the assessee could not

39 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. produce the creditors although a request was made by the assessee to issue the commission to the respective AO’s having the jurisdiction over those creditors or issue the summons u/s 131(1) of the Act. As we have already pointed out that the disallowance made by the AO out of the sundry creditors was more than the increase in the sundry creditors during the year under consideration vis-à-vis the preceding year, therefore, it can be said that in the present case, the AO had taken one of the possible views, after making the intensive enquiries relating to the sundry creditors, so it was not a case of lack of enquiry or non-enquiry, at the most it may be categorized as a case of inadequate enquiry but that is not sufficient to discard the possible decision taken by the AO.

40 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. the unsecured loans and after making the proper enquiries, he considered that the loans were received by the assessee in violation of provisions of Section 269SS of the Act and levied the penalty of equivalent amount i.e. Rs.33,60,500/- u/s 271D of the Act. In other words, he has taken one of the possible views.

41 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. “A finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Income-tax Act, 1961. 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. In such matters, to remand the matter to the Assessing Officer would imply the Commissioner has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the question. The order of the Assessing Officer may or may not be wrong. The Commissioner cannot direct reconsideration only when the order is erroneous. An order of remit cannot be passed by the Commissioner to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. The Commissioner must after recording reasons hold that the order is erroneous. 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 erroneous and prejudicial to the interests of the Revenue and cases where the Assessing Officer conducts an enquiry but the finding recorded is erroneous and which is also prejudicial to the interests of the Revenue. In the latter cases, the Commissioner has to examine the order or the decision taken by the Assessing Officer on the merits and then form an opinion on the merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. In the second set of cases, the Commissioner cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.” 34. In the present case, the AO conducted the enquiries and had taken a possible view, therefore, the ld. Pr. CIT was not justified in directing the AO to conduct further enquiry relating to the sundry

42 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. creditors and unsecured loans and also on the other issues which were not considered at all by the ld. Pr. CIT.

43 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. himself to record the finding that the assessment order was erroneous. He should not have set aside the order and directed the Assessing Officer to conduct the inquiry.” 36. Similarly, the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT (2000) 243 ITR 83 (supra) held as under: “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 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" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase

44 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. "prejudicial to the interest 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 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.” 37. A similar view has also been taken by the Hon’ble Apex Court in the case of CIT Vs Max India Ltd. (2007) 295 ITR 282 (supra), wherein it has been held as under: “The phrase "prejudicial to the interests of the Revenue" in section 263 of the Income-tax Act, 1962, has to be read in conjunction with the expression "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 the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law.” 38. In the instant case also, as we have already pointed out that the AO made the detailed enquiries relating to the sundry creditors as well as the unsecured loans and after making such enquiries he had taken a possible view. He also made the various additions apart from the addition on account of the sundry creditors and levied the

45 ITA No. 2539/Del/2018 Durgesh Autofin P. Ltd. penalty u/s 271D of the Act by invoking the provisions of Section 269SS of the Act on the unsecured loans. We, therefore, by keeping in view the ratio laid down in the aforesaid referred to judicial pronouncement are of the confirmed view that the ld. Pr. CIT was not justified in holding the assessment order dated 29.03.2016 passed by the AO as erroneous and prejudicial to the interest of the revenue. In that view of the matter, the impugned order passed by the ld. Pr. CIT u/s 263 is quashed.

Sd/- Sd/- (Suchitra Kamble) (N. K. Saini) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 09/10/2018 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5.DR: ITAT ASSISTANT REGISTRAR