M/S. H.M. AGRIEXPORTS PVT. LTD.,UTTAR PRADESH vs. PR. CIT, MUZAFFARNAGAR

PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER This appeal has been preferred by the assessee against the

order dated 27.12.2016 passed by the Ld. Pr. CIT, Muzaffarnagar

for assessment year 2012-13 wherein vide the impugned order

passed u/s 263 of the Income Tax Act, 1961 (hereinafter called

'the Act')., the Ld. Pr. C.I.T. has set aside the assessment order

dated 29.08.2014 with directions to pass a fresh assessment

order.

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 2.0 Brief facts of the case are that the assessee is a private

limited company and is engaged in trading and export of rice and

other agricultural products. The original return of income was

filed on 8.9.2012 declaring a taxable income of Rs. 14,12,410/-.

The case was selected for scrutiny under CASS and,

subsequently, the assessment was completed at Rs. 14,82,410/-

after making an addition of Rs. 70,000/- on account of un-

vouched expenses.

2.1 Subsequently, the Ld. Pr. CIT issued notice u/s 263 of the

Act on 5.12.2016 on the grounds that no effort was made by the

Assessing Officer to know the reasons for low net profit, the

Assessing Officer did not examine the increase of Rs.

1,54,27,250/- in the unsecured loans and the Assessing Officer

had not verified the closing stock of finished goods as there were

no supporting documents.

2.2 In response, the assessee submitted detailed explanations

but the Ld. Pr. C.I.T. was unconvinced and observed that the

Assessing Officer had failed to examine the case properly and,

therefore, the assessment order was erroneous in so far as being

prejudicial to the interest of the revenue and set aside the

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 assessment order with directions to pass a fresh assessment

order in accordance with provisions of law.

2.3 Aggrieved, the assessee is now before the ITAT and has

raised the following grounds of appeal:-

“1. That the order of the Learned Principal CIT is against law' and facts of the case.

PRAYER It is prayed that the order of the Learned Principal CIT reopening the original assessment order u/s 263 be set 3

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 aside and the original assessment order may be restored.”

58 days in filing the captioned appeal. He drew our attention to

the application for condonation of delay which was duly

supported by an affidavit in this regard and it was prayed that the

delay be condoned as the delay was beyond the control of the

assessee.

averments made in the delay condonation application and the

affidavit which has been filed in support of the averments. As per

the application and the affidavit, it has been submitted that both

the Directors of the company were out of India for the period

24.12.2016 to 2.3.2017 and the impugned order was served on

the company on 30.12.2016. It has been further submitted that

the impugned order was handed over to the authorised

representative of the company but the authorised representative

was unable to attend office for a long period due to the wedding of

his son on 25.02.2017. A photocopy of the wedding invitation of

the son of the authorised representative has also been enclosed

along with delay condonation application to substantiate the 4

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 same. Photocopies of passports of both the Directors have also

been enclosed along with the delay condonation application in

support of the contention that both the Directors were travelling

outside India. Thus, it is apparent that the delay was not

intentional and, therefore, the same deserves to be condoned.

Accordingly, we condone the delay of 58 days and admit the

appeal for regular hearing.

6.0 The Ld. AR drew our attention to the show cause notice

issued u/s 263 of the Act and also placed on record a copy of the

order sheet of the original assessment proceedings and submitted

that vide order sheet entry dated 25.8.2014, the AO had made

query regarding advances from customers and trade receivables,

unsecured loans and advances including squared up loans, copy

of accounts of sundry debtors and creditors along with their

complete addresses, details of sales, purchases separately for

domestic purposes and export along with justification of stock

and justification for low GP/NP rate. The Ld. AR thereafter drew

our attention to the submissions made by the assessee before the

AO in response to the queries which were placed at pages 29-38

of the paper book. It was submitted that the assessee had duly

responded to all the queries raised by the Assessing Officer and,

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 therefore, the contention of the Ld. Pr. C.I.T. was incorrect

inasmuch as it was alleged that the Assessing Officer had not

made proper inquires on the three issues as mentioned in the

show cause notice. The Ld. AR also submitted that even the Ld.

Pr. C.I.T. has mentioned in the impugned order that the assessee

had submitted details of purchase and sales in the value as well

as in quantity along with ledger copy of all purchases and sales in

quantity as well as in value. The Ld. AR drew our attention to the

chart placed at page 10 of the paper book wherein the

comparative details of the stock movement for assessment years

2011-12 to 2015-16 was placed. It was submitted that the

contention of the Ld. Pr. C.I.T. that the Assessing Officer had

failed to conduct full investigation to determine the correct

income of the assessee was factually incorrect. The Ld. AR placed

reliance on a plethora of case laws to substantiate his contention

that the assumption of jurisdiction u/s 263 of the Act was not

proper because there was no lack of inquiry on the part of the

Assessing Officer. It was submitted that merely because the

assessment order did not refer to the queries raised during the

course of scrutiny proceedings and the response thereto by the

assessee, it could not be inferred that there was no inquiry so as

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 to conclude that the assessment was erroneous and prejudicial to

the interest of the revenue. It was also submitted that merely

because there is no elaborate discussion in the assessment order,

the order cannot be said to be erroneous. The Ld. AR also placed

on record a copy of assessment order dated 27.12.2017 passed

u/s 263 r/w section 143(3) of the Act subsequent to the

revisionary proceedings and in accordance with directions of the

Ld. Pr. C.I.T. and submitted that no addition had been made by

the Assessing Officer in this order also on the issues on which

proceedings u/s 263 were initiated. It was prayed that the

impugned order be set aside.

7.0 In response, the Ld. C.I.T. DR placed reliance on the order of

the Ld. Pr. C.I.T. and vehemently argued that the impugned order

had been passed after proper appreciation of the facts on record

and it was apparent from the assessment order that the same had

been passed in a hasty manner without making adequate

inquiries, specially on the issues on which the assessee’s case

was selected for scrutiny. It was prayed that the impugned order

should be upheld.

8.0 We have heard the rival submissions and perused the

material available on record. It is settled law that in order to

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 assume jurisdiction under section 263 of the Act, the pre-

requisites are that the order passed by the Assessing Officer

should be erroneous and it should be prejudicial to the interests

of revenue. In other words the twin conditions have to be

satisfied, namely, (i) the order of the Assessing Officer sought to

be revised should be erroneous and (ii) it should be prejudicial to

the interests of the revenue. Both the conditions must be

satisfied. In case the order of the Assessing Officer is erroneous

but is not prejudicial to the interests of the revenue, the

Commissioner would not be competent to exercise jurisdiction

under section 263. In a case, where two views are possible and

the Assessing Officer has taken a view with which the

Commissioner does not agree, the said order cannot be treated as

an erroneous order prejudicial to the interests of the revenue

unless the view taken by the Assessing Officer is unsustainable in

law. A perusal of the show cause notice shows that it has not

been stated in any manner as to how the learned Assessing

Officer had failed to apply his mind, particularly when it has not

been denied or disputed that all information including books of

accounts, confirmations, bank statements etc. have been

furnished in the course of assessment proceedings.

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 8.1 The Hon’ble Delhi High Court in the case of CIT vs. Vikas

Polymers reported in 341 ITR 537 has held as under:

“13. It is also trite that there is a fine though subtle distinction between "lack of inquiry” and "inadequate inquiry”. It is only in cases of "lack of inquiry" that the Commissioner is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under the Act and passing orders thereon.”

8.2 In CIT vs. Gabriel India Ltd. reported in 203 ITR 108 (Bom),

it was expressly observed by the Hon’ble Bombay High Court as

under:-

"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. vs. ITO, (1977) 106 ITR 1 (SC)].”

8.3 It is a matter of record that in the present case the AO had

made enquiries during the assessment proceedings; the assessee

had given detailed explanation and the Assessing Officer on being

satisfied with the explanation of the assessee had passed the

assessment order. Such decision of the Assessing Officer cannot

be held to be "erroneous". The Hon’ble Delhi High Court in the

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 case of CIT vs. Sunbeam Auto Ltd. reported in 332 ITR 167 has

held as under:

“Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open.”

8.4 The Hon’ble Madras High Court held in the case of CIT vs.

Valliammal (D.) (1998) 230 ITR 695 (Mad) that assessment order

made after considering all fact and information cannot be revised.

Where the assessee had furnished the requisite information and

the Assessing Officer had completed the assessment after

considering and the facts but the commissioner revised the

assessment order on the ground that the Assessing Officer had

not made proper enquiries, the Tribunal was held justified in

reversing the order of the commissioner and restoring that of the

assessing officer. Commissioner cannot re-examine accounts and

substitute his judgment for that of the Assessing Officer. An order

cannot be termed as erroneous unless it is not in accordance with

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 law. If assessing officer makes assessment in accordance with

law, 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

visualize a case of substitution of the judgment of the

commissioner for that of the Assessing Officer unless the decision

is held to be erroneous. Cases may be visualized where the

Assessing Officer examines the accounts, makes enquires, applies

his mind to the facts and circumstances of the case and

determines the income either by making the accounts or by

making some estimates himself. The Commissioner, on perusal of

the records, may be of the opinion that the estimate made by the

officer was on lower side and, left to the commissioner, he would

have estimated the income at a higher figure that the one

determined by the Assessing Officer. That would not vest the

Commissioner with the power to re-examine the accounts and

determine the income himself at a higher figure. Further in the

case of Infosys Technologies Vs. JCIT (Asst) (2006) 286 ITR (AT)

211, the Bangalore Bench of the ITAT held that where the A.O as

examined and considered and issue, though not mentioned in the

assessment order, it cannot be said that the order passed was

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 erroneous. In CIT v Gabriel India Ltd. (1993) 203 ITR 108 (Bom),

the Hon’ble Bombay High Court held that once the Assessing

Officer has exercised the quasi-judicial power vested in him in

accordance with law and arrived at a conclusion, such a

conclusion cannot be considered erroneous simply because the

Commissioner does not feel satisfied with the conclusion. It may

be that in the opinion of the Commissioner, the order in question

is prejudicial to the interests of the revenue. But that by itself

would not be enough to vest the Commissioner with the powers of

suo motu revision because the first requirement, namely, that the

order is erroneous, is lacking.

8.5 In the instant appeal before us, it is not the Department’s

case that no information regarding the issues raised by the Ld.

Pr. CIT was called for by the AO. It is undisputed that relevant

details and documents were furnished by the assessee during the

assessment proceedings and forms part of the record. Hence, no

inference can be drawn that the AO has not examined the issue

although he has not expressed it in as many terms as may be

considered appropriate by his superior authority and even if the

same is found to be inadequate the same cannot be a ground for

revision. It is clear that an order cannot be termed as erroneous

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 unless it is not in accordance with law. This section does not

visualize a case of substitution of the judgment of the

Commissioner for that of the AO. Therefore, it cannot be held

that in the instant case the AO’s order was erroneous and

prejudicial to the interest of the revenue within the terms of

section 263 of the Act. Once the issues were considered and

examined by the Assessing Officer, the Ld. Pr. Commissioner

cannot set aside the order without recording a contrary finding.

This will be contrary to Section 263 of the Act.

8.6 Therefore, on facts and in light of the above mentioned

judicial precedents, it is our considered opinion that in the

instant case, the Assessing Officer’s order cannot be held to be

erroneous and prejudicial to the interest of the revenue within

the meaning of section 263. Therefore, in view of the factual

matrix of the case and respectfully following the ratio of the

various judicial pronouncements as discussed above, we hold

that the impugned action of the Ld. Pr. C.I.T. u/s 263 of the Act

was patently illegal and is liable to be quashed. The proceedings

u/s 263 of the Act are accordingly quashed.

I.T.A. No. 2524/Del/2017 Assessment year 2012-13 Order pronounced in the Open Court on 19.09.2018.

Sd/- Sd/- (PRASHANT MAHARISHI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 19th SEPTEMBER, 2018 ‘GS’