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.

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 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.

5. That the order of the Principal CIT is wrong and erroneous as the assessment order cannot be reopened simply because the CIT has a different opinion. The revisional power conferred on the CIT is not an appellate power but a supervisory power.

PRAYER It is prayed that the order of the Learned Principal CIT reopening the original assessment order u/s 263 be set 3 Assessment year 2012-13 aside and the original assessment order may be restored.”

3. At the outset, the Ld. AR submitted that there was a delay of 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.

4. The Ld. CIT DR opposed the prayer for condonation of delay.

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, 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 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 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.

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 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 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 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 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.

Assessment year 2012-13 Order pronounced in the Open Court on 19.09.2018.