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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: Shri P.M. Jagtap, Vice- & Shri A.T. Varkey
Per Shri P.M. Jagtap, Vice-President:
This appeal filed by the assessee is directed against the order of ld. Principal Commissioner of Income Tax (Appeals)-1, Kolkata dated 16th March, 2018 passed under section 263 of the Income Tax Act, 1961.
The assessee in the present case is a Company, which is engaged in the business of Manufacturing of Cotton Ginning Plant & Machineries, Rolled Products, Engineering Goods, Agricultural Equipments and also in Trading. The return of income for the year under consideration was filed by it on 30.09.2013 declaring total income of Rs.3,03,32,712/-. In the assessment completed under section 143(3) vide an order dated 15.07.2015, the total income of the assessee was determined by the Assessing Officer at Rs.3,04,27,082/- after making disallowance of Assessment Year: 2013-2014 Nipha Exports Private Limited Rs.77,369/- and Rs.17,000/- under section 14A and Wealth Tax respectively. The records of the said assessment came to be examined by the concerned ld. Principal CIT and on such examination, he was of the view that the order passed by the Assessing Officer under section 143(3) suffered from the following errors, which were prejudicial to the interest of the Revenue:- “(i) From Note-18 annexed to the balance sheet for the year ended 31.03.2013 that the assessee was having a VAT refund receivable amounting to Rs. 5,94,33,275/- as on 31.03.2013 which was only Rs.4,27,17,261/- as on 31.03.2012. Thus, there was an increase in amount on account of VAT refund receivable by Rs.1,67,16,017/-, Thus, although the assessee was allowed a deduction of Rs.1,36,96.051/, outside the book of accounts on account of claims for VAT refund ( not yet admitted and assessable in the year it is admitted by the competent authority] during computation of income for the A.Y. 2013·14 whereas the increase in amount on account of VAT refund receivable in the balance sheet during the A.Y. 2013-14 was Rs.1,67,16,014/-. This resulted in excess credit of VAT refund receivable in the balance sheet by Rs.30,19,963/- (1.67.16.014/- - Rs.1,36,96,051/-) during the year without any corresponding credit entry in the P& L accounts. This excess credit of VAT refund receivable in the balance sheet by Rs.30,19.963/- resulted in under assessment of total income by Rs. 30,19,963/-.
(ii) Again, there was an increase in Terminal Excise Duty refund receivable in the balance sheet for the F.Y. 2012-13 corresponding to A.Y, 2013·14 by Rs.70,63,536/-(1,32,92,086 - 62,28,550) without any corresponding credit entry although debit of excise duty of Rs.1,75,60,778/- was made in the P &. L a/c. This either resulted in excess debit of excise duty by Rs.70,63,536/- or non-credit of Terminal Excise Duty refund by Rs.70,63,536/- in the P&L A/c for the year ended 31.03.2013. This resulted in under assessment of total income by Rs,70,63,536/-consequent at tax effect of Rs.11,00,299/-.
He accordingly issued a notice under section 263 to the assessee pointing out the above errors and asking the assessee to show-cause as to why the order passed by the Assessing Officer under section 143(3) should not be revised or set aside.
Assessment Year: 2013-2014 Nipha Exports Private Limited
In reply, the following submission was made on behalf of the assessee before the ld. Principal CIT in writing:- “(i) Alleged under assessment of income to the extent of Rs.30,19,963/- on account of excess credit of VAT refund receivable, appearing in the Balance Sheet, without any corresponding credit entry in the Profit & Loss Account:
The entire amount included under this head is actually an. expenditure incurred by our clients on account of Input Vat paid on the purchases made by them, Such Input VA.T was not included in the cost of purchases debited to their profit & loss a/c by treating the same to be an asset as the same was subsequently recoverable by them by way of adjustment with the Output VAT payable on their domestic sales/ claim for refund in the capacity of an exporter. Since the cost of purchases charged to the profit & loss account is net of Input VAT incurred on purchases, the whole of the amount included in the VAT Refund Receivable appearing in the Balance Sheet stands credited to the profit & loss a/ c of our clients by way of reduction in the amount of expenditure debited to the profit & loss a/con account of purchases. This matter was also examined by the assessing officer during the course of the assessment proceedings pursuant to the enquiry made by him u/s. 142(1) of the Income-Tax Act Vide letter dated 6th July, 2015 ( copy enclosed: Annexure: B). The copy of the explanation given to the assessing officer by our clients vide their letter dated 10th July, 2015 together with the copy of the relevant details furnished to him in this regard is attached herewith for your kind verification(copy enclosed: Annexure: C)
The amount shown under the head VAT Refund Receivable is comprised of VAT Refunds claimed as well as the unutilized Input VAT. Out of the increase of Rs.1,67,16,014/ - during the year in the amount of V.A.T Refund Receivable appearing in the Balance Sheet, the VAT Refund claimed by our clients for the year under reference amounted to Rs.13696501/- only.
Since the amount debited to VAT Refund Receivable a/c is actually an item of expenditure not charged to the profit & loss a/c of our clients for being recoverable as refund/adjustable with Output VAT incurred on domestic sales and not any income earned by them, the question of any under assessment of income on this account does not arise,
Assessment Year: 2013-2014 Nipha Exports Private Limited ii) Alleged under assessment of income to the extent of Rs.70,63,536/- on account of Terminal Excise Duty refund receivable appearing in the Balance Sheet of our clients without any corresponding credit entry in their Profit & Loss Account:
The amount included under this head represents excise-duty paid by our clients on those manufactured goods, which were exported out of India. Since excise duty is not chargeable on the goods exported out of India, the amount so paid becomes refundable to them. Accordingly, the amount of excise duty paid on the goods exported out of India by our clients is not considered by them as expenditure and is, accordingly, not charged to the profit & loss account. This amount is treated by our clients as an asset and the amount receivable at the year end is shown in the balance sheet under the head “Other Current Assets" as Terminal Excise Duty Refund Receivable.
As the payment of excise duty in respect of goods exported by our clients has not been charged as expenditure to their profit & loss a/c, the question of crediting the refund of the same to the profit & loss a/c does not arise. Further, the amount is not in the nature of any income earned by our clients and, hence, nothing was required to be credited on this account to their profit & loss a/c. On receipt of refund, our clients credit the amount of refund received by them to the. Terminal Excise Duty Refund Receivable AI C., i.e., the £!ccount which they debited at the till of making payment of the excise- duty in respect of goods exported.
Your observation appears t6 be based on a wrong appreciation of the facts by assuming that the entire amount of excise duty paid by our clients during the relevant previous year has been debited by them to their profit & loss account, which is not correct. In fact, it is only the amount of excise duty paid Oil the goods sold by them within India i.e., on the domestic sales of our clients, which has been actually debited to their Profit & Loss a/c. Since no Terminal Excise Duty Refund was allowable on account of such excise duty debited to the Profit & Loss ale in respect of their domestic sales, there is nothing to be credited on this account to the profit & loss a/c”.
The ld. Principal CIT did not find merit in the submission made on behalf of the assessee and proceeded to set aside the order passed by the Assessment Year: 2013-2014 Nipha Exports Private Limited Assessing Officer under section 143(3) dated 15.07.2015 with a direction to him to reframe the assessment for the following reasons given in paragraph no. 5 to 11 of his impugned order:- “5. I have considered the facts and circumstances of the case. It was contended that both the issues (i) & (ii) are basically the same as no income are involved in either case. It was explained that the amount involved are expenses subsequently recoverable by way of refunds/ adjustment with VAT payable on domestic sales. It was submitted that this was the method of accounting followed in past years in accordance with accepted accounting principles and that where refunds/adjustments on certain item are not allowed, the irrecoverable amounts only are charged to P&L A/c in the year of assessment, It was submitted that this observation has been raised by Department for the first time, which assessee iterates, is a non-understanding of the actual facts and that no escapement of income is involved.
Be that as it may, the task of a taxing authority is to marshal all facts and come to a clean finding so that proper and correct income is brought to tax. In this endeavour, the onus is on the assessee to satisfy the AO by furnishing all material facts supported by relevant documents. As regards, unutilised VAT of Rs.1,36,96,051/-, it appears that separate deduction was taken by assessee in its computation of income while the increase in VAT refund receivable is Rs.1,67,16,014/-, thereby the correctness of excess credit by Rs.30,19,963/- without corresponding credit entry in P&L Account required to e examined. Similarly, the refundable terminal excise duty on account of export sales pf Rs.70,63,536/- should have been credited on P&L Account too as the right to receive the refund had accrued to the assessee during the year. Thus evidently there has been lack of enquiry on both the issues on the part of the AO who has merely accepted the assertions of the assessee, thereby making an assessment which is erroneous and prejudicial to the interest of revenue.
6, Hon'ble Delhi High Court in the case of GEE VEE Enterprise vs. Addl. CIT reported in 99 ITR 375, 386 (Del) has held that the err may consider the order of the Assessing Officer to be erroneous not only if it contain some apparent error of reasoning or of law or of fact on the face of it but also because the Assessing Officer has Assessment Year: 2013-2014 Nipha Exports Private Limited failed to make enquiries which are called for in the circumstances of the case and it is an order which simply accepted what the assessee has stated in his return of income on the said issue. It is not necessary for the CIT to make further enquiries before cancelling the assessment order. The Commissioner can regard the order erroneous on the ground that the Assessing Officer should have made further enquiries,
7. Hon'ble Karnataka High Court in the case of Thalibai F. Jain vs. ITO 101 ITR 1, 6 (Karn.) has held that where no enquiries made by the Assessing Officer on the relevant issue, assessment must be held to be prejudicial to the interests of the revenue and what is prejudicial to the interest of the revenue must be held to be erroneous though the converse may not always be true,
8. Hon'ble Supreme Court in the case of Malabar Industrial Co. Pvt. Ltd vs. CIT reported in {2000} 243 ITR 83, 87- 88(SC) affirming the Hon'ble Kerala High Court decision (198 ITR 611) has held that the phrase "Prejudicial to the Interests of the Revenue" is of wide import and is not confined to only loss of taxes. If the A.O. has accepted the claim of the assessee without any enquiries then such assessment order passed by the A.O. was held to be erroneous.
9. In this regard it is mentioned that mere non enquiry would also render a particular order passed by lower authority as erroneous and prejudicial to the interests of Revenue. This position has been clearly confirmed by Honble Supreme Court in the case of Rampyari Devi Saraogi –vs. – CIT (1968] 67 ITR 84 & Smt. Tara Devi Aggurwal-Vs.-. CIT [1973] 88 ITR 323 (SC). The reasoning for this proposition has been explained by Hon'bIe Delhi High Court in the case of Gee Vee Enterprise v. Addl. CIT [1975] 99 ITR 375 in the following para ;-
"It is not necessary, for the Commissioner to make further inquiries before cancelling the assessment order of the Income Tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income Tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax
Assessment Year: 2013-2014 Nipha Exports Private Limited
Officer is very different from that of civil court. The statements made in. the pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence iohicl: come before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such us to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such all enquiry. The order becomes erroneous because such an inquiry has not be made and not because there is anything wrong with the order if all the facts stated therein arc assumed to be correct.
10. Further to this it is noticed that there is no appeal right available to the Revenue from (he order of assessment passed by Assessing Officer and i.e. why revisionary power have been given to the Commissioner and such power were held to be of wide amplitude by the Hon'ble Supreme Court in the case of CIT v. Shree Manjunathesware Packing Products & Camphor Works [1998] 231 ITR 53/96 Taxman 1. Therefore, normally when Assessing Officer has not made any enquiry on a particular issue, then such order in view of the above detailed discussion has to be construed as erroneous and prejudicial to the interest of Revenue and therefore, the impugned assessment order is erroneous and prejudicial to the interest of Revenue as Assessing Officer has failed to make any enquiry.
11. Having regard to the facts and circumstances of the case and ill the light of the aforesaid decisions of Hon'ble Supreme Court and Hon'ble High Courts and in accordance with the amendment made in Section-263 of the Act with effect from 01.06.2015, I hold that the impugned assessment order dated 15.07.2015 passed by the A.O. is erroneous in so far as it is prejudicial to the interests of Assessment Year: 2013-2014 Nipha Exports Private Limited
the revenue. I further hold, after giving the assessee an opportunity of being heard, that the impugned assessment order dated 15.07.2015 is liable to set-aside. Therefore, I set aside the said assessment order directing the present A.O. to re-frame the assessment after considering the aforesaid observations, Hon’ble Supreme Court and Hon'ble High Court decisions and as per law”.
Aggrieved by the order of the ld. Principal CIT passed under section 263, the assessee has preferred this appeal before the Tribunal.
The ld. Counsel for the assessee submitted that the assessment order passed by the Assessing Officer under section 143(3) is finally set aside by the ld. Principal CIT vide his impugned order passed under section 263 allegedly on the ground that the two issues relating to VAT Refund and Terminal Excise Duty Refund were not properly inquired into by the Assessing Officer. In this regard, he invited our attention to the copy of letter dated 06.07.2015 issued by the Assessing Officer during the course of assessment proceedings placed at page no. 6 of the paper book to point out that a specific query was raised by the Assessing Officer in respect of claim of VAT Refund as made by the assessee in the computation of total income. He also invited our attention to the explanation offered by the assessee-company in this regard vide letter dated 10.07.2015 (copy placed at page no. 7 & 8 of the paper book) to show that the accounting treating given by the assessee in case of VAT Refund was duly explained by the assessee and having satisfied the same, the claim of the assessee of VAT Refund was accepted by the Assessing Officer. He also invited our attention to the copy of relevant order-sheet entries placed at page no. 11 of the paper book to show that the books of account regularly maintained by the assessee were produced for verification before the Assessing Officer and on verification of the same, the claim of the assessee for VAT Revision and Terminal Excise Duty Refund was accepted by the Assessing Officer. He contended that it was thus not a case of lack of inquiry by the Assessing Officer on these two
Assessment Year: 2013-2014 Nipha Exports Private Limited issues as alleged by the ld. Principal CIT in his impugned order passed under section 263 and there was no error in the order of the Assessing Officer passed under section 143(3) calling for revision under section 263 by the ld. Principal CIT. He also contended that the accounting of VAT Refund and Terminal Excise Duty Refund was duly explained by the assessee during the course of revision proceedings under section 263 but without taking the same into consideration, the order passed by the Assessing Officer under section 143(3) was set aside by the ld. Principal CIT on the alleged ground of lack of inquiry without pointing out as to how it was prejudicial to the interest of the Revenue.
The ld. D.R., on the other hand, submitted that even though a specific query was raised by the Assessing Officer during the course of assessment proceedings on the issue of VAT Refund and explanation in respect of the same was also duly offered by the assessee, there is nothing to show that any inquiry was made by the Assessing Officer specifically on the issue of Terminal Excise Duty Refund. He contended that it was thus a case of lack of inquiry by the Assessing Officer on the issue of Terminal Excise Duty Refund and since the claim of the assessee on this issue was accepted by him without making any inquiry whatsoever, the order passed by him under section 143(3) was erroneous as well as prejudicial to the interest of the Revenue as rightly held by the ld. Principal CIT while exercising the powers conferred upon him under section 263. He contended that the assessee may have a good case on merit on this issue but the fact remains to be seen is that no inquiry whatsoever was made by the Assessing Officer while accepting the claim of the assessee on account of Terminal Excise Duty Refund and this lack of inquiry by the Assessing Officer made the order passed by him under section 143(3) erroneous as well as prejudicial to the interest of the Revenue.
Assessment Year: 2013-2014 Nipha Exports Private Limited
We have considered the rival submissions and also perused the relevant material available on record. It is observed that the assessment order passed by the Assessing Officer under section 143(3) has been held to be erroneous as well as prejudicial to the interest of the Revenue by the ld. Principal CIT vide his impugned order on the ground that the claim of the assessee on two issues relating to VAT Refund and Terminal Excise Duty Refund was accepted by him without making any inquiry. As demonstrated by the ld. Counsel for the assessee at the time of hearing before us on the basis of the letter issued by the Assessing Officer and the reply filed by the assessee during the course of assessment proceedings, the inquiry on the issue of VAT Refund was specifically made by the Assessing Officer and after having satisfied himself with the submission made by the assessee explaining the accounting of VAT Refund, which was duly verified by him from the books of account produced by the assessee, the claim of the assessee for VAT Refund was accepted by the Assessing Officer. On this issue, it was thus not a case of lack of inquiry or lack of proper and sufficient inquiry by the Assessing Officer as alleged by the ld. Principal CIT in his impugned order and this position is not disputed even by the ld. D.R. at the time of hearing before us.
As regards the second error allegedly pointed out by the ld. Principal CIT in his impugned order, the ld. D.R. has submitted that there is nothing available on record to show that any inquiry was made by the Assessing Officer before accepting the claim of the assessee on the issue of Terminal Excise Duty Refund. It is observed that even in the letter issued by the Assessing Officer during the course of assessment proceedings or in the submission made by the assessee in response to the said letter, there is no mention whatsoever of this issue relating to Terminal Excise Duty Refund shown by the assessee as receivable in the balance-sheet. Although the ld. Counsel for the assessee has claimed that this issue was also examined by the Assessing Officer during the course of assessment proceedings from the books of account produced by the Assessment Year: 2013-2014 Nipha Exports Private Limited assessee, there is no evidence whatsoever to support and substantiate this claim. It is thus clear that the issue relating to the assessee’s claim for Terminal Excise Duty Refund was accepted by the Assessing Officer in the assessment completed under section 143(3) without making any inquiry, which was warranted in the facts and circumstances of the case and this lack of inquiry on the part of the Assessing Officer, in our opinion, made his order passed under section 143(3) erroneous as well as prejudicial to the interest of the Revenue as rightly held by the ld. Principal CIT. For this conclusion, we derive support from the decision of the Hon’ble Supreme Court in the case of Rampyari Devi Saraogi –vs.- CIT (supra) relied upon by the ld. Principal CIT, wherein the ITO had made the assessment in undue haste without any evidence or inquiry and it was held by the Hon’ble Supreme Court that section 33B of the 1922 Act, the provisions of which are analogous to the provisions of section 263 of the 1961 Act, could be applied to such a case. It is pertinent to note here that the prejudice to the Revenue in this case was inferred by the Hon’ble Supreme Court not from any finding that there is a loss of revenue but from the mere fact that procedure employed was defective. To the similar effect is the another decision of the Hon’ble Supreme Court in the case of Tara Devi Aggarwal –vs.- CIT (supra), wherein it was held that the ld. CIT can regard the order of the Assessing Officer as erroneous insofar as it is prejudicial to the interest of the revenue on the ground that in the circumstances of the case, ITO should have made further inquiries before accepting the statements made by the assessee in his return.
While explaining the proposition propounded by the Hon’ble Supreme Court in the case of Rampyari Devi Saraogi (supra) and Tara Devi Aggarwal (supra), it was observed by the Hon’ble Delhi High Court in the case of Gee Vee Enterprise –vs.- Addl. CIT (supra) that the ITO is not only an adjudicator but also an investigator and cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the Assessment Year: 2013-2014 Nipha Exports Private Limited return when the circumstances of the case are such as to provoke an inquiry and the order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.
Following the decisions of the Hon’ble Supreme Court in the case of Rampyari Devi Saraogi (supra) and in the case of Tara Devi Aggarwal (supra), it was held by the Hon’ble Allahabad High Court in the case of Smt. Lajja Wati Singhal –vs.- CIT (226 ITR 527) that an assessment made on income surrendered by the assessee without making any inquiry whether the same was, in fact, taxable in the hands of the assessee, was erroneous and prejudicial to the interest of the revenue. A useful reference can also be made to the decision of the Hon’ble Gujarat High Court in the case of Addl. CIT –vs.- Mukul Corporation (111 ITR 312), wherein it was held that an order of assessment passed by the ITO without making necessary inquiry on certain important points connected with the assessment could be erroneous and prejudicial to the interest of the revenue. To the similar effect is the decision of the Hon’ble Calcutta High Court in the case of Commissioner of Wealth Tax –vs.- Ramnarayan Bhojnagarwala (194 ITR 489), wherein it was held that whenever the question arises as to whether correct and proper assessment has been made upon due inquiry and it is found that no such inquiry was made, the ld. CIT has jurisdiction in such a case to set aside the assessment by invoking the powers conferred upon him under section 263. In the case of Ashoke Leyland Limited (260 ITR 599), the Assessing Officer without inquiry had accepted the claim of the assessee that insurance receipts in respect of partially damaged machinery were capital receipts and it was held by the Hon’ble Madras High Court that the Commissioner was justified in exercising power under section 263 and directing ITO to decide the matter after due inquiry. In the case of Mannulal Matadeen – vs.- CIT (277 ITR 346), it was held by the Hon’ble Allahabad High Court that where the ITO had not made necessary inquiries before allowing
Assessment Year: 2013-2014 Nipha Exports Private Limited deduction of interest on credit balance of a party, the order would be regarded as erroneous and prejudicial to the interest of the Revenue and the Commissioner may be justified in revising the same. In the case of Malabar Industrial Co. Pvt. Limited (supra) relied upon by the ld. Principal CIT, Hon’ble Supreme Court held while affirming the decision of the Hon’ble Kerala High Court that the phrase “prejudicial to the interests of the Revenue” is of wide import and is not confined to only loss of taxes. It was held that if the Assessing Officer had accepted the claim of the assessee without any inquiries then the assessment order passed by him would be erroneous as well as prejudicial to the interest of the Revenue.
A resume of the judicial pronouncements discussed above clearly shows that the very fact that the assessment was made by the Assessing Officer without proper and sufficient inquiries, as warranted in the facts and circumstances of the case, makes it erroneous and also causes prejudice to the interest of the revenue giving jurisdiction to the ld. Principal CIT under section 263 to revise the same. As already noted, the claim of the assessee for the Terminal Excise Duty Refund in the present case was accepted by the Assessing Officer without making any inquiry whatsoever and such lack of inquiry made his order passed under section 143(3) on this issue erroneous as well as prejudicial to the interest of the Revenue. We accordingly uphold the impugned order passed by the ld. Principal CIT under section 263 setting aside the order of the Assessing Officer only on the issue relating to Terminal Excise Duty Refund and allow partly this appeal of the asseessee.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on January 17, 2020.