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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI A.T.VARKEY, JM &DR. A.L.SAINI, AM
आदेश / O R D E R Per Dr. A. L. Saini, AM:
The captioned appeal filed by the Assessee, pertaining to assessment year 2008-09, is directed against the order passed by the Pr. Commissioner of Income Tax-14, Kolkata, under section 263 of the Income Tax Act, 1961 (in short the ‘Act’) dated 09/03/2018.
The grounds of appeal raised by the assessee are as follows: 1) That, on the facts and circumstances of the case, the Ld. Principal CIT, Kolkata-14 erred in law in assuming jurisdiction u/s 263 of the Act in order to impose his own views on the A.O. when the A.O. had taken a possible view. 2) That, the Ld. Pr. CIT further erred in assuming jurisdiction u/s. 263 of the Act on the alleged ground of absence of thorough and proper inquiry by the A.O. and thus holding the assessment order passed u/s. 147/143(3) of the Act to be erroneous and prejudicial to the interest of revenue simply by differing with M/s Jabibur Rahaman Assessment Year:2008-09 the plausible view taken by the A.O., specifically accepting the audited books of account after appropriate inquiry. 3) That, the Ld. Pr. CIT wrongly assumed jurisdiction u/s.263 of the Act inasmuch as Explanation to sec.263 inserted by Finance Act, 2015 w.e.f. 01.06.2015 provides that the order passed without making enquiries/verification would be a ground for the Pr. CIT to invoke jurisdiction u/s.263 subsequent to 01.06.2015 and not relating to A.Y. 2008-09 under consideration. 4) That, the Ld. Pr. C.I.T. further erred in observing that the A.O. did not make enquiries on low G.P. declared by the appellant at 0.96% in comparison to 4.68% on same line of business in individual assessment although the A.O. accepted the same after thorough scrutiny of audited books of account. 5) That, there was nothing for the Ld. Pr. CIT to assume that the G.P. declared by the appellant was low when he himself could not bring on record any specific discrepancy in purchase, sales, stock and expenses shown in the audited accounts vis-a-vis G.P. earned and hence the impugned order passed u/s.263 of the Act is erroneous, without any valid reason and liable to be quashed. 6) That, the Ld. Pr. C.I.T. further erred in having assumed that the A.O. should have estimated the G.P. at 4.68% in spite of the fact that the opening stock, purchases, sales and closing stock are independent variables and the GP is the resultant balancing figure or dependent variable and having once accepted the books, the AO was precluded from making any estimate of income/G.P. 7) That, the Ld. Pr. CIT wrongly interpreted that as per order of Hon. Tribunal, the peak credit of Rs. 10,60,742/- has not been considered in the reassessment order in spite of the fact that addition of the said peak credit was made in the individual hands for not disclosing the Axis Bank A/c which stood disclosed in ROI and accounts of the appellant-firm. 8) That, as the order of Ld. Pr. C.I.T. on the above issues suffers from jurisdiction, illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for 9) That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds.
Brief facts qua the issue are that in the assessee`s case under consideration the assessment u/s 147/143(3) of the I.T. Act, 1961 was made on 27/01/2016 assessing the loss at Rs. 4,900/-. Later on, a proposal u/s.263 of the Income Tax Act, 1961 was received by the Principal Commissioner of Income Tax, suggesting revision of the assessment order dated 27/01/2016, as the same was felt to be erroneous in so far as it is prejudicial to the interestof the revenue. Accordingly, the assessment records were examined by ld PCIT. On examination of the assessment records, it was found that in the course of the assessment proceedings in the case of Jabibur Rahaman, Individual, the total sales as per the Trading account was shown at Rs.53,67,500/- from human hair business and the gross profit was disclosed @ Page | 2
M/s Jabibur Rahaman Assessment Year:2008-09 4.68%. A bank account in the name of the said assessee was found and the Assessing Officer added the deposits in the bank account to the sales disclosed by the assessee and treated the transaction of Rs.1,35,22,943/- (Rs.53,67,500 + Rs.81,55,443) as the sales of Jabibur Rahaman, Individual on which gross profit rate of Rs.4.68% as disclosed by the assessee himself was applied for arriving at the profits of the assessee. The ITAT-Kolkata in for A.Y. 2008-09, order dated 13.02.2014 in assessee`s individual case (Jabibur Rahaman), held that action in respect of sales of Rs. 8l,55,443/- should be taken in the hands of the firm, M/s. Jabibur Rahaman, i.e., the assessee in the present case.On perusal of the assessment records of the assessee, it was noticed by ld PCIT that while in the case of Jabibur Rahaman, Individual, who was running identical business ( business of human hair), the gross profit(G.P) rate was disclosed by him was at 4.68%, whereas in the case of the assessee partnership firm-M/s. Jabibur Rahaman, the G.P. rate declared was only 0.96 % on sales. The amount of turnover in the case of the assessee was earlier added to the turnover of Jabibur Rahaman. Since G.P. @ 4.68% was declared by the said Jabibur Rahaman himself and was also applied by the Assessing Officer in theassessment order, while assessing the case of M/s. Jabibur Rahaman, i.e. the assessee in the present case, therefore, it was incumbent on the part of the A.O. to have enquired into the reasons as to why such abysmally low G.P. rate of 0.96% was declared by the assessee partnership firm. Prima facie, G.P. of at least 4.68% should have been applied for arriving at the net profit from the assessee`s partnership business. However, the A.O failed to do so. Therefore, ld PCIT was of the view that A.O. hadpassed the order without making enquiries or verifications with regard to the correctness of the purchases and sales as claimed by the assessee, which should have been made in the case of M/s. Jabibur Rahaman- partnership firm. This had rendered the order erroneous in so far as it is prejudicial to the interest of revenue.
The Ld PCIT also noticed that that an addition of Rs.18,02,087/- was made in the case of Jabibur Rahaman on account of peak credit in respect of the deposits and withdrawals of Rs. 1,02,92,960/- in the bank account maintained by him with Axis Bank. The Ld. CIT(A) restricted the addition to Rs. 10,60,742/-. On appeal by the assesse, the ITAT-Kolkata in assessee`s case (supra) held that they had Page | 3
M/s Jabibur Rahaman Assessment Year:2008-09 already adjudicated the issue holding that this bank account belonged to the partnership firm, i.e., M/s Jabibur Rahaman and not the individual Jabibur Rahaman. The ITAT in assessee`s case (supra), directed the AO to take action in the hands of the partnership firm-M/sJabibur Rahaman, if any, and that also as per Law. On examination of the assessment records of the firm by ld PCIT, however, revealed that this issue had not at all been enquired into or examined by the A.O. and the order had been passed without making verification which should have been made and the A.O. also failed to make the addition on this account even of the amount which was confirmed by the Ld. CIT(A) in the case of Jabibur Rahaman. Since, on the basis of the above facts it was clear that the order passed by the AO was erroneous in so far as it is prejudicial to the interest of the revenue, it had been passed without making enquires or verification which should have been made, therefore, a show cause notice was issued to the assessee to explain as to why the assessment in its case should not be revised under section 263 of the I.T Act, 1961.
5. In response to the show cause notice, the assessee has submitted written submissions before the ld PCIT, which is reproduced below: “1.The assessee in his individual capacity has been running business of procuring and selling human hair. Thereafter vide Partnership Deed dated 30.03.2007, a partnership firm came into existence w.e.f. 23.03.2007 for the same kind of business with the partners, namely, .Sri Jabibu rRahaman and Sri Ajmail Sk having ratio of profit & loss, 'including loss of capital, of 60% and 40% respectively. In his individual ROI for A. Y. 2008- 09, Sri Jabibur Rahaman disclosed sales to the tune of Rs. 53,67,500/- and G.P. @ 4.68% of Rs.2,51,490/-. The Ld. A.O. observing that the assessee had not disclosed sales of Rs.81,55,443/- found in the bank account maintained with Axis Bank and had only disclosed the sales as per Bank Account with S.B.I., took the total sales at the figure of Rs. 1,35,22,943/- and computed the profit @4.68% at Rs.6,32,874/-, resulting in addition to the income of Rs.3,81,383/-. On the basis of the said Axis Bank account, the A.O. also added peak credits in April, 2007 of Rs.18,02,087/- to arrive at the total income of Rs.27,48,380/- vide order u/s 143(3) dated 23.12.2010. On appeal, the Ld. C.I.T.(A) upheld the addition of Rs.3,81,383/-, but restricted the addition on account of peak credits to Rs.10,60,742/-. On further appeal by the assessee, the Hon’ble Tribunal considering the submission made by the assessee with relevant documents deleted the addition of Rs.3,81,383/- by holding that the sales of Rs.81,55,443/- found recorded in the C.C. Account with Axis Bank Account should not be considered in the individual hands of the appellant and if law permits, the same should be considered in the hands of the partnership firm. Similar was the direction of the Hon’ble Tribunal in respect of addition of peak credit ofRs. 10,60,742/-.
M/s Jabibur Rahaman Assessment Year:2008-09 2.Thereafter, in view of the said observation/finding of the Hon’ble Tribunal, the A.O. initiated reassessment proceeding in the case of the partnership firm M/s. Jabibur Rahaman and issued notice u/s.148 of the Act on the following reasons recorded: “On examining the records, it is seen that the firm M/s. Jabibur Rahaman having PAN- AAHFJ0297P filed return of income through online on 31.03.2010 disclosing total loss of Rs.4,900/-. Though, the total sales for the F.Y. 2007-08 has been shown for Rs.81,55,443/- which has conformity with the bank transaction in question in the individual Jabibur Rahaman case, there is every possibility of escapement of income. Books of account and other relevant papers should be thoroughly verified in order to identify such escapement. As such, I have reason to believe that it is a fit case to issue notice u/s.148 for the interest of revenue.” In response to the said notice, the assessee-firm filed return on 12.12.2014 showing the income declared in the original ROI filed on 31.03.2010. Notices u/s. 143(2) and 142(1) of the Act were also served on the assessee in response to which the Authorized Representative of the assessee appeared before the A.O. and filed all the requisite details as called for and duly acknowledged in the impugned assessment order. After hearing the A.R. of the assessee on several dates and verifying the documents requisitioned and available on records, the Ld. A.O. found that the bank account with Axis Bank was duly reflected in the hands of the partnership-firm. He further observed that the transaction of Rs.81,55,443/-, which was considered in the hands of individual (Jabibur Rahaman) was reflected in the audited accounts of the firm and was also part of ROI. Finding no ingenuine and any suspicious transaction in it, the Ld. A.O. accepted the G.P. shown in the case of the firm at 0.96% and net loss of Rs.4,900/-. 3.The present submission is being made by the assessee in response to the show cause notice dated 17.01.2018 issued by your goodself u/s 263 of the Act, alleging that the assessment order passed in the case of the assessee-firm u/s 147/143(3) dated 27.01.2016 by the Ld. AO for A.Y. 2008-09 was erroneous and prejudicial to the interests the revenue. As per provisions of Sec. 263 of the Act, the Ld. Commissioner has to be /satisfied of the following twin conditions in order to exercise his powers of revision: (i).the order of the Assessing Officer sought to be revised,is erroneous ;and (ii).the order of the Assessing Officer sought to be revised, is prejudicial to the interests of the Revenue. Therefore, recourse to Sec. 263 of the Act cannot be taken if either of the above two conditions are not satisfied, i.e. if the impugned assessment order is erroneous but not prejudicial to the interest of the revenue; or if the impugned assessment order is prejudicial to the interest of the revenue but not erroneous. Having stated the above, the assessee would like to submit that vide Finance Act, 2015 ‘Explanation 2’ was inserted to sec. 263 of the Act w.e.f. 01-06-2015, which reads as follows: Explanation 2.- For the purposes of this section, it is hereby declared that an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, a) the order is passed without making inquiries or verification which should have been made; b) the order is passed allowing any relief without inquiring into the claim; c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Page | 5
M/s Jabibur Rahaman Assessment Year:2008-09 Supreme Court in the case of the assessee or any other person.
From a bare reading of the above it stands clear that if an assessment order is passed in non-compliance to any of the aforementioned clauses of Explanation 2 to sec.263(l) of the Act, the assessment order so passed by the Ld. AO shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue. In light of the above, the assessee would like to submit that your goodself has issued the impugned show cause notice dated 17/01/2018 in this case, seeking to invoke the powers of revision u/s 263(1) of the Act on the following alleged grounds: a) That, in the case of JabiburRahaman (Individual), G.P. was shown and accepted at 4.68%, but in the case of the assessee-firm G.P. rate declared was only 0.96%. Prima facie, G.P. of at least 4.68% should have been applied for arriving at the net profit of the partnership-firm. That not being done, the A.O. passed the reassessment order u/s.147/143(3) without making enquiries or verification with regard to the correctness of the purchases and sales, as claimed by the firm. b) That, in regard to addition of peak credit of Rs. 10,60,742/- in the bank account with Axis Bank sustained by the CIT(A), the Hon’ble Tribunal directed the A.O. to take action in the case of the firm, if any, as per law. This issue has not at all been enquired into/ examined by the A.O. Hence the order passed by the A.O. was erroneous in so far as it was prejudicial to the interest of the revenue.
Having submitted the above and without prejudice to the same, the assessee would like to submit the following: 5.1. At the outset it is submitted that the impugned assessment proceeding was a reassessment proceeding u/s 147/143(3) of the Act. Your goodself has assumed that the reassessment order in the case of the partnership firm, passed on the observation/finding of Hon’ble Tribunal in the case of Sri Jabibur Rahaman (Individual), erroneous and prejudicial to the interest of the revenue on the alleged ground that G.P. shown at 4.68% on sales made in individual capacity should have been considered for G.P. in the case of the firm also. As per audited Trading and Profit & Loss A/c. for the year ended on 31.03.2008, sales were to the tune of Rs.81,55,443/- as against purchase of Rs.78,68,555/- and considering closing stock and other charges, G.P. stood at Rs. 78,410/-. Thereafter adjusting business expenditure under various heads, net loss stood at Rs.4,897/-. As stated above there is no dispute to the fact that the assessee partnership firm came into existence w.e.f. 23.03.2007 vide Partnership Deed dated 30.03.2007. Therefore, the firm started functioning from F.Y. 2007-08 relevant to impugned A,Y. 2008- 09. Therefore, comparison of rate of G.P. of the individual business of Sri Jabibur Rahman with that of the partnership firm is premature, inasmuch as individual business has been carrying on since long past and goodwill/reputation in the market is settled. Furthermore, there was no dispute about recording the purchases, sales and other incidental expenses in the books of account andrelevant bank account. Its accounts are duly audited u/s.44AB of the Act. Inresponse to notices u/s. 143(2) and 142(1) of the Act and on verbal queries during the assessment proceeding, all the required details/evidences were filed and the A.R. of the assessee also explained the reason, as stated above, for low yield of G.P., which has been duly acknowledged in the assessment order stating that “Shri S.N. Roy, A/R of the assessee firm appeared from time to time with books of A/Cs and other relevant documents and explained the return of income. The books of A/Cs have duly been test checked and verified from time to time.” Page | 6
M/s Jabibur Rahaman Assessment Year:2008-09 Therefore, after conducting enquiries and investigations, as warranted for the impugned assessment proceeding and deemed fit and after being satisfied with the replies of the queries vis-a-vis low G.P. and verifying the audited books of account, bank statement and other relevant details, the Ld. A.O. assessed the loss of the assessee-firm at Rs.4,900/- vide the impugned order u/s. 147/143(3) of the Act dated 27.01.2016. 5.2 The second point in the impugned notice u/s.263 was to the direction that addition of peak credit of Rs.10,60,742/- on the basis of the bank account has not been considered in the impugned reassessment order. As stated above, the said peak credit was assumed on the basis of deposits in April,2007 in Axis Bank maintained by the assessee-firm. It is pertinent to note that the said peak credit was originally added in the individual assessment of Sri Jabibur Rahaman for the impugned assessment year solely on the ground that the Bank account with Axis Bank had not been disclosed in his ROI. The Hon’ble Tribunal on the basis of the finding that the same was not related to the individual but belonged to the partnership firm, in which the said individual is a partner, deleted the addition and the same was directed to be considered in the case of the assessment of the partnership firm. From the above facts it is thus evident that the addition of peak credit in the guise of undisclosed income was made for not disclosing the Axis Bank Account in the ROI, but when the said Bank Account admittedly stood declared in the ROI of the partnership firm for the impugned assessment year and accounted for in the audited books of account, the addition on the basis of earlier stand of undisclosed income does not survive on facts and in law. Moreover, the Ld. A.O. during reassessment proceeding has thoroughly verified the deposits and withdrawals found in the statement of Axis Bank for the relevant period and found all the transactions in the bank recorded in the books and thus rightly did not make any addition.”
However, the ld. PCIT rejected the contention of the assessee and held that the assessment order u/s. 147/143(3) dated 27/01/2016 for the assessment year 2008- 09 is considered to be erroneous in so far as it is prejudicial to the interest of the revenue. The ld PCIT, therefore directed the AO to examine and verify the issue relating to the low G.P disclosed by the assessee and to examine the issue relating to the addition on account of peak credit in respect of the deposit made in the Axis Bank account of the assessee.
Aggrieved by the order of ld PCIT under section 263 of the Act, the assessee is in appeal before us.
Shri S.K. Tulsiyan, the ld. Counsel for the assessee, begins by pointing out that the very basis for issuance of notice u/s 263 is not in accordance with law.The assessing officer issued notice under section 143(2) of the Act and notice under Page | 7
M/s Jabibur Rahaman Assessment Year:2008-09 section 142(1) of the Act and asked the assessee to submit details and documents. The assessee, in response to notice u/s 142(1) of the Act, has submitted entire details, evidences and documents before the Assessing Officer. The ld. Counsel also stated before the Bench that the required documents and evidences as mentioned in the reasons recorded u/s 147 of the Act were also submitted before the Assessing Officer. Thereafter, ld. Counsel took us through the relevant para of the reassessment order passed by the AO under section 147/143(3) of the Act, which is reproduced below, ( to the extent relevant for our discussion):
“The assessee firm in its letter dated 12.12.2014, stated that the return filed vide Ack No. 121237450310310 dated 31.03.2010, may be treated as return of income in compliance to notice u/s 148 of the IT Act, 1961. Accordingly, a notice u/s 143(2) of the IT Act, 1961 was duly served on the assessee firm. Subsequently, a notice u/s 142(1)of theIT Act, 1961 dated 26.06.2015 was duly served on the assessee firm on 13.07.2015. Shri S.N. Roy, A/R of the assessee firm appeared from time to time with books of A/c and other relevant documents and explained the return of income. The books of A/cs have duly been test checked and verified from time to time. On perusal of the books of A/cs, balance sheet as well as bank statement of A/C no. 163010100102292, Axis Bank, Berhampore branch is reflected in the hand of the firm. It was also noticed that the transaction of Rs. 81,55,443/- which was considered in the hand of Jabibur Rahaman, Individual is reflected in the A/cs of the Firm M/s Jabibur Rahaman. The case was discussed with the A/R of the assessee in details and heard to him. On the basis of the above discussion and hearings assessed at a loss of Rs. 4,900/- allowing no opportunity to carry forward and set off of loss as the return of income filed after due date.”
Having gone through the findings of the assessing officer, as noted above, the ld. Counsel submitted before us that during the reassessment proceedings, the assessee firm appeared from time to time with books of accounts and other relevant documents and explained the return of income. The books of accounts have duly been examined and verified by AO during the assessment proceedings. The ld. Counsel submitted that the bank statement of(A/C no. 163010100102292), Axis Bank, Berhampore Branch is getting reflected in the books of accounts of assessee`s partnership firm. The ld. Counsel also submitted that the transaction of Rs.81,55,443/- which was considered in the hand of Jabibur Rahaman Individual
M/s Jabibur Rahaman Assessment Year:2008-09 is reflected in the accounts of the Firm M/s Jabibur Rahaman. Therefore, the assessee has submitted every kind of details asked by the Assessing Officer in respect of assessee firm and the Assessing Officer having examined each and every aspect passed the reassessment order u/s 147 / 143(3) of the Act. Therefore, the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the revenue.
9. On the other hand, ld. DR for the Revenue has primarily reiterated the stand taken by the ld. PCIT which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.
We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other material available on record. First of all, we have to see whether the requisite jurisdiction necessary to assume revisional jurisdiction is there existing before the Ld. PCIT to exercise his power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedent laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one Page | 9
M/s Jabibur Rahaman Assessment Year:2008-09 has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interest of the revenue’’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”.
11.Taking note of the aforesaid dictum of law laid down by the Hon’ble Apex Court, let us examine whether order passed by the assessing officer under section 147/143(3),of the Act, dated 27/01/2016 is erroneous and prejudicial to the interest of Revenue. Mr. Jabibur Rahaman runs two identical businesses, first in the name and style of Jabibur Rahaman-Individual and second in the name and style of M/s Jabibur Rahaman-Partnership firm. The ld PCIT exercised his jurisdiction under section 263 of the Act in the case of M/s Jabibur Rahaman- Partnership firm. The assessee firm (M/s Jabibur Rahaman-Partnership firm), submitted before us following documents, evidences and details which is enumerated below as follows: (1)The copy of partnership deed dated 30.03.2007 (vide PB-1 to 6). (2)The copy of income tax return of firm for A.Y. 2008-09 (vide PB-7). (3)The copy of audited accounts along with Tax audit report, balance sheet, Profit and Loss account of the partnership firm for the F.Y. 2007-08 relevant to A.Y. 2008-09 (vide PB-8 to 23). (4)The copy of notices u/s 148, u/s 142(1) and u/s 143(2) of the Act issued by the Assessing Officer during the reassessment proceedings. (vide PB 24 to 27). (5) Copy of order passed by the Assessing Officer in case of assessee firm( M/s Jabibur Rahaman) u/s 147 / 143(3) for A.Y. 2008-09 (vide PB- 28 to 29). (6) The copy of bank statement of Axis Bank A/c no. 163010100102292 (vide PB 34 to 38). Page | 10
M/s Jabibur Rahaman Assessment Year:2008-09 During the reassessment proceedings, these documents, evidences and details were submitted by the assessee firm before the AO. The AO examined these documents, and evidences and after doing detailed scrutiny, the AO framed the assessment under section 147/143(3) of the Act dated 27.01.2016.
It is an admitted fact that in this case the assessee(partnership firm) has come into being in the preceding previous year on 30.03.2007 and Balance Sheet as on 31.03.2008 shows that the capital is brought forward from earlier assessment years of Rs. 50,000/- each by each partner (vide PB 22 balance sheet of firm). We note that the Assessing Officer after examination of books of accounts of assessee firm (audited accounts ) has not drawn any adverse inference in respect of turnover of partnership firm as on 31.03.2008, which is to the tune of Rs. 81,55,443/-, vide profit and loss account as on 31.03.2008 (PB-23). The assessee partnership firm has shown gross profit @ 0.96%, whereas the individual proprietorship business in the name of Mr.JabiburRahaman has shown gross profit @ 4.68%. Therefore, the ld. D.R. for the revenue states before us that since the assessee partnership firm is also into the same kind of business as that of individual, then the gross profit shown by the individual @ 4.68%, at least, should have been the income of the assessee`s partnership firm. The ld DR pointed out that since AO has accepted the gross profit rate @ 0.96% (instead of 4.68%) in case of assessee, partnership firm therefore, order passed by the AO is erroneous and prejudicial to the interest of Revenue and hence the ld PCIT has rightly exercised his jurisdiction under section 263 of the Act.
However, the plea of the ld. D.R. cannot be accepted for the simple reason that the gross profit rate @0.96% and the loss reflected in assessee firm are outcome of the audited books of accounts and the Assessing Officer have given the clear findings that he has examined each and every detail of the assessee during the reassessment proceedings. The findings of the assessing officer, ( to the extent relevant for our discussion) is given below: “The assessee firm in its letter dated 12.12.2014, stated that the return filed vide Ack No. 121237450310310 dated 31.03.2010, may be treated as return of income in compliance to notice u/s 148 of the IT Act, 1961. Accordingly, a notice u/s 143(2) of Page | 11
M/s Jabibur Rahaman Assessment Year:2008-09 the IT Act, 1961 was duly served on the assessee firm. Subsequently, a notice u/s 142(1)of theIT Act, 1961 dated 26.06.2015 was duly served on the assessee firm on 13.07.2015. Shri S.N. Roy, A/R of the assessee firm appeared from time to time with books of A/c and other relevant documents and explained the return of income. The books of A/cs have duly been test checked and verified from time to time. On perusal of the books of A/cs, balance sheet as well as bank statement of A/C no. 163010100102292, Axis Bank, Berhampore branch is reflected in the hand of the firm. It was also noticed that the transaction of Rs. 81,55,443/- which was considered in the hand of Jabibur Rahaman, Individual is reflected in the A/cs of the Firm M/s Jabibur Rahaman. The case was discussed with the A/R of the assessee in details and heard to him. On the basis of the above discussion and hearings assessed at a loss of Rs. 4,900/- allowing no opportunity to carry forward and set off of loss as the return of income filed after due date.”
We note that the assessee firm is showing loss which has been accepted by the Assessing Officer is a plausible view and the Assessing Officer’s action cannot be held to be erroneous. The ld PCIT has not given a specific finding that why the loss shown by the assessee firm is not acceptable. So, when the Assessing Officer has made enquiry and has accepted the loss shown by the assessee firm, then the ld. PCIT u/s 263 can interfere only if he is able to give a finding after he has himself enquired and recorded a finding that Assessing Officer’s view is unsustainable in law, which is not the case here, therefore, we note that the order passed by the Assessing Officer is not erroneous.
10.We note that ld PCIT exercised his judication under section 263 of the Act mainly on the alleged ground that G.P. shown at 4.68% on sales made in individual capacity should have been considered for G.P. in the case of the partnership firm (assessee under consideration). We note that as per audited Trading and Profit & Loss account for the year ended on 31.03.2008, sales were to the tune of Rs.81,55,443/- as against purchase of Rs.78,68,555/- and considering closing stock and other charges, G.P. stood at Rs. 78,410/-. Thereafter adjusting business expenditure under various heads, net loss stood at Rs.4,897/-. As stated above there is no dispute to the fact that the assessee partnership firm came into existence w.e.f. 23.03.2007 vide Partnership Deed dated 30.03.2007. Therefore, the firm started functioning from F.Y. 2007-08 relevant to impugned A.Y. 2008- 09. Therefore, comparison of rate of G.P. of the individual business of Sri Jabibur Page | 12
M/s Jabibur Rahaman Assessment Year:2008-09 Rahman with that of the partnership firm is premature, inasmuch as individual business has been carrying on since long past and goodwill/reputation in the market is settled. Furthermore, there was no dispute about recording the purchases, sales and other incidental expenses in the books of account and relevant bank account. Books of accounts of Partnership firm (Assessee) are duly audited u/s.44AB of the Act. In response to notices u/s. 143(2) and 142(1) of the Act and on verbal queries during the assessment proceeding, all the required details/evidences were filed and the assessee also explained the reason, as stated above, for low yield of G.P., which has been duly acknowledged in the assessment order stating that “Shri S.N. Roy, A/R of the assessee firm appeared from time to time with books of A/Cs and other relevant documents and explained the return of income. The books of A/Cs have duly been test checked and verified from time to time.” Therefore, after conducting enquiries and investigations, as warranted for the impugned assessment proceeding and deemed fit and after being satisfied with the replies of the queries vis-a-vis low G.P. and verifying the audited books of account, bank statement and other relevant details, the Ld. A.O. assessed the loss of the assessee-firm at Rs.4,900/- vide the impugned order u/s. 147/143(3) of the Act dated 27.01.2016.Hence, after thorough examinations of the details and documents and explanations submitted by the Ld. A.R. of the assessee as per requisitions sought by the A.O. u/s 142(1) and as deemed fit for computing the true taxable income, the assessment was completed u/s. 147/143(3) of the Act on 27.01.2016. Therefore, we are of the view that AO has examined all the necessary evidences, and documents and reached on a logical conclusion. Therefore, it is not a case of inadequate scrutiny, for that we rely on the judgment of Hon'ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del), wherein it was held that: "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 Income-tax Act, 1961, merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open."
We note that the objective of scrutiny assessment u/s 143(3)and/or reassessment u/s 147 of the Act is to confirm that the taxpayer has not understated
M/s Jabibur Rahaman Assessment Year:2008-09 the income or has not computed excessive loss or has not underpaid the tax in any manner. To confirm the above, the A.O. carried out a detailed scrutiny of the return of income, as deemed fit, and satisfied himself regarding various claims, deductions etc. made by the assessee in the return of income. Therefore, the exercise was aimed at ascertaining whether the income in the return was correctly shown and whether the claims for deductions etc. were factually and legally correct. As a matter of fact, to reiterate, the ld. A.O. after having called for several details, information and evidences as deemed fit for the impugned assessment and after hearing the assessee on several dates was satisfied about the correctness or otherwise of the return of income filed by the assessee. Therefore, the exercise aimed at ascertaining the correct income of the assessee has been fulfilled by the Ld. A.O. by exercising his quasi-judicial functions vis-à-vis passing the impugned assessment order u/s 147 / 143(3) of the Act. That being so, certainly it is not a case wherein adequate enquiries with respect to various claims and verification of the audited books of account at the assessment stage were not carried out by AO. Section 142(1) speaks of enquiry before assessment and gives immense power to the A.O. for conducting enquiry. Therefore, the A.O. u/s 142(l)(ii) & (iii) can ask the assessee almost any information which he thinks necessary for passing assessment and information can be asked in a proforma and questionnaire. Further, as per Sec. 142(1) & (2) of the Act, it is within the province of the Ld. A.O. to decide which points he wants to take up for enquiry and to what extent and, as such, the Ld. PCIT cannot interfere with the same and even, if Ld. PCIT does not agree with the results of enquiries, the resultant order cannot be subjected to revision proceeding. It is also a settled position that what is an opinion formed as a result of these enquiries and verification of the materials is something which is in exclusive domain of the Assessing Officer, and even if Ld. Commissioner does not agree with the results of such enquiries, the resultant order cannot be subjected to revision proceedings. For this we rely on the judgment of the Coordinate Bench ofI.T.A.T., Kolkata in the case of Smt. Juthika Kar vs. ITO, 2009, dated 16.5.2012wherein it has been held as under :- “8 ............ . The fine point, however, one must bear in mind is the distinction between adequate enquiries not having been conducted and the result of such enquiries not having been dealt with by way of a speaking order or not having resulted in the conclusion that could be, in the wisdom of a person other than the Assessing Officer, Page | 14 M/s Jabibur Rahaman Assessment Year:2008-09 more appropriate. Here is a case in which sufficient enquiries were conducted. As learned brother has rightly noted, the Assessing Officer called for specific details, confirmations and even copies of bills. It could not, therefore, be said that sufficient enquiries were not conducted. However, what is opinion formed as a result of these enquiries is something which is in exclusive domain of the Assessing Officer, and even if Commissioner has such results ofenquiries, the resultant order cannot be subjected to revision proceedings. The conclusions arrived at as a result of enquiries cannot be tinkered with in the revision proceedings. The conclusions being drawn up as a result of enquiry is a highly subjective exercise and as to what is appropriate conclusion is something on which perceptions vary from person to persons. These variations in the perceptions of the Assessing Officer vis-a-vis that of the Commissioner, cannot render an order erroneous and prejudicial to the interest of the revenue.
Viewed in this perspective, and having noted that the Commissioner has subjected the assessment order mainly on the ground that the Assessing Officer did not reach the right conclusions as a result of his enquiry, the impugned revision order is indeed unsustainable in law. It is not a case in which adequate enquiries has not been carried out. ”
On the same facts we also rely on the judgment of the Coordinate Bench of this Tribunal in the case of Chroma Business Ltd. vs. DCIT (2004) 82 TTJ 540 (Cal). Further our view is fortified by the decision of the Hon'ble Delhi High Court in the case of CIT vs. Vikas Polymers (2012) 341 ITR 537 (Del). Relevant part of the observation in this regard reads as under: "This is for the reason that if a query is raised during the course of scrutiny by the Assessing officer which was answered to the satisfaction of the Assessing officer but neither the query nor the answer was reflected in the assessment order that would not by itself lead to the conclusion that the order of the Assessing officer called for interference and revision."
We are of the view that it is a settled position in law that provisions of section 263 of the Act do not permit substituting one opinion by another opinion. Therefore, the order of the Ld. PCIT cannot be sustained on the principle of 'erroneous' nature of the order of the A.O., as it is not erroneous. Further, in the instant case, to reiterate, there was no allegation by the Ld. Assessing officer that the evidences produced were fictitious or invented, thus accepted the authenticity of the same. Such an order cannot be called erroneous and prejudicial to the interests of revenue. Hence, we are of the view that revisionary jurisdiction exercised by the Ld. PCIT u/s. 263 of the Act was not in tune with the facts and evidences on record duly explained to the A.O. and verified by him in detail, that being so the order passed u/s. 263 of the Act on such erroneous stand is liable to be quashed. Page | 15
M/s Jabibur Rahaman Assessment Year:2008-09 We accordingly quash the order u/s 263 of the Act and allow the appeal of the assessee.
The second point in the impugned notice u/s.263 was to the direction that addition of peak credit of Rs.10,60,742/- on the basis of the bank account has not been considered in the impugned reassessment order. As stated above, the said peak credit was assumed on the basis of deposits in April,2007 in Axis Bank maintained by the assessee-firm. It is pertinent to note that the said peak credit was originally added in the individual assessment of Sri Jabibur Rahaman for the impugned assessment year solely on the ground that the Bank account with Axis Bank had not been disclosed in his ROI. The Hon’ble Tribunal on the basis of the finding that the same was not related to the individual but belonged to the partnership firm, in which the said individual is a partner, deleted the addition and the same was directed to be considered in the case of the assessment of the partnership firm. From the above facts it is thus evident that the addition of peak credit in the guise of undisclosed income was made for not disclosing the Axis Bank Account in the ROI, but when the said Bank Account admittedly stood declared in the ROI of the partnership firm for the impugned assessment year and accounted for in the audited books of account, the addition on the basis of earlier stand of undisclosed income does not survive on facts and in law. Since, in para No.12 of our order, we have quashed the order of ld PCIT, and the second point in the impugned notice u/s.263 is consequential in nature, therefore does not require adjudication.
In the result, appeal of the assessee is allowed.
Order pronounced in the Court on 11.12.2019