M/S. CHANDNI COMMERCIALS PVT. LTD., (ADHIRATH COMMERCIAL PVT. LTD., SINCE MERGED),KOLKATA vs. ITO, WARD 7(1) , KOLKATA

Appellant by : Shri Manoj Kataruka, Advocate Respondent by : Shri A. K. Nayak, CIT(DR) सुनवाईक"तार"ख/ Date of Hearing : 18/11/2019 घोषणाक"तार"ख/Date of Pronouncement : 11/12/2019 आदेश / O R D E R Per Shri S. S. Godara: This assessee’s appeal for assessment year 2012-13 arises against the Principal Commissioner of Income Tax, Kolkata’s order dated 17.10.2018 passed in case No.F.No.Pr.CIT-3/Kol/Hqrs.-3/263/Adirath/2018-19/8010 involving proceedings u/s 263 of the Income Tax Act, 1961 (in short ‘the Act’). Heard both the parties. Case file perused.

Chandni Commercials Pvt. Ltd.(Adhirath Commercial Pvt. Ltd. since merged) “2. The only issue to be decided in this appeal is as to whether the Ld. CIT was justified in invoking revisionary jurisdiction u/s 263 of the Act, in the facts and circumstances of the case.

1. That on the facts and in the circumstances of the case the action of the Ld. CIT to pass and order u/s 263 by treating the order passed by the Assessing Officer as erroneous in so far as it is prejudicial to the interest of Revenue is incorrect and bad in law.

2. That on the facts and in the circumstances of the case the action of the Ld. CIT to pass an order u/s 263 without affording reasonable opportunity of being heard is in violation of the principles of natural justice and therefore the order is bad in law.

3. That on the facts and in the circumstances of the case the notice issued u/s 263 by the Ld. CIT is erroneous and bad in law.

4. That the order of the Ld. CIT is arbitrary, excessive and illegal.

5. That the order of the Ld. CIT(A) is bad in law.

6. That the above grounds of appeal shall be argued in detail at the time of hearing and the appellant craves leave to submit, add, alter, modify, amend any grounds of appeal or submit any additional grounds of appeal at or before the time of hearing.

4. We have heard the rival submissions. We find that the Ld. AR has placed following documents in the paper book. Sl Particulars Page No. Nos.

01. Copy of the notice u/s 263(1) of the Act dated 21.02.2017 1-2

02. Copy of the speed post tracking consignment sheet showing delivery of the notice on 3 06.03.2017.

03. Copy of the adjournment letter filed before the Ld. CIT dated 09.03.2017 4

04. Copy of the reply to the show cause notice u/s 263(1) along with all annexures filed 5-17 before the Ld. CIT on 24.03.2017

05. Copy of the assessment order u/s 143(3) along with the enclosures. 18- 24 From the aforesaid details of the paper book we find that the assessee had purchased 1965465 kgs. of cotton knitted fabrics from CEPL, 9, Ezra Road, Top Floor, Kolkata700001 (PAN: AABCC 2837 P) for Rs. 93,36,54,725/-. We also find that the entire 1965465 kgs. of goods have been sold by the assessee before the end of the previous year and no stock was lying with the assessee thereon out of the said purchase. The assessee has also furnished the summary of purchases for the period ending on 31.03.2012 wherein VAT has been duly suffered for the entire purchases made during the year. We find from Page 8 of the paper book filed by the assessee that the Ld. AO had sought for the entire details of purchase and sales made by the assessee with full names and address of the suppliers and customers together with the quantity of items purchased and sold along with details of sales tax suffered on such purchases and sales, during the course of assessment proceedings. The AR of the assessee vide his reply dated 12.02.2015 furnished the same before the Ld. AO. This information was sought to be cross-verified by the assessee by issuing notice u/s 133(6) of the Act from M/s CEPL vide letter dated 16.02.2015 by the Ld.AO which is enclosed in the page 15 of the paper book referred to supra. The said supplier M/s CEPL duly responded to the information sought by the Ld. AO u/s 133(6) vide its letter dated 25.02.2015 which was filed in Tapal on 02.03.2015. This letter dated 25.02.2015 of CEPL is enclosed in page 16 of the paper book referred supra and along Chandni Commercials Pvt. Ltd.(Adhirath Commercial Pvt. Ltd. since merged) with this letter M/s CEPL had duly confirmed the fact that it had sold 1965465 kgs. of cotton knitted fabrics amounting to Rs. 93,36,54,725/- and had also given the ledger account of the assessee as appearing in the books of CEPL for the period of 01.04.2011 to 31.03.2012 together with its entire income tax assessment particulars. Hence, it could be concluded that the Ld. AO had duly verified all these facts during the course of assessment proceedings itself. However, we find that these details were furnished by the assessee before the Ld. CIT in response to the show cause notice issued for revising the assessment only on 24.03.2017, on which date the order u/s 263 was already passed by the Ld. CIT. Hence, the Ld. CIT could not get the benefit of all these information and details while passing the revision order u/s 263 of the Act on 15.03.2017. Since, we find that the information has been gathered by the Ld. AO u/s 133(6) of the Act from CEPL during the assessment proceedings itself, it should definitely form part of the records at the time of examination by the Ld. CIT during the revision proceedings u/s 23 of the Act. But we find that no finding has been given by the Ld. CIT in the order passed u/s 263 of the Act in this regard. Hence, we deem it fit and appropriate in the interest of justice and fair play, to remand this appeal to the file of the Ld. CIT with a direction to consider the details available in the paper book and decide whether it is necessary to revise the assessment order u/s 263 of the Act or not. The assessee is also at liberty to furnish further evidences in support of its contentions. Accordingly, grounds raised by the assessee are allowed for statistical purposes.”

3. The PCIT has declined the assessee’s explanation once again in his order under challenge as follows: “4. I have considered the submission made on behalf of the assessee and the facts on record. The perusal of the assessment records reveals that as per Profit & Loss Account for the year ended 31st March, 2012 there is a debit entry of an amount of Rs.323,95,10,000/- on account of purchase of cotton, iron and steel out of which the assessee have shown the purchases made from Coral Environments Pvt. Ltd to the extent of Rs.93,36,54,725/-. On the other hand, perusal of the assessment records of Coral Environments Pvt. Ltd. reveals that the return of income for A.Y. 2012-13 was filed on 28/09/2012 wherein the sales have been shown only to the extent of Rs.2,42,90,500/-.This clearly indicates that the purchases from Coral Environments Pvt. Ltd. were over stated by the assessee company in its books of accounts by not less than an amount of Rs.90,93,64,225/-. The Assessing Officer has neither asked the assessee nor Coral Environments Pvt. Ltd. to explain the aforesaid discrepancy in respect of purchases from Coral Environments Pvt. Ltd. The above discrepancy in respect of purchases from Coral Environments Pvt. Ltd. definitely required greater scrutiny by the AO before accepting the information furnished by the assessee company. Since relevant and tangible material was not placed before the AO by the assessee during the course of assessment proceedings u/s 143(3) of the Act, the opinion formed by the AO could not have been proper in the absence of relevant material or record as the AO could not have made proper verifications. Thus, in the absence of relevant and vital information as detailed above and explanation thereof, the AO could not have made proper verifications which ought to have been made before coming to the conclusion that the information furnished by the assessee company in respect of purchases from Coral Environments Pvt. Ltd. is correct and acceptable. It is also significant to mention here that the return filed by Coral Environments Pvt. Ltd. in respect of A.Y.2012- 13 was not selected for scrutiny assessment to be done under section 143(3) of the Act. This further fortifies the opinion that the AO has not duly verified the facts relating to the purchases from Coral Environments Pvt. Ltd. This has certainly rendered the assessment order as erroneous as well as prejudicial to the interest of Revenue and thus amenable to interference by Pr. CIT by invocation of revisionary powers u/s 263 as the purchases from Coral Environments Pvt. Ltd. were accepted by the Assessing Officer despite the absence of relevant and tangible material on record before the AO. 5. The power of revision by the CIT u/s 263 of the Act is very wide and it is in the nature of supervisory jurisdiction. The power u/s 263 can be exercised even in cases where the issue is debatable and such power is not comparable with the power of rectification of mistake u/s 154 of the Income Tax Act. It is well settled that incorrect assumption of facts or application of law satisfies the requirement of law i.r order being erroneous & prejudicial to the interest of revenue. The order passed by the Assessing Officer without application of mind or order showing apparent error of reasoning or the order where the Assessing Officer simply accepts what the assessee stated in his return of income and fails to make the enquiries which are called for in the facts and circumstances of the case will also call for intervention u/s 263 of the Act by the CIT/Pr. CIT. It is a trite law that the disclosure of facts by the assessee in the return of income and /or in the course of assessment proceedings cannot give immunity from revisional jurisdiction of the CIT/Pr. CIT u/s 263. The above position of the law has been reiterated by the Hon'ble Supreme Court in various decisions including that of Rampyari Devi Saraogi Vs. CIT (1968) 67 ITR 84 (SC), Tara Devi Agarwal vs. CIT(1973) 88 ITR 323 (SC), Malabar Industries Co. Ltd vs. CIT (1991) 198 ITR 611 (Kerala) which was affirmed by Supreme Court in 243 ITR 83. In the case of Malabar Industrial Co. Ltd. (supra) the Hon'ble Supreme Court has held that in order to invoke provisions of Section 263, the assessment order of the AO ought to be erroneous so far as it is prejudicial to the interest of Revenue. The twin conditions have to be satisfied simultaneously before invoking Chandni Commercials Pvt. Ltd.(Adhirath Commercial Pvt. Ltd. since merged) powers u/s 263. If the AO has duly applied his mind and adopted one of the permissible views, learned CIT cannot invoke powers u/s 263 to substitute his vies unless the view of the AO is unsustainable in law. In the instant case, the material placed by the assessee before the AO was not sufficient to come to the conclusion that purchases from Coral Environments Pvt. Ltd, as shown by the åssessee in its books of accounts was correct and allowable in accordance with the provisions of the Act. The view which was adopted by the Assessing Officer based on material available on record could not have been adopted by the AO as material was not sufficient to come to such conclusion as no proper enquiry/ verifications were conducted by the AO making the assessment order erroneous so far as prejudicial to the interest of Revenue amenable to exercise of revisionary powers by learned Pr. CIT u/s 263. Therefore I am of the considered view that in the instant case circumstances exist for invocation of revisionary powers u/s 263 as the AO could not have reached the conclusion based on the material on record during the assessment proceedings that the impugned purchases from Coral Environments Pvt. Ltd. was correctly shown by the assessee as unfortunately there are large number of unanswered questions which are absolutely necessary to arrive at decision that the said purchases from Coral Environments Pvt. Ltd. are correct, which has been pointed out by the undersigned above. Thus, there was complete lack of application of mind by the AO before allowing the said purchases from Coral Environments Pvt. Ltd. Moreover, Explanation 2 to Section 263 is in place now with the amendment brought in the Statute by Finance Act, 2015 w.e.f. 01-06-2015. 6. After having considered the position of law and facts and circumstances of the instant case, the assessment order passed by the A.O is found to be erroneous and prejudicial to the interest of revenue in accordance with the Explanation 2 below section 263 (1) of the Act. As a result, the assessment order passed by the A.O. is set aside. The Assessing Officer is directed to initiate fresh assessment proceedings & carry out necessary verification & take action accordingly after verification of the correctness of the claim of the assessee. The Assessing Officer must also provide reasonable opportunity to the assessee company to produce documents & evidences which it may choose to rely upon for substantiating its own claim. Thereafter a fresh assessment order may be passed in accordance with the relevant provisions of law.”

4. Learned counsel vehemently contends during the course of hearing that the PCIT has erred in law and on facts in assuming section 263 revision jurisdiction. His case is that once the assessee had proved its purchases of Rs.323,95,10,000/- from M/s Coral Environment Pvt. Ltd. before the Assessing Officer during the course of scrutiny, the mere fact that the payee entity had shown the said purchases to the extent of Rs.93,36,54,725/- as income than the entire sum, could not form a valid reason for the PCIT to revise the regular assessment in question. He also takes us to the assessee’s detailed paper book running into 62 pages comprising of necessary notices, replies, return filing acknowledgement, audited accounts along with tax audit report etc. He contends that the regular assessment in question framed by the Assessing Officer after verifying the assessee’s purchases is neither erroneous nor causes prejudice to interest of the Revenue; simultaneously forming twin conditions of assumption of revision jurisdiction u/s 263 of the Act as per Malabar Industrial Co. vs. CIT [2000] 243 ITR 83 (SC) (supra). The Revenue on the other hand vehemently supports the PCIT’s detailed discussion reiterating the assumption of revision jurisdiction in this second round as well. Chandni Commercials Pvt. Ltd.(Adhirath Commercial Pvt. Ltd. since merged) 5. We have given our thoughtful consideration to rival pleadings. It is clear from a perusal of the foregoing facts and circumstances that the sole reason for the PCIT’s assumption of revision jurisdiction is that the Assessing Officer had failed to conduct necessary and adequate enquiries regarding the assessee’s supplier party M/s Coral Environment Pvt. Ltd. for the purpose of verifying purchases made therefrom.

6. We find merit in the Revenue’s arguments. There can hardly be any dispute about the settled law regarding assumption of revision jurisdiction vested with the PCIT/CIT that the same comes into play where an assessment is both erroneous and as well prejudice to interest of the Revenue; simultaneously, as held in Malabar Industrial Co. (supra). The question that arises for our apt adjudication in the given facts and circumstances is as to whether the mere confirmation obtained from M/s Oral Environment Pvt. Ltd. formed sufficient ground for the Assessing Officer to accept the entire purchases as correct. Our reply is in negative and against the assessee. Hon’ble Delhi high court’s judgment in (1975) 99 ITR 375(Delhi) M/s Gee Vee enterprises vs. Addl. CIT held long back that the Assessing Officer is not only an adjudicator but also an investigator and his assessment completed without making necessary adequate enquiries renders an assessment erroneous causing prejudice to interest of the Revenue. Hon’ble apex court’s yet another decision in (1968) 67 ITR 84(SC) Ram Pyari Devi Saraogi(supra) also held that the Assessing Officer’s failure in carrying out necessary or adequate enquiries during the assessment also attracts revision jurisdiction. We keep in mind this settled legal proposition and observe in facts and circumstances of the instant case that the mere confirmation from the assessee’s supplier M/s Oral Environment Pvt. Ltd. could not have been accepted by the Assessing Officer without making further enquiries relevant to the purchases in issue. We wish to reiterate here that the said entity’s computation also suffers from discrepancies regarding supplies made to the assessee vis-à-vis the income recognition therefrom despite the fact that the latter has made full payments to Rs.323,95,10,000/- on account of purchase of cotton, iron and steel by Chandni Commercials Pvt. Ltd.(Adhirath Commercial Pvt. Ltd. since merged) way of debit entries. We thus are of the view that the learned PCIT has rightly invoked his section 263 revision jurisdiction by holding that the Assessing Officer has failed to carry out necessary and adequate enquiries in view of section 263(1) Explanation (2) inserted in the Act w.e.f 01.06.2015. We accordingly affirm the PCIT’s order under challenge to this effect.