MR. AMIT KUMAR AGGARWAL,UTTAR PRADESH vs. ITO, SAHARANPUR

Assessee by: Shri Anil Jain, Advocate Department by : Smt. Aparna Karan, CIT(DR) Date of Hearing 02/11/2017 Date of 16/11/2017 pronouncement O R D E R PER SUDHANSHU SRIVASTAVA, J.M.

This appeal has been preferred by the assessee against the order passed by the Ld. Pr. Commissioner of Income Tax, Muzaffarnagar challenging the order passed u/s 263 dated 27.12.2016 for assessment year 2013-14.

Subsequently, the Ld. Pr. Commissioner of Income Tax issued notice u/s 263 of the Act on 5.12.2016 on the grounds that third party confirmations in respect sundry creditors and debtors was not done by the A.O., reason for low rate of profit was not examined by the A.O. and cash deposits of Rs. 50,000/- each on 198 occasions in various bank account were not verified by the A.O.

2.1 In response the show cause notice u/s 263, the assessee submitted that the A.O. had duly raised the query about confirmation from third parties and the relevant papers had been submitted during the course of scrutiny proceedings. The assessee also submitted before the Ld. Pr.CIT that A.O. had raised the query on low rate of net profits and the same was also responded to by the assessee. On the issue of cash deposits, it was submitted that the assessee had filed complete bank statements as well as produced the cash book before the A.O. and had also explained that due to the nature of trade 99% of sales were received in cash.

2.2 However, the Ld. PR.CIT held that the A.O. had failed to carry out proper inquiry on all the three issues as contained in the show cause and proceeded to hold that the order passed by the A.O. was erroneous in so far as it was prejudicial to the interest of revenue. The Ld. Pr. CIT held that the A.O. had failed to examine the case properly on the issue for which the case was selected under scrutiny and also other issues and, thereafter, the Ld. Pr. CIT set aside the assessment order with directions to pass fresh assessment order.

2.3 Aggrieved by the order passed u/s 263 of the Act, the assessee has now approached the ITAT and has challenged the assumption of jurisdiction u/s 263.

3.1 On the second objection of the Ld. Pr. CIT regarding low rate of net profit, it was submitted that the A.O. has raised the query on this issue on the order sheet itself during the course of scrutiny proceedings.

A copy of the order sheet was placed before us to substantiate the submission. The Ld. AR also submitted that this query was duly replied to vide submission of the assessee before the A.O. on 10.11.2014 and our attention was drawn to a copy of the same now placed in the paper book. The Ld. AR submitted that on this issue also the allegation of the Ld. Pr.CIT was wrong that no inquiry had been conducted by the AO.

3.2 On the third issue regarding cash deposits, it was submitted that the books of accounts along with the relevant vouchers and bank statements were duly produced before the AO and the AO had not made any negative comment on the same in the assessment order. Thus, it was apparent that this issue was also examined by the AO and further, on this issue also, the order of the AO cannot be held to be erroneous in 4 so far as being prejudicial to the interest of the revenue. The Ld. AR submitted that the order u/s 263 was bad in law and required to be set aside.

The assessee had furnished these details and the same are on record.

These details are also the subject matter of notice issued u/s 263 by the Ld. Pr. CIT and, therefore, it is evident that on all the issues involved in the order of the Ld. Pr. CIT, the Assessing Officer had made some kind of inquiry to which the assessee had duly responded. Therefore, the view of the Ld. Pr. CIT that inquiry has not been made by the Assessing Officer is not correct and it is not the case of lack of inquiry as has been alleged by the Ld. Pr. CIT.

5.1 In the case of CIT vs. Sunbeam Auto Ltd. reported in 332 ITR 167 (Delhi) , the Hon'ble Delhi High Court has held as under:-

"We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income- tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. 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 keev in mind the distinction between 'lack of inquiry1 and 'inadequate inquiry'. If there was any inquiry, even inadequate that would not by itself eive occasion to the Commissioner to pass orders under section 263 of the Act, 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. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113):

'. . . From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue". It is not an arbitrary or unchartered power, it can be exercised only on fulfillment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to- whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on, materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. 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. v. ITO [1977] 106 ITR 1 (SC) at page 10)... From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, 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 visualise a case of substitution of the judgment of the Commissioner for that of the Income- tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion, that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income- tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion ... There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed...”

We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous” simply because in his order he did not make an elaborate discussion in that regard.”

5.2 Further, the Hon'ble Delhi High Court in CIT vs. Vikas Polymers reported in 341 ITR 537 (Delhi) has held that an inquiry which has been raised during the course of scrutiny by the Assessing Officer and which 9 has been answered to the satisfaction of the Assessing Officer but neither the inquiry 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 any interference and revision.

5.3 Similarly, the Hon’ble Bombay High Court in CIT vs Fine Jewellery (India) Ltd. reported in 372 ITR 303 (Bombay) has held that if an inquiry is raised during the assessment proceedings and responded to by the assessee, the mere fact that it has not dealt with it in the assessment order would not lead to a conclusion that no mind had been applied to it.

5.4 The Hon'ble Bombay High Court in Gabriel India Ltd. reported in 203 ITR 108 (Bombay) has held that the power of suo moto revision cannot be exercised by the Commissioner if, only based on the examination of records, he considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue. The Hon’ble High Court held that power u/s 263 is not an arbitrary or unchartered power and can be exercised only on the fulfilment of the requirement laid down in section 263(1) of the Act. The Hon'ble Bombay High Court further held that the conclusion of the Commissioner must be based on material on record and proceedings 10 called for by him and if there are no materials on record on the basis of which it could be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Hon'ble Bombay High Court held that the Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded. As such, action will be against well accepted policy of law that there must be a point of finality in all legal proceedings and that stale issues should not be reactivated beyond a particular stage and further that lapse of time must induce a repose in and set at rest judicial and quasi-judicial controversies, as it must, in other spheres of human activity.

5.5 From the above it is clear that in the ultimate analysis it is a pre- requisite that the Commissioner must give reasons to justify the exercise of suo moto revisional powers by him to re-open a concluded assessment. A bare reiteration by him that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interest of the revenue, will not suffice. The exercise of the power being quasi-judicial in nature, the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the order of the Income- tax Officer was not only erroneous but was prejudicial to the interest of the revenue. Thus, while the AO is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo moto revisional powers unless supported by adequate reasons for doing so.

5.7 In the instant appeal before us, it is not the Department’s case that no information regarding the various issues as enumerated by the Ld. Pr.

CIT was called for by the AO. That relevant details and documents were furnished by the assessee during the assessment proceedings is evident from the documents on record. Hence, no inference can be drawn that the AO has not examined the issues 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. The Hon’ble Madras High Court held in the case of CIT v Valliammal (D.) reported in 230 ITR 695 (Mad) that assessment order made after considering all facts and information cannot be revised. Where the assessee had furnished the requisite information and the Assessing Officer had completed the assessment after considering 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 to be 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 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) reported in 286 ITR (AT) 211, the Bangalore Bench of the ITAT held that where the A.O has examined and considered and issue, though not mentioned in the assessment order, it cannot be said that the order passed was erroneous.

5.7 Therefore, on the facts of the case as well as in light of the ratio of the various judicial precedents as discussed aforesaid, we are of the considered opinion that the original assessment order dated 12.11.2014 passed by the Assessing Officer u/s 143(3) of the Act was not erroneous and prejudicial to the interest of the revenue and accordingly, we deem it fit to quash the order dated 27.12.2016 passed u/s 263 of the Act by the Ld. Pr. CIT and restore the assessment order initially framed by the Assessing Officer.

Order pronounced in the open court on 16/11/2017.