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Income Tax Appellate Tribunal, DELHI BENCH “C” NEW DELHI
Before: SHRI R.K. PANDA & MISS S. KAMBLE
PER R.K. PANDA, ACCOUNTANT MEMBER:- This appeal filed by the assessee is directed against the order dated 01.02.2013 passed u/s 263 of the Income-tax Act, 1961 by the CIT, Dehradun relating A.Y. 2009-10.
Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 29.09.2009 declaring total income of Rs. 4,87,390/-. The A.O completed the assessment u/s 143(3) of the Act on 05.05.2011 determining the total income at Rs. 6,85,217/-. Subsequently, the ld. CIT received proposal dated 12.09.2012 from the JCIT, Hardwar Range, Hardwar proposing action u/s 263 of the Act on the ground that although this case was selected for scrutiny on the ground that the A.O should examine the genuineness of sundry creditors, yet the A.O while passing the assessment order did not verify all the creditors amounting to Rs. 4,77,66,341/- shown outstanding at the end of the F.Y as against the total sales of Rs. 5,29,09,042/-. Similarly, in the capital account of assessee in the books of M/s Balaji Enterprises, an amount of Rs. 4,50,000/- has been shown in the debit and credit side of M/s Kundan Tent House [another proprietary concern of the assessee] while in the capital account of the assessee in the books of account of M/s Kundan Tent House, this amount did not figure. This shows that the books of accounts are not maintained properly. The ld. CIT, therefore, issued a show cause notice dated 20.12.2012 asking the assessee to explain as to why the order passed u/s 143(3) of the Act should not be revised u/s 263 of the Act.
The assessee, in response to the said notice, replied that it deals in sale and purchase of iron scrap and the goods were purchased on receipt of orders from the debtors. During the year under consideration, the assessee received bulk order for supply of iron scrap more than Rs. Two crores in comparison to turnover of last F.Y. from Himgiri Ispat Pvt. Ltd, Uttaranchal. It was further submitted that the assessee has maintained quantitative details for various purchases and sales. The creditors outstanding as on 31.03.2009 were regular creditors of the assessee from whom the goods are purchased on order. The ledger account of all the creditors, as appearing in the balance sheet as on 31.03.2009, was enclosed. It was submitted that there were some creditors in the list from whom no goods were purchased during the year and the payments were outstanding as on 31.03.2008. During the years only payments have been made to these creditors and balance amount remained in the books of account.
So far as the amount outstanding in the name of Kundan Tent House was concerned, it was submitted that the assessee was proprietor of both these firms, M/s Shree Balaji Enterprises and M/s Kundan Tent House. During the year under consideration, funds were required in the firm M/s Kundan Tent House and there was surplus fund in the other firm M/s Balaji Enterprises. So the amount of Rs. 2,50,000/- and Rs. 2,00,000/- were transferred to Kundan Tent house on 2.4.2008 and 7.6.2008 respectively. On receipt of the payments by M/s Kundan Tent House, these payments were returned to Shri Balaji Enterprises on 30.12.2008 and 31.01.2009 respectively. Hence these are squared up entries as no balance remained outstanding at the end of the year.
However, the ld. CIT was not fully satisfied with the explanation given by the assessee. He accepted the contention of the assessee regarding the balance of M/s Kundan Tent House, since there is no discussion about this issue. He however held that the reply given by the assessee regarding sundry creditors is not acceptable. He observed that all the creditors are not old creditors. From the list of the old creditors provided by the assessee and information collected by the A.O, he observed that the following creditors have not been verified:
M/s jai Ambey Enterprises, Faridabad 2. M/s Monarch Enterprises, Faridabad 3. M/s Sumit Enterprises, Faridabad 4. M/s Shri Ganpati Enterprises, Faridabad 5 M/s Shiv Shakti Traders, Ghaziabad 6. M/s S.K. Trading Co. Ludhiana 7. M/s Varun Trade Centre, New Delhi
He observed that out of total of 22 creditors, the A.O should have atleast verified the above mentioned new creditors. He further observed that even where the information was called for by the A.O, proper verification has not been done. He gave two instances, such as M/s Prayan Enterprises, Najibababd and M/s Aggarwal Brothers, Najibabad. Further, the assessee has shown cash payment below Rs. 20,000/- to the above parties totaling to Rs. 25,10,790/- and Rs. 6,57,250/- respectively and violation of provisions of section 40A(3) of the Act has not been verified by the A.O. In view of the above, the ld. CIT(A) held that the A.O has failed to examine/investigate every aspect of the case during the course of assessment proceedings. Therefore, the assessment order passed by the A.O dated 05.05.2011 for the impugned A.Y is prima facie erroneous and prejudicial to the interest of the Revenue. Therefore, cancelling the order passed by the A.O u/s 263 of the Act, he directed him to examine all the above issues thoroughly and pass the assessment de novo.
Aggrieved with such order of the ld. CIT, the assessee is in appeal before us with the following grounds:
“1. That having regard to facts & circumstances of the case, Ld. CIT has erred in law and on facts in passing the impugned order u/s 263 which is barred by limitation, illegal, without jurisdiction and contrary to law and facts and deserves to be quashed.
2. That having regard to facts & circumstances of the case, Ld. CIT has erred in law and on facts in assuming jurisdiction u/s 263 and has further erred in holding that assessment order passed by Ld. AO dated 05-05-2011 is erroneous and prejudicial to the interest of revenue.
3. That having regard to facts & circumstances of the case, Ld. CIT has erred in law and on facts in canceling the assessment order which was passed after due application of mind and has further erred in directing to Ld. AO to frame the assessment de-novo and that too without any basis.
4. That having regard to facts & circumstances of the case, Ld. CIT has erred in law and on facts in passing the impugned order u/s 263 which is bad in law in as much as no adequate opportunity of hearing was granted and erred in framing the impugned order without considering the principles of natural justice and without the authority of law.
5. That having regard to facts & circumstances of the case, Ld. CIT has erred in law and on facts in passing the impugned order u/s 263 which is not sustainable on various legal and factual grounds and has further erred in taking action u/s 263 on the proposal received from Joint Commissioner of Income Tax, Hardwar Range, Hardwar.
6. That the appellant craves the leave to add, amend, modify, delete any of the grounds of appeal before or at the time of hearing and all the above grounds are without prejudice to each other.”
The ld. AR strongly objected to the order passed by the ld. CIT u/s 263 of the Act. He submitted that the ld. CIT had invoked jurisdiction u/s 263 of the Act on two grounds, namely, a) non verification of sundry creditors by the A.O b) there is difference of balance in the account of M/s Balaji Enterprises.
He submitted that the A.O had conducted thorough enquiry during the course of assessment proceedings. Referring to page 24 and 25 of the paper book, the ld. AR drew the attention of the Bench to the details of sundry creditors totaling to Rs. 4,77,66,341.12. He submitted that the A.O had picked up higher figure and issued notice u/s 133(6)/131 of the Act on test check basis. Referring to the said list which contained names of 22 parties, the ld. AR submitted that the A.O has issued summons/notices to party at Sl. No. 11,12,17,19,20 and 21, total amount of which comes to Rs. 3.09 crores which is more than 60% of the total creditors. Referring to copy of the tax audit report, which is placed at pages 1A to 20 of the assessee’s paper book, the ld. AR drew the attention of the Bench to clause 8A which gives the nature of the business carried on by the assessee and 9(b) which gives the details of accounts maintained. Referring to page 9 of the assessee’s paper book, he drew the attention of the Bench to the g.p. ratio and n.p. ratio and stock turnover ratio. Referring to page 14 of the paper book, he drew the attention of the Bench to the balance sheet which gives current liability as per Schedule D at Rs. 4.81 crores. Referring to page 15 of the paper book, he drew the attention of the Bench to the profit and loss account which shows sales at Rs. 5.29 crores. Referring to page 17 of the assessee’s paper book, he drew the attention of the bench to the details of current liabilities under which sundry creditors have been shown at Rs. 47,766,341.12. Referring to page 18 of the assessee’s paper book, he drew the attention of the Bench to the list of sundry creditors and advances which shows details of Rs. 47,766,341.12. Referring to page 21 of the assessee’s paper book, he drew the attention of the Bench to the notice issued by the A.O u/s 142(1) of the Act dated 07.09.2010 wherein he has asked the details of nature of business, details of n.p and g.p. ratio of last three years, books of accounts maintained and all bank statements and stock register, names and addresses of all the sundry creditors and debtors appearing in the balance sheet apart from various other details. Referring to pages 22 and 23B of the assessee’s paper book, he drew the attention of the Bench to the reply given by the assessee to such notice u/s 142(1) of the Act giving various details. Referring to pages 131 to 163 of the assessee’s paper book, he drew the attention of the Bench to the copy of notice issued u/s 133(6) of the Act in six cases to verify the genuineness of the sundry creditors alongwith replies from the creditors.
Referring to the order of the ld. CIT passed u/s 263 of the Act, he submitted that the ld. CIT did not admit these facts. He submitted that when the A.O has verified various details, the ld. CIT was not justified in observing that the A.O has not made proper verification to find out the violation of principles of section 40A(3) of the Act. He submitted that when the identity, capacity and genuineness of the creditors are given, there may not be disallowance u/s 40A(3) of the Act. For the above proposition, he referred to the decision of the Kolkata Bench of the Tribunal in the case of Nirmal Kumar Das Vs. ACIT vide order dated 11.12.2015 wherein the Tribunal has held that the purpose of section 40A(3) of the Act is only preventive and to check evasion of tax and flow of unaccounted money or to check transactions which are not genuine and may be put as camouflage to evade tax by showing fictitious or false transactions. Relying on various decisions, the Tribunal deleted the addition made by the A.O and sustained by the ld. CIT(A) u/s 40A(3) of the Act. He further submitted that in notice under section 263 of the Act , the ld. CIT Page 8 of 21 has not raised the issue of cash payments exceeding Rs. 20,000/- so as to show violation of section 40A(3) of the Act. Referring to the ratio of the decision of the Hon'ble Delhi High Court in the case of Ashish Rajpal reported in 320 ITR 674, he submitted that the Hon'ble High Court in the said decision has held that under the provisions of section 263 of the Act, opportunity of hearing must be given to the assessee. Where the notice referred to four issues and the order on revision referred to 9 issues, the principles of natural justice was violated. Accordingly, order of revision was held as not valid. He submitted that there was no such mention in the notice on the issue of section 40A(3) violation whereas in the order of the ld. CIT this issue has been raised as one of the grounds for invoking provisions of section 263 of the Act. Therefore, in the absence of any opportunity of being heard to the assessee, principles of natural justice has been violated for which the revision order passed by the ld. CIT has to be held as invalid. He also referred to various other decisions for the above proposition.
So far as the issue relating to no proper enquiry is concerned, he submitted that only absence of enquiry can empower jurisdiction to the CIT to invoke revisional power u/s 263 of the Act and in case of improper enquiry, the ld. CIT has no power to invoke jurisdiction u/s 263 of the Act.
Referring to the following decisions, he submitted that merely because there is lack of enquiry, order cannot be held as erroneous and prejudicial to the interest of the Revenue. Such revisionary power can be exercised by the ld. CIT only when there is absence of any enquiry: a) CIT Vs. Leisure Wear Export Ltd 341 ITR 166 [Del] b) CIT Vs. Hindustan Marketing and Advertising Co. Ltd 341 ITR 180 [DEL] c) Fab India Overseas P. Ltd Vs. CIT 60 DTR 240 [DEL] d) Dy. CIT Vs. Insilco Ltd 59 DTR 364 [DEL] e) CIT Vs. Anil Kumar Sharma 335 ITR 83 [DEL] f) Vashti Management Services Vs. ITO 137 TTJ 35 [DEL] g) Raj Shyama Construction P. Ltd Vs. ACIT 135 TTJ 33 [DEL] h) CIT Vs. Kelvinator of India Ltd 332 ITR 231 [DEL] i) CIT Vs. Hindustan Coco Cola Beverages P. Ltd 331 ITR 192 [DEL]
He submitted that when two views are possible and the A.O has taken one of the possible view, then also the ld. CIT cannot invoke jurisdiction u/s 263 of the Act. He accordingly submitted that since the A.O has made adequate enquiries to his satisfaction and merely because the ld. CIT does not agree with the conclusion drawn by the A.O, he cannot thrust his own decision in place of decision of the A.O to invoke jurisdiction u/s 263 of the Act. He accordingly submitted that the order passed u/s 263 of the Act by the ld. CIT be cancelled and the grounds raised by the assessee be allowed.
The ld. DR, on the other hand, heavily relied on the order of the CIT. He submitted that the order passed by the A.O clearly demonstrates that there is no application of mind. Referring to the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd Vs. CIT [2000] 243 ITR 83, he submitted that when there is no application of mind, then the assessment order can be termed as erroneous and prejudicial to the interest of the revenue. He submitted that in the instant case, there is absolutely no enquiry. In the name of enquiry, there is just farce or mere pretence of enquiry. When the case was selected for scrutiny on the ground that “A.O should examine genuineness of sundry creditors”, issuing notice u/s 133(6) only in 6 cases against 22 such cases shows no application of mind. The fact of accepting sundry creditors without any further enquiry inspite of showing pattern of cash payments below Rs. 20,000/- on consecutive days, which is unnatural, shows that the A.O has not conducted the enquiry in a manner whereby enough material is placed on record to reach the satisfaction which a rational person being informed of nuances of tax laws would reach after due appreciation of such material. Referring to the reply given by the assessee to the notice issued u/s 263 of the Act, he submitted that this is a general reply given by the assessee and after considering the relevant material on record and after giving due opportunity of being heard to the assessee, the ld. CIT came to the logical conclusion that the issue of sundry creditors was not properly examined by the A.O. He also referred to the provisions of section 114 of the Indian Evidence Act, 1872 and the Explanation 2 to section 263 as inserted by the Finance Act, 2015 w.e.f 1st June, 2015. Referring to the decision of the Mumbai Bench of the Tribunal in the case of M/s Crompton Greaves Ltd Vs. CIT reported in (2016)-TIOL- 816-ITAT-MUM he submitted that the Tribunal has held that the Explanation 2 being clarificatory in nature, is applicable restrospectively. He accordingly submitted that the order of the ld. CIT be upheld and the appeal of the assessee should be dismissed. He also relied on the following decisions:
(i) Malabar Industrial Co. Ltd Vs. CIT [2001] 243 ITR 83/109 Taxman 66 [SC] ii) M.D. Overseas Ltd Vs. DGIT [2011] 333 ITR 407/198 Taxman 136/10 Taxmann.com 30[All] (iii) CIT Vs. Hastings Properties [2002] 253 ITR 124 [2001] 119 Taxman 36 [Cal]
(iv) Southern Herbals Ltd vs. DIT [INV] [1994] 207 ITR 55 [Kar] (v) CIT Vs. Usha International Ltd [2012] 348 ITR 485/ 210 Taxman 188/25 Taxmann.com 200 [Delhi] (vi) J.K. Synthetics Ltd Vs. CBDT [1972] 83 ITR 335 [SC] (vii) Sirpur Paper Mill Ltd Vs. CWT [1970] 77 ITR 6 [SC] (viii) Gee Vee Enterprises Vs. Addl. CIT [1975] 99 ITR 375 [Del] (ix) ITO Vs. D.G. Housing Projects Ltd [2012] 343 ITR 329 20 Taxmann.com 587/[2013] 212 Taxman 132 [Del]
The ld. Counsel for the assessee, in his rejoinder, referring to the decision of the Ahmedabad Bench of the Tribunal in the case of Shantikrupa Estate Pvt Ltd Vs. ACIT in order dated 09.09.2016 for A.Y 2010-11, drew the attention of the Bench to para 7 of the order wherein in response to citation of the order in the case of Crompton Greaves Ltd [supra] by the ld. DR, it was brought to the notice of the Bench that the coordinate Bench of the Tribunal in the case of Jayanth Murthy Vs. DCIT in ITA Nos. 870 & 1234/AHD/2014 order dated 20.05.2016, has held that decision in the case of Crompton Greaves Ltd [supra] is per incuriam and Explanation 2 to Section 263 is having prospective operation. He submitted that when two views are possible, the view which is in favour of the assessee should be considered. Therefore, the argument of the ld. DR that insertion of Explanation 2 to Section 263 of the Act is restrospective cannot be accepted. He further submitted that the ld. CIT ought to have seen the record. However, he has not examined the record. So far as the various decisions relied upon by the ld. DR are concerned, he submitted that those decisions are not applicable to the facts of the present case and are distinguishable. Since the A.O has made enquiry to his satisfaction and the assessee has furnished relevant details, therefore, the ld. CIT has no power to invoke power u/s 263 of the Act.
We have considered the rival arguments made by both the sides, perused the orders of the A.O and the ld. CIT and the paper book filed on behalf of the assessee. We have also considered the various decisions relied Page 13 of 21 upon by both the sides. We find the A.O, in the instant case has passed an order u/s 143(3) dated 05.05.2011 determining the total income at Rs. 4,87,390/-. We find the ld. CIT observing that the A.O has not verified the genuineness of the sundry creditors and there is discrepancy in the capital account of the assessee in the books of M/s Shree Balaji Enterprises, issued notice u/s 263 of the Act asking the assessee to explain as to why the order passed u/s 143(3) of the Act should not be held as erroneous and prejudicial to the interests of the Revenue. We find the assessee filed various details substantiating that it has filed the various details of sundry creditors and the A.O after examining the same, has accepted such sundry creditors as genuine. Similarly, the assessee also filed details of capital account of assessee in the books of M/s Shree Balaji Enterprises and M/s Kundan Tent House. The order of the ld. CIT is silent on this issue which otherwise implies that he has accepted the submission of the assessee. Therefore, we are not concerned with this issue regarding discrepancy in the capital account of the assessee in the books of M/s Shree Balaji Enterprises and M/s Kundan Tent House.
So far as the issue relating the sundry creditors is concerned, the ld. CIT observed that out of 22 creditors, the A.O has issued notice u/s 133(6) of the Act only in the case of six creditors. However, he has not examined the genuineness of the new creditors in seven cases the details of which are already given at para 5 of this order.
He further observed that in certain cases, there is payment of cash exceeding Rs. 20,000/- and the A.O has not examined the violation of provisions of section 40A(3) of the Act. He accordingly held that the order of the A.O has become erroneous and prejudicial to the interest of the Revenue for which he cancelled the order passed u/s 263 of the Act and directed the A.O to examine the issues thoroughly and pass assessment de novo.
It is the submission of the ld. AR that all the relevant details were given and the A.O has conducted enquires by issuing notice u/s 133(6) of the Act in respect of certain parties. The assessee has also given reply to the A.O by giving various details of sundry creditors. The A.O, after examination of the same, has accepted the creditors as genuine. Merely because there is no proper enquiry according to the satisfaction of the ld. CIT, the order of the A.O cannot be held as erroneous and prejudicial to the interest of the Revenue. According to him, there is difference between inadequate enquiry and no enquiry. It is also his submission that when notice issued u/s 263 of the Act does not refer to provisions of section 40A(3) of the Act, the ld. CIT in the order passed u/s 263 of the Act cannot cancel the assessment on the issue of such violation.
We find merit in the above arguments of the ld. AR. We find the A.O vide notice u/s 142(1) dated 07.09.2010 has asked various details including names and address of all sundry creditors and debtors appearing in the balance sheet. We find the assessee has replied to such notices by furnishing various details including the details of sundry creditors and the advances, details of which are appearing in the paper books pages 22 to 28B. Similarly, we find from book pages 131 to 163 of the paper book that the A.O had issued notice u/s 133(6) of the Act to different parties and those parties have given their replies to the A.O directly by giving various details as called for. Under these circumstances, it is to be seen as to whether the order passed u/s 143(3) of the Act by the A.O is erroneous and prejudicial to the interests of the Revenue or not. Different courts have held that there is a difference between no enquiry and inadequate enquiry. The ld. CIT can assume jurisdiction u/s 263 of the Act in a case when there is absolutely no enquiry on any issue. However, when there is some enquiry and the ld. CIT does not agree with the extent of enquiry conducted by the A.O as sufficient, he cannot invoke jurisdiction u/s 263 of the Act.
The Hon'ble Delhi High Court in the case of CIT Vs. Hindustan Marketing and Advertising Co. reported at 341 ITR 180 has held as under [at page 196]:
“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 Page 16 of 21 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 conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. xxx 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."
We find the Hon'ble Delhi High Court in the case of CIT Vs. Leisure Wear Export [supra] has held as under:
“The power of revision is not meant to be exercised for the purpose of 9 directing the Assessing Officer to hold another investigation without describing as to how the order of the Assessing Officer is erroneous. From this it also follows that where the assessment order has been passed by the Assessing Officer after taking into account the assessee's submissions and documents furnished by him and no material whatsoever has been brought on record by the Commissioner which showed that there was any discrepancy or falsity in evidence furnished by the assessee, the order of the Assessing Officer cannot be set aside for making deep inquiry only on the presumption and assumption that something new may come out.
For making a valid order under section 263 it is essential that the Commissioner has to record an express finding to the effect that the order passed by the Assessing Officer is erroneous which has caused loss to the Revenue. Furthermore, where acting in accordance with law the Assessing Officer frames certain assessment order, the same cannot be branded as erroneous simply because, according to the Commissioner, the order should be written more elaborately. All these principles are highlighted in the judgments noted hereinafter.”
The various other decisions relied on by the ld. Counsel of the assessee also support the above view. So far as the issue relating to violation of provisions of section 40A(3) of the Act is concerned, it is an admitted fact that notice u/s 263 of the Act does not contain any such violation. However, in the order passed u/s 263 of the Act, the ld. CIT has considered this possible violation on the part of the assessee as one of the ground for cancelling the assessment by invoking power u/s 263 of the Act. It is held in various decisions that an order u/s 263 of the Act passed on the ground not taken in notice as invalid [Anil Aggarwal Vs. DCIT 90 TTJ 946(CHD-B)]. Since the assessee in the instant case has filed adequate details regarding sundry creditors and the A.O after examining such details has accepted such sundry creditors as genuine, therefore, merely because the A.O has not conducted enquiry in a particular way as per the desire of the ld. CIT cannot be a ground to invoke jurisdiction u/s 263 of the Act. This is a case of inadequate enquiry, but it cannot be said that no enquiry has been conducted by the A.O. In this view of the matter, we are of the considered opinion that the ld. CIT was not justified in invoking the provisions of section 263 of the Act. The various decisions relied on by the ld. DR are distinguishable and not applicable to the facts of the present case. In view of the above, we set aside the order passed u/s 263 of the Act by the ld. CIT and grounds raised by the assessee are allowed.
In the result, the appeal filed by the assessee is allowed.
Pronounced in the open court on 13.04.2017.