M/S MEWAT GRIT UDYOG,NEW DELHI vs. PR,CIT, NEW DELHI

Originally this appeal was filed with a delay of 312 days and by order dated 11/04/2017 a coordinate Bench of this Tribunal refused to condone the delay. Hon’ble High Court of Punjab and Haryana at Chandigarh by order dated 22/10/2019 condoned delay and directed the Tribunal to hear the appeal on merits subject to the assessee paying costs of Rs. 50,000/-. Assessee complied with the same.

Brief facts of the case are that the assessee firm is engaged in the business of manufacturing and crushing of stones. For the assessment year 2010-11 it had filed its return of income on 1/10/2010 declaring an income of Rs.1,52,73,067/-. Assessment under section 143(3) of the Act was complete by order dated 25/10/2012 at the returned income.

Subsequently, Ld. CIT examined the records of the case and noticed that the learned Assessing Officer did not appropriately appreciate the evidence on record and he failed to examine it or if examined, did not arrive at the correct logical conclusion on some issues like,-

After giving an opportunity to the assessee on these aspects, Ld. CIT(A) held that,- i. the contribution of capital of Rs. 4 crores in cash in the firm needs further deliberation and enquiry and all transactions shown by the assessee in cash are also to be tallied with the books of accounts of the assessee, and it also required to be investigated as to how the low-income proprietorship concerns and other firms were able to mobilise substantial capital in cash to be invested in the assessee firm; ii. the cash deposits in the bank account remain unverified and unsubstantiated; iii. the claim of expenditure on account of cash discount and the nature of business purpose and basis of such cash discount, the names of the persons to whom such discounts were given and under which business needs of the assessee such discounts were necessitated etc remain unsupported as well as unverified; and iv. the claim of the assessee that M/s L&T Finance Ltd and M/s Carter Capital Limited had shown the interest received by them from the assessee in their returns of income supported by a copy of the certificate of accountant under section 201(1) of the Act or that no payment was made to them on account of interest during the year, or that the payments made to Kodak Mahindra bank does not attract any liability to deduct tax at source - was not acceptable inasmuch as there was no provision under section 40(a)(ia) of the Act prior to 1/4/2013 which provides such liberty to the assessee for not making deduction of the tax.

Basing on the above premise, Ld. CIT, by way of impugned order, reached a conclusion that the assessment order is erroneous insofar as it is prejudicial to the interest of Revenue, and set-aside all these issues to the file of the learned Assessing Officer for providing a fair opportunity to the assessee.

Argument of the Ld. AR is that all the four aspects enumerated by the learned Ld. CIT in his order as the basis for revising the assessment order, were well considered by the learned Assessing Officer after making sufficient enquiries and is only after satisfying with the material furnished under submissions made on behalf of the assessee, the Assessing Officer accepted the return of income and passed the assessment order dated 25/10/2012. While placing reliance on the decisions of the Hon’ble jurisdictional High Court in the case of CIT vs. Vikas Polymers 341 ITR 537 (Del) etc, he submitted that merely because the assessment order does not refer to the queries raised to by the learned Assessing Officer and the response of the assessee there to during the course of scrutiny, it cannot be said that there was no inquiry and therefore the assessment was erroneous and prejudicial to the interest of the Revenue. His further submission is that proceedings under section 263 of the Act cannot be initiated for inadequate enquiry, but only for lack of enquiry which is a distinct from inadequate enquiry and for this proposition he placed reliance on the decision of the Hon’ble Apex Court in the case of CIT vs. Amitabh Bachchan 384 ITR 200 (SC) and the decisions of the Hon’ble jurisdictional High Court in the case of DIT vs. Jyoti Foundation 357 ITR 388 (del), Ld. CIT(A) vs. Sunbeam Auto Ltd 332 ITR 167 (del), ITO vs. DG Housing Projects Limited 343 ITR 329 (Del), Ld. CIT(A) vs. Leisurewear Exports Ltd 341 ITR 166 (Del) etc. Basing on CIT vs. DLF Ltd 350 ITR 555 (Del), PCIT vs. Delhi Airport Metro Express (P) Ltd 398 ITR 8 (Del) etc he submitted that where there is inadequate enquiry, but not lack of enquiry, the CIT must record finding that order is erroneous and must establish that error or mistake by the learned Assessing Officer is unsustainable. Further submissions made by him include, where twoviews are possible notice under section 263 of the Act cannot be invoked, it is necessary for Commissioner of income tax to point out the material on record as to how the order of the learned Assessing Officer is prejudicial to the interest of Revenue, Commissioner of income tax cannot simply ask the learned Assessing Officer to re-examine the matter since he can do so only after finding order of the assessment is erroneous and prejudicial to the interest of Revenue, error should be one which depended on fact or law and not merely a possibility or guesswork, order of Commissioner of income tax merely setting aside the order of assessment without giving reasons is vitiated order etc.

According to the Ld. AR, these contentions of the assessee are fortified by the fact that pursuant to the order under section 263 of the Act learned Assessing Officer made certain additions while passing the order under section 143(3) read with section 263 of the Act and when the assessee preferred an appeal, Ld. CIT(A) by order dated 8/8/2019 by deleting the additions made on account of the partners’ capital contribution, cash deposits in bank accounts and cash discount and gave remission in part in respect of the disallowance under section 40(a)(ia) of the Act.

Per contra, it is the submission of the Ld. DR that in this matter the learned Assessing Officer has not reached a right conclusion on the aspects referred to by the Ld. CIT. She submitted that the learned Assessing Officer should have appreciated the material available on record in its proper perspective and the impugned order clearly demonstrates the way in which the proper enquiry was deviated by the learned Assessing Officer. According to her huge contribution of the capital in cash, that too by withdrawing the same from other firms which did not have the financial soundness to support such withdrawal should have created a doubt in the mind of the learned Assessing Officer as to the improbability of the event. He further submitted that in the absence of any evidence produced by the assessee to substantiate the source of cash deposits in the bank deposit, the bank deposits in the bank account when remained unverified and unsubstantiated, the learned Assessing Officer should have delved deeper into the aspect, for not doing which, Ld. CIT rightly thought it fit to set aside such an issue for further verification. Likewise, in respect of the cash discount and disallowance of interest under section 40(a)(ia) of the Act also, there is failure on the part of the learned Assessing Officer to conduct enquiries.

It is the further argument of the Ld. DR that having examined the record and finding certain discrepancies, Ld. CIT called upon the assessee to explain the same and it is only after hearing the assessee and considering the record, Ld. CIT formed the opinion that the assessment order is erroneous insofar as it is prejudicial to the interest of the Revenue. The facts and circumstances of the case do not require the Ld. CIT to gather any fresh material for the purpose of invoking jurisdiction under section 263 of the Act.

Ld. DR placed reliance on a decision dated 29/11/2017, of the Hon’ble Apex Court in the case of Daniel Merchants Private Limited vs. ITO in appeal No. 2396/2017 wherein the assessing officer did not make any proper enquiry while making the assessment and accepting the explanation of the assessee insofar as receipt of share application money is concerned and the Hon’ble Apex Court confirmed the direction issued by the Ld. CIT to the learned Assessing Officer to carry thorough and detailed enquiry. Further reliance is placed on the decision reported in Malabar Industries Co Ltd vs. CIT (2000) 243 ITR 83 (SC), RajmandirEstates (P) Ltd vs. PCIT 245 taxman 127 (SC), Sh. ManjunatheshwaraPacking Products and Camphor Works vs. CIT (1998) 231 ITR 53 (SC) and CIT vs. Amitabh Bachchan 384 ITR 200. Ld. DR referred to the relation of the Hon’ble Delhi High Court in the case of Gee Vee Enterprises vs. ACIT 99 ITR 375 and also the decisions of the Tribunal in Perfetti Van Melle India Private Limited in ITA 3046/del/2016, Ramesh Kumar in /Del/ 2018 and CIT vs. Apollo tyres Ltd reported in 65 ITD 263 in support of her contentions.

We have gone through the record in the light of the submissions made on either side. Insofar as the absence of enquiry or inadequate enquiry is concerned, we have gone through the material available before us. Along with notice under section 142 (1) of the Act, on 7/8/2012, learned Assessing Officer issued a questionnaire.

Question No. 3 in the questionnaire reads “what are the sources of the capital introduced by the partners of the form?” Assessee submitted the details of addition in capital account by partners during the assessment year 2010-11 and furnished the consolidated partner capital account as on 31/3/2010, details of addition of capital of the partners and the Ledger account in this respect, assessee also submitted the cashbook and other material which are to be found at page numbers 42 to 89 of the paper book. All the details are incorporated in this material and the details of cash deposits were clearly stated therein.

In respect of the cash deposits in the bank accounts, from the questionnaire we noticed that the learned Assessing Officer required the assessee to produce the cashbook and ledgers, and also the bank account statement in respect of the 1st and last 2 months of Financial Year in respect of all the bank accounts of the company - the fully certified bank account statement for verification, covered by questions No. 2 and 45. By reply dated 24/9/2011 and 27/8/2012 the assessee produced the copy of bank account, bank inventory (monthly), cashbook and ledgers and copy of the bank statements in respect of April, 2009 and February and March, 2010. All these documents are forming part of record and also filed by way of paper book before us.

On the aspect of cash discount of Rs.6,18,12,406/-, record reveals that the assessee produced the details of the expenses payable and the payment made thereof, copy of Ledger account month wise of all major expenses of P&L Account etc and the assessment order reads that they were examined on test checked basis and it is only thereafter the learned Assessing Officer had taken a view in the assessment order.

A perusal of the all the material stated above clearly reveals that in the questionnaire attached to the notice under section 143(2) of the Act issued on 7/8/2012 the Assessing Officer sought details and production of the material covered by as many as 46 items and the assessee produced the books of accounts including the cashbook, ledgers, bank statement etc and furnished all the details sought by the learned Assessing Officer. On the face of the questionnaire issued by the learned Assessing Officer and the reply furnished by the assessee, it does not look like a matter where the learned Assessing Officer had taken a view without making any enquiry or an adequate enquiry. Learned Assessing Officer sought all the requisite details and the assessee furnished the same.

It is obvious that the assessment order does not reflect all this process, but as is held by the Hon’ble jurisdictional High Court and also other fora, merely because the assessment order does not refer to the queries raised and the details furnished by the assessee during the course of scrutiny, it cannot be held that there is no enquiry and therefore the assessment was erroneous and prejudicial to the interest of the Revenue. All the conceivable details were sought by the learned Assessing Officer and furnished by the assessee and the presumption of law is that the learned Assessing Officer concluded the assessment only on consideration of all this material. On the face of the queries and the explanation and material furnished by the assessee, it is not possible to draw an inference that there is either no enquiry or inadequate enquiry.

It shall be kept in mind that in the case of Gee Vee Enterprises (supra) the Hon’ble jurisdictional High Court held that it is only having had regard to the facts and circumstances of the case, an assessment order could be regarded as erroneous or that the Assessing Officer should have made further enquiries before accepting the statements made by the assessee in the return of income. Insofar as the issue of disallowance under section 40(a)(ia) of the Act is concerned, law is fairly settled by now that the 2nd proviso to section 40(a)(ia) of the Act is retrospective in nature andsuch an issue is no longer res Integra.

We find that the deletions of the additions made on account of partners’ capital contribution, cash deposits in bank accounts and cash discount and the partial relief in respect of the disallowance of section 40(a)(ia) of the Act lends any amount of support to the contentions of the assessee that it is only after having satisfied with the explanation as offered and material submitted by the assessee, in the original assessment proceedings, learned Assessing Officer had taken a conscious view on these aspects.

In view of our finding that there was sufficient enquiry on the part of the Assessing Officer during the original assessment proceedings on all the aspects taken up by the Ld. CITfor revising the order under section 263 of the Act, we are of the considered opinion that the discussion on the other propositions raised by the assessee will only be academic and suffice it to say that the impugned order passed under section 263 of the Act has no legs to stand. With this view of the matter, we allow the grounds of appeal and quash the impugned order passed by the learned CIT.

In the result, appeal of the assessee is allowed. Pronounced in open court on 14th January, 2020