AMRIT HATCHERIES PVT. LTD,KOLKATA vs. DCIT, CENTRAL CIRCLE-2(1), KOLKATA, KOLKATA

आयकर अपील"य अधीकरण, "यायपीठ – “C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “C” KOLKATA Before Shri N.V.Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant Member Assessment Year :2013-14 Amrit Feeds Ltd. V/s. DCIT, Central Circle- 158, Lenin Sarani, 2nd 2(1), 110, Shantipally, Floor, Kolkata-13 EM By-Pass, [PAN No.AACCA 5571 D] Kolkata-107 .. अपीलाथ" /Appellant ""यथ"/Respondent Assessment Year: 2013-14 Amrit Hatcheries Ltd. V/s. DCIT, Central Circle- 158, Lenin Sarani, 2nd 2(1), 110, Shantipally, Floor, Kolkata-13 EM By-Pass, [PAN No.AACCA 5987 A] Kolkata-107 .. अपीलाथ" /Appellant ""यथ"/Respondent ITA No.755-756/Kol/2017 Assessment Year: 2011-12 & 2013-14 Amricon Agrovet Pvt. Ltd. V/s. DCIT, Central Circle- 158, Lenin Sarani, 2nd 2(1), 110, Shantipally, Floor, Kolkata-13 EM By-Pass, [PAN No.AADCA 1610 Q] Kolkata-107 .. अपीलाथ" /Appellant ""यथ"/Respondent Shri D.S. Damle, AR आवेदक क" ओर से/By Assessee Shri G. Mallikarjuha, CIT-DR राज"व क" ओर से/By Respondent 06-09-2017 सुनवाई क" तार"ख/Date of Hearing 31-10-2017 घोषणा क" तार"ख/Date of Pronouncement

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 2 आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- Out of four appeals – two by one assessee and other two appeals by separate assessee for assessment years 2011-12 and 2013-14 respectively against order of Principal Commissioner of Income Tax-I, Kolkata dated u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 24.03.2017 & 31.03.2017. Shri D.S. Damle, Ld. Authorized Representative appeared on behalf of assessee and Shri G.Mallikarjuna, Ld. Departmental Representative represented on behalf of Revenue. 2. At the outset it was observed that appeals by the assessee ITA Nos. 753-754 & 756/Kol/2017 involve the common grounds of appeal except ITA No. 755/Kol/2017, therefore we decided to hear all the appeals together and accordingly these are being disposed of by way of common order. Thus, we are taking the fact of the case for A.Y 2013-14 in ITA No.754/Kol/2017 as a lead case for the sake of convenience and pass a consolidate order for all the appeals. 3. The assessee has taken following grounds:- “1) For that on the facts and in the circumstances of the case, the CIT was unjustified in law and on facts in revising the assessment order passed u/s 143(3) dated 30.03.2015 even though the assessment order was not erroneous in so far as prejudicial to the interest of the revenue as contemplated by Sec. 263 of the Act. 2) For that on the facts and in the circumstances of the case, the CIT was unjustified in considering the assessment order to be erroneous for not making reference for transfer pricing assessment by the Transfer Pricing Officer; overlooking the legal proposition that in law the reference to TPO was permissible if and only if the AO was objectively satisfied that reference was necessary for determination of arms length pricing of specified domestic transactions. 3) For that on the facts and in the circumstances of the case, the CIT was unjustified in holding the assessment was erroneous because the AO had not enquired or verified the aspect relating to transfer pricing even though the facts on record clearly prove that prior to completion of the assessment the AO had conducted such enquiry and detailed explanations in that respect were furnished. 4) For that on the facts and in the circumstances of the case, the CIT's revision order contained several contradictory findings and the said order having been passed for the reasons different & distinct from the show cause notice the order u/s 263 is liable to be cancelled. 5) For that on the facts and in the circumstances of the case, the CIT ought to have appreciated that reference to Transfer Pricing Officer for determination of ALP was permissible if and only if adjustment was to be carried out in respect of specified

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 3 transactions and not in relation to other aspects and since the AO himself had examined the said specified transactions & was satisfied that no further reference u/s 92C was called for; the CIT in exercise of powers u/s 263 could not direct the AO to make reference to Transfer Pricing Officer. 6) For that on the facts and in the circumstances of the case, the CIT should have appreciated that since the AO had rejected the appellant's claim for deduction u/s 801B of the Act no further reference was permissible u/s 92C in relation to specified domestic transactions connected with deduction claimed u/s 801B of the Act and in that view of the matter thee AO's action of not making reference to TPO under 92C could not be held by the CIT to be erroneous. 7) For that on the facts and in the circumstances of the case, the CIT failed to appreciate that the transactions of the appellant with the parties covered u/s 40A(2)(b) had been examined by the AO and further the same person being the AO of related persons & having found that taxes were paid by all the related persons at the same rate he, was satisfied that there was no avoidance of tax; requiring no reference under 92C for determination of ALP. 8) For that on the facts and in the circumstances of the case, the order of the CIT be cancelled since the CIT ultimately considered the AO's order to be erroneous for the reasons different & distinct from the reasons set out in the show cause notice. 9) For that on the facts and in the circumstances of the case, the CIT's order u/s 263 be cancelled and the order of the AO be restored. 10) For that on the facts and in the circumstances of the case, the order passed by the CIT be cancelled since the CIT was not legally permitted to pass the order u/s 263 / 143(3) of the I. T. Act. 11) For that the appellant craves leave to file additional grounds and or amend or alter the grounds already taken either before or at the time of hearing of the appeal.” 4. Solitary issue raised by assessee in all the grounds of appeal is that Ld. Pr. CIT passed his order u/s 263 of the Act erred in holding the assessment order passed u/s. 143(3) of the Act as erroneous in so far as prejudicial to the interest of Revenue. 5. Briefly stated facts of the case are that assessee is a private limited company and engaged in business of hatcheries, commercial farming and processing of groundnut. A search operation u/s 132 of the Act was conducted at the business premises of the assessee on 30.08.2012 and therefore the year under consideration is the year of search. As year under consideration was the specified assessment year i.e., year of search, therefore, it was taken under compulsory scrutiny along with other six assessment years. 6. The assessee for the year under consideration filed its return of income dated 30.11.2013 declaring total income of ₹13,06,40,260- only. The income of the assessee was assessed u/s 143(3) of the Act at a total income of ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 4 ₹14,15,42,120/- only after making certain additions/ disallowances to the total income of the assessee. 7. Subsequently, Ld. Pr. CIT u/s 263 of the Act observed certain defects in the assessment order framed by AO u/s 143(3) of the Act vide order dated 31.03.2015. The instant case was selected under scrutiny under CASS module along with Transfer Pricing (TP for short) parameters. However, the AO completed the assessment without referring the matter to the Transfer Pricing Officer (TPO) for the determination of Arm’s Length Price (ALP for short) as envisaged under the provision 92CA of the Act. Accordingly, Ld. Pr. CIT u/s 263 of the Act issued notice dated 28.03.2017 for seeking explanation from the assessee. In response thereto, assessee submitted as under:- i) The following transactions undertaken by assessee during the year are falling under the category of specified domestic transactions a) Deduction claimed by assessee for its unit eligible for deduction u/s. 80IB of the Act and claimed a deduction of ₹1,09,01,866/- b) payment made to the persons specified u/s. 40A(2)(d) of the Act for the purchase of materials and services. ii) The report in respect of specified domestic transactions was duly furnished along with return of income in prescribed form 3CEB of the Act. iv) As the instant year was the year of search and all the documents, books of account and other records were seized by the Department, therefore, the allegation that the assessment order was framed without examining and verifying the specified domestic transactions is without any basis. In fact, the AO verified the domestic transfer pricing report in Form 3CEB, books of account and other records seized during the search proceedings u/s. 132 of the Act.

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 5 v) The instant assessment was completed by the AO after obtaining the prior approval from the ACIT under the provision of Section 153D of the Act. vi) The AO after verified the report in respect of specified domestic transactions furnished in Form 3CB/10CCB of the Act observed that the deduction u/s. 80IB of the Act is not allowable to the assessee on the ground that the activities of assessee are not manufacturing in nature. Therefore, AO disallowed the deduction u/s. 80IB of the Act on preliminary ground. As such, there was no reason for referring the matter to specified domestic transactions to the TPO for the purpose of determination of ALP. vii) The question of making a reference u/s 92CA of the Act to the TPO arises when the deduction u/s 80IB of the Act is allowed to the assessee. viii) Against the order of AO for disallowing the deduction u/s 80IB of the Act, the assessee filed an appeal before Ld. CIT-A vide No.15/CIT(A)-20/CC-2(1)-15-16 wherein it was held that the assessee is carrying out manufacturing activities and therefore it is eligible for deduction u/s. 80IB of the Act. ix) Similarly, all the details of the transactions made by the assessee with the specified persons u/s. 40A(2)(b) of the Act were duly verified by the AO at the time of assessment proceedings. The transactions with the specified persons were carried out by the assessee in earlier years as well and no disallowance of whatsoever was made in the earlier assessment years. v) Without prejudice to the above, assessee also submitted that Ld. CIT failed to bring any specific reason in the show-cause notice issued u/s. 263 of the Act suggesting that order of AO is erroneous in so far as prejudicial to the interest of revenue.

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 6 In view of above the assessee before Ld. CIT submitted that order framed u/s 143(3) of the Act cannot be held as erroneous in so far as prejudicial to the interest of revenue. 8. However, Ld. CIT observed that the case was selected under scrutiny under CASS module and under the parameters of TP. Therefore, it was necessary for the AO to refer the matter to the TPO for the determination of ALP in relation to specified domestic transactions. In view of the above, Ld. CIT after having reliance on various judicial pronouncements held that the order passed by AO u/s 143(3) of the Act is erroneous in so far as prejudicial to the interest of Revenue by observing as under:- “6. As regards the further contention of the assessee, made in the written submission, about the disallowance made by the AO in respect of the issues of 80IB, which was alleged to cover the adjustments on account of TPO, I find that since no reference had been made to the TPO, this issue is premature to be determined at this stage as to whether reference to TPO would have made a bearing on the outcome of the assessment proceedings. The plea of the assessee on this count also appears to be hypothetical and hence, doesn’t have logical or legal force. The assessee further contented that the AO being satisfied had not made any reference to the TPO. In this regard, it is hereby relevant to point out that the AO had not made proper enquiries and verification or recorded his satisfaction that no reference to TPO was invited in the instant case. It was further argued upon by the assessee that the matter relating to issue of deduction u/s. 80IB had been allowed by the Ld. CIT Appeal. In this context, I find that revisionary proceedings u/s. 263 had been initiated for not making a reference to the TPO and not on the issue of whether the assessee is eligible for claim of deduction u/s. 80IB, I also find that the assessee in his written submission has resorted to arguments that had not been examined by the Assessing Officer during the course of assessment proceedings u/s. 143(3)/153 and thus, these issues needs elaborate examination by the AO by conducting detailed enquiries and verifications as explained above by making a reference to the TPO u/s. 92CA and compute the income of the assessee based upon the arm’s length price, as determined by the TPO, in light of the provisions of the Income Tax ct, 1961. In light of the above discussion as narrated above, I set aside the impugned Assessment Order in the case of the assessee for the AY 2013-14, passed by the AO on 30.03.2015, u/s. 143(3)/153A, on the aforesaid points, and direct the AO to pass fresh assessment order by making proper verification and enquiry in respect of matter of reference to TPO u/s. 93CA and refer the matter to the TPO, according to the provisions of law. The AO is directed to pass fresh assessment order in the case of the assessee for the AY 2013-14, after allowing the assessee a fair and reasonable opportunity of being herd, and according of the provisions of law.” Being aggrieved by this order of Ld. CIT is in appeal before us.

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 7 9. Ld. AR before us submitted that the impugned assessment was selected scrutiny under CASS module and all the necessary details with regard to specified domestic transactions were duly submitted to the AO at the time of assessment proceedings. Ld. AR in support of assessee’s claim filed the copy of submission made before the AO at the time of assessment along with Form 3CEB which is placed on record. As per Ld. AR the AO verified all the necessary details in respect of deduction claimed u/s 80IB/80IE of the Act after examining the necessary details and thereafter AO reached the conclusion that the activity of the assessee is not in the nature of manufacturing and therefore it is ineligible for deduction u/s. 80IB/80IE of the Act. However, the Ld. CIT in his impugned order has held that the activity of the assessee is in the nature of manufacturing and therefore it is eligible for deduction u/s 80IB/80IE of the Act. Thus, the allegation of Ld. CIT that the deduction claimed u/s. 80IB of the Act was not verified based on wrong facts. Moreover, the order of AO got merged with the order of Ld. CIT(A). Hence, same cannot be revised u/s. 263 of the Act. 9.1 The ld. AR further submitted that as per the provision of u/s 92CA of the Act the reference to the TPO shall be made if the AO considers it necessary or expedient to do so and after obtaining the approval of Pr. CIT / CIT. As such, the AO in the instant case did not consider it necessary or expedient to refer the matter to TPO and therefore no reference was made. The assessee has been claiming the deduction u/s. 80IB/80IE of the Act for the last several years and up to AY 2012-13 no disallowance on account of unreasonable/ excess expenses was made. All the persons specified u/s 40A(2) of the Act were paying the taxes at the maximum marginal rate and therefore it cannot be held that there was any loss to revenue on account of payment made to the specified persons. Ld. AR for the assessee submitted that all the necessary details/ books of accounts were under the possession of the department as a result of search and seizure operation. Therefore, the AO was conscious to the fact of all the expenses as well as deduction claimed by assessee and accordingly no disallowance was made in the assessment

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 8 order. There was no allegation in the show cause notice issued u/s 263 of the Act alleging that there was lack of enquiry. However, Ld. CIT while holding the order of AO as erroneous in so far as prejudicial to the interest of Revenue has held that the necessary enquiry was not conducted by the AO.

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 9 value of international transaction exceeds Rs. 5 crores, the case should be picked up for scrutiny and reference under section 92CA be made to the TPO. [Para 11] It was a common case that the CBDT has issued this Instruction in exercise of its powers under section 119. Special Bench of the Tribunal in the case of Aztec Software & Technology v. Asstt. CIT [I.T. Appeal No. 826 of 2007, dated 21-10-2008] has upheld the validity of this Instruction. While doing so, the Special Bench has relied upon the judgment of this Court in Sony India (P.) Ltd. v. CBDT [2007] 157 Taxman 125 (Delhi). The contention of the revenue before the Tribunal was that the aforesaid view of the Special Bench was erroneous and rather contrary to the decision of this Court in Sony India (P.) Ltd. (supra ). [Para 12] The Tribunal having dismissed the assessee's submission, concluded that once validity of CBDT Circular was upheld, as per the said circular the Assessing Officer was duty bound to refer the matter to the TPO having regard to the purpose of Specialized Cell created by the Department to deal with complicated and complex issues and since this channel was not resorted to by the Assessing Officer in the instant case, the Commissioner was right in passing the order under section 263. [Para 13] No doubt, the validity of the said instruction was upheld on the touch stone of Article 14 of the Constitution holding that it was based on reasonable classification and there was rationale nexus with the objectives sought to be achieved. At the same time, while doing so this Court had also laid down the rigouris of the said Circular No. doubt, this Court observed, in the process that the said Instruction acted as a guideline to the Assessing officer. However, much mileage cannot be drawn by the assessee from those observations as these observations were made while dealing with the contention of the petitioner in the said petition. That Instruction completely takes away the discretion of the Assessing Officer in relation to an international transaction if the aggregate value thereof exceeded Rs. 5 crores. [Para 14] Thus, the Tribunal rightly held that the judgment of Special Bench in Aztec Software & Technology (supra) is not in conflict with Sony India (P.) Ltd. (supra) once the validity of said Instruction is upheld by this Court, the follow up thereof is that the Assessing Officer was supposed to refer the matter to the TPO having regard to the fact that Specialized Cell was created by the Department to deal with the complicated and complex issues arising out of the transfer mechanism. The Tribunal was right in holding that even the instant case itself provides a good example for need to refer the matter to TPO in such cases. When circular is issued under section 119 and its validity is upheld it is binding on the Assessing Officer. Not taking recourse thereto and passing the order amounted to making assessment without conducting proper inquiry and investigation as enjoyed by law which was also warranted in the facts of this case and, therefore, the Commissioner was right in holding that such assessment was erroneous and prejudicial to the interest of the Revenue. [Para 16]”

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 11 Furthermore the issue of quantum of deduction u/s 80IB/80IE of the Act was never verified by the AO during assessment proceedings as the AO rejected the issue of deduction on technical ground as discussed above. In this regard the arguments was placed by Ld. AR that the order of AO got merged with the order of Ld. CIT(A). However, we disagree with the arguments placed by Ld. AR on the ground that the order of AO got merged with regard to the determination of the question whether the activity of assessee is manufacturing in the nature or not. As such, there was no issue before Ld CIT(A) regarding the amount of deduction claimed by assessee u/s. 80IB/80IE of the Act. As such, on the issue of amount of deduction u/s. 80IB/80E of the Act, we hold that the order of AO did not get merge with the order of Ld. CIT(A). Indeed, Circular No.3/2003 issued by CBDT was in relation to international transactions and same was mandatory in terms of judgment of Hon'ble Delhi High Court in the case of Ranbaxy Laboratories limited (supra). The concept of specified domestic transactions came into force with effect from assessment year 2013-14 under the provision of Section 92C of the Act. Prior to the AY 2013-14, there was no concept of determination of ALP in relation to specified domestic transactions. Therefore, we have no hesitation in holding that the provisions as contained in CBDT’s Instruction No.3/2003 cannot be applied to the specified domestic transactions. Thus, in our considered view, there was no instruction from the CBDT for referring the matter of specified domestic transactions to the TPO for the determination of ALP till the issuance of Instruction No.15/2015 by the CBDT which was issued dated 16.10.2015. 16. The undisputed fact is that the assessment for the year under the consideration was completed vide order dated 30.03.2015 whereas the Instruction No.15/2015 was issued on a later date i.e. 16.10.2015. Thus, it is clear that at the time of framing the assessment in the instant case there was no instruction from the CBDT which can be said in force. Moreover, the CBDT in Instruction No.15/2015 has admitted the fact that it would issue a separate instruction for the specified domestic transactions and till such time the ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 12 guidance pertained to the specified domestic transactions will be followed in accordance with the paragraph No.3.5 of Instruction No.15/2015. The relevant portion of CBDT Instruction No.15/2015 is reproduced below:- “3,5 Since transfer pricing cases are now being selected for scrutiny on the basis of risk parameters, there is no requirement of selecting a transfer pricing case for scrutiny on the basis of the value of the international transaction. Consequently, there would be no requirement of referring an international transaction to the TPO for determination of its ALP merely because the value of the international transaction is above a particular limit. In particular, where a case has been selected for scrutiny only on non-TP issues and the case also involves international transactions with AEs, the case shall not be referred to the TPO irrespective of the value of the international transaction or aggregate value of all international transactions. The only exception to this would be a case selected for scrutiny on non-TP parameters where the AO comes to know that the taxpayer has entered into international transaction or transaction but the taxpayer has either not filed the Accountant’s report under Section 92E or has not disclosed the said international transaction or transactions in the Accountant’s report filed. In such exceptional situations, the AO may refer the matter to the TPO after providing an opportunity of being heard to the taxpayer.” 17. A plain look at the above makes it clear that specified domestic transactions can be referred to the TPO only in specified circumstances and such specified circumstances are not applicable to the instant facts of the case. However the undisputed fact is that the impugned case was selected under scrutiny on the parameters of specified domestic transactions. Thus the AO must have verified the necessary details with regard to the deduction claimed u/s 80IB/80IE of the Act. The ld. AR has also not brought anything on record suggesting that the AO has raised some queries in with regard to the deduction claimed u/s 80IB/80IE of the Act other than submission that the form 3CEB was available before the AO. 18. After considering the facts in totality we reach to the conclusion that the AO has not made any verification for the quantum of deduction claimed by the assessee u/s 80IB/80IE of the Act. When there was no examination by the AO because the AO has not even raised any query on this issue, then it is a clear case of non- conduct of any enquiry on the issue. The AO did not ask any question, any record or explanation to justify the quantum of deduction claimed under section 80IB/80IE of the Act. Hence, it is a case of complete lack of enquiry which renders the order of the AO erroneous so far as ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 13 prejudicial to the interest of the revenue. In view of the matter when there is a complete and absolute lack of enquiry and non-application of mind on the part of the AO, decisions relied upon by the learned AR of the assessee would not help the case of the assessee. Thus in the absence of any record as well as any other material to indicate that the AO has conducted the enquiry during assessment proceedings on the above discussed context, we do not find any reason to interfere with the order of the ld. CIT. 19. In the result, assessee’s appeal is dismissed. Coming to ITA No. 753 & 756/Kol/2017 for A.Y 13-14. 20. In the remaining appeals, since the facts are exactly identical, both the parties are agreed whatever view taken in the above appeal in ITA No.754/Kol/2017 may be taken in these appeals also, we hold accordingly. Coming to ITA No.755/Kol/2017 for A.Y. 11-12. 21. Solitary issue raised by assessee is that Ld. CIT u/s 263 of the Act erred in holding that the order of AO is erroneous in so far as prejudicial to the interest of Revenue. 22. Briefly stated facts are that assessee is a private limited company and engaged in business of processing of animal feeds. The assessee for the year under consideration filed its return of income u/s 139 of the Act dated 29.09.2011 declaring total income of ₹1,96,17,935/- only. Subsequently a search u/s. 132 of the Act was conducted at the business premises of assessee dated 30.08.2012 and accordingly the income of assessee was assessed u/s. 143(3)/153A of the Act vide order dated 30.03.2015 at ₹2,81,57,858/- only. Subsequently, Ld. CIT u/s 263 of the Act observed certain defects in the assessment order framed by AO dated 30.03.2015 on the ground that assessee has claimed provision for doubtful debts which was allowed under the normal computation of income whereas the AO while determining the profit under the Minimum Alternate Transaction (MAT) treated the provisions for doubtful debts as unascertained liability of the assessee and accordingly made the addition to the book profit determined u/s. 115JB of the Act.

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 14 23. In view of above, Ld. CIT u/s 263 of the Act was of the view that once it has been established that the provision of doubtful debts represents the unascertained liability then the same cannot be allowed as deduction under the normal computation of income u/s 36(1)(vii) of the Act while determining the profit under the normal computation of income. However, the AO has allowed the same and therefore the error has been cropped up in the assessment order. Accordingly, Ld. CIT issued notice u/s. 263 of the Act vide dated 16.11.2016 to assessee for allowing an opportunity of being heard. In response thereto assessee submitted that the provision of bad and doubtful debts was debited in the profit and loss account and simultaneously these were adjusted / netted against the balance of sundry debtors. Once the amount of bad debts has been adjusted against the sundry debtors and the same has been reflected in the balance sheet then the same cannot be treated as unascertained liability of assessee. The assessee in support of its claim relied on the order of following orders:- i) Vijaya Bank vs. CIT reported in 323 ITR 166 (SC) ii) Deepak Industries Ltd. vs. ITO ITA No.2207/Kol/2010 dt. 10.06.2011 iii) M/s Trigyn Technologies Ltd. vs. ITO ITA No.2011/Mum/2012 dt 03.12.2014 24. However, Ld. CIT disregarded the contention of assessee and held the order of AO as erroneous in so far as prejudicial to the interest of Revenue by observing as under:- “5. The assessee had primarily objected to the revisionary proceedings u/s. 264 mainly on the following issues which are dealt in as hereunder:- 5.a The assessee mainly argued that the assessment order is not erroneous or prejudicial to the interest of revenue. At the onset, it would be relevant to point out that the Assessing Officer had treated the amount of Rs.29,71,000/- on account of provisions for doubtful debt as unascertained liability while determining the book profit under the provisions of section 115JB, in the impugned assessment order. The proceedings u/s 263 has been initiated for the erroneous application of law on the findings of the AO. it is a well settled fact that provision for unascertained liabilities is not an allowable expenditure under the provisions of the Income Tax Act, 1961. The Assessing Officer had erroneously allowed the claims of such expenditure of the assessee in contravention to his own finding that provisions for doubtful debt is an unascertained liability. The AO during the course of assessment proceedings

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 15 u/s. 143(3)/153A, had accepted the claim of expenses of the assessee without applying his mind and in contravention to the provision of law. 5.b It transpires from the above argument of the assessee that the ahead also objected to the proceedings u/s. 263 on account of the fact that the provision for doubtful debt of Rs.29,71,000/- which the assessee company debited to the Profit & Loss Accounts, and which was netted off against sundry debtors’ balance in the Balance Sheet, the assessee company was entitled to claim deduction u/s. 36(1)(vii) of the Income Tax Act. The assessee also furnished records and documents in support of its claims and relied upon judicial pronouncements. In this regard, I find that a provision is a liability which can be measured only by using a substantial degree of certainty. To recognize a provision the following criteria must be examined (a) whether such enterprise has a present obligation as a result of past event; (b) a reliable estimate can be made of the amount with certain amount of certainty. If these conditions are not met, no provision can be recognized. The ascertainment of provisions depends from upon the facts and circumstances of the case. In this regard I find that the AO had held that provision for doubtful debts is an unascertained liability. The fact and arguments relied upon by the assessee during the course of hearing under revisionary proceedings u/s. 263 had not been furnished before the Assessing Officer during the course of assessment proceedings u/s. 143(3)/153A and as such these issues were not examined by the Assessing Officer during the course of assessment proceedings. Hence, I find that the claims of the assessee must be further examined by the assessing officer, in context of the provisions of law. Thus, the AO had failed as an investigator and adjudicator to examine this issue according to the provisions of law and apply his mind before passing the assessment order u/s. 143(3)/153A. therefore the assessment order passed by the AO, in contravention to the provisions of section 37 of the Income Tax Act is erroneous, and thus, suffers from infirmity on the above ground. The various judicial pronouncements relied upon by the assessee are clearly distinguishable and hence not applicable to the facts of the instant case. It is well established that the Assessing Officer being a quasi-judicial authority can’t take a view, either against or in favour of the assessee/revenue, without making proper inquiries and proper examination of the claim made by the assessee in the light of existing provisions of law. The Assessing Officer has been entrusted the role of an investigator, prosecutor as well as adjudicator under the Scheme of the Income Tax Act. If he commits an error while discharging the aforesaid roles and consequently pass an erroneous order causing prejudice to the revenue, the order so passed by him is liable to be corrected. In this context, it may be mentioned here that in the case of Commissioner of Income Tax., Central-I Kolkata Vs Maithan International, it was held by Calcutta high Court (2015)56 taxmann.com 283 (Calcutta) that ‘It is not the law that the Assessing Officer occupying the position of an investigator and adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial order. Where the relevant enquiry was not undertaken, as in the case, the order is erroneous and prejudicial to and therefore revisable. Investigation should always be faithful and fruitful. Unless anal fruitful areas or enquiry are pursued the enquiry cannot be said to have been faithfully conducted.’ The Hon'ble Supreme Court, further, in the case of Rampyari Devi Saraogi-Vs CIT(1958) 67 ITR 87 (SC) and Smt. Tara Devi Aggarwal –Vs-CIT (1973) 88 ITR 323

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 16 (SC) has held that in absence of proper enquiries, the assessment order would become erroneous and prejudicial to the interest of the revenue. The Hon'ble Delhi High Court in the case of Gee Vee Enterprise-Vs-Addl. CIT (1975) 99 ITR 375 has also held as under:- ‘The reason is obvious. The position and function of the Income tax officer is very different from that of a Civil Court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a Civil Court in the absence of rebuttal. The Civil Court is neutral. It simply gives decision on the basis of pleading and evidence which comes before it. The income tax officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of return which is apparently in order but calls for further enquiry. It is his duty to ascertain the truth of facts stated in the return when the circumstances of case are such as to provoke an enquiry. The meaning to be given to the word “erroneous” in section 263 emerges out of this context, it is because it is incumbent on the income tax officer to further such an enquiry prudent that the words “erroneous” in section 263 includes the failure to make such an enquiry/. The order becomes erroneous because such an enquiry has not been and not because there is anything wrong with the order if all the facts stated thereafter assumed to be correct.’ In view of the facts and the legal position stated above, I am of the view that the order passed on an incorrect assumption of facts or incorrect application of law and without making requisite inquiries will satisfy the requirement of the order being erroneous and pre-judicial to the interest of the revenue within the meaning and scope of Section 263 of the Income Tax Act, 1961. 6. As regards the further contentions of the assessee, made in the written submission, it is hereby relevant to point out that the above mentioned facts and circumstances had not been brought into the notice of the Assessing Officer during the course of assessment proceedings u/s. 143(3)/153A. I also find that the assessee in his written submission has restored to arguments that had not been examined by the Assessing Officer during the course of assessment proceedings u/s 143(3) and thus, these issues needs elaborate examination by the AO by conducting detailed enquiries and verifications as explained above to ascertain the nature of the provisions of doubtful debts of the assessee and examine their allowability in light of the provisions of the Income Tax Act, 1961. In light of the above discussion as narrated above, I set aside the impugned Assessment Order in the case of the assessee for the AY 2011-12, passed by the AO on 30.03.2015, u/s 143(3)/153A, on the aforesaid points, and direct the AO to pass fresh assessment order by making proper and adequate verification and enquiry in respect of the claim of expenditure under the head ‘Provisions for Doubtful debts’. The AO is directed to pass fresh assessment order in the case of the assessee for the AY 2011-12, after allowing the assessee a fair and reasonable opportunity of being heard, and according of the provisions of law.” Being aggrieved by this order of Ld. CIT assessee preferred an appeal before us. 25. Ld. AR before reiterated the submissions that were made before the Ld. CIT and stated the issue may be decided on merit whereas Ld. DR vehemently relied on the order of Ld. CIT.

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26.1 On perusal of the assessment order, we find that assessee has not challenged the addition made by AO on account of provision for doubtful debts while determining the book profit u/s 115JB of the Act on the ground that the profit was determined by AO in his assessment order under Minimum Alternate Tax (MAT for short) as well as under normal computation of income. As the liability under the normal computation of income was greater than the liability of tax determined under MAT provision, the assessee paid the tax under the normal computation of income. As such, there was no effect on the tax liability determined to be paid by the assessee under MAT provisions. Therefore, the assessee did not prefer any appeal against the addition made by the AO on account of provision of doubtful debts under MAT considering the same as unascertained liability.

26.2 Now coming to the issue whether the impugned provision for doubtful debts represent the unascertained liabilities. After perusal of balance-sheet of assessee we find that there remains no ambiguity that the amount of provision of doubtful debts was adjusted against the sundry debtors as shown in the balance-sheet of the assessee as detailed under:-

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 18 “Sundry debtors (Unsecured considered loan) Over six months 15,932.687 11,268,990 Under six months 40,527,856 40,361,839 56,650,543 51,576,829 Consolidated debited 10,847,866 10,817,855 Less: provision for doubtful debts 8,912,583 5,941,583 1,935,283 58,395,826 4,506,583 56,483,112 On perusal of above balance-sheet, we hold that the provision of doubtful debt has been duly adjusted against the sundry debtors. Therefore, the amount shown under the head provision for doubtful debt amounting to ₹29.71 lakh cannot be treated as unascertained liability. In holding so, we find support and guidance from the judgment of Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT 323 ITR 166 (SC) wherein the relevant question raised by Hon'ble Apex Court and the finding Their Lordship stand as under:- “After insertion of Explanation to s. 36(1)(vii), assessee is required not only to debit the P&L a/c but simultaneously also reduce loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that at the end of the year the amount of loans and advances/debtors is shown as net of provision for impugned bad debt; assessee-bank having, besides debiting the P&L a/c and creating a provision for bad and doubtful debts, simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet, it was entitled to benefit of deduction under s. 36(1)(vii); it was not necessary to close the individual account of each debtor in the books.”

Besides we also find support and guidance from the order of this Co-ordinate Bench of this Tribunal in the case of Deepak Industries Ltd vs. ITO in ITA No.2207/Kol/2010 dated 10.06.2011. The relevant extract of the order is reproduced below:- “6. We have considered the submissions of both the parties and have perused the records of the case. It is well settled that before assumption of jurisdiction u/s. 263 by Ld. CIT, two conditions have to be simultaneously fulfilled. Firstly, assessment order should be erroneous and secondly, the order should be prejudicial to the interest of the revenue. If either of the ingredient missing, the proceedings u/s. 263 of the Act cannot stand. In the present case, the main aspect to be examined is whether the sundry debtors had been written of or not. The details of sundry debtors is as under:- ‘SUNDRYDEBTORS Outstanding for a period exceeding six months Considered Good 1,88,96,530/- 2,31,44,97-/- Considered Doubtful 1,76,63,989/- 1,24,55,468/- Less: provision 1,76,63,989/- 1,24,55,468/- Outstanding for a period Of less than six months 19,09,51,709/- 13,84,56,260/-

ITA No.753-756/Kol/2017 A.Ys. 11-12 & 13-14 Amrit Feeds & Amricon Agrovete Pvt. Ltd. Vs. DCIT, CC-2(1), Kol. Page 19 16,16,01,230/- 20,98,48,239/- Thus, to the extent, the debts were considered doubtful, the same were written off by actually writing off in profit and loss account and also in the books of account by crediting the sundry debtors on the asset side of balance sheet. This methodology was in conformity with the decision of Hon'ble Supreme Court in the case of Vijaya Bank’s case (supra) and, therefore, could not be disputed. 6.1 The other aspects pointed out by Ld. CIT regarding circumstances under which the assessee wrote off the amount could not be gone into because after 01.04.89, the only requirement is of writing off the amount. Once actual write off the amount. Once actual write off of the amount is thee, then the deduction on bad debt is to be allowed. Since from the records, it is evident that assessee had actually written off this amount, which was allowed by Assessing Officer, it could not be said that the assessment order was erroneous. Hence, Ld. CIT was not justified in assuming jurisdiction u/s. 263 of the Act. We, accordingly, cancel the order of Ld. CIT.” 27. The principles laid down by Hon'ble Supreme Court in the case of Vijaya Bank (supra) are squarely applicable to the facts of the present case. Therefore, we hold that the impugned order passed by Ld. CIT(A) u/s 263 holding the order of AO as erroneous in so far as prejudicial to the interest of revenue is not sustainable in the eyes of law. Hence, this ground of assessee’s appeal is allowed.

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आदेश क" ""त"ल"प अ"े"षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-Amrit Feeds/Hatcheries Pvt Ltd/Amricon Agrovet Pvt. Ltd.158, Lenin Sarani, 2nd Floor, Kolkata-13 2. राज"व/Revenue-DCIT, CC-2(1), 110, Shantipally, EM By-Pass, Kolkata-107 3. संबं4धत आयकर आयु5त / Concerned CIT Kolkata 4. आयकर आयु5त- अपील / CIT (A) Kolkata 5. 8वभागीय "'त'न4ध, आयकर अपील"य अ4धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड= फाइल / Guard file. By order/आदेश से, // Sr. Private Secretary, Head of Office/DDO आयकर अपील"य अ4धकरण,