RAMNATH JHUNJHUNWALA,KOLKATA vs ITO, WARD 40(1), KOLKATA, KOLKATA

Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA

Before: Shri N.V.Vasudevan & Shri Waseem Ahmed

आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is directed against the order passed by Commissioner of Income Tax-14, Kolkata u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 21.03.2017. Assessment was framed by ITO Ward-40(1), Kolkata u/s 143(3) of the Act vide his order dated 26.02.2015 for assessment year 2012-13.

Grounds of appeal raised by assessee are reproduced hereunder:- “1. FOR that the order u/s. 263 passed by the Ld. CIT-14, Kolkata is without application of mind, arbitrary, bad-in-law and perverse. 2. FOR That the Ld. CIT-14, Kolkata was wrong and unjustified in passing the order u/s. 263 dtd. 21.03.2017 stating that the assessment

ITA No.1019/Kol/2017 A.Y. 2012-13 Ramnath Jhunjhunwala vs. ITO Wd-40(1) Kol. Page 2 order dtd. 26.02.2015 passed u/s. 143(3) is erroneous and prejudicial to the interest of revenue as the AO did not examine the issue of allowability of interest expenditure amounting to Rs.1,05,82,072/- with specific applicability of sec.40(a)(ia). 3. FOR that the Ld. CIT-14, Kolkata erred in not discussing the submissions of the appellant before holding that the assessment order passed by the Ld. AO is erroneous and prejudicial to the interest of revue. The Ld.cit was wrong in ignoring the fact that proviso to sec. 194A does not apply as the turnover of preceding year did not exceed the monetary limit specified u/s. 44AB(a). 4. FOR that the order passed by the Ld. CIT-14, Kolkata is general and vague in nature. The case laws cited by the Ld. CIT is not applicable in facts and circumstances of the appellant. 5. FOR that the appellant craves leave to alter, amend, modify any of the grounds and/or take additional grounds before or at the time of hearing of this appeal.” 3. Shri J.M. Thard, Ld. Advocate appeared on behalf of assessee and Shri G. Mallikarjuha, Ld. Departmental Representative appeared on behalf of Revenue. 4. Grounds No. 1 to 5 are inter-related and therefore being taken up together. Solitary issue raised by assessee in this appeal is that Ld. CIT u/s 263 of the Act erred in holding the assessment order passed by Assessing Officer u/s 143(3) of the Act as erroneous in so far as prejudicial to the interest of revenue.

Briefly stated facts are that assessee is an individual and engaged in business of share dealing and financing. The assessee for the year under consideration filed his return of income declaring total income of ₹2,58,260/- only. Subsequently the case was selected for scrutiny assessment and accordingly the assessment was framed at ₹11,08,330/- u/s. 143(3) of the Act. Subsequently Ld. CIT u/s 263 of the Act observed certain defects in the assessment order framed u/s. 143(3) of the Act vide dated 256.02.2015 on the ground that assessee has claimed interest expense for ₹1,05,82,072/- in his profit and loss account without deducting the Tax Deducted at Source (TDS) u/s. 194A of the Act. Thus, the provision of Section 40(a)(ia) of the Act was

ITA No.1019/Kol/2017 A.Y. 2012-13 Ramnath Jhunjhunwala vs. ITO Wd-40(1) Kol. Page 3 violated by assessee and no disallowance was made by the AO in his assessment order. 6. In view of above, Ld. CIT u/s 263 of the Act issued a show cause notice to assessee vide No. Pr.CIT-14/Kol/263/ACFPJ6190J/2016-17/8364 dated 07.02.2017 for revising the order under the provision of Section 263 of the Act. In compliance thereto, assessee submitted that the turnover from the business did not exceed the prescribed limit as specified u/s 44AB of the Act in the immediate preceding financial year. Therefore, assessee being an individual is not under any obligation to deduct the tax as per the provision of Section 194A of the Act.

However, Ld. CIT in his order passed u/s 263 of the Act held the order of AO as erroneous in so far as prejudicial to the interest of revenue by observing as under:- “5. I have carefully examined the assessment record and submissions made by the assessee. The impugned assessment order dated 26.02.2015 has been passed without making relevant enquiry or verification. The validity of the claim of the assessee has not been examined by the assessing officer. Since the assessing officer has failed to make necessary enquiry and allowed the claim without examination, the assessment order is erroneous and prejudicial to the interest of revenue. Having regard to the facts and circumstances of the case, the impugned assessment order for the assessment year 2012-13 dated 26.02.2015 is deemed to be erroneous in so far as it is prejudicial to the interest of revenue. 6. Hon'ble Delhi High Court in the case of GEE VEE Enterprise Vs. Addl. CIT reported in 99 ITR 375, 386(Del) has held that the CIT may consider the order of the Assessing Officer to be erroneous not only if it contain some apparent error of reasoning or of law or of fact on the face of it but also because the Assessing Officer has failed to make enquiries which are called for in the circumstances of the case and it is an order which simply accepted what the assessee has stated in his return of income on the said issue. It is not necessary for the CIT to make further enquiries before cancelling the assessment order. The Commissioner can regard the order erroneous on the ground that the Assessing Officer should have made further enquiries. 7. Hon'ble Karnataka High Court in the case of Thalibai F Jain Vs. ITO 101 ITR 1, 6 (Kam) has held that where no enquiries made by the Assessing Officer on the relevant issue, assessment must be held to be prejudicial to the interests of the revenue and what is prejudicial to the interest of the revenue must be held to be erroneous though the converse may not always be true. 8. Hon'ble Supreme Court in the case of Malabar Industrial Co. (P) Ltd. Vs. CIT reported in (2000) 243 ITR 83, 87 -88(SC) affirming the Hon 'ble Kerala High Court decision (198 ITR 611) has held that the phrase "prejudicial to the interests of the revenue" is of wide import and is not confined to only loss of taxes. If the AO has

ITA No.1019/Kol/2017 A.Y. 2012-13 Ramnath Jhunjhunwala vs. ITO Wd-40(1) Kol. Page 4 accepted the claim of the assessee without any enquiries then such assessment order passed by the AO was held to be erroneous. 9. The Assessing Officer failed to make relevant enquiry in this case. He has failed to examine the documents and papers relating to the assessment year 2012-13. 10. In this regard it is mentioned that mere non-enquiry would also render a particular order passed by lower authority as erroneous and prejudicial to the interest of revenue. This position has been clearly confirmed by Hon 'ble Supreme Court in the case of Rampyari Devi Saraogi V. CIT(1968) 671TR 84 & Smt. Tara Devi Aggarwal V. CIT(1973) 88 ITR 323(SC). The reasoning for this proposition has been explained by Hon'ble Delhi High Court in the case of GEE VEE Enterprise Vs. Addl. CIT (1975) 99 ITR 375 in the following para.: "It is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income Tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income Tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income Tax Officer is very different from that of civil court. The statements made in the pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidences which come before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income Tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in sec. 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not be made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. " 11. Further to this it is noticed that there is no appeal right available to the Revenue from the order of assessment passed by Assessing Officer and i.e. why revisionary powers have been given to the Commissioner and such power were held to be of wide amplitude by jthe Hon'ble Supreme Court in the case of CIT V. Shree Manjunathesware Packing Products & Camphor Works[1998] 231 ITR 53/96 Taxman 1. Therefore, normally when Assessing Officer has not made any enquiry on a particular issue, then such order in view of the above detailed discussion has to be construed as erroneous and prejudicial to the interest of revenue and therefore, the impugned assessment order is erroneous and prejudicial to the interest of revenue as Assessing officer has failed to make any enquiry. 12. It may be further noticed, that in order to provide clarity on the issue of 'erroneous in so far as it is prejudicial to the interest of revenue', a new Explanation has been inserted to clarify that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if, in the opinion of the Principal Commissioner or Commissioner- a) The order is passed without making inquiries or verification which should have been made; b) The order is passed allowing any relief without inquiring into the claim;

ITA No.1019/Kol/2017 A.Y. 2012-13 Ramnath Jhunjhunwala vs. ITO Wd-40(1) Kol. Page 5 c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. The amendment takes effect from 01.06.2015. 13. Having regard to the facts and circumstances of the case and in the light of the aforesaid decisions of Honble Supreme Court and Hori'ble High Courts and in accordance with the amendment made in Sec. 263 of the Act with effect from 01.06.2015, I hold that the impugned assessment order dated 26.02.2015 passed by the AO is erroneous and prejudicial to the interest of revenue, as the Aa did not even call for the details regarding allowability of interest expenditure amounting to Rs.1,05,82,072/- with specific reference to the Section 40(a)(ia) of the Act. 14. In view of the above, the assessment order u/s.143(3) dated 26.02.2015 for the assessment year 2012-13 in this case is considered as erroneous in so far as it is prejudicial to the interest of revenue with reference to the specific issue. The Assessment Order ujs.143(3) dated 26.02.2015 made by the AO is accordingly set aside with the direction to make fresh assessment after considering the facts and submissions made by the A/R of the assessee in respect of the only specific issue raised after giving opportunity to the assessee and in accordance with law.” 8. Being aggrieved by this order of Ld. CIT assessee is in appeal before us. 9. Ld. AR before us filed paper book which is running from pages 1 to 19 and submitted that the issue of TDS of interest expense was duly verified by the AO by issuing a notice dated 04.12.2014 u/s 142(1) of the Act. He drew our attention on the relevant extract of the notice issued u/s. 142(1) of the Act which reads as under:- “In connection with the ongoing proceedings u/s 143(3) of the Income Tax Act,,1961, pertaining to your case for the AY 2012-13, the hearing is being fixed for 16.12.2014 at 12.15. P.M. and on this day you are requested to produce the following information/documents listed out infra.” XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 10: Please furnish a chart containing data as per following columns pertaining to TDS where you are the deductor: i) Sl. No, ii) Name of the deductee, iii) PAN of the deductee, iv) Section under which tax has been deducted, v) Description of head on which tax has been deducted, vi) Amount paid/payable to the deducteee, vii) TDS thereon, viii) Dated of deduction of tax and ix) Date of deposit of tax into Govt. A/c.

ITA No.1019/Kol/2017 A.Y. 2012-13 Ramnath Jhunjhunwala vs. ITO Wd-40(1) Kol. Page 6 The copy of the said notice issued u/s. 142(1) of the Act is placed on pages 11 to 13 of the paper book.

10.

Ld. AR further drew our attention on the reply furnished by assessee in response to the said notice issued u/s. 142(1) of the Act which reads as under:- “5. Accounts for A.Y 2011-12 (FY 2010-11) was not required to be Audited and hence no Audited Balance Sheet and Profit & Loss A/c I available. However, X-rox copies of Unaudited Balance Sheet and Profit & Loss A/c for RNJ and RJ & Co are enclosed.” The relevant copy of reply furnished by assessee to the AO is placed on pages 2 to 5 of the paper book.

11.

Ld. AR further drew our attention on the financial statement of the assessee for the immediate proceeding assessment year 2011-12 justifying that the turnover of the assessee for the immediate preceding financial year was less than the prescribe limit /specified u/s 44AB of the Act. The relevant portion of the Trading and Profit & Loss account reads as under:- “ RAM NATH JHUNJHUNWALA 4 CLIVE ROW, HASTINGS, KOLKATA-700 022 01/04/2010 to 31/03/2011: AY 2011-12 TRADNG AND PROFIT & LOSSA/C RNJ & CO (PROPRIETORSHIP) Credit Debit Sale of shares 23,87,306.26 Opening stock 3,89,10,084.81 Closing stock 3,65,93,944.81 Profit C/D 71,166.26 3,89,81,251.07 3,89,81,251.07 12. In view of the above Ld. AR submitted that AO has applied his mind during his assessment proceedings u/s 143(3) of the Act. Therefore, the allegation of Ld. CIT in his order passed u/s 263 of the Act that no examination was done by the AO does not hold good.

13.

On the other hand, Ld. DR submitted that required query was raised by AO at the time of assessment proceedings but it is not clear whether the reply

ITA No.1019/Kol/2017 A.Y. 2012-13 Ramnath Jhunjhunwala vs. ITO Wd-40(1) Kol. Page 7 made by the assessee was verified by AO during assessment proceedings. He heavily relied on the order of Ld. CIT and requested the Bench to confirm the same.

14.

We have heard rival contentions of both the parties and perused the material available on record. The allegation of Ld. CIT u/s 263 of the Act in the instant case is that the interest expense claimed by assessee has been allowed by AO without carrying out any verification and without examination though no TDS on such expense was deducted. However, on perusing the material on record, we find that the query was raised by AO during assessment proceedings and the reply was made by assessee in response to the impugned query. Thus, it cannot be concluded that AO has passed order without applying his mind. The query raised by AO and the reply submitted by assessee has already been discussed in the preceding paragraph of this order. Therefore, we are not inclined to repeat the same for the sake of brevity. Thus the allegation of Ld. CIT that no enquiry was conducted by AO during assessment has no leg to stand. Thus, we hold that the AO has made the assessment after applying his mind. In holding so, we find guidance and support from the judgment of Delhi High Court in CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167 /[2010] 189 Taxman 436 (Delhi), where it was held that if there is some enquiry by the AO in the original proceedings even if inadequate that cannot clothe the Commissioner with jurisdiction under Section 263 merely because he can form another opinion. It was emphasized here that the notice and questionnaire given to the assessee which were duly replied, were evidence of full and due enquiry about this expenditure. After satisfying himself that they were in fact outside the purview of TDS provisions. The Court in Sunbeam Auto Ltd. ( supra) held as follows : "Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give 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".

ITA No.1019/Kol/2017 A.Y. 2012-13 Ramnath Jhunjhunwala vs. ITO Wd-40(1) Kol. Page 8 15. In the present case, the records reveal that the assessee was specifically queried regarding the TDS provisions. Accordingly an explanation was provided to the AO at the stage of original assessment. Clearly this was not a case of "No Enquiry". The lack of any discussion on this cannot lead to the assumption that the Assessing Officer did not apply his mind. The proceeding in fact shows that Assessing Officer directed his mind specifically on this aspect and then concluded that the TDS provisions are not applicable. Under these circumstances, the Commissioner could not have validly exercised his supervisory or revisionary power under Section 263. As a result of the above discussion, we are of the opinion that the proceedings under section 263 of the Act are not sustainable in the eyes of law. Hence this ground of appeal of the assessee is allowed. 16. In the result, assessee’s appeal stands allowed. Order pronounced in the open court 26/10/2017 Sd/- Sd/- (�या$यक सद&य) (लेखा सद&य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp, Sr.P.S (दनांकः- 26/10/2017 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-Ramnath Jhunjhunwala, 4 Clyed Row, Hasting,Kolkata-22 2. ��यथ�/Respondent-ITO Ward-40(1), 3, Govt. Place (West0 Kolkata-001 3. संबं3धत आयकर आयु4त / Concerned CIT Kolkata 4. आयकर आयु4त- अपील / CIT (A) Kolkata 5. 7वभागीय �$त$न3ध, आयकर अपील�य अ3धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड< फाइल / Guard file. By order/आदेश से, Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ3धकरण, कोलकाता ।

RAMNATH JHUNJHUNWALA,KOLKATA vs. ITO, WARD 40(1), KOLKATA, KOLKATA