M/S SHREE SAIBABA CONSTRUCTION,,NAGPUR vs. CIT-IV,, NAGPUR

PER AMARJIT SINGH, J.M.

The assessee has filed the present appeal against the impugned

order dated 20th March 2014, passed under section 263 of the Income

Tax Act, 1961 (for short “the Act”) by the learned Commissioner of

Income Tax–VI, Nagpur, relevant to the assessment year 2009–10.

below:–

“1. The order passed by the CIT u/s 263 of the Act is illegal, without jurisdiction and void ab initio;

2 M/s. Shree Saibaba Construction

2 On the facts and circumstances of the case, provisions of section 263 is not applicable.

The case was selected for scrutiny and the assessment was completed under section 143(3) of the Act, determining total income of `

1,47,98,682. The Assessing Officer observed that the assessee has debited expenses of Rs. 5,10,46,326 under the head “URD purchase”. Out of these purchases, the Assessing Officer had examined purchases of ` 1,01,57,105 in detail and found that 60% of these were bogus and

non–genuine purchases. The Assessing Officer, therefore, made an addition of ` 61,00,242 on account of bogus and non–genuine

purchases.

3 M/s. Shree Saibaba Construction passed by the Assessing Officer is erroneous inasmuch as it is

prejudicial to the interests of Revenue for the reasons that the

Assessing Officer was required to disallow 60% of the total URD purchase of Rs.` 5,10,46,326 instead of restricting to the extent of

60% of the purchases actually verified (i.e., ` 1,01,57,105). The

learned Commissioner considered the assessment order prima–facie

erroneous and prejudicial to the interests of Revenue, therefore notice under section 263(1) was issued to the assessee on 5th April 2013, to

show cause as to why the assessment order passed under section 143(3) on 30th December 2011 should not be set aside. In response

to the said notice of the learned Commissioner, the assessee filed a

detailed reply objecting to the initiation of proceedings under section

263 of the Act. The contentions of the assessee submitted before the

learned Commissioner are reproduced below:–

“3. In response to the notice, Shri Vivek Tiwari, C.A., and Authorized representative of the assessee, attended and filed a written submission on 18/03/2014, which is reproduced as under:- "With reference to Notice u/s 263 the assessee makes the following submission. During the course of assessment proceeding the assessing officer examines the total unregistered purchases 'URD' of an amount of Rs. 51,046,326.00/-. From these purchases the assessing officer asked for details of following purchases:-

Name Total URD Total Payment Purchases (` ) (` ) Shri Meshram 7,25,000/- 7,25,000/- Vaishnavi Construction 66,08,370/- 48,24,507/-

4 M/s. Shree Saibaba Construction

Shri Laxmikant Jibhkate 28,38,982/- 28,38,982/- Anil Bhutani 65,053/- 65,053/- Bapu Mohad 3,37,700/- 3,37,700/- Shyam Borikar 7,00,000/- 7,00,000/- K. Sivesh 58,000/- 58,000/- Deepak Agrawal 24,000/- 24,000/- Total 10,14,57,105/- 83,73,242/-

After examining them she disallowed the following purchases totaling to Rs. 61,00,242.00/-.

The notice u/s 263 states as under, that you have debited expenses of Rs. 5,10,46,326/- under the head- URD purchases. Out of these, A.O. had examined URD purchases of Rs. 1,01,57,105/- in detail and found that about 60% of these were bogus and non - genuine purchases. The AO, therefore, made an addition of Rs. 61,00,242/- on account of bogus and no-genuine purchases. However, the A.O. has not verified the genuineness of the balance URD purchases of Rs. 4,08,89,2277-As 60% of the purchases were found to be bogus and non- genuine, the possibility of bogus and non-genuine purchases in the balance URD purchases of Rs. 4,08,89,22,100/- cannot be ruled out.

It is wrong to state that the Income tax officer examined only Rs. 101,57,105.00/- and she has not examined the balance purchases URD. Therefore the order is prejudicial to the interest of revenue.

In fact the assessing officer examined URD purchases at Rs. 5,10,46,326.00/- and required the assessee to furnish the details of the eight creditors against URD purchases detailed above. Out of these purchases the assessing officer eventually disallowed Rs. 61,00,242.00/- as discussed in page 32 of the order. So the position is where the assessing officer examined the entire URD purchase of Rs. 5,70,46,32,600/- out of which she had only found items of purchase to the extent of Rs.101,57,10,500/- as verifiable and ultimately out of that assessing officer disallowed only Rs. 67,00,242.007-. So there is no question of 60% anywhere in the order. That the assessing officer examined the entire purchases and initially found out, that following purchase material above to the extent of Rs. 101,57,10,500/- was doubtful and after further examination disallowed only a part of it. It is a two stage screening of the purchases. That is to say out of the Rs. 5,70,46,32,600/- she found only Rs. 707,57,70,500/- as worthy of detailed examination and after that the addition was made of Rs. 67,00,24,200/-. It is therefore very incorrect to say that the assessing officer examined

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only 20% of purchases. This is only a presumption that only partly URD purchases were examined.

Alternatively, even otherwise there is a presumption that when an order is u/s 143 (3) is made the ITO has examined all aspects and the order has been passed considering all the aspects of the matter vide CIT v/s Kelvinator of India Ltd 256 ITRpage 19 (delhi) (FB) vide last para.

This decision was approved by Supreme Court in the same case reported in 320ITR page 561 further same principal has been adopted in the case of by the Bombay high court 308ITR 190 & 195.

1) Asteroids trading & investment Pvt Ltd Vs Deputy Commissioner of Income Tax.

2) Asian Paints Ltd. Vs Deputy commissioner of income tax and another."

5.1. The assessee's submission has been duly considered. In its submission, the assessee has stated that the AO has examined the entire URD purchases of Rs. 5.10 crores and after finding that the purchases to the tune of Rs. 1.01 crores are doubtful and worthy of detailed examination, she has required the assessee to furnish the details of 8 creditors of the said URD purchases relating to which a disallowance of Rs.61 lacs has been made. The assessee submitted that it is incorrect to say that the AO has examined only 20% of purchases. The assessee's contention is not acceptable as the facts point otherwise. It is useful to mention here that in its 'contract account' the assessee has shown contract receipts of Rs. 11.63 crores and debited an amount of Rs. 5.10 crores on account of 'URD purchase'. During the course of scrutiny proceedings, the AO resorted to verification by test check basis. The counsel of the assessee was asked to produce supporting bills and vouchers in respect of 8 parties relating to such purchases. However, as mentioned in paragraph 4.1 of the assessment order, the counsel could not produce a single document stating that the bills and vouchers have been displaced. Subsequently, the AO issued summons to these 8 parties. It is interesting to note that out of these 8 parties, 5 parties denied having supplied any material to the assessee and one person did not attend the proceedings. Of the remaining two parties, one Vaishnavi Construction informed the AO that no books of accounts were maintained by it. During his statement Shri Sandip Narad (Karta of M/s Sandip Narad HUF which is proprietor of Vaishnavi Construction) stated that no bills have been issued to the assessee firm in respect of the material sold to the assessee. He also informed the AO that no sales were

6 M/s. Shree Saibaba Construction

made to any other party other than the assessee. The remaining person from whom the assessee has claimed to have made URD purchases is Shri Laxman Jibhkate. In his statement Shri Laxman Jibhkate stated that no sales have been made by him to the assessee. He further stated that payments were received by way of cheques in his bank accounts and that he had withdrawn the same in cash and returned the cash to the assessee after retaining 5% of the amount as commission. He also stated that no bills were issued by him to the assessee. After examining these 8 parties, the AO came to conclusion that the expenses towards purchases shown to have been made from these 8 parties amounting to Rs. 61 lacs are required to be disallowed. The AO accordingly made an addition of Rs. 61 lacs on this ground.

5.2. In view of the above position, the assessee is not right in stating that the AO has examined the entire URD purchases of Rs. 5.10 crores. In fact, the AO has examined the purchases which are stated to have been made by the assessee from 8 parties on purely test check basis. There is nothing on record to indicate that the entire URD purchases have endured the rigours of AO's scrutiny. As the AO has examined on test check basis the URD purchases totaling Rs. 1.01 crores of which she found purchases to the tune of Rs. 61 lacs as bogus and non-genuine, the AO was required to disallow 60% of the total URD purchases of Rs. 5.10 crore instead of limiting the disallowance to the purchases in respect of the aforesaid 8 parties examined by her. In this view of the matter, the order dated 30.12.2011 passed by the AO is erroneous. Further, as the same has resulted in loss of tax the order is also prejudicial to the interest of revenue.

5.3. In its written submission, the assessee has quoted the case of CIT v/s Kelvinator of India Ltd (256 ITR 1) and two other cases. The same are not relevant here. The said cases relate to reassessment proceedings to the effect that a mere change in the opinion would not confer jurisdiction upon the Assessing Officer to initiate a proceeding under section 147. It has been held in the said case that “It is a well-settled principle of law that what cannot be done directly cannot be done indirectly. If the ITO does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake. In a case of this nature the revenue is not without remedy. Section 263 of the Act empowers the Commissioner to review an order which is prejudicial to the revenue". In the present case, taking recourse to the revisional jurisdiction, the order passed by the A.O. has been established to be both erroneous and prejudicial to the interest of revenue and, therefore, the cases cited by the assessee does not come to its rescue. It is pertinent to mention here that in the case of Malabar

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Industrial Co. Ltd. v. Commissioner of Income-tax, while deliberating upon the provisions of section 263, the Hon'ble Supreme Court has held as under:–

"There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.

The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhov & Co. v. S.P. Jain [1957] 31ITR 872, the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422 , the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 208 and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81/ 79 Taxman 184 treated loss of tax as prejudicial to the interests of the revenue".

Income–tax set aside the assessment order dated 30th December

2011, passed by the Assessing Officer and directed him to pass the

order after examining the issue afresh. Aggrieved, the assessee is in

appeal before us.

submitted that the issue in disputed is covered by decision of Hon’ble

8 M/s. Shree Saibaba Construction Jurisdictional High Court in the case of MOIL Ltd. in ITA No.67/2016 vide order dated 26th April 2017. He submitted that the learned Commissioner has concluded that the Assessing Officer has not examined complete URD purchases, therefore, the order passed by the Assessing Officer is erroneous and prejudicial to the interests of Revenue. The learned Counsel submitted that the assessment was framed after in-depth enquiry and examining all the issues. The assessment so framed is running in to 35 pages after making addition of ` 122.73 lakh. The Assessing Officer has discussed the addition at

Pages–24 to 32 of the assessment order and observed that the total URD purchases claimed are ` 5,10,46,326. The Assessing Officer after

examining details made disallowance of ` 61,00,242. The learned

Counsel further submitted that the Assessing Officer in the course of assessment proceeding had examined the URD purchases. The Assessing Officer vide notice under section 142(1) dated 2nd August 2011 called the assessee to give details of material purchases. The learned Counsel submitted that the Assessing Officer in the course of assessment proceeding had examined the URD purchases and proceeded to make the disallowance at ` 61,00,242 at the time of

framing of assessment out of claim of deduction at ` 5,10,46,326. The

9 M/s. Shree Saibaba Construction

disallowance made by the Assessing Officer is discussed at Para–4 of

the assessment order. He submitted that in view of above conclusion

drawn by the learned Commissioner that such expenditure is not

examined by Assessing Officer is factually incorrect and the order

passed by the Assessing Officer allowing part deduction on account of

URD purchases expenses cannot be termed as “erroneous or

prejudicial” to the interest of Revenue. Therefore, the impugned order

passed by the learned Commissioner under section 263 of Act is not

justified. The learned Counsel submitted that the Assessing Officer has

made due enquiries in the matter and assessee has submitted details

in response to same and it is not the case of no enquiry. It is

submitted by the learned Counsel that on the above undisputed factual

position order passed by Assessing Officer cannot be considered to be

passed without proper examining URD purchases expenses and thus is

beyond the scope of the provisions of section 263 of Act. The learned

Counsel for assessee in support of the contention, relied upon the

following case laws:–

i) Hon'ble Bombay High Court, Nagpur Bench, order in ITA No.67/ 2016 in the case of MOIL Limited vide order dated 26/04/2017. ii) 96 CCH 0199 (Bom.) CIT vs. Nirav Modi

iii) Petition(s) for Special Leave to Appeal CC No.(s) 22149/2016 in the case of Nirav Modi vide judgment dated 28/01/2016. iv) CIT v/s Fine Jewellery (India) Ltd. (2015) 372 ITR 0303 (Bom.)

10 M/s. Shree Saibaba Construction v) Vodafone Essar South Ltd. vs. CIT (2011)141 TTJ 0084 (Del.) vi) Gupta International vs. ITO (2010)2 ITR 0428 (Del.); vii) Mr. Rajesh Kumar, ITAT order in ITA No.462/Hyd./2015 in the case of vide order dated 05/02/2016.

order passed by the learned Commissioner of Income–tax and submitted that the Income tax officer examined only ` 101,57,105.00

and she has not examined the balance purchases URD, therefore, the

order is prejudicial to the interest of revenue.

available on record. The learned Commissioner, while passing order

under section 263 of the Act, has concluded that the Assessing Officer

has not examined complete URD purchases and therefore, order

passed by the Assessing Officer under section 143(3) of the Act is

erroneous inasmuch as it is prejudicial to the interests of Revenue. The

learned Commissioner, after considering the submission of assessee,

has set aside the issue to the file of Assessing Officer to make

assessment afresh after verifying URD Purchases. In the facts of present case, the URD purchases claimed were ` 5,10,46,326. The

Assessing Officer has examined the entire URD purchased and after identifying ` 1,01,57,105, has made addition of ` 61,00,242 at 60% in

11 M/s. Shree Saibaba Construction the assessment framed. It is also seen from record that notice under section 142(1) has been issued by the Assessing Officer on 02nd

August 2011 calling for details as regard to material purchase. In the

reply to said notice, the assessee has duly submitted the complete

details including details as to URD purchases made. The Assessing

Officer after examining the details submitted by assessee has made disallowance at ` 61 lakh out of claim of deduction in respect to URD

purchases in the assessment framed. The Assessing Officer discussed

the disallowance out of URD purchases made at Para–4 of the assessment order. The order sheet entry on 5th December 2011, notes

that ledger account of URD purchases was seen. The evidence on

record clearly depicts that URD purchases were completely examined.

The enquiry made by Assessing Officer and submissions of assessee

make it clear that the conclusion of learned Commissioner that the

Assessing Officer has not examined complete URD purchases is

factually incorrect. The order passed by Assessing Officer cannot be

termed as “erroneous and prejudicial to the interest of Revenue” as

the order passed by the Assessing Officer was after due enquiries and

verification as regard to claim of URD purchases. The Hon’ble

Jurisdictional High Court in the case of MOIL Ltd. in ITA No.67/2016 dated 26th April 2017 has considered similar circumstances and

12 M/s. Shree Saibaba Construction

concluded that order passed under section 263 was not in accordance

with law It has been held at Para–5 of judgment as under:–

“5. On a perusal of the orders passed by the Authorities, it appears that before the assessment order was passed, a notice was served on the assessee under Section 142 (1) of the Act and 20 queries retaining to different heads were made therein. The ninth query in the notice under Section 142 (1) of the Act pertains to the expenditure for the Corporate Social Responsibility. By the said query, the assessee was directed to give a detailed note of expenditure for the Corporate Social Responsibility along with bifurcation of the expenses under different heads. An exhaustive reply was submitted by the assessee to the notice under Section 142(1) of the Act. In paragraph 8 of the reply, the assessee gave the detailed note pertaining to the expenditure for the Corporate Social Responsibility under different heads that runs into several pages. The heads under which the expenses were made towards the Corporate Social Responsibility were specifically mentioned as health, environment, sports, education etc. and for each of the different heads, particulars were given in respect of every minor or major expenses. A detailed note on the expenditure on the Corporate Social Responsibility claim was given in paragraph 8 which runs into more than five pages. It is not disputed that the appellant assessee is a Government of India undertaking and the Government has a control over the expenses of the undertaking. It is pertinent to note that during the previous assessment years, similar claims were made by the assessee Company and the assessment orders allowing the claims have attained finality. We have minutely perused the assessment order. The claims for deductions were made by the assessee at least under 20 heads and queries were made in the notice under Section 142 (1) of the Act to the assessee in respect of nearly all of them. We, however, find from the assessment order that the Assessing Officer has dealt with nearly nine claims of deductions. These claims have been specifically mentioned in the assessment order and they have been discussed therein because the Assessing Officer appears to have disallowed those claims either partially or totally. In respect of the claim for the Corporate Social Responsibility and some other claims that were allowed by the Assessing Officer, the Assessing Officer has not made a specific reference in the assessment order. It is apparent from the assessment order that the Assessing Officer has expressed in detail about the claims that were disallowable. Where the claims were allowable, as we find from the reading of the assessment order, the Assessing Officer has not referred to those claims. The Corporate Social Responsibility claim is one of them. It is apparent from the notice

13 M/s. Shree Saibaba Construction

under Section 142 (1) of the Act that a specific query in regard to the claim pertaining to the Corporate Social Responsibility was made and a detailed note after giving bifurcation of the expenses under different heads was sought. We have perused the response in respect of this query which is exhaustive. We find that the assessee has given the details, as are sought under query no.9 in the notice under Section 142 (1) of the Act. If that is so, the judgments, reported in (2015) 372 ITR 303 (Bom.) and (2016) 138 DTR 81 (Bom.) and on which the learned Counsel for the assessee has placed great reliance would come into play. It is held in the judgments referred to herein above by relying on the judgment in the case of Idea Cellular Ltd. (Supra) that if a query is raised during the assessment proceedings and the query is responded to by the assessee, the mere fact that the query is not dealt with in the assessment order would not lead to a conclusion that no mind has been applied to it. In the case of Fine Jewellery (India) Ltd. (Supra) this Court found that from the nature of the expenditure as explained by the assessee in that case the Assessing Officer took a possible view and therefore, it was not a case where the provisions of Section 263 of the Act could have been resorted to. Considering the explanation of the assessee in this case, we are also of the view that the Assessing Officer had taken a possible view. In the case of NiravModi (supra) this Court held that the Tribunal was justified in that case in cancelling the order under Section 263 of the Act as the assessee had responded to the query made to it during the assessment proceedings and merely because the assessment order did not mention the same, it would not lead to a conclusion that the Assessing Officer had not applied his mind to the case. In the instant case we find that the Assessing Officer has applied his mind to the claims made by the assessee and wherever the claims were disallowable they have been discussed in that assessment order and there is no discussion or reference in respect of the claims that were allowed. In view of the law laid down in the judgments in the case of Fine Jewellery (India) Ltd. (Supra) and NiravModi (Supra) it would be necessary to hold that in thecircumstances of the case, it cannot be said that merely because the Assessing Officer had not specifically mentioned about the claim in respect of the Corporate Social Responsibility, the Assessing Officer had passed the assessment order without making any enquiry in respect of the allowability of the claim of Corporate Social Responsibility. In our view, the provisions of Section 263 of the Act could not have been invoked by the Commissioner of Income Tax in the circumstances of this case. The Tribunal was not justified in holding that the query under Section 142 (1) of the Act was very general in nature and the reply of the assessee was also very general in nature. In our considered view, the query pertaining to Corporate Social Responsibility was exhaustively answered and the appellant –

14 M/s. Shree Saibaba Construction

assessee had provided the data pertaining to the expenditure under each head of the claim in respect of Corporate Social Responsibility, in detail. The Tribunal was not justified in holding that the reply/explanation of the assessee was not elaborate enough to decide whether the expenditure claim was admissible under the provisions of the Income Tax Act. The Assessing Officer is not expected to raise more queries, if the Assessing Officer is satisfied about the admissibility of claim on the basis of the material and the details supplied. In the facts and circumstances of the case, we answer the question of law in the negative and against the Revenue.”

applies to the facts in case of assessee. In the present case, complete

URD purchases were examined and part disallowance was made by the

Assessing Officer. The view taken by the Assessing Officer by making

part disallowance is possible view on the matter and the order passed

by the Assessing Officer cannot be termed as erroneous and prejudicial

to the interest of Revenue. Considering the totality of facts and

circumstances in the case of assessee and respectfully following the

judgment of Hon’ble Jurisdictional High Court, we hold that learned

Commissioner (Appeals) is not correct in holding that order of the

Assessing Officer is erroneous and prejudicial to the interest of the

revenue. In view of above, we hold that the order passed by learned

Commissioner (Appeals) under section 263 of the Act is unsustainable

and is hereby ordered to be set aside. The grounds of appeal raised by

the assessee are allowed.

15 M/s. Shree Saibaba Construction

Order pronounced in the open Court on

Sd/- Sd/- P.K. BANSAL AMARJIT SINGH VICE PRESIDENT JUDICIAL MEMBER

NAGPUR, DATED:

Copy of the order forwarded to:

(1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary

(Dy./Asstt. Registrar) ITAT, Nagpur

Date Initial

Draft proposed & placed 3. before the second – – JM/AM member

Draft discussed/approved 4. – – JM/AM by Second Member Approved Draft comes to 5. 27.06.2017 Sr.PS the Sr.PS/PS 6. Date of pronouncement 27.06.2017 Sr.PS