SONALI JEWELLERS,CUTTACK vs. PRINCIPAL CIT, CUTTACK CHARGE, CUTTACK

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ITA 162/CTK/2017Status: DisposedITAT Cuttack19 September 2017AY 2013-148 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Pr. CIT could not assume revisional powers merely because he believed further inquiries were necessary after the AO had already conducted some level of inquiry. The Pr. CIT failed to demonstrate that the AO's findings were erroneous and prejudicial to the revenue.

What were the facts?

The assessee claimed to have received substantial loans from two creditors. The Principal Commissioner (Pr. CIT) initiated revision proceedings under Section 263, believing the Assessing Officer (AO) had not conducted adequate inquiries into the genuineness and creditworthiness of these loan transactions.

What were the issues?

Whether the Pr. CIT was justified in invoking Section 263 powers when the AO had conducted some inquiry, and whether the Pr. CIT can direct further inquiry if he believes it's needed, rather than showing the AO's order was erroneous.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(3),Section 133(6)

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Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK

Before: S/SHRI N.S SAINI & PAVAN KUMAR GADALE

For Appellant: Shri D.K.Sheth, AR
For Respondent: Shri Kunal Singh, CIT DR
Hearing: 28/08

Per N.S.Saini, AM

These are appeals filed by the assessee against the separate orders

u/s.263 of the I.T.Act, 1961 of the Pr. CIT, Cuttack both dated 23.3.2017

for the assessment years 2012-13 & 2013-14, respectively.

2.

The sole issue involved in both the appeals is that the Ld Pr. CIT,

Cuttack was not justified in passing order u/s.263 of the I.T.Act, setting

aside the order of the Assessing Officer passed u/s.143(3) of the Act

dated 15.3.2016 for the assessment year 2013-14 and dated 30.3.2016

for the assessment year 2014-15.

3.

The brief facts of the case are that the Pr. CIT, Cuttack observed

that the assessee, M/s. Sonali Jewellers has claimed to have received loan

of Rs. 1,82,00,000/- from the loan creditor, M/s Pyramid Suppliers Private

Ltd., during the previous year relevant to the assessment year 2012-13.

2 ITA Nos. 162 & 163/CT K/ 2017 Asse ssment Years : 2 013 -14 & 20 14- 15

He also noticed that the assessee has claimed to have received loan of Rs.

2,62,00,000/- from the same loan creditor for the assessment year

2013-14 and Rs.1,20,00,000/- in the assessment year 2014-15 from the

same creditor, which was accepted without causing necessary

enquiry/verification in regards the genuineness of transaction and

creditworthiness of the loan creditor. He further observed that on

examination of case record for assessment year 2013-14 of the assessee,

it was found that the Assessing Officer has not verified the case records of

Mr Gunvantrai Seth for the assessment year 2012-13 to be satisfied about

the assets and liabilities of the proprietorship concern M/s. Sonali

Jewellers, transferred to the firm as a going concern. Due to this lapse

on his part, he failed to take notice of the fact available on record. He

further observed that the claim of loan from these loan creditors was not

accepted as genuine as there was failure on the part of the loan creditor

to confirm the transaction independently when notice u/s 133(6) was

issued to it and the assessee was unable to explain such lapse on the part

of the loan creditor. The Assessing Officer had only obtained confirmation

letter, audited accounts for the assessment year 2012-13 of the loan

creditor from the assessee and has not caused any enquiry. Thus, this

aspect is required to be examined. He further observed that the assessee

has claimed to have received loan of Rs.30,00,000/ M/s Spice Merchants

Private Ltd., during the assessment year 2013-14 and was repaid during

the year. From the records, it is observed that no due enquiry has been

3 ITA Nos. 162 & 163/CT K/ 2017 Asse ssment Years : 2 013 -14 & 20 14- 15

made regarding genuineness of transaction and creditworthiness of loan

availed from M/s. Spice Merchants Private Ltd. The Assessing Officer has

accepted the claim of the assessee without causing necessary

enquiry/verification in regards the genuineness of transaction and

creditworthiness of the so called loan creditor. It is established that this

aspect is required to be examined and, therefore, he cancelled the

assessment order passed u/s.143(3) of the Act dated 15.3.2016 for the

assessment year 2013-14 and dated 30.3.2016 for the assessment year

2014-15.

4.

Before us, ld A.R. of the assessee argued that the Pr. CIT, has set

aside the orders of the Assessing Officer for the assessment years under

consideration without pointing out how the order passed by the Assessing

Officer was erroneous as well as prejudicial to the interest of the Revenue

when he had made due enquiry during the course of assessment

proceedings by issuing notice u/s.142(1) of the Act on 28.7.2015 in

assessment year 2013-14 and on 20.11.2015 in assessment year 2014-

15, copies of which are placed on record at pages 14 & 15 of the paper

book and pages 13 & 14 of paper book respectively. The assessee made

compliance in response to the same by submitting his reply which is

placed at pages No.12 & 13 and pages 11 & 12 of paper book

respectively. Hence, it was his arguments that the Assessing Officer after

examining the loan taken by the assessee during the course of

assessment proceedings and being satisfied has not made any addition

4 ITA Nos. 162 & 163/CT K/ 2017 Asse ssment Years : 2 013 -14 & 20 14- 15

there against. Ld Pr. CIT was not justified in passing the orders u/s.263

of the Act and setting aside the orders of the Assessing Officer of the

impugned assessment years on the ground that due enquiry was not

made by the Assessing Officer, therefore, the order of the Pr. CIT should

be set aside.

5.

On the other hand, ld D.R. fully justified the order of the Pr. CIT.

6.

We have heard the rival submissions, perused the orders of lower

authorities and materials available on record. We find that the assesse

firm has taken loan of Rs.2,62,00,000/- from M/s. Pyramid Suppliers Pvt

Ltd., during the assessment year 2013-14 and loan of Rs.1,20,00,000/-

during the assessment year 2014-15. Further, the assessee has taken

loan of Rs.30 lakhs from M/s. Spice Merchants Private Limited during the

assessment year 2013-14, which was also repaid within the same year.

These loans were accepted by the Assessing Officer in the assessment of

respective assessment year. The ld Pr. CIT considered the orders of the

Assessing Officer as erroneous and prejudicial to the interest of the

revenue in respect of above loans. According to ld Pr. CIT, the assessee

firm was formed by taking over assets and liabilities of proprietorship

concern of Mr Gunvantrai Seth as a going concern. In the case of

Gunvantrai Seth for the assessment year 2012-13, the loan taken from

Pyramid Suppliers Pvt. Ltd., was not accepted as the said loan creditor

failed to respond to the notice issued u/s.133(6) of the Act. The appeal

filed against the said assessment is pending before the appellate

5 ITA Nos. 162 & 163/CT K/ 2017 Asse ssment Years : 2 013 -14 & 20 14- 15

authority. In the opinion of ld Pr. CIT, the Assessing Officer made no

enquiry before accepting the above loans in assessment years 2013-14

and 2014-15. The Assessing Officer has given no reason in the orders of

assessment for accepting the said loans and, therefore, the said orders of

assessment are erroneous and prejudicial to the interest of the revenue.

7.

It is observed that the assessee submitted before the Pr. CIT during

the proceedings u/s.263 that the Assessing Officer required the assessee

to submit evidence in respect of loans in question. The assessee pointed

out that in pursuance of the above enquiry made by the Assessing Officer,

the assessee submitted before the Assessing Officer copies of bank

statement of both loan creditors from whom loans in question were

received by the assessee and confirmation of both loan creditors. The

Assessing Officer after going through these materials and having satisfied

with the genuineness of the transaction accepted the same. Ld Pr. CIT

after considering the submission of the assessee, could not point out any

error therein. Further, in the opinion of ld Pr. CIT, the Assessing Officer

ought to have made further enquiries in respect of above loan transaction

and, therefore, he interfered in the order of the Assessing Officer and

directed the Assessing Officer to reframe the assessment in respect of

above issues.

8.

We find that it is clear from the facts that the instant case is not a

case of lack of enquiry. The Pr. CIT has not disputed the fact that the

Assessing Officer has made enquiry in respect of loans in question. In the

6 ITA Nos. 162 & 163/CT K/ 2017 Asse ssment Years : 2 013 -14 & 20 14- 15

opinion of ld Pr. CIT, the Assessing Officer ought to have made further

enquiries and, therefore, he set aside the orders of the Assessing Officer.

In our considered view, the Pr. CIT can pass an order u/s.263 in a case

where enquiry was conducted by the Assessing Officer only when Pr. CIT

after making some enquiry comes to a conclusion that the findings or

conclusion of the Assessing Officer is both erroneous and prejudicial to

the interest of the Revenue.

9.

Further, it is also established position of law that the Assessing

Officer is not required to record his reason in the order of assessment in

respect of issues where he is satisfied with the view canvassed before

him.

10.

We find that in the instant case, Ld Pr. CIT could not bring any

material on record after making any enquiry to show that the conclusions

arrived at by the Assessing Officer in respect of loans in question was

erroneous as well as prejudicial to the interest of the revenue.

11.

We find that in the case of Director of Income Tax vs Jyoti

Foundation, 357 ITR 388 (Del), Hon’ble High Court has held that

“Revisionary power under section 263 of the Income Tax Act, 1961 is

conferred by the Act on the Commissioner/Director of Income tax when

an order passed by the lower authority is erroneous and prejudicial to the

interests of the Revenue. Orders which are passed without inquiry or

investigation are treated as erroneous and prejudicial to the interests of

7 ITA Nos. 162 & 163/CT K/ 2017 Asse ssment Years : 2 013 -14 & 20 14- 15

the Revenue, but orders which passed after inquiry/investigation on the

question/issue are not per se or normally treated as erroneous and

prejudicial to the interests of the Revenue because the revisionary

authority feels and opines that further inquiry/investigation was required

or deeper or further scrutiny should be undertaken. In cases where there

is inadequate inquiry but not lack of enquiry, the Commissioner must

record a finding that the order/inquiry made is erroneous. This can

happen if an enquiry and verification is conducted by the Commissioner

and he is able to establish and show the error or mistake made by the

AO, making the order unsustainable in law. An order of remit cannot be

passed by the Commissioner to ask the Assessing Officer to decide

whether the order was erroneous.”

12.

In the case of Income Tax Officer vs DG Housing Projects

Ltd., 343 ITR 329 (Del), Hon’ble Delhi High Court has held that “ A

distinction must be drawn in the cases where the Assessing Officer does

not conduct an enquiry; as lack of enquiry by itself renders the order

erroneous and prejudicial to the interests of the Revenue and cases where

the Assessing Officer conducts an enquiry but the finding recorded is

erroneous and which is also prejudicial to the interests of the Revenue. In

the latter cases, the Commissioner has to examine the order or the

decision taken by the Assessing Officer on the merits and then form an

opinion on the merits that the order passed by the Assessing Officer is

8 ITA Nos. 162 & 163/CT K/ 2017 Asse ssment Years : 2 013 -14 & 20 14- 15

erroneous and prejudicial to the interests of the Revenue. In the second

set of cases, the Commissioner cannot direct the Assessing Officer to

conduct further enquiry to verify and find out whether the order passed is

erroneous or not.”

13.

In view of above, we set aside the order of the ld Pr. CIT and allow

the appeal of the assessee.

Order pronounced in the open court on 19 /09/2017.

Sd/- sd/

(Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER

Cuttack; Dated 19 /09/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Sonali Jewellers, Naya Sarak, Cuttack 2. The respondent : ITO, Ward -2(3), Cuttack 3. The CIT(A)- Cuttack 4. Pr.CIT- Cuttack 5. DR, ITAT, Cuttack BY ORDER, 6. Guard file. //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack

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