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

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.

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.

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.

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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

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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.

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

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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.

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

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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.

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.

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

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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.

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.

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.

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

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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.”

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

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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.”

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