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Income Tax Appellate Tribunal, ‘A’ BENCH
Before: Shri M.Balaganesh & Shri S.S.Viswanethra Ravi
This appal by the assessee is directed against the order dated 16-03-2016 passed by the Prl. Commissioner of Income Tax, Central, Kolkata-2, Kolkata for the assessment year 2012- 13.
In this appeal, the assessee has raised as many as eight grounds of appeal against which only effective ground is to be decided as to whether the Prl.CIT has rightly invoked his jurisdiction u/s. 263 of the Act in the facts and circumstances of the case.
According to Prl.CIT that the assessee had availed loan to an extent of Rs.23,25,000/- from M/s.SKG Flour Mills Pvt.Ltd, 1 | P a g e I T A N o . 1 0 1 2 / K o l / 1 6 M / s . J a g a d h a t r i T r a c o n P . L t d where the assessee said to have been held 20.23% of shares and was of the opinion that said transaction was not examined by the AO during assessment proceedings. Under show cause the assessee submitted that the said amount as found by the Prl.CIT was not a loan and it is covered by the current account wherein the Assessee and M/s. SKG Flour Mills P.Ltd was having their balances shifted, sometimes in favour of assessee and in favour of M/s. SKG Flour Mills Pvt. Ltd and pleaded that the said amount does not come under the ambit of section 2(22)(e) of the Act. The Prl. CIT not satisfied with the submissions and found the assessment under assessed and treated the same as ‘deemed dividend’ u/s. 2(22)(e) of the Act and declared the assessment order dated 27.03.2014 passed u/s. 153A/143(3) of the Act is erroneous and prejudicial to the interest of revenue and directed the AO to conduct necessary enquiry, verification of the same and to pass assessment order afresh as per law.
Before us the ld.AR submits that the Prl.CIT did not dispute the shifting of balance, ledger and other transactions as produced before him by the assessee. The Prl. CIT has also failed to appreciate the case laws as relied on by the assessee before him. The ld.AR further argued that a possible view substituting the view taken by the AO u/s. 263 in the assessment proceeding is not maintainable under the Act. In support of his contention, he relied on the orders dated 30-10- 2015,17.10.2014 & 17.10.2014 of ITAT Kolkata in the cases of Gayatri Chakraborty, Purushottam Das Mimani and Manish Mimani and referred to same at pages 28-67 of the asessee’s paper book filed before us.
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On the contrary, the ld.DR has relied on the order of the Prl.CIT.
Heard rival submissions and perused the material available on record. We find that a search and seizure operation was conducted u/s. 132 of the Act on REI Agro group on 15-06-2011, wherein the search warrant also executed on the assessee. During search operation the revenue found cash and other various documents in Assessee’s possession, which were seized. In response to notices issued u/s. 143(2) and 142(1) the assessee filed its return of income at Rs. Nil. In explanation, the assessee submitted that the cash belongs to M/s. REI Agro Ltd and not assessee. We also find from the said assessment order that all the details were examined randomly with the books of account and accepted the return of income as filed by the assessee at Rs. Nil. It is observed as rightly pointed out by the Prl.CIT in his order that there was no such discussion of examination in the assessment proceedings by the AO in respect of loan transactions, which said to have been occurred between the assessee and M/s. SKG Floor Mills Ltd. We are of the view that the AO did not examine the details of such transaction as pointed out by the Prl.CIT in his order by exercising his power u/s. 263 of the Act.
With regard to the decisions of the ITAT, Kolkata as relied on by the ld.AR in the case of Smt.Gayatri Chakravarthy supra the facts therein, where the assesse and one M/s. Bright Advt. P.Ltd. exchanged monies to each other. The AO found the same from ledger account of M/s. Bright Advertising Pvt. Ltd that the Assesse is a shareholder to an extent of 25.24% shares in M/s. Bright Advertising Pvt. Ltd and treated the same as loan within the meaning of section 2(22)(e) of the Act and the CIT-A deleted the same. In appeal by the revenue before the Tribunal the ld.AR therein argued the same as argued by the ld.AR before the Prl.CIT in the 3 | P a g e I T A N o . 1 0 1 2 / K o l / 1 6 M / s . J a g a d h a t r i T r a c o n P . L t d present case that it was a current account and in no way benefits the Assessee. We observe the same submissions as advanced by the AR of the Assessee before the Prl.CIT that all the transactions were occurred in current account and does not attract the provisions of section 2(22)(e) of the Act. The Co-ordinate Bench in the case of supra held that transaction in question therein does not benefit the Assessee as a share holder as the loan account is different from current account and transactions in current account does not attract the provisions of section 2(22)(e) of the Act. Thus, it appears that the AO did examine the details in respect of such transactions, which claimed to have been occurred between the assessee and M/s. Bright Advt. Pvt. Ltd therein.
In the present case, that the Prl.CIT as rightly pointed out that the AO did not discuss or made any reference to such details were examined by him is clearly evident from the assessment order. In such circumstances, We, prime facie, satisfied that the AO did not examine the details of such transactions as observed by the Prl.CIT. With regard to the contention of the learned AR that the view of the Prl.CIT was wrong in not considering the shifting of balance in current account and did not appreciate the fact the loan account is different from current account. In this regard, the power of this Tribunal is very limited is as to decide whether the Prl.CIT erred in treating the current account on par with loan account especially in an appeal assailing the order passed u/sec 263 of the Act. On the facts and circumstances of the present case, we are of the view that the AO ought to have made proper and adequate enquiries with regard to all the aspects set out in the show cause notice u/s.263 of the Act. The enquiry with regard to the such transactions by the AO during the year was inadequate and in the light of the decision of the ITAT Kolkata Bench in the case of Subhlakshmi Vanijya (P) Ltd., (2015) 124 DTR (Kol)(Trib.) 249, the enquiry cannot be said to be adequate and 4 | P a g e I T A N o . 1 0 1 2 / K o l / 1 6 M / s . J a g a d h a t r i T r a c o n P . L t d proper. In our view there has been failure on the part of the AO to make proper and adequate enquiries on the issues set out by the CIT in the show cause notice u/s 263 of the Act.
The circumstances pointed out by Prl.CIT in the show cause notice clearly warrant an enquiry by the AO before concluding the assessment on the various aspect set out in the show cause notice of the CIT u/s 263 of the Act. There has been a failure on the part of AO to make necessary and proper enquiries before concluding the assessment. We however find that the Hon’ble Calcutta High Court in the case of Maithan International 375 ITR 128 (Cal) has however taken a view that jurisdiction u/s 263 of the Act could be invoked when the AO fails to make an enquiry which he ought to have made in the given facts and circumstances of a case. We are therefore unable to accept the plea of the Ld. AR for the Assessee in this regard. As we have already mentioned, at this stage that we need not go into the merits of the issues raised by the Prl.CIT in the show cause notice u/s 263 of the Act because in the impugned order the AO has only been directed to examine the issues on merits after affording the assessee opportunity of being heard. In the given circumstances we are of the view that the assessee is at liberty to put forth of its claims on the merits of the issues before the AO in the assessment proceedings to be completed pursuant to the impugned order of Prl.CIT. In view of the aforesaid discussion, we feel appropriate to uphold the order of CIT u/s 263 of the Act and dismiss the appeal of the assessee.
Further, We are of the view that, exercise of Jurisdiction u/s 263 of the Act was fully justified. The decision of the Hon’ble High Court of Calcutta in the case of CIT Vs. Maithen International 375 ITR 123 (Cal), dealt with this aspect of lack of enquiry with even more stringent conditions. The assessee in that case obtained loans aggregating to Rs.1.60 crore from six private limited companies ranging between Rs.7 5 | P a g e I T A N o . 1 0 1 2 / K o l / 1 6 M / s . J a g a d h a t r i T r a c o n P . L t d lac to Rs.1.10 crore. These companies have filed their returns with nominal income. The AO mentioned in the assessment order that the Inspector was deputed to verify the fresh loans received during the years, who verified such loans and gave a positive report. Keeping such report on record, the AO accepted the genuineness of the transactions. The CIT invoked the powers u/s 263 in which it was observed that the report given by the Inspector was very elementary and simply mentioned that he had verified bank passbooks, profit & loss account and balance sheets of these companies. In none of the reports he had commented on the issue of credit worthiness of the parties. The CIT opined that the AO was required to make proper investigation to determine whether the loan was really made by the third party or it had come out of the resources of the assessee himself. When the matter came up before the Tribunal, the order u/s 263 was set aside by observing that the AO did conduct enquiry and: “if there is an enquiry, even inadequate, that would not by itself give occasion to the CIT to pass order u/s 263 of the Act.” Setting aside the order passed by the Tribunal, the Hon’ble jurisdictional High Court has laid down that: “CIT had reasons to hold that credit worthiness of the alleged lenders was not enquired into.” It further went on to hold that a mere examination of the bank passbook, profit & loss account and balance sheet is not enough. When the requisite enquiry was not made, the Hon’ble High Court held that the order was to be considered as erroneous and prejudicial to the interests of the Revenue. It set aside the view of the Tribunal on inadequate enquiry by holding that: “If the relevant enquiry was not made, it may in appropriate cases amount to no enquiry and may also be a case of non-application of mind.” It further observed that the question of inadequate enquiry should be understood in its proper perspective and: “if it can be shown that the inadequate enquiry led the AO or may have led into assumption of incorrect facts, that could make the order erroneous and prejudicial to the interests of the revenue.” Setting a bad trend is also prejudicial to the Revenue. 6 | P a g e I T A N o . 1 0 1 2 / K o l / 1 6 M / s . J a g a d h a t r i T r a c o n P . L t d
In view of the same, we find no irregularity in the impugned order passed by the Prl.CIT and it does not require any interference from this Tribunal, accordingly, the appeal filed by the Assessee fails and therefore, grounds raised thereon in support of the appeal are dismissed.