TIRUPATI INFRAPROJECTS PVT. LTD.,NEW DELHI vs. PR. CIT, NEW DELHI

We have heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.

The facts in brief are that search and seizure operations under section 132 of the Income-tax Act, 1961 was conducted at the premises in Paschim 2 Vihar, New Delhi as well as in the business premises of the assessee along with Mera Baba Group of cases (main Jagat Group). In response to the notice issued under sec. 153A of the Act, the assessee requested to adopt the return already filed under section 139 of the Act at the income of Rs.15,088. The assessment was accordingly framed under sec. 153A /143(3) of the Act on 28.3.2013 accepting the returned income. On examination of assessment records, the learned Principal Commissioner observed that the assessment order was erroneous as well as prejudicial to the interest of the Revenue to the extent that assessment was completed without proper inquiry/examination/verification. A show-cause notice under section 263 of the Act was issued to the assessee as to why the assessment order passed may not be considered as erroneous and prejudicial to the interest of Revenue as per the provisions of sec. 263 of the Act. In response, the assessee furnished its reply and objected the proceedings. The learned Principal Commissioner did not agree and after discussing the submissions made by the assessee, he has set aside the assessment order on two issues mentioned in the order impugned, with direction to the Assessing Officer to frame the assessment afresh as per the provisions of the Act after affording the assessee an opportunity of being heard and after making proper making inquiries and verifications. As per the order impugned, the said two issues 3 are (i) acceptance of genuineness and creditworthiness of Rs.41,50,000 without verification by the Assessing Officer due to incomplete details and (ii) the name and address of the parties from whom the assessee received an entry of Rs.20 lacs has not been inquired into and no investigation or inquiry was conducted in order to ascertain the nature, genuineness and creditworthiness of the transaction despite the fact that a detailed report was received from the investigation wing was available with the Assessing Officer.

In support of the grounds, the Learned AR contended that the revision was proposed by the same DCIT who had passed assessment order dated 28.3.2013 under sec. 153A/143(3) of the Act about two months back citing the reasons that the assessee had not filed details of unsecured loans amounting to Rs.41,50,000 during the course of assessment proceedings. It is totally wrong since assessee had furnished all the requisite details of unsecured loans during assessment proceedings. He submitted that no incriminating material was found during the course of search. He referred page Nos. 1 to 13 of the paper book which are copies of acknowledgement of return of income along with computation of income; audited balance sheet and profit and loss account along with auditor’s report; notice dated 4 04.11.2012 issued under sec. 153A of the Act; notice under section 143(2) of the Act dated 23.4.2012 and notice under sec. 142(1) dated 17.12.2012. The Learned AR drew our attention to the question Nos. 11 and 12 of the notice dated 17.12.2012 issued by the Assessing Officer to the assessee asking for the details of unsecured loans taken or accepted during the year (including squared up accounts) in the prescribed format along with supporting documentary evidence regarding identity and creditworthiness of the lenders and genuineness of transaction (Question No.11) and to furnish the details of share capital/share application money/share premium received during the year in the prescribed format along with supporting documentary evidence regarding identity and creditworthiness of share application and genuineness of transaction (Question No. 12). The Learned AR also referred page Nos. 14 & 15 of the paper book i.e. copy of the reply dated 05.02.2013, acknowledged by the Office of the A.O. giving the details of unsecured loans taken or given along with their names, address, PAN and duly confirmed by them enclosed with the letter. At page Nos. 16 to 33 have been placed the details of shareholders, list of transfer, details of unsecured loans as on 31.3.2007 along with confirmation, reply dated 20.2.2013 filed before Assessing Officer along with copy of details of unsecured loans as on 31.3.2007 with ledger accounts. He submitted that these documents were 5 filed before the Assessing Officer as required by him and being satisfied therewith the Assessing Officer did not make any addition doubting the claimed transaction. The Learned AR submitted that the above facts were brought to the notice of the learned Principal Commissioner vide letter dated 17.2.2015 and 04.03.2015 in reply to the show-cause notice issued under section 263 of the Act that the assessee had filed all the details of unsecured loans during assessment proceedings. The Learned AR submitted that while putting the proposal for revision, the Assessing Officer has mentioned that due to oversight/heavy work load, he could not make the addition and he deeply regret for the error. He contended that such type of excuse does not have any value in the eyes of law and at least assessee should not suffer for such type of negligence of a senior officer in the rank of DCIT who was the Assessing Officer in the present case. The Learned AR contended further that there is distinction between lack of inquiry and inadequate inquiry. The excuse of inadequate inquiry by itself does not give occasion for invocation of the provisions laid down under sec. 263 of the Act merely because the Commissioner has a different opinion the matter. He pointed out that in the assessment for the assessment year under consideration i.e. assessment year 2007-08 framed under section 153C/153A of the Act in the case of alleged paper company M/s. Hillridge Investment Ltd. in transaction of Rs. 20 lacs 6 with the assessee. No such addition has been made. A copy of the said assessment order dated 28.3.2013 has been made available at page Nos. 51 and 52 of the paper book. The Learned AR placed reliance on the following decisions: i) CIT vs. Sunbeam Auto Ltd. [2011] 332 ITR 167(SC); ii) ITO vs. Dg. Housing Project Ltd. [2012] 343 ITR 329 (Del.); iii) CIT vs. New Delhi Television Ltd. [2014] 360 ITR 44 (Del.); iv) CIT vs. Leisure Wear Exports Ltd. [2012] 341 ITR 166 (Del.); v ) CIT vs. Hindustan Marketing & Adv. CO. Ltd. [2012] 341 ITR 180 (Del.); vi) CIT vs. Vikas Polymers [2012] 341 ITR 537 (Del.); vii) CIT vs. Vodafone Essar South Ltd. [2012] 83 CCH 068 (Del.); viii) Globus Infocom Ltd. vs. CIT Delhi-IV – dated 13.08.2014. ix) CIT vs. M/s. Ankit Garments Manufacturing Co. – (2014) ( 12 ) TMI- 186 (Delhi H.C).

The Learned CIT(DR) on the other hand tried to justify the order impugned with this submissions that the Learned Principal Commissioner has specifically come to the conclusion that the Assessing Officer had not conducted inquiry on the above issue. It is also apparent that the Assessing Officer while proposing initiation of proceedings under sec. 263 of the Act has himself admitted that he had not conducted any inquiry on the issues. She submitted that the details filed by the assessee in response to the query 7 raised by the Assessing Officer were not examined by him. She submitted that framing of assessment in the case of M/s. Hillridge Investment Ltd. does not support the case of the assessee that said company was not a paper company to justify the genuineness of claim investment made by the said company with the assessee.

Having gone through the decisions relied upon by the Learned AR, we find that it is an established position of law that provisions laid down under sec. 263 of the Act cannot be invoked merely on the basis that the inquiry conducted by the Assessing Officer was not sufficient or inadequate. In the case of CIT vs. Sunbeam Auto Ltd. (supra), the Hon'ble jurisdictional High Court of Delhi has been pleased to hold that there are judgments galore laying down the principles that the Assessing Officer in the assessment order is not required to give detailed reasons in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as Revenue expenditure. One has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. It was held that if there was any inquiry, even in adequate that would not by itself give occasion to the Commissioner to pass orders under sec. 263 of the Act, merely because he 8 has a different opinion in the matter. It is only in cases of “lack of inquiry” that such a course of action would be open. Again in the case of ITO vs. DG Housing Projects Ltd. (supra), the Hon'ble jurisdictional High Court of Delhi has been pleased to hold that in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary inquiry, if required and necessary, before the order under sec. 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. It was held that in cases where there is inadequate inquiry but not lack of inquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an inquiry and verification is conducted by the CIT and he has able to establish and so the error or mistake made by the Assessing Officer, making the order unsustainable in law. The Hon'ble High Court held further that in some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further inquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be 9 cleared, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further inquiry without a finding that a order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under sec. 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examine and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. The Hon'ble High Court was pleased to hold further that in most cases alleged “inadequate investigation”, it will be difficult to hold that the order of the Assessing Officer, who had conducted inquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry.

The Hon'ble jurisdictional High Court of Delhi again in the case of CIT vs. M/s. Ankit Garments Manufacturing Co. (supra) has been pleased to hold that normally, scrutiny assessment order under sec. 143(3) of the Act should be presumed and hypothesized has made after due verification and ascertainment of tax. Principle of finality has sound and salutatory basis, but can be disturbed as per the statute and within confines of the provisions applicable. Therefore, it has to be ensure administratively that the Assessing 10 Officer act and proceed promptly, keeping in mind the limitation period and also the factum that the assessee may require time to furnish details, confirmation etc., held the Hon'ble High Court.

In view of the ratios laid down in the above cited decisions, when we examine the facts of the present case as to whether the Assessing Officer has conducted inquiry on the issues raised in the order impugned passed under sec. 263 of the Act, we do not agree with the finding of the learned Principal Commissioner that present is a case of lack of inquiry or no inquiry by the Assessing Officer in framing the assessment under section 153A/143(3) of the Income-tax Act, 1961. We find from the record that in the notice issued under sec. 142(1) by the Assessing Officer on 17.12.2012, he has raised specific query regarding the share capital as well as unsecured loans. The requisite details in this regard were submitted by the assessee before the Assessing Officer vide its reply received by the Assessing Officer on 05.02.2013. The details and confirmations regarding the unsecured loans were also submitted by the assessee vide its reply dated 20.2.2013. Copies of these documents have been made available at page Nos. 10 to 33 of the paper book filed on behalf of the assessee. The learned Principal Commissioner has initiated the revision proceedings on the 11 recommendations of the Assessing Officer and without any independent findings in this regard. The facts of the present case are almost similar to the facts in the case of CIT vs. Gabriel India Ltd. – 203 ITR 108 (Bombay) followed by the Hon'ble jurisdictional High Court of Delhi in the case of CIT vs. Sunbeam Auto Ltd. (supra) wherein the income-tax officer had made inquiry in regard to the nature of expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these were part of the record of the case. The claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. The Hon'ble High Court was pleased to hold that such decision of the ITO cannot be held to be “erroneous” simply because in his order, he did not make an elaborate discussion in that regard. The Commissioner even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not Revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to reexamine the matter. The Hon'ble High Court was of the opinion that it is not permissible. It was held that further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the ITO was erroneous and prejudicial to the interest of the Revenue.