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Income Tax Appellate Tribunal, DELHI BENCH “B”, NEW DELHI
Before: SHRI N.K. SAINISHRI H.S. SIDHU
Date of Hearing : Date of Hearing : 28 Date of Hearing : Date of Hearing : 28 28-03-201 28 201 2016 201 Date of Order : Date of Order : 11-04-201 Date of Order : Date of Order : 201 2016 201
ORDER ORDER ORDER ORDER PER PER H.S. SIDHU PER PER H.S. SIDHU H.S. SIDHU : : : : JM H.S. SIDHU This appeal by the Assessee is directed against the Order of the Ld. Commissioner of Income Tax (Central), Gurgaon dated 108.3.2015 passed u/s. 263 of the I.T. Act pertaining to assessment year 2010-11 on the following grounds:-
“1. That the order dated 18-03-2015 passed u/s 263 of the Income-tax Act, 1961 passed by the Ld Commissioner of Income-Tax, (Central), Gurgaon is against law and facts on the file in as much as he was not justified to set aside the order dated 31-12-2012 passed u/s 143(3) of the Income-tax Act, 1961 by the Deputy Commissioner of Income-Tax, Central Circle-I, Faridabad on the ground that the same is allegedly erroneous and prejudicial to the interests of the Revenue in as much as the twin conditions as laid out in Section 263 of the Income-tax Act, 1961 were not fulfilled.
2. That the order dated 18-03-2015 passed u/s 263 of the Income-tax Act, 1961 passed by the Ld Commissioner of Income-Tax, (Central), Gurgaon is against law and facts on the file in as much as he was not justified to set aside the order dated 31-12-2012 passed u/s 143(3) of the Income-tax Act, 1961 by the Deputy Commissioner of Income-Tax, Central Circle-I, Faridabad and direct the Assessing Officer to:-
a) examine the admissibility of the amount of Rs. 50,85,988/- on account of Brokerage expenses claimed in the Profit & Loss Account; b) reconcile the figures of sale and purchase for fresh consideration de novo covering all factual aspects as there is difference in sales and purchase as per the purchase/sales register vis-a-vis the VAT returns and the purchases and sales disclosed in the profit and loss account c) reconcile bank account with the bank balances in various accounts of the Appellant Company for fresh consideration as reconciliation of bank balance figure as on 31.03.2010 as per the bank statement vis-a-vis the books of account appeared to disclose huge differences in respect of assessee's bank account in HDFC and State Bank of Patiala f) verify the dates, cheque number and amount from the bank account of the Lender and tally it with the entries in the books of account as well as bank account of the Appellant Company besides examining the identity, creditworthiness and genuineness of the transactions including tax implication in respect of transactions with interested parties in respect of 2
Loan amounting to Rs. 9 crore raised by the Appellant Company from various parties. g) examine afresh whether the transaction with related parties are hit by the provisions contained in Section 40A(2)(b) of the Income-tax Act, 1961 and to take appropriate decision as per the provisions of the aforesaid section. h) to hold that proper inquiries were not made by the Ld. Assessing Officer at the time of framing the original assessment.”
The briefly stated facts are that the assessee company filed its E-return on 29.9.2010 declaring total income of Rs.17,50,420/-. The case was selected for scrutiny through CASS and statutory notice u/s. 143(2) was issued on 27.8.2011, which was duly served upon the assessee. In response to the same, Ld. Authorised Representative of the assessee attended the proceedings from time to time and furnished required details and information. The assessee is engaged in the business of trading of iron and steel. The details and documents with regard to the income shown and expenses claimed have been placed on record. Books of accounts and vouchers have also been produced by the Assessee and examined on test check basis by AO. The AO accepted the income declared by the assessee and completed on total income of Rs. 22,59,020/- vide order dated 31.12.2012 passed u/s. 143(3) of the I.T. Act, 1961.
Ld. CIT while examining the assessment order, found that Assessing Officer has not examined the following issues or if examined, the conclusion which naturally flows from the facts and circumstances of the case as well as available material on records, has not been drawn and accordingly issued the Notice u/s. 263 of the I.T. Act to the assessee on 07.3.2014.
(a) Brokerage expenses (b) Perceived differences between the purchase and sales (c) Difference in the bank balance figures shown in the Balance Sheet and those reflected in the bank statements (d)(i) With regard to the loans of Rs. 54 lacs raised from Dyna Power and Rs.2.46 crores from M/s National Housing Development Finance Corporation (ii) Unsecured Loans squared up during the year.
(e) Applicability of the provisions of Section 40A(2)(b) of the Act in respect of purchases made from MIs Star Wire (I) Ltd, a related enterprise, and payment of salary of Rs. 40,000/- per month to Shri Surendra Kumar Gupta.
In compliance of the Notice dated 07.3.2014 assessee filed its reply dated 14.11.2014 and stated that no exercise of the revisionary powers u/s. 263 of the Act is called for since all the relevant details with respect to the issues laid out in the impugned notice were duly filed before the AO and corresponding conclusion drawn by him based on the relevant facts and it cannot be said that the order passed by the AO is erroneous so as to be prejudicial to the interest of justice. In its reply it was further stated that the issues in question were duly examined and a conclusion drawn by the AO on the basis of an analysis of all the relevant facts and examination of the evidence filed and as such the order passed by him u/s. 143(3) of the Act cannot be considered to be erroneous whereby one of the mandatory tenets for the provisions of Section 263 to come into play are not satisfied.
After examination of the Reply of the Assessee and documentary evidences, Ld. CIT passed the impugned order u/s. 263 of the I.T. Act dated 18.03.2015 by observing that the assessment order passed by the AO is held to be erroneous as well as prejudicial to the interest of revenue, therefore, Ld. CIT has set aside the assessment to the file of the AO to examine de novo after giving the assessee a reasonable opportunity of being heard.
Against the Order of the Ld. CIT dated 18.3.2015 passed u/s. 263 of the I.T. Act, the assessee appealed before the Tribunal.
Ld. Counsel of the assessee relied upon the original assessment order dated 31.12.2012 passed u/s. 143(3) of the I.T. Act in the case of the assessee as well as the documentary evidences filed by him in the shape of Paper Book containing pages 1 to 267 having the copy of the notice u/s. 263; copy of written submission dated 14.11.2014 filed before the CIT, (Central) Gurgaon; Complete details of the parties to whom brokerage has been paid by the Assessee Company alongwith confirmations from some parties; statement reconciling the differences of purchases and sales as per books and VAT return; statement reconciling difference between Bank balance figures showing in the balance sheet and the Bank Statement; copy of confirmations, Bank statements and income tax returns with respect to unsecured loans raised from various parties including squared up accounts; documentary evidence showing the rate at which purchases made from Star Wire (I) Ltd. and from other parties; copy of computation of income and acknowledgement of income tax return for AY 2010-11; copy of notice u/s. 143(2) and 142(1) of the I.T. Act; copy of reply dated 22.9.2012 in response to notices; copy of reply dated 23.10.2012 filed before the DCIT, Faridabd during the course of assessment proceedings u/s. 143(3) of the I.T. Act, 1961.
7.1 Ld. Authorised Representative of the assessee has reiterated the similar contentions before us which he made before the Ld. CIT. He submitted that AO has completed the assessment after examining all the evidences filed by the assessee making detailed enquiry thereof, despite that Ld. CIT has wrongly applied Section 263. In the Written Submission the assessee has stated that no exercise of the revisionary powers u/s 263 of the Act is called for since all the relevant details with respect to the issues laid out in the impugned notice were fully filed before the AO and corresponding conclusion drawn by him based on the relevant facts and it cannot be said that the order passed by the AO is erroneous so as to be prejudicial to the interest of revenue. However, separate contentions with respect to each of the issues were made as under:-
(a) With regard to brokerage expenses, it was submitted that the Assessee Company is basically engaged in trading of steel wherein payment of brokerage is not only required but also essential not only to generate sales by identifying customers and their requirements but also sometimes to facilitate in the collection of dues and guarantee the recovery of the outstanding. Brokerage is an integral part of the Assessee Company's business activities and has been allowed as an expenditure in the assessment in earlier years.
(b) With regard to the perceived differences between the purchase and sales registers and copy of VAT return are available on record, it was submitted that reconciliation statement reconciling the same have been prepared whereby variations in these figures stand automatically verified.
(c) With regard to the alleged vast difference in the bank balance figures shown in the Balance Sheet and those reflected in the bank statements, the bank reconciliation statement duly reconciling the same.
(d)(i) With regard to the loans of Rs. 54 lacs raised from Dyna Power and Rs.2.46 crores from M/s National Housing Development Finance Corporation, the requisite documentary evidence with regard to confirmations, bank statements and Income Tax Returns along with extract of the relevant bank statements in which the cheques received from the said parties have been deposited were filed. . It may be clarified in this regard that all the transactions in the said accounts have been taken place by means of account payee cheque through normal banking channels which shows the creditworthiness and identity of the parties and genuineness of the transactions as cast by Section 68 of the Act.
(ii) Similar details were filed with respect to Unsecured Loans squared up during the year whereby against would be clear that the onus cast by Section 68 stands duly discharged in this regard also.
(e) With regard to the question of applicability of the provisions of Section 40A(2)(b) of the Act in respect of purchases made from MIs Star Wire (I) Ltd, a related enterprise, and payment of salary of Rs. 40,000/- per month to Shri Surendra Kumar Gupta, it was submitted as under:-
“Under sub-section (2) of Section 40A, expenditure incurred in a business for which payment has been or is to be made to the taxpayer's relatives or associate concerns is liable to be disallowed in computing the profits of the business or profession to the extent the expenditure is considered to be excessive or unreasonable. The reasonableness of any expenditure is to be judged having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or professional or the benefit derived by or accruing to the taxpayer from the expenditure. Such portion of the expenditure which in the opinion of the Assessing Officer is excessive or reasonable according to these criteria is to be is allowed in computing the profits of the business or profession.”
In view of the above, Ld. AR submitted that no exercise of the revisionary powers u/s. 263 of the Act is called for in the facts and circumstances of the case, hence, the order of the Ld. CIT may be quashed and the order of the AO may be restored.
On the contrary, Ld. DR relied upon the order passed by the Ld. CIT dated 18.3.2015 because the assessment order passed by the AO was held to be erroneous as well as prejudicial to the interest of revenue by the Ld. CIT. The main contention of the Ld. DR was that the AO has not made proper enquiries on the issues in dispute, hence, the Ld. CIT has rightly set aside the issues in dispute to the file of the AO to examine the same denovo, after giving the assessee a reasonable opportunity of being heard and also observed that AO is free to arrive at any conclusion in the light of the evidence adduced by the Assessee and as per the provisions of Income Tax Act without being guided by any observations made in the impugned order.
We have heard the rival contentions and considered the Paper Book alongwith case laws cited by the assessee and orders of the authorities below. We find that the AO has not even made any attempt to make any enquiry before accepting the claim of the assessee and accepted the claim in a hurry manner without applying mind. From the records, it reveals that the AO has not even appropriately appreciated the evidence on record either failed to examine or if examined, did not arrive at the correct logical conclusion on some issues. Therefore, the assessment framed by the AO prima facie appeared prejudicial to the interests of revenue and thus, a notice u/s. 263 of I.T. Act, 1961 has rightly been issued on 7.3.2014 on the following issues/reasons :- a) Apropos Issue relating to Brokerage expenses of Rs. 50,85,988/- is concerned, we find from the assessment record that on this issue the case was selected for scrutiny to verify the admissible of the said expenses, but no enquiry appeared to have been made as to the purpose and basic of payment of brokerage, its connection with the business and whether the payment commensurate to the benefit derived by the Company. However, a complete list of the agents alongwith addresses was available on records, but no attempt apparently was made to verify even one of these persons. Therefore, in our considered opinion, Ld. CIT has rightly set aside the issue of allowability of ‘brokerage’ expenses to the file of the AO for making enquiries and arrive at conclusion about admissibility of business expenses of Brokerage in accordance with provision of I.T. Act, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT on this issue. b) Apropos Issue relating difference in sales and purchases as per the purchase/sales register vis-a-vis the VAT returns and the purchases and sales disclosed in the profit and loss account is concerned, we find that VAT return and purchase and sales registers in order to reconcile the figure of sales and purchases as disclosed in the P&L A/c are yet to be reconciled. It was seen that the reconciliation statement shows addition of credit note to Purchases in order to reconcile the figure of total purchases. Similarly, sales have been reconciled by adding a figure under the nomenclature “Sale High Seas” (not part of VAT return) and no reason whatsoever for such addition has been given nor any evidence was produced. Therefore, in our considered opinion, Ld. CIT has rightly set aside the issue in dispute to the file of the AO for fresh consideration denovo, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT on this issue.
c) Apropos Issue relating to reconciliation of bank balance as on 31.3.2010 as per the Bank Statement the book of account as there appeared to be a huge difference in respect of assesse’s bank account in HDFC Bank and State Bank of Patiala is concerned, we find that in a Bank reconciliation statement various cheques issued by the assessee but not presented in bank as well as cheques received but not encashed by the assessee, these entries requires verification from the bank account of the assessee in various banks, however, AO has not made any attempt to verify/examine the same. Therefore, in our considered opinion, Ld. CIT has rightly set aside the issue in dispute to the file of the AO for fresh consideration, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT on this issue. d) Apropos Issue relating to various loans amounting to Rs. 9 crores is concerned, we find that the same was also not enquired into and verified by the AO during the assessment proceedings. On this issue, the assessee has furnished copies of bank account of the lenders as well as their assessment details, but the same was not verified entry wise from the books of account as well as bank account of the assessee. Therefore, in our considered opinion, Ld. CIT has rightly set aside the issue in dispute to the file of the AO with the direction to verify the dates, cheque number and amount from the bank account of the lender and tally it with the entries in the books of account as well as bank account of the assessee, besides examining the identity, creditworthiness and genuineness of the transactions including tax implication thereof, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT on this issue. e) Apropos the last issue relating to purchases from M/s Star Wire India Ltd. is concerned, we find that the same has also not been examined from the angle of provision of section 40A(2)(b) of the I.T. Act, 1961. On this issue assessee has submitted that transaction with associate concern was made at the prevailing rates. However, it was noticed from the documents furnished by the assessee as against purchase @ of Rs. 33,000/- per MT from M/s Star Wire India Ltd., on 3.6.2009 in respect of goods described as “round”, another seller M/s Narayan & Company has sold the same to another person @Rs.32,330/- per MT on the same date. This reveals that purchases from related parties have been shown by the assessee at inflated price. Therefore, in our considered opinion, Ld. CIT has rightly set aside the issue in dispute to the file of the AO to examine the same afresh whether the transaction with related parties are hit by the provisions contained in section 40A(2)(b) of the I.T. Act, 1961, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT on this issue.
9.1 In the background of the aforesaid discussions and precedents, we are of the view that the AO was found to be erroneous and prejudicial to the interest of revenue since at the time of the assessment the AO was duty bound to call for such details and examine them. We also find that in the case of M/s Malabar Industries, the Hon’ble Apex Court has held that incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous. We further note that in the same category fall order passed without applying the principles of natural justice or without application of mind. We are of the view that it is incumbent on the officer to investigate the facts stated in the return, when circumstances would make such an enquiry prudent and the word ‘erroneous’ in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not 11 because there is anything wrong with the order if all the facts stated there are assumed to be correct. In view of the foregoing observations and the precedents, we are of the considered opinion that the assessment framed by the Assessing Officer was erroneous and prejudicial to the interests of revenue. We also find that the case laws cited by the Ld. Counsel of the assessee are distinguishable to the facts and circumstances of the case. Accordingly, we are of the view that Ld. CIT has passed a well reasoned revisional order u/s. 263 which does not need any interference on our part, hence, we uphold the same and dismiss the Appeal of the Assessee.
In the result, the Appeal filed by the assessee stands dismissed.
Order pronounced in the Open Court on 11/04/2016.