HARMONY YARNS PVT. LTD.,SURAT vs. PR. COMMISSIONER OF INCOME TAX -1, SURAT

“1. On the facts and in circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in passing the order u/s 263, although the assessment order passed u/s 143(3) r.w.s.143(3A) & 143(3B) of the I. T. Act, 1961 was neither erroneous nor prejudicial to the interest of the revenue.

The relevant material facts, as culled out from the material on record, are as follows. The assessee before us is a Private Limited Company and had filed its return of income for assessment year (A.Y.) 2018-19, on 27.08.2018, declaring returned income Rs.1,24,90,210/-. The assessee’s case was selected for complete scrutiny to verify the issue of Transactions with Company whose Registration has been cancelled by MCA. The assessment order has been passed u/s 143(3) r.w.s. 143(3A) & 143(3b) of the Act, on 27.01.2021, accepting the returned income of the assessee.

Later on, the Learned Principal Commissioner of Income Tax (in brief ‘ld. PCIT’), exercised his jurisdiction under section 263 of the Income Tax Act, 1961, The ld. PCIT, on perusal of the records, noticed that the assessee company had received unsecured loan of Rs.20,00,000/- from Alliance Commodities Ltd (PAN: AAGCA7943M) during the year consideration. On further perusal of the ministry of Corporate Affairs website, it was noticed by ld. PCIT that the status of the company, Alliance Commodities Pvt. Ltd, is shown as “Strike Off”. The confirmation filed with respect to unsecured loan, the assessee had shown unsecured loan receipt at Rs.20,00,000/- and had filed confirmation, ledger and Return of Income, alongwith the copy of bank account of the lender, which has been considered by the assessing officer. However, the assessing 2 /AY.2018-19 Harmony Yarns Pvt. Ltd. officer has omitted to enquire into genuineness of the transaction by not enquiring as to how the lender, which has no revenue from its operation or yield no investment, as appearing in its books, has lent the money. Further the satisfaction arrived at regarding the loan by struck off company was not supported by the enquiry carried out in this regard. Therefore, the assessing officer was required to make inquiry and verification for genuineness of the transaction made of Rs.20,00,000/- with Alliance Commodities Ltd, (PAN AAGCA7943M) whose status is “Strike Off” on the ministry of Corporate Affairs website and if the assessee had failed to substantiate the genuineness of the transaction, the transaction done of Rs.20,00,000/- was required to be treated as unexplained cash credit u/s 68 of the Act and to be added to the total income of the assessee, for the year under consideration, which the assessing officer has failed to do.

It was also noticed by ld. PCIT from the Form 3CB-Col. 20(b) that the PF contribution received from employees of Rs.14,796/-, for which due date for payment has been mentioned, as 15.06.2017, has been actually paid on 23.06.2017 i.e. after the due date. As per provisions of section 36(1)(va), the contribution paid after the due date is not eligible for deduction. Hence, the assessee company is not eligible for claiming deduction on the PF contribution of the employees paid after the due date and the amount of Rs.14,796/- was required to be disallowed. But as per the computation of income available in ITBA portal for AY 2018-19, it was noticed by ld. PCIT that the assessee has not disallowed the same. The assessing officer was required to make inquiry and disallow the same, which he has failed to do. 3 /AY.2018-19 Harmony Yarns Pvt. Ltd.

The case was selected for complete scrutiny assessment under the E- assessment Scheme, 2019 on the following issues: S No. issues 1. Transactions with Company whose Registration has been Cancelled by MCA. From the above extract it can be clearly concluded that the assessment included the scrutiny of transactions with company whose registration has been cancelled by MCA 2. Now, in the course of proceedings u/s 263, your honour has initiated the proceedings basis the following as mentioned in the present notice; "3. On perusal of the records, it is noticed that the assessee company had received unsecured loan of Rs. 20,00,000/- from Alliance Commodities Ltd. (PAN AAGCA7943M) during the year under consideration. On further perusal of the Ministry of Corporate Affairs website, it is noticed that the status of the company, Alliance Commodities Pvt Ltd is shown as “Strike Off”. The confirmation filed with respect to Unsecured Loan, the assessee had shown Unsecured Loan receipt at Rs.20,00,000/- and had filed confirmation, ledger and Return of Income alongwith the copy of bank account of the lender, which has been considered by the assessing officer. However, the assessing officer has omitted to enquire into genuineness of the transaction by not enquiring as to how the lender, which has no revenue from its operation or yield no investment, as appearing in its books, has lent the money. "3.2 It is also noticed from the Form 3CB - Col. 20 (b) that the PF contribution received from employees of Rs.14,796/- for which due date for payment has been mentioned as 15.06.2017 has been actually paid on 23.06.2017 i.e. after the due date. As per provisions of Sec 36(1)(va) the contribution paid after the due date is not eligible for deduction. 3. In regards to the above it is submitted that the first matter related to Unsecured Loan was already examined by the Ld Assessing Officer during the course of assessment proceedings. From the screenshot of scrutiny assessment order u/s 143(3) depicted in Point No 2 above, it is clearly visible that the issue of transactions with company whose registration has been cancelled by MCA was under due scrutiny while completing the assessment u/s 143(3). To substantiate the complete facts the exact notice wherein the details have been asked which is also the matter for the proceedings under consideration u/s 263 and the corresponding replies wherein all the details relating to the said issued have been submitted is listed as follows. a. Notice u/s 142(1) of the IT Act dated 10.01.2020 was issued wherein Question no.3, 4, 5 and 8 specifically covered all the matters related to /AY.2018-19 Harmony Yarns Pvt. Ltd. transactions with company whose registration has been cancelled by MCA. The questions of the notice are as follows for your kind perusal.

All the above notices and replies alongwith acknowledgement of reply and relevant attachments are attached herewith for your kind perusal, In the course of proceedings under Section 263 it is submitted that the basis for which the current proceedings have been initiated as mentioned in Point 3 above is transactions with company whose registration has been cancelled by MCA which has been duly taken into consideration in the course of original assessment proceedings u/s 143(3). In regards to the queries raised by your honour in the current notice under section 263 of the Act, the assessee has already submitted complete details alongwith all the relevant documents before the Assessing Officer and only after due examination by the Id Assessing Officer, the assessment order under section 143(3) r.w.s 143(3A) and (3B) of the Act was finalised on 27.01.2021.

The assessing officer has in fact done a detailed enquiry and due verification of the issues in question as specified above. The various notices issued in the course of assessment proceeding specially on the same issue as mentioned in the notice u/s 263 and the compliances of the assessee thereto indicate a sufficient level of enquiry and examination of the issued involved.

Reliance is placed on the decision of Hon'ble Apex Court in Malabar Industries Ltd, vs. CIT [2000] 243 ITR 83 (SC), wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT, The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue, In the following circumstances, the order of the assessing officer can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the assessing officer has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. In the present case none of the above conditions are fulfilled, the Assessing Officer has passed the order after considering all required data with him and after considering the same, thus the order cannot be termed as erroneous.

However, ld. PCIT rejected the contention of the assessee and noted that contention of the assessee is not acceptable as the company, Alliance Commodities Ltd. (PAN AAGCA7943M) from which the assessee has accepted loan during the year under consideration, is a strike off company (whose registration has been cancelled by MCA). The company which is not in existence for the year under consideration is not capable of advancing any unsecured loan to the assessee. Hence, the credit worthiness of the lender was required to be inquired and verified by the assessing officer, which he has not done. Genuineness of the transaction made with such a company whose registration has been cancelled by MCA was required to be inquired and verified by the assessing officer, which he has not done. The 12 /AY.2018-19 Harmony Yarns Pvt. Ltd. assessing officer was required to make third party enquiry from the MCA regarding reasons for strike-off and the lender company through its Directors, regarding the genuineness of transaction and the creditworthiness of the lending company, which he has failed to do. Further on the issue of late payment of PF of Rs.14,796/- being the contribution from the employee the assessee has submitted that in the year under consideration i.e. 2017-18, the online payment of PF was introduced and the assessee had a shift from offline to online, therefore delay has occurred, was not acceptable.

In view of the facts and circumstances of the case, the ld PCIT held that assessment order passed on 27.01.2021 u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act, in the case of the assesses for the A.Y. 2018-19 is held to be erroneous, in so far as it is prejudicial to the interest of Revenue. Therefore, the assessee`s case was set aside with a direction to the Assessing Officer to pass fresh assessment order after taking into consideration the issues as may have been already considered together with the issue discussed herein above also.

Shri Rasesh Shah, Learned Counsel for the assessee, argued that loan received by assessee-company and repayment of loan was before the dissolution of company and this fact has been verified by the Assessing Officer by issuing notice under section 142(1) of the Act dated 29.09.2019. In response to the said notice, the assessee submitted its reply, with documentary evidences that loan received by assessee- company and repayment thereof was before the dissolution of said /AY.2018-19 Harmony Yarns Pvt. Ltd. company. The loan was received out of the accumulated fund of that company. Therefore, ld Counsel submitted that matter related to unsecured Loan, was already examined by the Assessing Officer during the course of assessment proceedings. From the screenshot of scrutiny assessment order u/s 143(3) depicted in Point No 2 above, it is clearly visible that the issue of transactions with company whose registration has been cancelled by MCA was under due scrutiny while completing the assessment u/s 143(3) of the Act. The ld Counsel pointed out that notice u/s 142(1) of the Income Tax Act, dated 10.01.2020, was issued wherein Question no.3, 4, 5 and 8 specifically covered all the matters related to transactions with company whose registration has been cancelled by MCA and assessee has replied these questions to the assessing officer, therefore assessing officer made enough enquiry about the issue on unsecured loan, hence order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue.

In regards to the issue of Provident Fund expense, it was submitted by ld Counsel that the payment has been made within 8 days of the due date for the month of May 2017 i.e. on 23.06.2017 wherein the due date was 15.08.2017 via online portal. It is pertinent to note that the assessee- company has been regular with its payments of provident fund throughout the year except for the month of May 2017, since in the year under consideration i.e. 2017-18, the online payment of PF was introduced and the assessee had a shift from off line to online mode of payment of challan for compliances with regards to PF. During such introductory phase, in the month of May the online mode caused technical glitches (website crash/not working) due to which it was impractical to make timely payment Thus, the assessee company 14 /AY.2018-19 Harmony Yarns Pvt. Ltd. was prevented by sufficient cause from making the payment on time and as soon as the same was resolved the payment of challan was made vide online mode only and therefore no addition should be made in the hands of the assessee.

On the other hand, Learned Departmental Representative (ld. DR) for the Revenue relied on the findings of the ld. PCIT. About the issue of Provident Fund expenses, it was submitted by ld DR that issue is covered against the assessee by the judgment of the Hon`ble Supreme Court in the case of CHECKMATE SERVICES P. LTD, vide CIVIL APPEAL NO. 2833 OF 2016 (SC).

We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. PCIT and other material brought on record. We note that assessee has submitted before the Bench the following documents and evidences, viz: (1) Tax audit report (vide Pb.47 to 64), (2) Acknowledgement of return of income alongwith computation of total income (vide Pb.64 to 69), (3) Notice u/s 143(2) issued by assessing officer (vide Pb.70 to 71), (4) Notice u/s 142(1) issued by assessing officer (vide Pb.72 to 74), (5) Acknowledgment of grievance filed at E-Nivaran portal for non- permission to upload documents on ITD portal (vide Pb.75), (6) Letter filed on E-Nivaran portal (vide Pb.76 to 79), (7) Notice u/s 142(1) issued by assessing officer (vide Pb.80 to 81), (8) Reply Letter filed before assessing officer (vide Pb.82 to 83), (9) Reply Letter filed before assessing officer (vide Pb.84 to 86), (10) Notice u/s 142(1)

In respect of Alliance Commodities Pvt. Ltd., the Ld. Counsel for the assessee submitted the following documents and evidences; viz: (1) Certificate of Incorporation (vide Pb. 94), (2) Audit report with audited financial statements (vide Pb.95 to 104), (3)Acknowledgment of return of income alongwith computation of total income (vide Pb.105 to 106), (4) Ledger account (vide Pb.107), (5) Contra account (vide Pb.108), (6) Extract of bank statement of Dena Bank (A/c. No.002411023964) (vide Pb.109), (7) Extract of Bank Book of Dena Bank A/c. (vide Pb.110), (8) PAN card of the assessee-company (vide Pb.111).

We have examined the above documents and evidences. We note that during the assessment proceeding, the assessing officer has raised the following questions, in respect of issue raised by ld PCIT: Question No. 3- Please furnish Party wise details of unsecured loans obtained during the year, including squared off loans along with confirmations in the following format: Question No.4 -If the loan providing entity is companies then kindly confirm its status on MCA.

In response to the above questions assessee submitted its reply before the assessing officer. Further, another notice was issued u/s 142(1) of the IT Act on 04.02.2020, and the response to which was filed by the assessee company on 13.02.2020. In the said reply the assessee had submitted the copy of acknowledgement of return of income, PAN Card, Bank statement and ledger account of such company whose registration has been cancelled viz Alliance Commodities Pvt Ltd for AY 2018-19.

Further vide another notice u/s 142(1) of the IT Act dated 03.01.2021 wherein the Assessing Officer asked further details about the transactions with company whose registration has been cancelled by MCA. The details asked are listed below: Question No.1 - Kindly furnish the nature of services rendered by the said party during the F.Y.2017-18.

In respect of above questions, the assessee submitted its detailed reply along with all necessary documentary evidences, vide response dated 16.01.2021. In the course of proceedings under section 263 of the Act it was submitted by the assessee that the basis for which the current proceedings have been initiated in respect of transactions with company whose registration has been cancelled by MCA, which has been duly taken into consideration in the course of original assessment proceedings u/s 143(3) of the Act. Therefore, the assessing officer has in fact done a detailed enquiry and due verification of the issues in question. The various notices issued in the course of assessment proceeding specially on the same issue as mentioned in the notice u/s 263 and the compliances of the assessee thereto indicate a sufficient level of enquiry and examination of the issued involved, therefore, order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue.

The assessing officer examined the books of accounts, documents and evidences submitted by the assessee and applied his mind. That is, the AO examined the copy of acknowledgement of return of income, PAN Card, Bank statement and ledger account of such company whose registration has been cancelled viz Alliance Commodities Pvt Ltd for AY 2018-19. The assessing officer conducted sufficient inquiry. To gather more information and then prove the claim of the assessee wrong is not the object of section 263 of the Act. The object of section 263 is to examine whether order passed by the AO is erroneous as well as prejudicial to the interest of revenue. Therefore, based on this factual position, the order passed by the AO under section 143(3) should not be erroneous. We note that Coordinate 18 /AY.2018-19 Harmony Yarns Pvt. Ltd. Bench of I.T.A.T., Kolkata in the case of Plastic Concern vs. ACIT [61 TTJ 87 (Cal) has held that mere possibility of gathering more material to prove the claim of the assessee wrong would not make the concluded assessment erroneous so long as the ld. A.O. had acted judiciously and conducted enquiries in the course of assessment proceedings.

We note that Ld. A.O. having examined the documents and evidences and having satisfied himself about the correctness of the same and explanation of the assessee in regard to the unsecured loan, completed the assessment and, therefore, there cannot be a reason to say that the A.O. has failed to conduct necessary enquiry before accepting the claim of the assessee. We note that Ld. Pr. C.I.T. on analysis of assessment records derived satisfaction for issuing the impugned show-cause notice u/s. 263 of the Act. The expression ‘record’ as used in section 263 of the Act is comprehensive enough to include the whole record of evidence on which the original assessment order is based. At the same time, if any information asked for by the assessing authority from the assessee or from others to whom he referred the matter during the course of assessment proceeding was not received but received subsequent to the completion of the assessment, in that situation the assessment order passed without receiving such report may appear to be erroneous within the meaning of sec.263 of the Act. In the case of the assessee, there is no denying the fact, as detailed above and acknowledged in the assessment order u/s. 143(3) dated 29.12.2016, that in response to notices u/s. 143(2)/142(1) and further requisitions made during the course of assessment proceeding, the assessee appeared from time to time and produced/ submitted necessary details/documents as per requisitions in relation to the issues 19 /AY.2018-19 Harmony Yarns Pvt. Ltd. raised by the Ld. Pr. C.I.T., which were examined by Assessing Officer. Therefore, it is the appraisal of the same records which are already with the Ld. A.O. and the Ld. Pr. C.I.T. took a different view than adopted by the A.O. on the same set of facts, which is not permissible u/s. 263 of the Act. In the above circumstances, the view taken by the A.O. was one of the possible views and the assessment order passed by him could not be held to be erroneous and prejudicial to the interests of revenue. There is difference between ‘Lack of enquiry’ and ‘inadequate enquiry’. It is for the AO to decide the extent of enquiry to be made as it is his satisfaction as what is required under law. Reliance is placed on the decision of CIT v. Sunbeam Auto Ltd. [(2010) 332 ITR 167], wherein Hon’ble Delhi High Court has held that if there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass order u/s 263 of the Act, merely because the Commissioner has a different opinion in the matter and that only in cases where there is no enquiry, the power u/s 263 of the Act can be exercised. The ld. PCIT cannot pass the order u/s 263 of the Act on the ground that further/thorough enquiry should have been made by AO.

Further, it was settled by Hon`ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT [(2000) 243 ITR 83 (SC)] wherein it was held that if the A.O. adopts one of the possible courses available in the scheme of the I.T. Act which results in any loss of revenue or when two views are possible and the A.O. adopts one of them with which the C.I.T. does not agree, then it would not be an order prejudicial to the interest of revenue for invoking the jurisdiction u/s. 263 of the Act. For better appreciation, the relevant portion of the /AY.2018-19 Harmony Yarns Pvt. Ltd. judgment in the case of Malabar Industrial Co. Ltd. vs. CIT (supra) is quoted below: “The phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law”.

We note that the Ld. Pr. C.I.T. by invoking his jurisdiction u/s. 263 of the Act is giving another opportunity to the Ld. A.O., which is not permissible. Hon’ble Bombay High Court in the case of Ranka Jewellers vs. Addl. CIT (328 ITR 148) relying on the decisions of Hon’ble Supreme Court in the cases of Malabar Industrial Co. Ltd. vs. CIT and CIT vs. Max India Ltd. [(2007) 295 ITR 282 (SC)], has held that once the issue was considered by the A.O., the remedy of the revenue could not lie in invoking of the jurisdiction u/s. 263 of the Act. Therefore, the order of the Ld. C.I.T. was definitely outside the purview of section 263 of the Act. As noted above, the exercise aimed at ascertaining the correct income of the assessee has been fulfilled by the Ld. A.O. by exercising his quasi-judicial functions vis-a-vis passing the assessment order u/s.143(3) of the Act. Therefore, certainly it is not a case wherein adequate enquiries at the assessment stage were not carried out or assessment was made in haste. However, what is an opinion formed as a result of these enquiries and verification of the materials is something which is in exclusive domain of the Assessing Officer, and even if Ld. Pr. Commissioner does not agree with the results of such enquiries, the resultant order cannot be subjected to revision proceedings. For that we rely on the decision of the /AY.2018-19 Harmony Yarns Pvt. Ltd. Coordinate Bench of I.T.A.T., Kolkata in the case of Smt. Juthika Kar vs. ITO [I.T.A. No.1128/Kol/2009, dated 16.5.2012], wherein it has been held as under (relevant portion):- “8……However, what is opinion formed as a result of these enquiries is something which is in exclusive domain of the Assessing Officer, and even if Commissioner has such results of enquiries, the resultant order cannot be subjected to revision proceedings. The conclusions arrived at as a result of enquiries cannot be tinkered with in the revision proceedings. The conclusions being drawn up as a result of enquiry is a highly subjective exercise and as to what is appropriate conclusion is something on which perceptions vary from person to persons. These variations in the perceptions of the Assessing Officer vis-a-vis that of the Commissioner, cannot render an order erroneous and prejudicial to the interest of the revenue.”

The aforesaid position gets further strength from the decision of Hon’ble jurisdictional High Court in the case of CIT vs. J.L. Morrison (India) Ltd. (2014) 366 ITR 593 (Cal), the relevant finding of which is applicable to the facts of the present assessee is quoted below : “85. Whether the assessment order dated March 28, 2008, was passed without application of mind is basically a question of fact. The learned Tribunal has held that the assessment order was not passed without application of mind. The records of the assessment including the order- sheets go to show that heard from time to time. In deciding the question the court has to bear in mind the presumption in law laid down in Section 114 clause (e) of the Evidence Act: “that judicial and official acts have been regularly performed.”

Therefore, the court has to start with the presumption that the assessment order dated March 28, 2008, was regularly passed. There is evidence to show that the Assessing Officer had required the assessee to answer 17 questions and to file documents in regard thereto. If the Assessing Officer cannot be shown to have violated any form prescribed for writing an assessment order, it would not be correct to hold that he acted illegally or without applying his mind. ” [Emphasis given]”

It is a settled position in law that provisions of sec. 263 of the Act do not permit substituting one opinion by another opinion. Therefore, the order of the Ld. Pr. C.I.T. cannot be sustained on the principle of ‘erroneous’ nature of the order of the A.O., as it is not erroneous. Further, in the instant case, to reiterate, there was no 22 /AY.2018-19 Harmony Yarns Pvt. Ltd. allegation by the Revenue Authorities that the evidences produced were fictitious or invented, thus accepted the authenticity of the same. Therefore, so far issue of unsecured loans of Rs.20,00,000/- from Alliance Commodities Ltd, is concerned, the order passed by the assessing officer is neither erroneous nor prejudicial to the interest of Revenue, hence we quash the order of ld PCIT.

So far the issue of Provident Fund contribution, is concerned, we find merit in the submission of ld DR that the issue is covered against the assessee by the judgment of the Hon`ble Supreme Court in the case of CHECKMATE SERVICES P. LTD, vide CIVIL APPEAL No. 2833 OF 2016 (SC), therefore, we dismiss such ground raised by the assessee.

In the result, the appeal filed by the assessee is partly allowed in above terms.