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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
आदेश / O R D E R PER DR. A. L. SAINI, AM: By way of this appeal, the assessee has challenged the correctness of the order dated 18.02.2022 passed by the Learned Principal Commissioner of Income-tax (in short “Ld PCIT”) under section 263 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 2012-13 2. Grievances raised by the assessee, are as follows: “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 147 of the I.T. Act, 1961 was neither erroneous nor prejudicial to the interest of the Revenue. 2. It is therefore prayed that above order passed by Pr. CIT u/s. 263 may please be quashed or modified as your honours deem it proper. 3. Assessee craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 3. The relevant material facts, as culled out from the material on record, are as follows. The assessee before us is a firm and filed its return of income for assessment year 2012-13 on 16.08.2012 declaring total income of NIL.
ITA 57/SRT/2022/AY.2012-13 Nya International Thereafter, assessee`s case was selected for scrutiny and assessment order u/s 143(3) of the Income Tax Act was framed by the assessing officer on 25.03.2015 determining total income at NIL.
Thereafter, an information was received from DDIT(Inv.), Unit 7(2), Mumbai that assessee was maintaining a bank account No. 5500111032480 with ING Vysya Bank having credit entry of Rs.70,13,43,319/- and same bank account was not disclosed by the assessee in its Return of income for year under consideration. Further, during the year, the assessee firm claimed exemption u/s 10AA of the Income Tax Act of Rs.87,21,44,414/-. However, as per the information received, exemption u/s 10AA claimed by the assessee firm was disallowed by the assessing officer while passing the assessment order for assessment year 2013-14 and 2014-15.
Therefore, the assessee`s case was reopened by issuing the notice u/s 148 of the Income Tax Act and assessment u/s 143(3) r.w.s. 147 was passed on 31.12.2019 by making disallowance u/s 10AA of Rs.87,21,44,414/-.
After this, the Learned Principal Commissioner of Income-Tax (in short “Ld PCIT”) has exercised his jurisdiction under section 263 of the Income-tax Act, 1961. The ld PCIT, on perusal of records, observed that during the year, the assessee firm were maintaining three bank accounts bearing No.50008887434 & 50103210589 with Allahabad Bank and Account No.550011032480 with ING Vysya Bank having total credit of Rs.70,13,43,319/- which was not disclosed in its ITR filed for assessment year 2012-13. That is, bank account bearing No.550011032480 with ING Vysya Bank having total credits of Rs.70,13,43,319/- was not disclosed in its Income Tax Return filed for A.Y.2012-13. During the assessment proceedings, the Assessing Officer has not made any inquiry in respect of total credit entries of Rs.70,13,43,319/- received in bank account No.550011032480 with ING Vysya Bank, therefore credits in the said bank account remained unexplained. Therefore, ld PCIT noted that Assessing Officer passed the order u/s 143(3) r.w.s. 147 of the Income Tax Act, dated 31.12.2019 without making inquiries which should have been made and ITA 57/SRT/2022/AY.2012-13 Nya International without application of mind. This make the order erroneous in so far as it is prejudicial to the interest of the Revenue, therefore, ld PCIT issued a show cause notice bearing DIN ITBA/REV/F/REV1/2021-22/1038640435(1) dated 11.01.2022 7. In response to the show notice under section 263 of the Act, the assessee submitted its reply before the ld. PCIT.
The ld PCIT has gone through the reply of the assessee and has dealt with assessee`s reply as follows:
(i)Argument No.-1 of assessee: The assessee stated that in return of income, the assessee was required to give details of the only one bank account in Column No 12 of the Schedule 'BA' of return of income for the purpose of credit refund in any granted by the Department. The assessee firm further argued that in the Audited Financial Statements all the bank accounts were reflected, during the course of assessment proceedings, the assessee firm produced all the bank accounts before the Assessing Officer. Observation of ld PCIT: As per the provisions of Income tax Law, it is mandatory to disclose all bank account accounts held by the assessee in its Income Tax Return. However, the assessee firm has disclosed one bank account maintained with Allahabad Bank in its ITR filed on 01.08.2012. Further, as per the Notification No.41/2015/ F.No.142/1/2015-TPL], dated 15th of April, 2015 issued by the Central Board of Direct Tax, it is mandatory to disclose all the bank accounts held by the asseseee in its Income Tax Return. The assessee also filed its return of income on 14.12.2019, in response to notice issued u/s 148 of the IT. Act. However, the assessee firm has again not disclosed, it's all the bank accounts in the Income Tax Return filed in response to notice u/s 148 of the I.T. Act. Further, the assessee firm argued that all the books of accounts produced before the AO during the course of assessment proceedings. As per the show- cause notice issued by the AO dated 09.11.2019, it is found that various notices u/s 142(1) of the I.T. Act were issued to the assessee firm, however, it had ITA 57/SRT/2022/AY.2012-13 Nya International remained non-compliant till date 09.11.2019. Thereafter, the assessee firm just filed its reply on electronically, vide its letter dated 24.12.2019, stating various contentions against the proposed addition. The assessee firm has also not filed its Audit Report on e-filing portal of the Department along with its Return of Income. Audited Books of Account was not furnished by the firm during the course of revision proceeding. Therefore, the AO failed to enquiry in respect of credit entries received in its bank account No.550011032480 with ING Vysya Bank.
(ii)Argument No.-2 of assessee: The assessee firm further argued that the AO clearly observed that claim of deduction u/s 10AA of Rs.70,13,43,319/- was required to be rejected on the basis of the credits in bank account held with ING Vysya Bank. However, ultimately the AO disallowed the whole claim of deduction u/s 10AA of the I.T. Act of Rs.87,21,44,414/-. Accordingly, the assessment order is neither erroneous not prejudicial.
Observation of ld PCIT: The assessee's contention is not acceptable as the Assessing Officer disallowed the deduction claimed u/s 10AA of Rs.87,21,44,414/- which is part of Net Profit declared by the assessee firm. Since the bank account with ING Vysya Bank having credit entries of Rs.70,13,43,319/- was not disclosed by the assessee- firm, therefore, the credits of Rs.70,13,43,314/- remained unexplained within meaning of section 68 of the Income Tax Act.
(iii) Argument No.-3 of assessee: The Firm argued that the AO has also given the reference of credit entries of Rs.70,13,43,319/- in ING Vysya Bank at Para No.4.2 of the Assessment Order. So, there is complete application of mind.
Observation of ld PCIT: In para 4.2 of the Assessment Order dated 31,12.2019, the AO has only discussed about the information received from the Deputy Director of Revenue Intelligence, Zonal Unit Mumbai. The Assessing Officer never said the credit entries in the ING Vysya Bank have been verified and found to be explained. However, the AO should have verified the facts, the Page | 4
ITA 57/SRT/2022/AY.2012-13 Nya International banks account maintained with ING Vysya Bank which has not been disclosed in the ITR. From the assessment records, it is clear that although, the AO has reopened the case on the ground that the amount of Rs.70,13,43,319/- was brought to be tax as unaccounted income u/s 68 of the Act, neither any query has been raised in the notices issued, nor any verification was made. No discussion is made in this regard in the assessment order. Therefore, the credits entries in said bank remained unexplained as the AO has not made the necessary inquiries on this issue and has not applied his mind before passing the assessment order.
(iv) Arugument No-4 of assessee: During the course of assessment proceedings, the assesses produced the books of accounts which were tallied with banks statements filed by the assessee.
Observation of ld PCIT: As discussed above that as per the show-cause notice issued by the AO dated 09.11.2019, it is found that various notices u/s 142(1) of the I.T. Act were issued to the assessee firm, however, it had remained non- compliant till date 09.11.2019. Thereafter, the assessee firm just filed its reply on electronically, vide its letter dated 24.12.2019, stating various contentions against the proposed addition. The assessee firm also not filed its Audit Report on e-filling portal of the Department along with its Return of Income. Audited Books of Account was not furnished by the firm during the course of revision proceeding. Therefore, the AO failed to make an enquiry in respect of credit entries received in its bank account No.550011032480 with ING Vysya Bank. There is no discussion in the assessment order regarding verification of said bank account with ING Vysya Bank with the books of accounts, as claimed by the assessee. (v) Aurguments No.-5 of assessee: The assessee firm further argued that an appeal has been filed against the re-assessment order dated 31.12.2019 passed by the AO before the CIT(A).
Observation of ld PCIT: Appellate proceedings and the revision proceedings u/s 263 of the I.T. Act is distinct proceedings. In the appellate proceedings,
ITA 57/SRT/2022/AY.2012-13 Nya International adjudication is made on the issues on which addition is already made. However, in the revision proceedings u/s 263 of the I.T. Act, discussion is made on the issue which was left to be examined or to be verified during the assessment proceedings. Therefore, the appellate proceedings and the revision proceedings are not interrelated to each other.
9. Therefore, ld PCIT noticed that this is not a case of lack of inquiry, but a case where order is passed without making inquiries or verification which should have been made with respect to issues noted in revision proceedings. It is also a case where the AO got carried away with submission of the assessee, without application of his mind. The ld PCIT relied on the judgment of Hon`ble Apex Court in the case of Malabar industrial Co. Ltd. v. CIT 243 ITR 83, wherein it was held that order passed without applying the principle of natural Justice or without application of mind would also attract the invocation of power u/s 263. In fact, while justifying the order of the Commissioner u/s 263(1) the Hon. Supreme Court opined that the CIT set aside the order for lack of inquiry and for non-application of mind. The Hon`ble Court also relied on the decision of Ram Pyari Devi Saraogi vs. CIT (1968) 67 ITR 84 to uphold that non application of mind renders the order erroneous and prejudicial to the interest of Revenue.
Therefore, ld PCIT held that Assessing Officer has failed to verify the very issue of credits of Rs.70,13,43,319/- in its bank account with ING Vysya Bank for which the case was reopened. Therefore, the assessment order u/s 143(3) r.w.s 147 of the Act dated 31.12.2019 for assessment year 2012-13 was held to be erroneous in so far as it is prejudicial to the interest of Revenue. Therefore, the assessment order u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 dated 31.12.2019 for A.Y.2012-13 was set-aside with the direction to the AO to re-frame the assessment order. 11. Aggrieved by the order of the Ld. PCIT, passed under section 263 of the Act, the assessee is in appeal before us.
ITA 57/SRT/2022/AY.2012-13 Nya International
Learned Counsel for the assessee submitted that in the assessee’s case, original assessment was framed under section 143(3) of the Act, dated 28.03.2015. Subsequently, the Assessing Officer has initiated the revision proceedings under section 147/148 of the Act and then after assessment order was framed under section 143(3) r.w.s 147 of the Act dated 28.12.2019. In the reassessment proceedings, the Assessing Officer has raised mainly two issues, first is undisclosed bank account and second is deduction under section 10AA of the Act. During the reassessment proceedings, the assessee has submitted the information regarding the undisclosed bank account and the information regarding deduction under section 10AA of the Act. The Assessing Officer has examined both the issues which were the subject matter of reassessment proceedings and disallowed the deduction of the assessee under section 10AA of the Act to the tune of Rs.87,21,44,415/-. During the reassessment proceedings, the assessee submitted its reply in respect of these two issues viz: first is undisclosed bank account of ING Vysya Bank and second is deduction / exemption under section 10AA of the Act. The Assessing Officer issued notices under section 142(1) of the Act calling the details regarding the amounts shown in ING Vysya Bank and the explanation about the deduction under section 10AA of the Act and in response to these notices, the assessee submitted its reply.
The ld Counsel stated that since the Assessing Officer has made/disallowed the deduction under section 10AA of the Act and made addition to the tune of Rs.87,21,44,415/-. For that, assessee has filed appeal before the ld. CIT(A). Therefore, the disallowance of deduction under section 10AA of the Act became the subject matter of the appeal before the ld. CIT(A). Therefore, the issue which has become the part of the regular appeal before the ld. CIT(A) should not have been revised by the ld. PCIT. Hence, the disallowance under section 10AA of the Act, has merged with the order of ld. CIT(A) and therefore ld. PCIT should not have exercised his jurisdiction under section 263 of the Act, therefore, since the issue relating to disallowance of deduction under section 10AA of the Act, has merged with the order of ld. CIT(A), hence order of the ld. PCIT to that extent may be quashed. Page | 7
ITA 57/SRT/2022/AY.2012-13 Nya International
The ld Counsel pointed out about the issue of bank account in ING Vysya Bank wherein the ld. PCIT noted that there is a huge crediting amount to the tune of Rs.70,13,43,319/- in the bank account which is required to be examined, and for that the assessee has already submitted the detail of bank account and books of accounts before the Assessing Officer during the reassessment proceedings and he has examined this issue. In fact, the said issue was there in the reasons recorded by the Assessing Officer, therefore Assessing Officer while framing the reasons under section 147 r.w.s 143(3) of the Act have been examined thoroughly by assessing officer and taken the possible view, therefore order passed by the Assessing Officer under section 147 r.w.s. 143(3) dated 31.12.2019 is not erroneous and prejudicial to the interest of Revenue. Therefore, order of the ld. PCIT is not in accordance with the scheme of the Act. To bolster his arguments, the Ld. Counsel relied on the judgment of Honourable Supreme Court in the case of Malabar Industrial Co. Ltd. vs CIT, (2000) 243 ITR 83 (SC).
On the other hand, Learned Departmental Representative (Ld. DR) for the Revenue submitted that issue in reassessment was to examine the credit entry in the bank account to the tune of Rs.70,30,43,319/-. The Assessing Officer nowhere stated in the assessment order whether he has examined the credit entries in the bank account no. 5500111032480 of ING Vysya Bank. The Assessing Officer simply received the bank account from the assessee and did not verify the credit entries, therefore the object for which the reassessment proceedings were initiated have not been fulfilled and therefore the ld. PCIT has rightly exercised his jurisdiction under section 263 of the Act.
About claim of deduction under section 10AA of the Act to the tune of Rs.87,21,44,414/-, the Ld. DR pointed out that the assessment order was framed on dated 31.12.2019 and the Ld. PCIT exercised his jurisdiction under section 263 of the Act and notice under section 263 of the Act was issued by the ld. PCIT on 11.01.2022, however, ld. PCIT was not informed neither by the assessee nor by the Assessing Officer that assessee has filed the appeal before Page | 8
ITA 57/SRT/2022/AY.2012-13 Nya International the ld. CIT(A) in respect of disallowance under section 10AA of the Act and therefore the ld. PCIT has rightly exercised the jurisdiction under section 263 of the Act. The Ld. DR for the Revenue, to substantiate its plea relied on the judgment of Co-ordinate Bench of ITAT, Chennai in the case of Kumar Rajaram vs ITO, 67 taxmann.com 110 (Chennai Trib.) wherein it was held as follows: “14. We have carefully gone through the aforesaid observations. "Adopting" one of the courses permissible in law necessarily requires the AO to consciously analyse and evaluate the facts in the light of relevant law and bring them on record. It is only then that he can be said to have "adopted" or chosen one of the courses permissible in law. The AO cannot be presumed or attributed to have "adopted" or chosen a course permissible in law when his order does not speak in that behalf. Similarly, "taking" one view where two or more views are possible also necessarily imports the requirement of analysing the facts in the light of applicable law. Therefore, proper examination of facts in the light of relevant law is a necessary concomitant in order to say that the AO has adopted a permissible course of law or taken a view where two or more views are possible. It is only after such proper examination and evaluation has been done by the AO that he can come to a conclusion as to what are the permissible courses available in law or what are the possible views on the issue before him. In case he comes to the conclusion that more than one view is possible then he has necessarily to choose a view, which is most appropriate on the facts of the case. In order to apply the aforesaid observations to a given case, it must therefore first be shown that the AO has "adopted" a permissible course of law or, where two views are possible, the AO has "taken" one such possible view in the order sought to be revised under s.
263. This requires the AO to take a conscious decision; else he would neither be able to "adopt" a course permissible in law nor "take" a view where two or more views are possible. In other words, it is the AO who has to adopt a permissible course of law or take a view where two or more views are possible. It is difficult to comprehend as to how the AO can be attributed to have "adopted" a permissible course of law or "taken" a view where two or more views are possible when the order passed by him does not speak in that behalf. We cannot assume, in order to provide legitimacy to the assessment order, that the AO has adopted a permissible course of law or taken a possible view where his order does not say so. The submissions made by the learned counsel, if accepted, would require us to form, substitute and read our view in the order of the AO when the AO himself has not taken a view. It could have been a different position if the AO had "adopted" or "taken" a view after analysing the facts and deciding the matter in the light of the applicable law. However, in the case before us, the AO has not at all examined as to whether only one view was possible or two or more views were possible and hence, the question of his adopting or choosing one view in preference to the other does not arise. The aforesaid observations of the Hon'ble Supreme Court do not, in our view, help the assessee; and rather they are against the assessee.
15. In the case of Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC) the Hon'ble Supreme Court has held that :—
ITA 57/SRT/2022/AY.2012-13 Nya International '"... There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Harrington v. British Railways Board [1972] 2 WLR 537 (HL) circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases...." Therefore, the observations of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd's case (supra) on which reliance has been placed by the learned counsel cannot be read in isolation. The judgment deserves to be read in its entirety to cull out the law laid down by the Hon'ble Supreme Court. If so read, it is quite evident that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind will satisfy the requirement of the order being erroneous and prejudicial to the interest of the Revenue. If the order sought to be revised under s. 263 suffers from any of the aforesaid vices, it cannot be said that the AO has "adopted", in such an order, a course permissible in law or "taken" a view where two or more views are possible.' 16. It was next contended by the learned Authorised Representative that the AO had considered all the relevant aspects of the case carefully while passing the order. According to him, the mere fact that the assessment order passed by the AO was short would neither mean failure on his part in not examining the matter carefully nor would render his order erroneous so long as the view taken by him was a possible view. In our view, the aforesaid submission of the assessee must fail for the reasons already explained in the foregoing paras of this order as the order, which is sought to be revised under s. 263 reflects no proper application of mind by the AO and thus be amenable to revision under s.
263. In this case before us, the assessment order passed by the AO lacks judicial strength to stand. It is not a case where the order is short but is not supported by judicial strength. It is in this view of the matter that we feel that the learned CIT has correctly exercised his revisional jurisdiction under s.
263. In our opinion, the AO has been entrusted the role of an investigator, prosecutor as well as adjudicator under the scheme of the IT Act. If he commits an error while discharging the aforesaid roles and consequently passes an erroneous order causing prejudice either to the assessee or to the State Exchequer or to both, the order so passed by him is liable to be corrected. As mentioned earlier, the assessee can have the prejudice caused to him corrected by filing an appeal; as also by filing a revision application under s.
But the State Exchequer has no right of appeal against the orders of the AO. Sec. 263 has therefore been enacted to empower the CIT to correct an erroneous order passed by the AO which he considers to be prejudicial to the interest of the Revenue. The CIT has also been empowered to invoke his revisional jurisdiction under s. 264 at the instance of the assessee also. The line of difference between ss. 263 and 264 is that while the former can be invoked to remove the prejudice caused to the State the latter can be invoked to remove the prejudice caused to the assessee. The provisions of s. 263 would lose significance if they were to be interpreted in a manner that prevented the CIT from revising the erroneous order passed by the AO, which was prejudicial to the interest of the Revenue. In fact, such a course would be counter-productive as it would have the effect of promoting arbitrariness in the decisions of the AOs and thus destroy the very fabric of sound tax discipline. If erroneous orders, which are prejudicial to the interest of ITA 57/SRT/2022/AY.2012-13 Nya International the Revenue, are allowed to stand, the consequences would be disastrous in that the honest taxpayers would be required to pay more than others to compensate for the loss caused by such erroneous orders. For this reason also, we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the Revenue within the meaning of s.
Thus the order passed by Assessing Officer is prejudicial to the interest of the Revenue. Thus, the Ld. CIT is justified in exercising the jurisdiction provided to him u/s.263 of the Act. Accordingly, the legal issue raised by the regarding validity of exercising jurisdiction u/s.263 by CIT is rejected.
Therefore, Ld. DR contended that order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of Revenue, therefore, the order passed by the ld. PCIT may be upheld.
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 in assessee’s case under consideration, the original assessment under section 143(3) of the Income Tax Act, 1961 was framed on 28.03.2015 wherein the assessee submitted details and documents, however the Assessing Officer has not discussed any issue regarding undisclosed bank account and deduction under section 10AA of the Act.
Later on, reassessment proceedings were initiated against the assessee and reasons were recorded by the Assessing Officer which is mentioned in the reassessment order dated 31.12.2019. In the reassessment proceedings, there were two issues identified by the Assessing Officer in the reasons recorded by him which are as follows: (i) The credit entry in ING Vysya Bank Account No.5500111032480 to the tune of Rs.70,13,43,319/- and; (ii) Disallowance of deduction under section 10AA of the Act to the tune of Rs.87,21,44,414/-.
ITA 57/SRT/2022/AY.2012-13 Nya International
We note that Assessing Officer issued show cause notice dated 20.12.2019 which is placed at paper book page no.14 wherein the Assessing Officer asked the assessee to furnish the following details: “Kindly refer to this office show cause dated 21.12.2019. You have filed certain details but complete reply is still pending. You were specifically required to show cause that why it may not be concluded that neither you were having any machinery for manufacturing nor any electricity consumption was there which support that actually any activities were carried out during the year. You have submitted the Bills of electricity but that also shows that electricity consumption as per trading account was only Rs.59,426/- meaning thereby less than Rs.5,000/- for month. 2. In the above background you were required to show cause that why the exemption claimed u/s 10AA may not be treated as non-genuine and to be disallowed. The complete reply is still pending. 3. Further on going through the partners detail it has been ascertained that Shri Ramesh Kumar Kadel has introduced Rs.50,76,00,000/- during the year which requires proper verification regarding the sum so credited in the Firm. Kindly produce the bank account of partner with copy of ITR, Balance sheet, Bank statement along with the narration of debit and credit entries of amount appearing in the bank account of Shri Ramesh Kumar kadel account. 4. Your attention is further drawn to the information received from the Directorate of Revenue Intelligence Mumbai that they had received information from credible sources regarding overvaluation of rough diamonds. The DRI conducting the investigation in M/s Ramesh Trading Company revels that (Shri Ramesh Kumar Kadel who was a partner of 33.33%) the said firm was involved in this activity. The purchases of M/s Ramesh Trading Company reflects the purchases from M/s Shanghai Summit Ltd, M/s Bloom International and these are the same entities from whom you have claimed the purchases that shows that in your case too the invoices were overvalues and the entire scenario was regarding to claim the exempt income only. 5. You are hereby required to produce the details of purchases party wise and amount paid to them along with a copy of stock register with details of sales and purchases (quantity wise) made during the year. 6. Further your kind attention is drawn towards the various bills submitted to this office and ongoing through the same it appears that these so called bills are not properly being reflected into your books of accounts e.g. the copies of electricity bills and wages are not according to the amount being reflected in audited results. The wages register as produced by you reflects that the entire vouchers so produced were prepared in one go and it appears that signature against all the person has been done by one person only. Therefore, to prove the genuineness of the same you are required to provide the confirmations with identity of these persons. Page | 12
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On the facts and circumstances it is concluded that the entire activities of the firm for the year under consideration was only to disclose the exempt income. Since the exempt income so claimed had enhanced the balance sheet of the Firm, therefore, you are required to show cause that in absence of any proper explanation why the profit credited into the books may not be treated as Income from Undisclosed sources and may not be added back into the income of your Firm as Income from Other Sources after disallowing the deduction u/s 10AA of the Act. Please note that it's a time barring issue and due to limitation of time the reply should be submitted to this office on or before 28/12/2017 at 10.30 AM. It may please further be noted that, if complete details are not furnish within the stipulated date, the assessment will be completed as per the facts and material available on record without further intimation.” 21. In response to the notice issued under section 142(1) of the Act, the assessee submitted its reply dated 24.12.2019 which is reproduced below: “SUB: ASSESSMENT PROCEEDINGS U/S. 142(1) OF THE I.T. ACT, 1961 FOR THE A/Y. 2013-14 IN THE CASE OF NYA INTERNATIONAL. SURAT. PAN: AAFHN 1681M REF: Show Cause Notice No. ITBA/AST/F/17/2019-20/1021622366(1) dated 04.12.2019 We are in receipt of your Show cause notice dated 04.12.2019. In this connection, we state and submit the following details: The assessee firm had filed the return of income on 01.08.2012 declaring total income at Rs. Nil after claiming deduction of Rs.87,21,44,414/- u/s 10AA of the Act. Your goodself in para no. 4 of the show cause notice has mentioned that your goodself had asked the assessee firm to furnish details vide notice dated 16.10.2019. In this connection we would like to state that the assessee firm had already submitted all the details mentioned in the notice dated 16.10.2019 during the time of original assessment proceedings. After duly considering all the details on record the order u/s 143(3) of the Act was passed on 28.03.2015 by accepting the income disclosed by the assessee. Further, as per the provisions of section 10AA of the Act, the assessee firm, being an entrepreneur, as referred to in Section 2(j) of the Special Economic Zone Act, 2005 having its unit under SEZ and begins to manufacture or produce articles or things or provide any services during the previous year is eligible to get 100% exemption in respect of income derived from such unit. The assessee is eligible to claim deduction u/s 10AA of the Act as the unit M/s NYA International was duly established in Surat Special Economic Zone. It is also important to note that section 10AA of the Act has its inception from the SEZ Act, 2005 which has been introduced for encouraging exports and bring in foreign exchange in India. The development commissioner of SEZ Surat
ITA 57/SRT/2022/AY.2012-13 Nya International has also clarified vide his letter dated 28.09.2011 that the benefit of Section 10AA of the Act is available to units engaged in trading activities with respect to export of imported goods. It was also clarified that in the case of conflict between the provisions of the Act and the SEZ Act, the provisions of SEZ Act will prevail. Thus, the assessee is entitled to 100% deduction u/s 10AA of the Act in view of the provisions of section 2(z) of the SEZ Act, 2005 read with section 27 and 51 of the Act further read with rule 76 of the SEZ rules, 2006. It may please be noted that in the case of the assessee, the assessment for AY 2012-13 was completed and the original order u/s 143(3) of the Act was passed on 28.03.2015 wherein the eligibility of deduction u/s 10AA of the Act was fully examined and after verifying all the details, the assessee firm was granted deduction u/s 10AA of the Act. Thus, your goodself would appreciate that the assessee firm is eligible for deduction u/s 10AA of the Act and the same was approved by the Department also during the original assessment proceedings. We are once again attaching the following documents for your kind perusal; 1. Copy of SEZ approval from ministry of commerce and industry 2. Copy of LUT accepted by development commissioner 3. Copy of letter of allotment for Surat SEZ plot 4. Copy of Kasez approved IEC 5. Copy of Pan card 6. Copy of Surat SEZ lease 7. Copy of original assessment order u/s 143(3) of the Act passed on 28.03.2015 by your predecessor Considering the above, your goodself would appreciate that the assessee had rightly claimed the deduction u/s 10AA of the Act. Further, in para no.4.2 of your show cause notice your goodself has mentioned that the Deputy Director, Revenue Intelligence, Zonal Unit, Mumbai has shared the information that the firm is maintaining a bank account with ING Vysya bank bearing account number 550011032480 and there is a total credit of Rs.70,13,43,319/- in the said bank account. In this connection we would like to state that the details of the ING Vysya bank account was duly mentioned in the financials of the company and the Return of Income filed for assessment year 2012-13 the same can be verified from the details furnished during the time of original assessment proceedings. From the above it is crystal clear that the assessee firm is eligible for deduction u/s 10AA of the Act. Hope the above will satisfy you, if you require any further clarification or information, we shall be glad to furnish the same on hearing from you.”
The assessing officer has also issued show cause notice dated 09.11.2019, wherein Assessing Officer (vide para 4, of show cause notice), asked the assessee to file bank advice for payment and relevant extract of bank statement.
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The assessee also submitted the acknowledgement of return of income which is placed at page no. 48, the assessee also submitted audit report and audited financial report which is placed at page nos. 51 to 74 of the paper book. The Assessing Officer has also issued a final show cause notice dated 21.12.2019 under section 142(1) of the Act asking the assessee to furnish details in support of deduction under section 10AA of the Act, which is placed at page no. 37 of the assessees’ paper book. In response to the said show cause notice, the assessee submitted its reply vide letter dated 24.12.2019, which is placed at paper book pave no. 29, therefore we note that Assessing Officer has made adequate inquiry during the assessment stage in respect of the two issues raised by ld PCIT.
The Ld. Counsel also argued about the issue relating to disallowance of deduction under section 10AA of the Act and stated that it has been merged with the order of the ld. CIT(A), as the assessee has filed the appeal before the ld. CIT(A) against the disallowance made by the Assessing Officer under section 10AA of the Act and the said appeal is pending before the ld. CIT(A). We note that ld PCIT has exercised his jurisdiction u/s 263 of the Act on a different issue, relating to credit entry in the ING Vysya Bank to the tune of Rs.70,13,43,319/- and for this issue assessee has not filed appeal before ld CIT(A), as there was no addition made by AO in reassessment proceedings u/s 147 of the Act. Therefore, this issue, under consideration has not merged with order of ld CIT(A), hence arguments advanced by ld Counsel is hereby rejected.
However, we note that assessing officer has examined these two issues raised in reopening of assessment u/s 147 of the Act viz: (i) The credit entry in ING Vysya Bank Account No.5500111032480 to the tune of Rs.70,13,43,319/- and;(ii) Disallowance of deduction under section 10AA of the Act to the tune of Rs.87,21,44,414/-. The ld PCIT has exercised his jurisdiction under section 263 of the Act in respect of first issue, that is, credit entry in ING Vysya Bank Account No.5500111032480 to the tune of Rs.70,13,43,319/-. So far this issue is concerned, we note that assessee has also submitted its reply before the assessing
ITA 57/SRT/2022/AY.2012-13 Nya International officer. The assessing officer after getting the reply of the assessee, has applied his mind and framed the assessment order. Therefore, such order passed by the assessing officer cannot be termed as erroneous and prejudicial to the interest of revenue. We also note that assessing officer had with him copy of said bank account at the time of reopening of assessment under section 147 of the Act, as the reasons were recorded by AO based on the copy of the said bank statement. Therefore, entries in the said bank statement were examined by the AO in the reassessment proceedings and AO has applied his mind also.
We are aware of the fact that the Assessing Officer’s role while framing an assessment is not only an adjudicator. The AO has a dual role to dispense with i.e. he is an investigator as well as an adjudicator; therefore, if he fails in any one of the role as afore-stated, his order will be termed as erroneous. We take note that it is not the case of ld. Principal CIT that AO failed to made any additions/disallowances, the AO conducted sufficient enquiry to examine the debit and credit in the bank statement and he also examined the eligibility to claim deduction under section 10AA of the Act and that is why he disallowed deduction under section 10AA of the Act. It is pertinent to mention here that there was as such no allegation of ‘no enquiry’ or ‘lack of enquiry’ or verification, because the Ld. Pr. C.I.T. himself found all the details/evidences in the assessment record, i.e. well within the A.O.’s possession and what he alleged was about the plausible view taken by the A.O. as against his perception and understanding on the same set of facts and documents. Therefore, the notices issued for examination of the issues during the assessment proceedings and submission and verification of the same has not been shown to be fallacious. In this connection it is pertinent to mention here that the way in which assessment should be finalized falls in the exclusive domain of the Assessing Officer. Section 142(1) speaks of inquiry before assessment and gives immense power to the A.O. for conducting enquiry. Therefore, the A.O. u/s 142(1)(ii) & (iii) can ask the assessee almost any information which he thinks necessary for passing assessment and even if Ld. Commissioner has such results of enquiries, the resultant order cannot be subjected to revision proceedings. Therefore, the very Page | 16
ITA 57/SRT/2022/AY.2012-13 Nya International initiation of proceeding u/s. 263 of the Act by the Ld. Pr. C.I.T. is in violation of the settled position in law. When the conditions precedent for invoking revisional power u/s 263 of the Act on the facts and in the circumstances of the case are not fulfilled in the case of the assessee, the subsequent action in passing the order u/s. 263 on such invalid proceeding becomes null and void. Reliance is placed on the following decisions, the ratios of which are totally applicable to the facts of the assessee’s case:
(1) Smt. Juthika Kar vs. ITO [I.T.A. No.1128/Kol/ 2009, dated 16.5.2012] “8. With the leave and consent of my learned brother, however, I may add a few words to my learned brother’s analysis of Hon’ble Delhi High Court’s judgment in the case of Gee Vee Enterprises (supra). Undoubtedly, as noted by their Lordships in that case, an Assessing Officer cannot remain passive in the face of a return which is apparently in order but calls for further enquiry. In such a case, revision proceedings can indeed be initiated and there seems to be no serious controversy in this respect. The fine point, however, one must bear in mind is the distinction between adequate enquiries not having been conducted and the result of such enquiries not having been dealt with by way of a speaking order or not having resulted in the conclusion that could be, in the wisdom of a person other than the Assessing Officer, more appropriate. Here is a case in which sufficient enquiries were conducted. As learned brother has rightly noted, the Assessing Officer called for specific details, confirmations and even copies of bills. It could not, therefore, be said that sufficient enquiries were not conducted. 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-à-vis that of the Commissioner, cannot render an order erroneous and prejudicial to the interest of the revenue.
Viewed in this perspective, and having noted that the Commissioner has subjected the assessment order mainly on the ground that the Assessing Officer did not reach the right conclusions as a result of his enquiry, the impugned revision order is indeed unsustainable in law. It is not a case in which adequate enquiries has not been carried out.” [Emphasis given] (2) CIT vs. J.L. Morrison (India) Ltd. (2014) 366 ITR 593 (Cal) “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 appropriate enquiry was made and the Assessee was 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.”
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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 A.O. 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] 27. It would further be evident from the above given facts that the assumption of jurisdiction u/s. 263 by the Ld. Pr. C.I.T. and consequential direction to the A.O. to impose his own understanding on the issue in question resulted in almost no change in follow-up action by the A.O. Therefore, it goes to establish that the proceeding u/s 263 and order passed thereupon was totally uncalled for in the case of the assessee and that being so, the impugned order u/s 263 of the Act of the Ld. Pr. C.I.T. should be quashed as per law, and it is hereby quashed.
In the result, appeal filed by the assessee is allowed
Order pronounced on 22/02/2023 by placing the result on the Notice Board.