MARSONS LIMITED,KOLKATA vs. CIT-I, KOLKATA, KOLKATA

Before completing the assessment AO issued notices 143(2) as well as 142(1) of the Act. The CIT in exercise of his powers u/s 263 of the Act was of the view that the aforesaid order of the AO was erroneous and prejudicial to the interest of the revenue for the following reasons :- “a) It is observed from the Schedule- G of the Balance Sheet for the year ending 31.03.2009 that Goods in transit amounting to Rs. 2,56,84,652/- was shown under the head "Loans and Advances" apart from closing stock of raw materials amounting to Rs. 3,80,01,499/-. It is also observed that while arriving at raw materials consumption amounting to Rs. 32,10,54,392/-, stock in transit of Rs. 2,56,84,652/- was not accounting for. It is seen that stock in transit amounting to Rs. 28,66,868/- as at. 31.03.2008 also was accounted for while arriving at raw material consumption for the current year. As per principles of accounts, the stock in transit should be shown in the balance sheet separately to reconcile the value and quantity of-stock as per accounts branch and as per records of stores when the purchase bill was accounted for but the goods was not received by the stock section, In the instant case, stock in transit was never accounted for either during the year or in the immediately succeeding year. Therefore, there was excess allowance of raw material consumption. This has resulted in underassessment of income by Rs. 2,56,84,652/- . b) It is observed from the P/L A/Cs that extra ordinary item for settlement of disputed claims amounting to Rs. 2,46,76,295/- deducted from the profit to arrive at a loss of Rs. 12994277/-. It is observed from the schedule "L" (notes fanning part of accounts) that during the year assessee company had made an out of court settlement with Rural Electrification Corporation (REC) against the case which was pending in DRT for a long time, liability being settled for Rs. 4,77,36,388/- and adequate provision had been made in the accounts thereof. It is not clear from the records as to the fact on which ground assessee made an out of court settlement with REC, whether it is capital or revenue in nature and what was the business relationship/transaction between the Assessee and REC. It is observed from the schedule "C" of the Balance Sheet that a long term loan of Rs. 2,94,66,235/- as on 31.03.2009 (Rs. 2,33,88;252/- as on 31.03.2008) was taken by the assessee from REC against Wind Mill power project. Apart from this no other business transaction could be established from the available records. In view of the above, allowance of extra-ordinary item of Rs. 2,48,76,295/- as a provision for expenses appeared to be irregular. This has resulted in under assessment of income by Rs. 2,48,76,295/-. In view of the above facts, the order passed u/s 143(3) of the I.T. act, 1961 on 30.12.2011 for assessment year 2009-10 appeared to be erroneous in so far as it is prejudicial to the interests of revenue. The case was proposed to be taken up for revision u/s 263 of the 1.T.act, 1961. A notice in this regard was issued on 10.01.2014, fixing hearing on 30.01.2014 and duly served on the assessee.”

In reply to the aforesaid show cause notice u/s.263 of the Act dated 10.1.2014, the assessee submitted replies in the course of hearing before CIT on 06.02.2014. ITA No.1140/Kol/2014 – Marsons Limited A.Y.2009-10

The assessee gave details with regard to the aforesaid queries also. CIT taking note of the aforesaid replies concluded that while concluding the assessment proceedings u/s 143(3) AO did not make any inquiries in respect of the issues with regard to the goods in transit in the Profit and loss account. The CIT after referring to certain judicial pronouncements took the view that non examination of an issue which requires examination, before concluding an assessment, makes the order erroneous and prejudicial to the interest of the revenue. CIT accordingly set aside the order of AO and directed the AO to make denovo assessment. The following were the relevant observations of CIT in this regard. :- “16. It is therefore, evident that the scrutiny assessment completed in this case, did not have verification/analysis/scrutiny done in respect of issues discussed above. 17. I, therefore hold that the assessment completed u/s 143(3) of the I.T.Act, 1961 on 30.12.2011 is erroneous in so far as it is prejudicial to the interest of revenue. 18. The assessment is, therefore, set aside in full with the direction that the assessment be made de-novo on all these aspects after reconciling and verifying the basic facts of the case. “ 6. Aggrieved by the order of CIT the assessee has preferred the present appeal before the Tribunal. ITA No.1140/Kol/2014 – Marsons Limited A.Y.2009-10

The ld. Counsel for the assessee made submission on the merits of the issues raised by the CIT in the show cause notice u/s.263 of the Act. A specific query was put by the Bench to the ld. Counsel for the Assessee as to whether he challenges the findings of the CIT that the AO did not make any inquiries on the issues set out in the show cause notice dated 10.01.2014. The ld. Counsel did not give a straight answer but submitted that the records of assessment should be perused. We find that the CIT in the impugned order has given a clear finding that AO before completing the assessment did not make any inquiries with regard to the aspects set out in the show cause notice dated 10.01.2014. It is also not disputed before us that after the order of the CIT u/s.263 of the Act, in the assessment completed pursuant to the order u/s 263 of the Act, the AO considered only the aspects set out by the CIT in the show cause notice dated 10.01.2014. In these circumstances the onus was on the assessee to show that proper and adequate inquiries on the issues set out in the show cause notice dated 10.01.2014 were in fact made by the AO before concluding the assessment u/s 143(3) of the Act. The ld. Counsel for the assessee has not brought any material on record to prove case of the assessee in this regard. The ld. Counsel however placed reliance on the decision of the Hon’ble Delhi High Court in the case of CIT vs Sunbeam Auto Ltd. 332 ITR 167 (Delhi) wherein the Hon’ble Delhi High Court took a view that inadequate inquiry made by the AO before concluding the assessment cannot be the basis to revise his order u/s 263 of the Act that such revision u/s 263 can be made only in a case when there is complete lack of inquiry. As we have already pointed out that the assessee has not brought any material on record to show that the AO has made some inquiries on the issues set out in the show cause notice u/s 263. In such circumstances we are of the view that the aforesaid decision will not be of any assistance to the plea raised by the assessee. 8. The law is well settled that failure to make inquiry which the AO ought to have made in the given facts and circumstances of a case, renders order of assessment erroneous and prejudicial to the interest of revenue. The following decisions are relevant in this regard :- i)Rampyari Devi Saraogi vs CIT 67 ITR 84 (SC) ITA No.1140/Kol/2014 – Marsons Limited A.Y.2009-10

In the light of the decisions referred to above and the admitted facts and circumstances of the present case that the AO did not make proper and adequate inquiries before concluding the assessment, We are of the view that the CIT was fully justified in passing the impugned order. We therefore do not find any ground to interfere with the order u/s 263 of the Act. Accordingly the appeal of the assessee is dismissed.

In the result the appeal of the assessee is dismissed. Order pronounced in the Court on 20.05.2016.