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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Per Vijay Pal Rao, JM:
This appeal by the assessee is directed against the order dated 10.01.2019 of Pr. Commissioner of Income Tax,-2 Indore passed u/s 263 of the Income Tax Act 1961, for A.Y.2014-15. The assessee has raised following grounds of appeal:
"1. That the learned Principal Commissioner of Income Tax -2 has passed the order u/s 263 of the Act without considering the facts and circumstances of case properly. 2. That the order passed u/s 263 of the Act is illegal, wrong, and bad-in-law. 3. That setting aside of u/s 263 of the Act for verification and examination of cash purchases is illegal, wrong and bad-in-law. 4. That the appellant craves leave to add, alter, amend and/or withdraw any grounds of appeal on or before the hearing of appeal." Page 1 of 9
ITA No.438/Ind/2019 Rajkumar Goyal Page 2 of 9 2. The assessment in case of the assesse was completed u/s 143(3) on 22.12.2016 at the total income of Rs.15,85,950/- as against return income of Rs.14,35,950/-. Thereafter on going through assessment records the Pr. CIT found that certain points those were mentioned for selection of the case for scrutiny under CASS were not taken into consideration by the AO while passing the assessment order. The Pr. CIT initiated proceedings u/s 263 by issuing notice dated 06.08.2018 which is extracted in the impugned order as under:
"Please refer to the assessment order dated 22.12.2016 for A. Y. 2014 - 15 in your case. On perusal of case record in your case for the A.Y. 2014-15 it is noted that you have furnished your return of income declaring total income at Rs.14,35,950/- & agricultural income at Rs. 75,500/- on 29.09.2014. Assessment in your case u/s 143(3) of IT. Act 1961 was completed by the ITO, Khargone vide order dated 22.12.2016 assessing total income at Rs. 15,85,950/-& agricultural income at Rs. 75,500/-. 2. The entire records were gone through by me and on perusal and examination of records it appears that the order dated 22.12.2016 for A. Y. 2014- 15 is erroneous as also prejudicial to the interest of revenue on account of passing of the order without making proper enquiries/investigations. 3. As per the information available on records, it is noted that you have not paid the central sales tax (CST) amounting to Rs. 90,022/- as a statutory liability till the date under section 139(1) of the IT. Act. In the computation of income neither you have added back nor AO has disallowed the same during assessment proceedings. Hence, Rs. 90,022/- should have been disallowed and the same should have been added back to your income. Further, A survey action u/s 133A of the IT. Act was conducted in the business premises of M/s Narmada Cotex, Nemani Compound, New Cotton Market Road, Amravati on 23.02.2016. During the course of survey, it was noticed that M/s Shri Vishwanath Traders is also operates from the same premises and controlled by the Goyal family of Indore. It was also found that you had purchased loose cottons of Rs. 14,90,73,159/- in cash. However, no supporting evidences such as vouchers, bills, transportation receipts, weighment slips etc were available with you. This was confronted to Shri Mukesh Goyal during the statement recorded on 24.02.2016. It was stated by Mr. Goyal that these purchases were genuine and were made from various traders based in Amravati. It was also stated by him that no supporting documents of purchase of loose cottons was maintained Page 2 of 9
ITA No.438/Ind/2019 Rajkumar Goyal Page 3 of 9 by you. Hence, discrepancies found in purchase of loose cottons in cash should have been investigated. The AO has not examined these factors/issues and enquiry/investigation has been made. Therefore, the assessment order passed by the AO appears to be erroneous in so far as it is prejudicial to the interest of the revenue. You are, therefore, required to show cause why provisions of section. 263 be not invoked in your case for the reasons mentioned above. 4 You are, accordingly, given an opportunity to attend my office on 16.08.2018 at 4:30P.M. and produce necessary evidences, explanation, etc in support of your contentions and arguments. If you fail to attend the hearing, it shall be presumed that you have nothing to say in the matter and order u/s 263 shall be passed on merit and on the basis of facts available on record" 3. Thus, the Pr. CIT has invoked the provisions of section 263 on account of lack of proper inquiry by the AO on two issues; first for of not making disallowance on account of outstanding Central Sales Tax (CST) and second on the issue of claim of cast purchase of cotton of Rs.14,90,73,159/- which was allowed by the AO despite absence of bills, vouchers, transportation receipts, weighment slips etc. Thus, the Pr. CIT observed that AO has not examined these two issues while passing assessment order. In reply to the show cause notice the assesse accepted the non-allowability of the claim of outstanding CST being not allowable as per the provisions of section 43B of the Act. On the issue of cash purchase of cotton the assesse contended that he produced books of account, bills and vouchers before the AO and the same were verified on text check basis. The Pr. CIT was not impressed with the reply of assesse on both the issues. Accordingly the Pr. CIT has set aside the assessment order being erroneous so far as prejudicial to the interest of revenue as the AO has not made requisite inquiry and allowed these two claims without conducting a proper inquiry. Since on the issue of non-payment of CST was not disputed by the assesse and therefore, to that extent there was no dispute that the said claim is not allowable as per the provisions of section 43B of the Act. On the second issue the Pr. CIT held that the AO has not examined the issue of disallowance u/s 40A(3) as well as the genuineness of the purchase. Accordingly the AO was directed to re- Page 3 of 9
ITA No.438/Ind/2019 Rajkumar Goyal Page 4 of 9 examine the issue and passed the order as per law after making necessary verification and inquiries/investigation.
Before the Tribunal the Ld. AR has invited our attention to the order sheet noting dated 20th July 2016 and submitted that all the relevant records as called by the AO was produced during the assessment proceedings. He has further submitted that the AO examined sundry creditor and sundry debtors above Rs.5 lac as well as expenses, bills and vouchers etc. He then referred to the letter issued by the AO dated 19.06.2019 placed at page no.9 to 10 of the paper book wherein the AO has mentioned the date of receipt of the survey report forwarded by the ITO, Khargoen and therefore, the survey report was available with the AO at the time of passing assessment order. The Ld.AR then submitted that the order sheet entry dated 14.12.2016 shows that the AO examined books of account, bills and vouchers and after considering the record produced by the assessee has made adhoc disallowance of Rs.1,50,000/- on the expenses for want of proper supporting vouchers and cash payment. He has then referred to the audit objection of the revenue placed at page 13 & 14 of the paper book and submitted that in view of audit objection the AO has made proposal to the Pr. CIT and consequently the Pr. CIT has invoked the provisions of section 263 based on the proposal send by the AO. Thus, the Ld. AR has submitted that the Pr. CIT has not invoked the provisions of section 263 of the Act suo motu but it was on the basis of the proposal send by the AO. Initiation of proceedings u/s 263 on the basis of the proposal and suggestion of AO shows that the Pr. CIT has not taken an independent decision by application of mind on the assessment record but it is a borrowed satisfaction. He has submitted that the assessee accepted first disallowance of Rs.90,022/- and the same may be rectified as per the provisions of section 154 of the Act. The revision order passed on the second issue on the ground of purchase of loose cotton of Rs.14,90,73,159/- in case is beyond the jurisdiction of Pr. CIT as the AO has already conducted requisite inquiry and made an adhoc disallowance on this account. Thus, the Ld. AR has submitted that
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ITA No.438/Ind/2019 Rajkumar Goyal Page 5 of 9 once the AO has taken a possible view by making ad hoc disallowance then the Pr. CIT is not permitted to invoke the provisions of section 263 merely because he does not agree with the view of the AO. He has relied upon the following decisions:
1.CIT vs. Max India Ltd. 295 ITR 282 2. Ranka Jewellers vs. Addl. CIT 395 ITR 148 (Bom) 3. Attar Singh Gurmukh singh vs. ITO 191 ITR 667 (SC) 4. ITO vs. Jitendra Kumar Mandlecha 23 ITJ 644 5. Malabar Industrial Co. Ltd. 243 ITR 83 6. CIT vs. Nirav Modi 390 ITR 292 (Bombay HC) 7. CIT vs. Gabriel India Ltd. 203 ITR 108 (Bombay HC) 8. Jeevanlal Ltd. vs. aCiT 208 ITR 407
On the other hand, Ld. DR has submitted that the assessee has not disputed the issue of outstanding CST to be disallowed u/s 43B of the Act. Therefore, the order of the AO is erroneous being contrary to the provisions of the Act. He has further submitted that the AO has also not considered survey report and material sent by the investigation wing Khargone while passing assessment order. No inquiry was conducted by the AO in the light of the survey report and therefore, the order of the AO is erroneous as there was no inquiry on the part of the AO in the light of the survey report. Ld. DR has referred to para 3(iii) of the impugned order wherein the Pr. CIT has pointed out that the violation of provisions of section 40A(3) has been reported in the audit report in form 3 CD as item no.21(d)(A) whereas the AO has not even considered the said violation as reported in the audit report. Thus, Ld. DR has relied upon the impugned order of the Pr. CIT and submitted that it is apparent that the order passed by the AO without conducting a proper inquiry is erroneous in view of the explanation (2) to section 263(1) of the Act.
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ITA No.438/Ind/2019 Rajkumar Goyal Page 6 of 9 6. We have considered the rival submissions as well as relevant material on record. The case of the was selected under CASS for complete scrutiny and the assessment was completed u/s 143(3) on 22nd December 2016 whereby the AO has made ad hoc disallowance of Rs.1,50,000/- on account of purchase made by the assesse in cash and for want of supporting bills and vouchers. The AO has conducted an inquiry to verify the purchase and made on adhoc disallowance of Rs.1,50,000/- in respect of the cash purchase of more than Rs.14.90 crores. The AO has specifically stated in the order that the assessee has not produced proper bills and vouchers of purchase but the same are self- made. Thus, it is clear that the AO made an inquiry about the genuineness of the purchase and due to deficiency in supporting evidence of purchase the AO made an adhoc disallowance. Thus to the extent of conducting an inquiry on purchase made by the assessee the case in hand does not fall in the category of complete lack of inquiry though it may be a case of inadequate inquiry. However the Pr. CIT has invoked the provisions of section 263 on two issues as stated in the show cause notice being non-allowability of the outstanding Central Sales Tax as per the provisions of section 43B and non-conducting of the inquiry on the part of the AO in respect of the cash purchase of cotton in the light of the provisions of section 40A(3) of the Act. So far as the first issue regarding non-payment of the CST is concerned the assesse has accepted that the same is not allowable as per the provisions of section 43B. Therefore, to that extent the invocation of the provisions u/s 263 are not in dispute.
6.1 As regards the second issue though the Pr. CIT has taken up the issue of disallowance u/s 40A(3) as well as the genuineness of the purchase however, it is manifest from the record and particularly from the assessment record and order sheet entries that the AO has not even taken up the issue of disallowance u/s 40A(3) of the Act. There is no dispute that the assessee has made huge cash purchase of more than Rs.14.90 crore and therefore, prima facie it is clear contravention of the provisions of section 40A(3) of the Act. The assessee can claim that his case falls
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ITA No.438/Ind/2019 Rajkumar Goyal Page 7 of 9 under the exception provided in Rule 6DD however, same is subjected to the verification of the necessary facts and records. Once the assessee has not produced proper bills and vouchers then it is also difficult to accept the contention of the assesse that his case falls under the exception as per Rule 6DD of the Income Tax Rules. In any case when the AO has not taken up this issue of disallowance u/s 40A(3) then there is no material or explanation on behalf of the assesse in respect of this issue as well as the exceptions provided under Rule 6DD of the Act. Ld. AR has referred to survey report as well as the proposal send by the AO to raise an objection against initiation of the proceeding u/s 263 on the basis of borrowed satisfaction. At the outset, we note that the letter dated 19.06.2019 as referred by the Ld. AR was in response to the assesse’s request made after filing this appeal before the Tribunal. Therefore, the said letter of the AO giving details of the report of the Investigation Wing Nagpur received by the AO would not epso facto lead to the conclusion that the said report was considered by the AO while passing the assessment order. Even otherwise neither from the proceeding sheet nor from the assessment order it reflects that the AO has taken into account the survey report send by the Investigation Wing Nagpur.
6.2 As regard the proposal sent by the AO to the Pr. CIT it is in pursuant to the revenue audit objection in respect of violation of provisions of section 43B as reported in the audit report on account of Central Sales Tax outstanding and cash purchase of more than Rs.14.90 core without any supporting evidence such as bills and vouchers etc. Thus, the audit objections as referred by the AO in letter dated 7th May 2018 are the facts available on records and not an opinion expressed either by the revenue audit Cell or by the AO. The said letter has narrated the facts as pointed by the audit objection. Considering the facts as pointed out by the Audit objection and send by the AO would not amount to borrowed opinion or satisfaction when the Pr. CIT has invoked provisions of section 263 by considering those facts on record. Even otherwise considering these facts would fall in the ambit of examining the
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ITA No.438/Ind/2019 Rajkumar Goyal Page 8 of 9 record of any proceedings under this Act available at the time of examination by the Commissioner as per clause (b) of explanation (1) to section 263(1) of the Act. We find that the report of the AO has brought out relevant facts already available on record and pointed out by the revenue audit objection and therefore, considering those relevant facts by the Pr. CIT while invoking the provisions of section 263 is not beyond the jurisdiction u/s 263 of the Act. Rather it is in the conformity with the provisions of section 263 of the Act. Therefore, the report of the Revenue Audit Party on certain points and available facts on record does not amount to an opinion and therefore, by considering the those facts and points as raised by the audit for invoking the provisions u/s 263 are within the jurisdiction of the Pr. CIT. Even otherwise when the cash purchase of more than Rs.14.90 crores falls in the mischief of section 40A(3) of the Act and liable to be disallowed subject to the exception provided in Rule 6DD of the I.T. Rules 1962 then ignoring the said aspects of the matter by AO at the time of passing the assessment order certainly renders the assessment order erroneous so far as prejudicial to the interest of revenue. It is manifest from the record and particularly from the assessment order and order sheet entries that the AO has not taken up this issue of disallowance u/s 40A(3) of the Act and hence, there is a complete lack of inquiry on the part of the AO so far as this issue is concerned. Whether the assesse would take the benefit of exception under Rule 6DD is again a matter of verification and examination of the relevant facts and record which the AO has not at all taken into account despite knowing the factum of cash purchase of more than Rs.14.90 crore as the AO did not raise any query on this issue. Hence, there is complete lack of inquiry on the part of the AO on this issue and consequently the Pr. CIT has rightly exercised his jurisdiction u/s 263 to revise the assessment order to the extent of allowability of the claim in the light of the provisions section 40A(3) of the Act.
In view of the facts and circumstances as discussed above the order of the AO is erroneous being contrary to the provisions of section 43B as well as
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ITA No.438/Ind/2019 Rajkumar Goyal Page 9 of 9 40A(3) and therefore, in absence of any inquiry on these two issues the order of the AO has been rightly set aside by the Pr. CIT. Accordingly we do not find any error or illegality in the impugned order of the Pr. CIT. The decisions relied upon by the Ld.AR of the assesse are applicable only in a situation where the AO has conducted an inquiry on an issue and taken a possible view whereas in the case of the assesse there is a complete lack of inquiry on the part of the AO on the two issues; (i) Disallowance u/s 43B (ii) u/s 40A(3) and therefore, the said judgments would not help the case of the assesse.
In the result, appeal of the assesse is dismissed.
Order pronounced in the open court on 20.11.2023
Sd/- Sd/-
(B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member
Indore, 20.11.2023 Patel/Sr. PS
Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore
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