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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SMT.ANNAPURNA GUPTA
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER
Present appeal has been filed by the assessee against order passed by the ld.Pr.Commissioner of Income-Tax, Central, Rajkot [hereinafter referred to as “ld.Pr.CIT(A)”] dated 30.3.2021 by exercising power under section 263of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short]for the Asst.Year 2015- 16.
The grounds raised by the assessee in the appeal are as under:
The Hon'ble Principal Commissioner of Income Tax, Central, Ahmedabad has erred in passing the order u/s. 263 of the I T Act is unwarranted, unjustified and bad in law.
2. The Hon'ble Principal Commissioner of Income Tax, Central, Ahmedabad has erred in setting aside the issues of addition of new sundry creditors of Rs.3,66,31,437/-, and mentioned that the AO has not carried out verification of this quantum increase of sundry creditors which were liable to disallowed u/s.68 of the IT Act and treating the same as unexplained cash credits is unwarranted, unjustified and bad in law. 3. The Hon'ble Principal Commissioner of Income Tax, Central, Ahmedabad has erred in Newly Added Sundry Creditors are treated as unexplained Cash Credit u/s.68 of the I T Act, 1961 is totally unwarranted, unjustified and bad in law. 4. The Hon'ble Principal Commissioner of Income Tax, Central, Ahmedabad has erred during the course of Assessment Proceedings, the Assessing Officer has verified each and every details and passed the order even though the Hon'ble Principal Commissioner of Income Tax, Central Ahmedabad has wrongly mentioned the facts in body of order and set aside the Speaking order passed by Assessing Officer is treated as erroneous and prejudicial to interest of the revenue within the meaning of section 263 of the I T Act, it is totally wrong, unwarranted, unjustified and bad in law. Your applicant reserves the right in addition or alteration in the grounds of appeal at the time of hearing.”
During the course of oral arguments raised before us, the ld.counsel for the assessee challenged the order passed by the Ld.Pr.CIT under section 263 of the Act on two counts, viz.
i) That it was passed without giving fair opportunity of hearing to the assessee, and ii) That even on merits, there was no error in the order of the AO to validate any revision in the same.
On the aspect of denial of fair opportunity of hearing, the contention of the ld.counsel for the assessee was that only two notices were issued to the assessee in the proceedings conducted by the ld.Pr.CIT under section 263 of the Act,and both notices pertained to the period when COVID-19 pandemic was at its peak; making it virtually impossible for any response to be filed by the assessee against the said notice. Referring to the para-2 of the Ld.Pr.CIT’s order, he pointed out that the initial notice assuming jurisdiction under section 263 of the Act was issued by the ld.Pr.CIT on 5.3.2021. Thereafter, another notice was issued to the assessee on 23.3.201 fixing the date of hearing on 26.3.2021; that thereafter no further notice was issued and order under section 263 has been passed, holding the assessment order as erroneous.
The ld.counsel for the assessee further contended that it is evident that besides having issued notice during the COVID period that too only two notices, the ld.Pr.CIT had also not afforded sufficient opportunity to the assessee to file response to the same. He pointed out that last notice was issued on 23.3.2021 seeking response from the assessee within a period of 3 days only i.e. on 26.3.2021. He therefore contended that the impugned order passed by the ld.Pr.CIT under section 263 of the Act needed to be set aside on this count alone of having been passed in gross violation of the principles of natural justice.
The ld.DR though vehemently supported order of the ld.Pr.CIT but was unable to controvert the facts pointed out by the ld.counsel for the assessee regarding no opportunity of hearing being afforded to the assessee.
Having considered arguments of both the parties, we are in agreement with the ld.counsel for the assessee that the impugned order under section 263 has been passed without giving due opportunity of hearing to the assessee. As pointed out by the ld.counsel for the assessee from the facts emanating from the order passed by the ld.Pr.CIT under section 263 of the Act, only two notices were issued to the assessee during the course of revisionary proceedings and both the notices were issued when COVID-19 pandemic was at its peak in March 2021. Undoubtedly it was virtually impossible for any response to be filed to the notice issued. The impugned order was passed thereafter without even giving a fair opportunity of hearing to the assessee, which is in gross violation of the principles of natural justice.
The Hon’ble Apex Court in the case of Sona Builders vs UOI 251 ITR 197(SC) has held that orders passed in violation of principles of natural justice have to be set aside and cannot be restored back for hearing afresh. The Hon’ble court held that having regard to the statutory limit within which appropriate authority has to Act and his failure to act in conformity with the principles of natural justice, the matter cannot be remanded for reconsideration and has to be set aside. Section 263 of the Act also places a limitation for passing orders under the section in sub clause (2) to section 263 of the Act, being within two years from the en d of the financial year in which the order sought to be revised is passed. In the present case the order u/s 263 of the Act being passed without giving opportunity of hearing to the assessee , the same is not sustainable and needs to be set aside.
Again in the case of CIT vs Amitabh Bachchan in Civil Appeal No. 5009 & 5010 of 2016 dt 11th May 2016, while dealing with the provisions of section 263 of the Act the Hon’ble Court held that section 263 of the Act contemplates due opportunity of hearing being afforded to the assessee, absence of which would make the order passed fragile. Relevant findings of the Hon’ble Supreme court are as under:
5 “What is contemplated by Section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. Reference in this regard may be illustratively made to the decisions of this Court in Gita Devi Aggarwal vs. Commissioner of Income Tax, West Bengal and others[1] and in The C.I.T., West Bengal, II, Calcutta vs. M/s Electro House[2]. Paragraph 4 of the decision in The C.I.T., West Bengal, II, Calcutta vs. M/s Electro House (supra) being illumination of the issue indicated above may be usefully reproduced hereunder:”
In view of the above we hold that the order passed u/s 263 of the Act being in violation of the principles of natural justice is not sustainable in law, and is directed to be quashed on this count alone.
Having held so, the ld.counsel for the assessee also argued on the merits of the case.
He pointed out that revisionary power was exercised by the ld.Pr.CIT noting error in the assessment order that huge sundry creditors outstanding to the tune of Rs.3.66 crores were accepted by the AO without making proper inquiries; that the same were liable to be added back to the income of the assessee under section 69 of the Act, and the AO having accepted the sundry creditors as such, it had resulted in the assessment order being erroneous causing prejudice to the Revenue. Our attention was drawn to para-2 of the Pr.CIT’s order noting the above facts as under:
“2. On perusal of the case records, it is noticed that during the year under consideration there is addition of new sundry creditors of Rs.3,66,31,437/-. However, the AO has not carried out verification of this quantum increase of sundry creditors which were liable to be disallowed u/s 68 of the IT. Act treating the same as unexplained cash credits in the absence of supporting corroboratory evidence to prove the identity, genuineness and creditworthiness of new sundry creditors.”
The ld.counsel for the assessee contended that, on the contrary, the AO had conducted due inquiry during the assessment proceedings raising specific queries relating to thesundry creditors to which due response has been filed by the assessee. He pointed out that vide notice issued under section 142(1) of the Act dated 28.4.2017, the AO had asked the assessee to furnish complete names and address of all the sundry creditors as appearing in its balance sheet as at the end of the impugned year i.e. as on 31.3.2015 in a specific format. Our attention was drawn to relevant notice placed before us at PB Page No.10. Thereafter, he pointed out that the assessee submitted response to the same vide his letter dated 27.6.2017 giving complete details of all the sundry creditors including their names, addresses, PAN and complete details of transaction undertaken with them reflecting opening balance and debit and credit transactions in their accounts during the years, as also their closing transaction. Our attention was drawn to the relevant documents in this regard placed before us at Page No.13-16 of the PB. He contended that the assessee had also stated that bank account of these parties could not be submitted because the creditors did not provide the copies of their bank statement. The response so filed by the assessee to the AO was pointed out to us placed at PB No.21. The ld.counsel for the assessee contended that duringthe assessment proceedings, it had been explained to the AO, the assessee is a government contractor and all books of accounts and vouchers had been furnished during the assessment proceedings, who had gone through, and after perusing all data and information placed before him, had accordingly accepted the genuinenessof the sundry creditors reflected by the assessee. The ld.counsel for the assessee contended that clearly there was no error in the order of the AO.
To this, the ld.DR responded by saying that since bank statement of all the sundry creditors had not been furnished, the inquiry conducted by the AO was incomplete and therefore the assessment order was erroneous. He drew our attentionto para-4 and 4.1 of the Pr.CIT’s order in this regard as under:
We have considered the rival contentions on the merits of the issue. We are in agreement with the ld.counsel for the assessee that the ld.Pr.CIT has been unable to demonstrate /find any error in the order passedby the AO.
It is not the case of the ld.Pr.CIT that no inquiry was conducted by the AO on the issue of sundry creditors’ balance outstanding. His case of the assessment order being erroneous on this count, rests on inadequacy of inquiry. The ld.Pr.CIT, we have noted, has held that since the assessee had not furnished bank statement of the sundry creditors, inquiry regarding their genuineness and credit worthiness was incomplete, casting prejudice to the Revenue. We are unable to agree with the ld.Pr.CIT in this count. It is not denied that the assessee has furnished complete details of sundry creditors giving their names, addresses, their PAN and the details of the transaction undertaken with them during the year. The assessee had also stated that it was not possible for him to procure the bank statement of these sundry creditors. The ld.Pr.CIT has not pointed out as to why more inquiry needed tobe conducted regarding sundry creditors. There is no reason given by him as to why the sundry creditors reflected by the assessee needed to be doubted. There is no financial analysis done by the ld.Pr.CIT leading to create a doubt regarding existence of this quantum of sundry creditors.Except for stating that huge sundry creditors were outstanding as at the end of the year,there is no basis given for stating so. There is no comparison of the turnover of the assessee or of the purchases made by the assessee with the outstanding creditors; there is no finding by the ld.CIT(A) that considering low volume of operation conducted by the assessee, the extent of sundry creditors outstanding is too huge so as to cast a doubt on the existence of such outstanding sundry creditors as at the end of the year. No exercise worth its name has been carried out by the ld.Pr.CIT so as to justify the need for further inquiry to be done regarding the sundry creditors.
The Hon’ble Delhi High Court in the case of CIT vs Sunbeam Auto Ltd. (Delhi), [2010] 189 Taxman 436 (Delhi) while dealing with issue of adequacy of inquiry by AO for the purposes of section 263 of the Act has held that inadequate inquiry alone is not sufficient for holding assessment order erroneous unless it is found by the Ld.CIT /PCIT to have resulted in error causing prejudice to the Revenue. Relevant para 12 of the order reads as under:
“12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open.”
This proposition was reiterated in another decision of the Hon’ble Delhi High Court in the case of CIT vs Anil Kumar Sharma (2011) 335 ITR 83(Del) holding that where details were filed to the AO and the Commissioner was unable to point out defects conclusively in the material for arriving at a conclusion that particular income had escaped assessment on account of non application of mind by AO, order for revision of assessment order on account of the same u/s 263 of the Act was not sustainable in law.
In view of the above discussion, we hold there is no error found by the Ld.PCIT in the order of the AO so as to justify the revisionary order passed u/s 263 of the Act. The order passed under section 263 of the Act is set aside.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 17th November, 2023 at Ahmedabad.