KARTIK PAPER PRODUCTS,MUMBAI vs. CIT 17, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य राजे�� के अनुसार लेखा सद�य राजे�� के अनुसार PER RAJENDRA, AM- लेखा सद�य राजे�� के अनुसार लेखा सद�य राजे�� के अनुसार Challenging the order,dated 31.03.2014,of the CIT-17-Mumbai,passed u/s.263 of the Act,the assessee had filed the present appeal. 2.Assessee-firm,engaged in the business of manufacturing of craft paper filed its return of income on 10.09.2009, declaring total income of Rs.Nil,after claiming carry forward of loss of Rs.36.75 lacs. The return was processed u/s. 143(1) of the Act and later on it was selected for scrutiny under CASS.The Assessing Officer (AO) completed the assessment on 16.12. 2011,u/s.143(3)of the Act,accepting the loss return filed by it. The CIT issued a rectification notice to the assessee on 04.09.2012 and same read as under: “The assessment for A Y. 2009-10 in your case was completed u/s. 143(3) of the I.T Act on 16.12.2011 by the Assessing Officer, DCIT 17(1), Mumbai accepting loss of Rs.36,75,424/- returned by you. On verification of records it is noticed that Assessing Officer has failed to conduct appropriate enquries on various issues relevant to determination of assessable income for the above assessment year as under: 1. This was your first return of income and, therefore, the Assessing Officer ought to have examined total inflow of funds and purchase of various assets since conception. Vide order sheet noting of 05.12.2012 the Assessing Officer asked for the fooling details: i) Copy of bank statement for the period 01.04.2008 to 31.03.2009 ii) Source of capital introduced by partner Shri Vivek Baburao Patil iii) Bills in respect of additions made to fixed assets along with sources of acquistiion there of iv) Copy of partnership deed v) Reason for incurring loss vi) Confirmation in respect of sundry creditors exceeding Rs.5 lacs vii) Party wise/ bill wise details in the following proforma in respect of sundry creditors of Rs.1,54,26,415/- outstanding as on 31.03.2009 The case was adjourned to 14.12.2011. On 14.12.2011 only one hand written letter with reference to interest and pre-operative expenses was placed on record and assessment was completed accepting the loss returned by you Kartik Paper Products It is therefore apparent that the AO completed the assessment without even above requisite details called for by Assessing Officer and filed by you and the assessment order was thus prejudicial to the interest of the revenue. ” The CIT further mentioned that the assessment order passed by the AO was without conducting proper investigation and was passed without proper application of mind,that it was erroneous order, which was prejudicial to the interest of the revenue.In its reply dated 13. 10.2012,the assessee made detailed explanation.After considering the same,the CIT held that some of the documents/information mentioned in the notice u/s. 263 had been examined by the AO,that the details submitted by the assessee had been test checked,that it not mean that all the documents/information had undergone thorough scrutiny as desirable for a new assessee,that the provisions of section 263 could be invoked if it was found that there was lack of application of mind on certain issues or proper investigation/enquiry, that the AO had not made enquiries about unsecured loans,advances to customers and provisions for expenses. Finally, the CIT set aside the order and directed the AO to pass fresh order. 3.Before us the Authorised Representative(AR)stated that the assessee had furnished all the necessary details on 14.12.2011 in compliance of the contents of the order sheet dated 05.12. 2011,that it had produced before the AO the books of account supporting documents,that the details about all the seven items mentioned in the 263 order were filed before the AO.He referred to the copies of the letter written to the AO during the course of assessment proceed - ings i.e.letter dated 05.12.2011 and 14.12.2011,that the CIT had not made any reference to the above referred two letters while passing the rectification order, that the papers filed before the AO ran into several hundred pages,that the fact was brought to the notice of the CIT,that he ignored evidences produced by the assessee while passing order u/s.263 of the Act.He referred to page no.5,15-18, 25, 28 of the paper-book.The DR supported the order of the CIT 4.We have heard the rival contentions and perused the material before us.We find that the CIT had invoked the provisions of section 263 of the Act, as he was of the opinion that the order passed by the AO was prejudicial to the interest of the revenue and was erroneous.As per the CIT the AO had asked details from the assessee with regard to seven issues,that the AO had verified details filed by the assessee and had passed the order u/s. 143(3) of the Act, that all the details furnished by the assessee were referred to in the letter filed by it in response to the notice issued by the CIT u/s. 263 of the Act,that the CIT himself had admitted that some of the details were filed,that the assessee had made available all the secondary evidences along with the main evidences to the AO,that the AO has specifically mentioned that the assessee had filed all necessary details and supportings.We find that in the letter addressed to the CIT,the assessee had filed 17 annexures,including the letters addressed to the AO.In these circumstances,we are of the opinion that the order passed by the AO was neither erroneous nor prejudicial to the interest of the revenue.The CIT has not mentioned as to how the there was an incorrect assumption of facts or an incorrect application of law on part of the AO.We would like to refer to the decisions of Krishna Capbox (P.)Ltd.(372 ITR310)of the Hon’ble Allahabad High Court wherein the facts have been narrated and it has also discussed the principle governing the rectification.It reads as under: The assessee’s return for the assessment year 2008-09 was processed under section 143(1) of the Income-tax Act, 1961. Notice under section 143(2) was issued to the assessee. The Assessing Officer made certain queries, to which the assessee replied and after inquiry, and being satisfied with the assessee’s answers to the queries, accepted his declared income and passed the assessment order. The Commissioner, however, issued a notice under section 263 on the ground that the Assessing Officer had not made inquiry on certain aspects. The assessee submitted a reply stating that on all these aspects, inquiry was made by the Assessing Officer but the Commissioner did not agree with the reply and observed that the Assessing Officer had accepted the version of the assessee without making any inquiry or