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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: ARUN KHODPIA & ARUN KHODPIA & ARUN KHODPIA
IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE BEFORE S/SHRI GEORGE MATHAN, JUDICIAL JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.10/CTK/2022 Assessment year: 2017-18 Chandi Chandi Filling Filling Station, Station, Vs. Pr. CIT-1, Manguli, Cuttack Manguli, Cuttack Bhubaneswar Bhubaneswar PAN/GIR No PAN/GIR No.AACFC 8350 K (Appellant) ) .. ( Respondent Respondent)
Assessee by : Shri Mohit Sheth, AR Mohit Sheth, AR Revenue by : Shri M.K.Gautam, CIT , CIT DR Date of Hearing : 19/12 12/2022 Date of Pronouncement : 19/12 12/2022 O R D E R Per Bench This is an appeal filed by the assessee against the order This is an appeal filed by the assessee against the order This is an appeal filed by the assessee against the order dated 31.12.2021 dated 31.12.2021 of the ld Pr. CIT-1Bhubaneswar in Appeal Bhubaneswar in Appeal No.ITBA/Rev/F/Rev5/2021 ITBA/Rev/F/Rev5/2021-22/1038325348(1) 22/1038325348(1) f for the assessment year assessment year2017-18. 2. Shri Mohit Sheth, ld AR Mohit Sheth, ld AR appeared for the assessee and appeared for the assessee and Shri M.K.Gautam, ld CIT DR appeared for the revenue. Shri M.K.Gautam, ld CIT DR appeared for the revenue. Shri M.K.Gautam, ld CIT DR appeared for the revenue. 3. Ld AR has filed written submission, as follows: Ld AR has filed written submission, as follows: Ld AR has filed written submission, as follows: “The assessee is a partnership firm derives income from The assessee is a partnership firm derives income from The assessee is a partnership firm derives income from business by running petrol pump. A survey was business by running petrol pump. A survey was business by running petrol pump. A survey was conducted on the business premises of the assessee regarding the issue of the business premises of the assessee regarding the issue of the business premises of the assessee regarding the issue of huge cash deposits in its bank accounts. During the survey huge cash deposits in its bank accounts. During the survey huge cash deposits in its bank accounts. During the survey
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proceedings all the books of accounts with specified identification marks were impounded. Ledger, cash book , sales register, bank books, bank register and ect. were all impounded by the survey team. It was asked to the assessee regarding the huge cash deposits in the bank in denomination of 1,000 and 500 during the demonetization period. The assessee duly explained that specified currency was allowed by the notification issued by RBI for petrol pumps and medicine dealers to accept the specified currency during the demonetization period. In consequence to the survey, the case was selected for scrutiny assessment proceedings. Notices u/s. 142(1) was issued to the assessee. It was asked to the assessee to furnish relevant information , materials and documents and in compliance the assessee furnished all the relevant documents, materials and information alongwith the books of accounts which were verified and test checked by the learned AO during the course of scrutiny proceedings. The learned AO verified all the materials and passed the order on 29.12.2019. Revision u/s.263 was conducted by the PCIT , Bhubaneswar -1 stating that certain details were not verified as such the assessment order is erroneous and prejudicial the interest of revenue. A notice was issued on 10.08.2021. The assessee through his AR appeared on 25.11.2021 and discussed the case with the Pr.CIT explaining the each and every query. Thereafter the Pr. CIT passed the Order on 31.12.2021.”
Ld CIT DR has filed written submission, as follows: “This is the assessee's appeal against the revision order dated 31.12.2021 passed by the Pr. CIT-1, Bhubaneswar. The Pr.CIT has noticed serious errors in the assessment order passed by the A.O. He has reached an inference that said assessment order had been passed by the A.O. without correct application of law and without. The Pr. CIT has noticed that the A.O. should have invoked provisions of section 115BBE in respect of unexplained monies, disallowed interest of Rs.2,34,893/- u/s.40(a)(ia) as no TDS was deducted and Form No.26A from the recipient namely Bajaj Finance Limited was not filed before the A.O. The A.O. had not verified
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administrative expenses, general expenses, reasons for low NP and leakages/shortages shown by the appellant. Before the Pr. CIT, many other issues remained unanswered. Hence it was held by the Pr. CIT that the assessment order passed by the A.O. was erroneous and prejudicial to the interests of revenue. The Hon'ble Supreme Court in the case of Malabar Industries Ltd. vs. CIT (243 ITR 83) has held in para-7 that an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The findings of the Hon'ble Supreme Court in para-10 are reproduced as under: "10. In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts, the conclusion that the order of the ITO was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under section 263(1) was justified. The Hon'ble Supreme Court further held in para-8 that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The cases where there is incorrect assumption of facts, nothing more is required from the side of the Pr. CIT. ii.) Coming to the decision of Hon'ble Orissa High Court in the case of Orissa State Police Housing & Welfare Corporation Limited (139 taxmann.com 207), it has been rendered on different facts. In the cited case, the profit element in Work-in-Progress (MP) was directed to be added especially when the profit from such WIP had already been included in the income of the assessee. It was noticed that the AO had in fact called for the details of the closing WIP which had been furnished by the Assessee and had examined it. If the CIT was of the view that the AO had not examined this issue at all, it could then lead to the conclusion that the order of assessment was erroneous. That was not, however, the case there. On the other hand, the CIT simply decided that even for verification of the correctness of the submission of the Assessee, the matter had to be
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remanded to the AO. Under these circumstances, the Hon'ble Jurisdictional High Court had taken a view that the order u/s.263 of the Act was not sustainable. The observations of the Hon'ble High Court in para-14 are reproduced as under: "14. Section 263 of the Act requires the CIT, after hearing the Assessee, to pass an order by making "such enquiry as he deems necessary". The purpose of such an enquiry would be to arrive at a subjective view that the order of the AO was erroneous in so far as it is prejudicial to the interest of Revenue. Even if such enquiry may not be mandatory, there has to be some basis on which the CIT can form such a view. In the present case, the basis for forming a view that the profit element in the WIP was not accounted for by the Assessee is absent in the order of the CIT". Thus the Hon'ble Orissa High Court has itself held in para-14 that even if such enquiry may not be mandatory but there should be some basis to form such a view. The cases where there is mcorrect application of law, the Pr. CIT is not required to carry out any sort of enquiry as section 263(1) uses the words "as he deems necessary". iii.) A plain reading of section 263 of the Act reveals that the CIT can make inquiry on his own if he deems so necessary and can also direct the A.O. to conduct inquiries. This very question was answered by the Hon'ble Delhi High Court in the case of Gee Vee enterprises (99 ITR 375) as under: "The question would naturally arise whether the firm was formed merely for the purpose of getting a tax advantage. Shri Sharma argued that there is nothing wrong if a legitimate advantage is sought by these means. But it was precisely for that reason that the Income-tax Officer had to be satisfied that the firm had existed in the previous year genuinely. It cannot be said that the Commissioner could not be reasonably of the opinion that the order of the Income-tax Officer was erroneous because previous inquiries were not made by the Income-tax Officer. Nor can it be said that it was necessary for the Commissioner himself to make such inquiry before cancelling the order of assessment. In view of the decisions of the Supreme Court in Rampyari Devi and Tara Devi Aggarwal, the challenge of the petitioners to the jurisdiction of the Commissioner exercised under section 263 fails and the writ petitions do not qualify for admission on the ground of the impugned orders being without jurisdiction".
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iv.) In the present case, the view taken by the A.O. was not plausible and he had passed the assessment order without proper application of mind. The Hon'ble Delhi High Court in the case of Gee Vee Enterprises (99 ITR 375) held as under: "The reason is that it is not the Income-tax Officer but a superior officer like the Commissioner who is exercising a revisional jurisdiction suo motu there under. The superior officer could be trusted with a larger power. The only requirement for the exercise of this power is that the Commissioner should consider that the order passed by the Income-tax Officer is " erroneous in so far as it is prejudicial to the interests of the revenue ". What is the meaning of " erroneous " in this context ? It was argued for the assessees by Shri G. C. Sharma that the word " erroneous " means that the order must appear to be wrong on the face of it. In other words, he equated the " error " with " error of law apparent on the face of record " which is a well-known ground for the review of a quasi-judicial order by this court under article 226. We are unable to agree with this interpretation. The intention of the legislature was to give a wide power to the Commissioner. He may consider the order of the Income-tax Officer as erroneous not only because it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make inquiries which are called for in the circumstances of the case. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word " erroneous " in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct". v.) In the case of NIIT vs. Commissioner of Income-tax (Central- II) (60 taxmann.com 313), the Hon'ble Delhi ITAT analyzed plethora of judgments on the issue and through order dated 27.03.2015, gave a ratio that the A0 is required to conduct the inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will
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always be a case of lack of inquiry and not inadequate inquiry. The relevant portion of the order of Hon'ble ITAT is reproduced below:— "28.1 Ld. Special counsel has rightly pointed out that the expression, 'inquiry, 'lack of inquiry' and 'inadequate inquiry', have not been defined and, therefore, when the action of the AO would be suggestive of lack of inquiry or inadequate inquiry, will depend upon the facts obtaining in a particular case. What emerges as a broad principle from the various decisions is that where the AO has reached a rational conclusion, based on his inquiries and material on record, the Commissioner should not start the matter afresh in a way as to question the manner of his conducting inquiries. It is not the province of the Commissioner to enter into the merits of evidence; it has only to see whether the requirements of essential inquires and of law have been duly and properly complied with by AO or not. 28.2 It is well settled that before the Commissioner can invoke his powers u/s 263, he has to arrive at a conclusion that the assessment order is erroneous in so far as it was prejudicial to the interests of the revenue. Then only the powers u/s 263 can be invoked. Therefore, if AO accepts or rejects any claim of the assessee without due application of mind and if such failure causes prejudice to revenue, the Commissioner would be well within his powers u/s 263 to intervene in the matter. An inquiry which is just farce or mere pretence of inquiry, cannot be said to be an inquiry at all, much less an inquiry needed to reach the level of satisfaction of the AO on the given issue. The level of satisfaction would obviously mean that he has conducted the inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry." In the case of no inquiry, the assessment order is not only erroneous but also prejudicial to the interest of revenue. The order of assessment has to be a speaking order and when the fact of others' view has not been mentioned and the claim pressed by the assessee has been allowed without making any inquiry, then the order must be held as erroneous and prejudicial to the interest of revenue.”
It was submitted by ld AR that the assessee is a partnership firm, which is doing the business of running petrol pump in National Highway. It was submitted that a survey was conducted on the premises of the assessee on 9.3.2017 and its
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books of account had been impounded. Assessment came to be completed u/s.143(3) of the Act on 29.12.2019, wherein, the Assessing Officer had made addition of Rs.80,000/- insofar as the assessee had drawn Rs.80,000/- from the bank when there was cash balance available in the cash book. It was the submission that as the tax effect in respect of addition of Rs.80,000/- was only less than Rs.20,000/-, the assessee had not preferred appeal against the addition. It was the submission that subsequently, the Pr. CIT, Bhubaneswar-1 proposed a revision on various grounds i.e. (i) being that the Assessing Officer had not invoked the provisions of section 115BBE in respect of the addition of Rs.80,000/- and tax on the same at 30% as against 60% liable u/s.115BBE of the Act, (ii) the issue was that the assessee had paid interest to Bajaj Finance Ltd., being a non-banking financial company and no TDS had been deducted on the same. This has been a mistake on the part of the AO for not making any addition, (iii) the issue was that the Assessing Officer had not examined the administrative expenses and general charges, (iv) the issue was that the Assessing Officer had not examined the interest on the delayed payment to Hindustan Petroleum Corporation Ltd (HPCL), (v) the issue was that the AO had not examined the
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interest for the Solar machine provided by HPCL and (vi) the issue was in regard to low NP rate which had not been examined by the AO as also the loss shown by the assessee in respect of HSD and petrol disclosed by the assessee. It was submitted by ld AR that the amount of Rs.80,000/- is not liable to be treated as unexplained money u/s.69A of the Act insofar as this was money drawn from the bank and same has been shown in the cash book. It was only on account of low tax effect in respect of the said addition, no appeal had been filed. It was the submission that it is not that the assessee has accepted the claim of unexplained money. In respect of interest paid to Bajaj Finance Ltd., it was the submission that the amount had been paid in lumpsum and it included principal and interest and Bajaj Finance Ltd was not cooperating in providing Form 10 BA to show that the amount has been disclosed by them in their return. In respect of other issues, it was submitted that when the book of account of the assessee itself had been impounded and examined by the AO but now the claim that the AO has not done any examination and restoring the issue to the file of the AO is in fact an injustice being done to the assessee.
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In reply, ld CIT DR submitted that there is no mention by the AO that the cash book has been impounded. It was the submission that when the addition u/s.69A has been made, the law requires the application of the provisions of section 115BBE and failure on the part of the AO to apply the correct provision is a mistake, which is apparent an error which caused prejudice to the interest of the revenue. It was the further submission that the non-deduction of TDS in respect of payment to Bajaj Finance Ltd., which is an NBFC is a violation of the provisions of the Act and the AO failed on his part to disallow the amount paid without deducting TDS. It was the submission that this was also an error which caused prejudice to the interest of the revenue. In regard to failure on the part of the AO to examine the administrative charges and general expenses and the interest paid to HPCL, there was no discussion by the AO in his assessment order and this was failure on the part of the AO. It was the submission that the loss claimed by the assessee in respect of leakage on account of diesel and petrol was high and same should have come to the attention of the AO. Consequently, lowering of the net profit should also have attracted the attention of the AO and failure on the part of the AO to examine these issues, has compelled the Pr. CIT to
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invoke his powers u/s.263 of the Act and directing the issue to be examined by the AO. It was the submission that the order of the Pr. CIT u/s.263 is liable to be upheld. 7. We have considered the rival submissions. A perusal of the addition of Rs.80,000/- in the present case clearly shows that the Assessing Officer himself recognizes that this was the amount drawn from the bank. The Assessing Officer has made the addition. We must mention here, it is unfortunate, that he has invoked the provisions of section 69A to treat the same as unexplained money when the amount has been drawn from the bank. The addition has been made because there is cash availability in the cash book. It is in the knowledge of the revenue that the petrol pump is on the highway and the amount of Rs.80,000/- has been drawn from the bank. It is only when necessity is there, money is drawn. It does not make any inference of unaccounted money. Be that as it may, insofar as the merit of the addition of Rs.80,000/- is not before us. However, the addition is made. The addition having been made admittedly, the AO had the duty to invoke the provisions of section 115BBE insofar as he himself has invoked the provisions of section 69A of the Act. This, admittedly is an error in the assessment order and tax slab rate of 30% as against 60%
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caused prejudice to the interest of the revenue and on this issue, we are of the view that the order of the Pr. CIT is liable to be upheld and we do so.
In regard to the issue of interest paid to Bajaj Finance ltd., the assessee has been unable to produce Form 10BA before the Assessing officer or before the ld Pr. CIT. The non- deduction of TDS on the amount paid to Bajaj Finance Ltd., is clearly a violation of law which should have come to the attention of the AO. Failure on the part of the AO on this issue admittedly makes the order erroneous and prejudicial to the interest of the Revenue on that count. Consequently, in respect of issue of non-deduction of TDS in respect of payment made to Bajaj Finance ltd., we are of the view that the order of the Pr. CIT is on right footing and does not call for any interference. 9. Coming to other issues, being the verification of the administrative expenses and general charges, interest paid to HPCL on delayed payment and in respect of solar machine as also the proposal in respect of non-examination of the low net profit and the loss account of leakage in respect of diesel and petrol, it is noticed that in the course of survey, books of account have been impounded. The fact that the Assessing
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Officer has made addition of Rs.80,000/- representing the cash withdrawal from the bank account and treating the same as unexplained money shows that even cash book was before the AO. The Assessing officer has in his assessment order u/s.143(3) mentioned that he has examined the case and discussed the case. True, the Assessing Officer has not given any details of the various examinations and discussion done in the course of assessment proceedings does not per se make the assessment order erroneous and prejudicial to the interest of the revenue on the ground as raised by the Pr. CIT in respect of other issues. This being so, we are of the view that the order of the pr. CIT is liable to be sustained to a limited extent of the non-application of provisions of section 115BBE on the addition made u/s.69A of Rs.80,000/- and on account of non-deduction of TDS on the payment made to Bajaj Finance ltd. On the other issues, the order of the pr. CIT u/s 263 stands quashed. 10. In the result, appeal of the assessee stands partly allowed. Order dictated and pronounced in the open court on 19/12/2022.
Sd/- sd/- (Arun Khodpia) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 19/12/2022 B.K.Parida, SPS (OS) P a g e 12 | 13
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Copy of the Order forwarded to : 1. The Appellant :Chandi Filling Station, Manguli, Cuttack 2. The respondent: Pr. CIT-1, Bhubaneswar 3. The CIT(A)-1, Bhubaneswar 4. DR, ITAT, Cuttack 5. Guard file. //True Copy//
By order
Sr.Pvt.secretary ITAT, Cuttack
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