M/S MOTIA TOWNSHIP PVT. LTD.,ZIRAKPUR vs. DCIT, PATIALA

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘B’, CHANDIGARH

BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.456/Chd/2013 (Assessment Year : 2008-09) M/s Motia Township Pvt. Ltd., Vs. The D.C.I.T., Shop No.102, Royale Estate, Central Circle, Chandigarh Delhi Highway, Patiala. Zirakpur. PAN: AAECM8113D (Appellant) (Respondent)

Appellant by : Shri Ashwani Kumar, CA Respondent by : Shri Ashish Abrol, CIT DR Date of hearing : 15.05.2018 Date of Pronouncement : 17.05.2018

ORDER PER ANNAPURNA GUPTA, A.M. : This appeal has been preferred by the assessee against

the order of Ld. Commissioner of Income Tax (Central),

Ludhiana dated 25.3.2013 relating to assessment year

2008-09, passed u/s 263 of the Income Tax Act, 1961 (in

short ‘the Act’).

group of cases, which included the assessee, on 25-02-

2009.In pursuance thereof assessment in the present case

was made u/s 143(3)/153A of the Act at returned loss of

Rs.3,495/-. Thereafter on perusal of records, the Ld.CIT

found the assessment order to be erroneous and prejudicial

to the interest of the Revenue for the reason that the

Assessing Officer did not conduct proper inquiries and

make any addition vis a vis a document found during search

at the residence of one Shri Krishan Goyal, Director of M/s

Motia Constructions Ltd., which was a detail titled “profits

on funds used” in various projects/companies, which

included the name of the assessee company reflecting

details for the period relevant to the impugned year and on

the basis of which document addition had been made in the

case of M/s Motia Constructions Ltd. to the tune of Rs.2.45

crores. Accordingly, show cause notice was issued to the

assessee the contents of which as reproduced in the order

of the CIT are as under:

"An action u/s 132 of the IT.Act, 1961 was conducted on 25.02.2009 on Motia group of cases. The cases of this group were centralized u/s 127 of the Act vide order No. ClT- lI/CHD/Tech./127/2008-09/1425 dated l 2.06.2009 passed by the CIT-II, Chandigarh. Notice, u/s 153A was issued on 09.07.2009 to file the return of income. In response, return declaring loss of Rs.3,495/- was filed on 17.12.2009. 2. The assessment was completed accepting returned loss vide order u/s 143(3)/ 153A of the Act on 23.12.2010. However, on perusal of records, it has come to my notice that impugned assessment order is erroneous in as much as it is prejudicial to the interest of the revenue for the reasons given below : In the course of search at the residence of Sh. Krishan Goyal, director of M/s Motia Constructions Ltd., a document appearing at page no. 62 of Annexure A-4 was found and seized which depicted details of project-wise investment and sale of properties at various places by different companies of the group including the assessee company i.e. Motia Township Pvt. Ltd. The chart as appearing on the said document is as under: PROFIT ON FUNDS USED S.No. Name of Company Total Sale Total Amt. of Duration of Funds Cost Profit/Mar share funds used Used ket of Considerati profit on for funds used

From the perusal of the document under consideration and as held by the then Assessing Officer, it is clear that this is a document based on the actual facts with regard to those transactions which have been materialized before the date of preparation of this document and the sanctity of this document is established on account of the facts. The document

was prepared somewhere in the first week of January, 2008 which is verifiable from the column duration of funds used in pg 62. It was held in the case of M/s Motia Constructions Ltd. that it is evident this is not only true for the transactions where purchase and sales both have been effected but is also true for the transactions where only purchase has taken place but sale has not materialized till 31-12-2007. As more than 50% of the entries relating to the projects of the assessee company M/s Motia Constructions Limited appearing in. the column of total cost match and reconcile with the regular books of the assessee concern it is established beyond doubt that the. remaining entries/which do not match with the regular books are the actual costs and sales of different projects of the company and not mere estimates. 5. Assessment for the A.Y. 2008-09 in the case of M/s Motia Constructions Ltd. Zirakpur was completed u/s 143(3)/153(A) on 22.12.2010 by making addition of Rs. 2,45,10,000/- on account of undisclosed profits with regard to the projects appearing on Page 62 of Annexure A-4 and those relating to the company - M/s Motia Constructions Ltd. 6. Addition with regard to difference in cost was made in the case of M/s Motia Constructions Ltd. for the A.Y. 2006-07 which was the period in which the investment was made. 7. However, in your case, no addition has been made on this account. As per entries in row no. 10, the amount of difference in cost and that in the amount of sale is Rs.13.39 crores (total cost of Rs.22 Cr. -funds used Rs. 8.61 Cr. and Rs. 15.82 crores (total profit/market consideration Rs.26 Cr. - amount of share of profit for funds used Rs. 10.18 Cr.) respectively. 8. In view of the above, it is noted that assessment in your case for A. Y. 2008-09 has become erroneous in so far as it is prejudicial to the interest of revenue within the meaning of section'263 of the Act, as no addition on account of entries recorded in this document has been made and no proper enquiries have been conducted in this regard. 9. In the light of the aforesaid facts, it is considered that the order passed u/s 143(3)/153A of the Act dated 23.12.2010 by the DCIT, Central Circle, Patiala is prima facie erroneous in so far as it is prejudicial to the interest of revenue. You are, therefore, requested to show cause as to why the aforesaid order dated 23.12.2010 passed u/s 143(3) of the IT. Act, 1961 for the A.Y.2008-09 should not be revised/modified/enhanced or set aside with the directions to make the assessment denovo. 10. For this purpose, you are hereby given an opportunity of being heard either in person or through an authorized representative in my office situated at Dandi Swami Chowk, Ludhiana on 21.03.2013 at 11.30 A.M. On that date, you may

submit your objections with evidence, if any, to the proposed action in writing. In case of your failure to attend on the aforesaid date or to submit written reply by that date, it will be presumed that you have no objection to the proposed action and matter shall be. decided on merits. 11. Copy of aforesaid document is enclosed.” 3. The assessee filed his submissions in response to the

show cause notice, after considering which the Ld.CIT held

the order passed in the present case to be erroneous and

prejudicial to the interest of the Revenue, since in identical

facts and circumstances the assessment order passed in the

case of M/s Motia Developers Pvt. Ltd., a sister concern of

the assessee company, was also held to be erroneous so as

to cause prejudice to the Revenue and as a consequence

order u/s 263 of the Act was passed in the said case also.

Accordingly, the Ld.CIT set aside the order passed in the

present case also with the direction to make fresh

assessment de novo after properly examining the issue and

conducting proper enquiry. Relevant findings of the Ld.CIT

at para 2 of its order are as under:

“2. In response to the above, AR has filed his submissions dated 19.03.2013. In this regard, it is stated that similar issue came up for consideration in the case of M/s Motia Developers Pvt. Ltd., a sister concern of the assessee company for A.Y. 2008-09 where also proceedings u/s 263 of the Act have been initiated. The Ld. A.R. has also made similar submissions. Assessment order for A.Y. 2008-09 in the case of M/s Motia Developers Pvt. Ltd., a sister concern of the assessee company has been held erroneous and prejudicial to the interest of revenue vide Order No.336R dated 25.03.013. Since the Issues are identical and AR has also filed similar replies, for the detailed reasons discussed in order dated 25.03.2013 made u/s 263 of the Act for A.Y 2008-09 passed in the case M/s Motia Developers Pvt. Ltd., a sister concern of the assessee company, it is held that assessment order for A.Y. 2008-09 is erroneous and prejudicial to the interest of revenue.”

appeal before us challenging the impugned order raising

following grounds before us:

“1. That order passed u/s 263 of the Income Tax Act, 1961 by the Ld. Commissioner of Income-tax (Central), Ludhiana is against law and; facts on the file in as much he was not justified to arbitrarily hold that assessment order passed by the Ld. Assessing Officer is erroneous in as much as prejudicial to the interest of revenue. 2. That the Ld. CIT gravely erred in ignoring the import of detailed submissions made and the fact that the impugned document on the basis of which provisions of Sec. 263 have been invoked was a subject matter of enquiry before the Ld. Assessing Officer during the course of assessment proceedings.” 5. During the course of hearing before us, Ld. counsel for

the assessee pointed out that the order in the present case

was found erroneous and prejudicial to the interest of the

Revenue for the reasons detailed in the order passed u/s

263 of the Act in the case of M/s Motia Developers Pvt.

Ltd., whose facts were found to be identical with that of the

assessee. Drawing our attention to the order passed u/s

263 of the Act in the case of M/s Motia Developers Pvt. Ltd.

and placed at Paper Book page Nos.1 to 8, the Ld. counsel

for assessee pointed out that in the said case the Ld.CIT

had held that the Assessing Officer had committed error by

not making addition on account of entries pertaining to the

assessee in the document found during the course of search

at the residence of Shri Krishan Goyal, Director of M/s

Motia Constructions Ltd., which were held by the CIT to be

not estimates but actual figures. Our attention was also

drawn to the finding of the Ld.CIT that the order of the

Assessing Officer was erroneous also for the reason that the

Assessing Officer had not made any proper enquiries

relating to the said entries in the documents during the

course of assessment proceedings. Our attention was drawn

to the finding of the Ld.CIT in the case of M/s Motia

Developers Pvt. Ltd. at para 8 of the order placed at Paper

Book page Nos.6 and 7 as under:

“8. From the facts discussed above, it-follows that neither in the case of Motia Construction Ltd. nor in the case of Motia Developers Pvt. Ltd, any addition has been made on account of entries recorded in respect of projects mentioned at Sl./row no.7,8,10,11 and 21 which include row no.11 of page no 62 which pertains to the assesses company M/s Motia Developers Pvt Ltd. against which name of M/s Motia developers Pvt Ltd (Baddi land and Motia Heights) has been mentioned ostensibly, the transaction recorded in the above documents are not estimates, as has been held by the A.O , in the assessment order in the case of Motia construction Ltd. and therefore not only in not making any additions in respect of Motia Construction Ltd, and therefore not only in not making any additions in respect of entries recorded in the name of various project at sl. Row no.7,8,10,11,and 21 which include row no.11 of page no.62 which pertains to the assessee company M/s Motia developers Pvt. Ltd. but also by not making proper inquiries in this regard A.O . has committed an error an which has made the assessment order erroneous as well as prejudicial to the interest of revenue in the case of assesses as well as mentioned here that proceedings n/s 263 have also been initialed in the case of Sh. Krishan Goyal and Motia Construction Ltd, for the same reasons, However, as far as assessee is concerned since various transactions in the nature, of total cost, funds used, sale, total used profit/market consideration, amount of share of profit for funds used and duration of funds used which are mentioned, same were, also required to be examined and properly inquired into to a logic end which has not been done. The assessee could not escape merely by making a general statement and disowning the above document and transactions recorded therein specially when same has been found and seized, from Sh, Krishan Goyal who was a director in assessee company during the period relevant to A.Y. 2008-09. It is highly relevant here to state that Sh. Krishan Goyal from whose residence: possession the above page No, 62 of Annexure A-4 has been found and seized and Sh. Pawan Bansal among others were the directors not only of M/s Motia Construction Ltd,. but also in assessee company M/s Motia Developers Pvt. Ltd, In view of the above discussion, I am of the considered

opinion that by not making proper inquiries as stated above and by not making proper additions on account of various transactions recorded in the name of project viz. M/s Motia Developers -Pvt. Ltd, (Baddi land and Motia Heights) at sl. No. I of page 62 a grave error has been committed which has made the assessment order erroneous and prejudicial to the interest of revenue.” 6. The Ld. counsel for assessee thereafter stated that the

findings of the Ld.CIT in this regard were incorrect. The

Ld. counsel for assessee stated that it was not a case of

inadequate enquiry at all. Referring to the written

submissions filed before the Ld.CIT, the Ld. counsel for

assessee stated that specific query with regard to the

impugned document was made during assessment

proceedings asking the assessee to explain and verify the

entries relating to it and reconcile the same with the

regular books of accounts of the assessee. It was also

pointed out that in response to the same the assessee had

duly submitted that he was not aware of the entries shown

in the table and that it did not belong to it. The Ld. counsel

for assessee further pointed out that during assessment

proceedings an effort was made to reconcile the figures

shown in the table, but could not be reconciled. The Ld.

counsel for assessee stated that the Assessing Officer,

therefore, was sufficiently satisfied with the reply of the

assessee, after verifying the books of accounts of the

assessee and attempting to tally the same with the contents

of table, that the same had nothing to do with the assessee

company and, therefore, made no addition in this regard.

The Ld. counsel for assessee drew our attention to the

submissions made before the Ld.CIT placed at Paper Book

page Nos.10 and 11 as under:

“Before I proceed to deal with the specific issue, with respect to the entry as mentioned by Your Honour, it is respectfully submitted that SI]. Krishan Goyal was neither a Director nor a shareholder of M/S Mgtia Township Pvt. Ltd. A specific query was raised by the Ld. Assessing Officer during the course of assessment proceedings vide letter dated 03-09-2010 (copy enclosed)...refer Q.No.10 which reads as under- "Find enclosed pg no. 62 of annexure A4 impounded from the residence of Sh. Krishan Goyal which is a table depicting profit on funds used by the Motia Group. Please explain & get verified the entries relating to the concern & reconcile the same with the regular books." The assessee company in response to this notice, filed a reply dated 05-10-10 that "we are not aware of the entries shown in the table and this does not belong to us". During the course of assessment proceedings, an effort was made by the Ld. Assessing Officer to reconcile the figure of 8.61 with the books of accounts of the assessee company, but no such figures could be tallied with the books of accounts and after considering the factual position, the Ld. Assessing Officer framed the assessment vide order dated 23.12.2010. It is wrong to suggest that the issue was not examined by the Learned Assessing Officer. As has already been submitted above, a specific query was raised and it was only after verifying the factual position, the Learned Assessing Officer proceeded to finalized the assessment..” 7. Ld. Counsel for the assessee thereafter stated that in

any case no prejudice was caused to the Revenue since the

said entries had no relation to the transactions conducted

by the assessee during the impugned year. Ld.Counsel for

the assessee drew our attention to the submissions made to

the CIT in this regard, placed at paper book page Nos.10 &

11 as under:

“Your Honour have proposed to make an addition of certain amounts representing alleged difference in cost and alleged difference in sale in Para 7 of the show cause notice. Perusal of the balance sheet will reveal that the assessee

company did not incur any cost of Rs. 8.61 crores on the project mentioned in Column No. 10. Until and unless the figure of funds used is reconciled with the books of accounts, Your Honour will appreciate that no addition could have been made by making the figure mentioned in Column No. 1 as the basis. Moreover, as the document has been found and seized from the possession of Sh. Krishan Goyal, addition on account of any alleged difference can be made only in his hands. Further, Your Honour have also observed to make an addition on account of alleged profit on the sale of the property. In reply, it is respectfully submitted that no part of this property had been sold by the assessee company till the date of search and till the time no sale is affected. No profit could have been said to have accrued to the assessee company.” 8. Referring to the same, Ld.Counsel for the assessee

pointed out therefrom that none of the figures mentioned in

the detail was co-relatable with the books of the assessee.

It was pointed out that the figure of “funds used” in the

document of 8.61 did not match with the books of the

assessee and even the sale shown in the document, as the

assessee had in fact made no sale during the year. The

Ld.Counsel therefore contended that there was no question

of any profit not having been disclosed by the assessee.

entry in the document warranted no addition and thus

caused no prejudice to the Revenue is also evident from the

fact that even in the case of M/s Motia Developers Pvt. Ltd.,

the order passed in which case u/s 263 of the Act was

followed by the Ld.CIT in the present case, no addition on

account of the impugned transaction was made in the

assessment order framed consequent to the order passed

u/s 263 of the Act. In this regard our attention was drawn

to the order passed in the case of M/s Motia Developers Pvt.

Ltd. u/s 143(3) in pursuance to the order passed u/s 263 of

the Act for assessment year 2008-09 placed at Paper Book

page 9 to 16 dated 03-02-2018, and it was pointed out

therefrom that after conducting enquiry vis-à-vis the

contents in the table pertaining to M/s Motia Developers

Pvt. Ltd. and on findings that none of the figures contained

in the table matched with that in the books of account of

M/s Motia Developers Pvt. Ltd. and also considering the

fact that no sale was made in the case of M/s Motia

Developers Pvt. Ltd., no addition whatsoever was made by

the Assessing Officer on account of the said document. Our

attention was drawn to the findings of the Assessing Officer

in the consequential order passed u/s 143(3) of the Act at

paras 10 and 11 of the order as under:

“10. Further during the course of investigation it is found that the investment made by the assessee company up to 31.12.2007 are to the tune of Rs.14,25,25,167.74 as against the amount of Rs.13 cr. in Column 9 of Sr. No. 11. In nutshell the above mentioned details can be summarized as under: Period of Funds used as Sales Total cost as Investment investment per document per document as per books as per Col.8 of assessee of row 11 24.01.2006 Nil 13.00 crores 1.95 crores 14.25 crores to 31.12.2007

During the course of assessment it was found that the total project cost for the relevant period is Rs.14,25,25,167.74 shown in the books of the assessee company which is more than the amount of Rs.13.00 crores shown in the above mentioned seized document Page No. 62 Annexure A-4 impounded from the residence of Sh.Krishan Kumar Goyal. As such no adverse inference is being drawn on this issue. 11. As regards the element of profit as per reference of Column 6 and Column 7 i.e. Total Profit - Amount of Shares in Profits in respect of projects has been worked out and as per

entries at Sr. No. 10 of the said document comes to Rs. 4.25 crores (5.00 cr. - 0.75 cr.). The issue has been examined in depth and it is found that there is no sale in the related projects of the assessee company during the period relating to A.Y. 2006-07 and as such the company has earned no profits on account of sale in any of its related projects during the year and as such no addition is made on this ground.” 10. The Ld. counsel for assessee further stated that the

facts in the case of M/s Motia Constructions Ltd. were

different from the assessee and therefore the CIT could not

have drawn parity from that case and held that not making

addition in the case of the assessee on the basis of identical

entries in the document in both the cases tantamounted to

an error on the part of the AO causing prejudice to the

Revenue. Ld.Counsel for assessee drew our attention to the

submissions made before the CIT drawing out the

distinction between the two cases as under:

Further, Your Honour have referred to certain inferences which have been drawn by the Ld. Assessing Officer on the basis of the same documents in the case of M/s Motia Construction Ltd. Your Honour have also observed that most of the entries relating to the projects of M/s Motia Construction Ltd. as appearing in the Column of Total Cost match and reconcile with the regular books of the said company. It was established beyond doubt that the remaining entries which do not match with he regular books are the actual costs and sales of all different projects of the said company and are not mere estimates. As Your Honour have yourself pointed out that the entries as appearing in the Column of Total Cost match with the regular books of M/S Motia Construction Ltd., such an inference could have been drawn in the case of M/S Motia Construction Ltd. But in the case of the assessee company, firstly, the entry as depicted in the Column of Total, Cost, do not tally with the books of the assessee company, there is no reason why it should be inferred that the entries in the other Columns relate to the assessee company. 11. Referring to the above Ld.Counsel for the assessee

stated that in the case of M/s Motia Constructions Ltd. the

figures matched with the books and were found to be actual

and not estimates, which was not so in the case of the

assessee where the figures did not match at all, and

therefore no parity could be drawn with that case.

the CIT had not considered the contentions made before him

by the assessee that the aforesaid entries had caused no

prejudice to the Revenue, and had merely reiterated the

reasons in the show cause notice for concluding that the

order passed by the AO was erroneous and prejudicial to

the interest of the Revenue. Ld.Counsel contended that

clearly there was no finding of the CIT therefore of the AO’s

order being erroneous and prejudicial to the interest of the

Revenue & had merely directed the AO to examine &

properly inquire into the same. Ld.Counsel contended that

in the absence of any finding of the CIT of the AO’s order

being erroneous and prejudicial to the interest of the

Revenue, the CIT could not have assumed jurisdiction u/s

263 of the Act to set aside the order of the AO.

document having been found at the residence of Shri

Krishan Goyal who was neither the Director nor shareholder

of the assessee company, the said document cannot be said

to belong to the assessee company and, therefore, the

onus to explain the same did not rest with the assessee

company. The Ld. counsel for assessee also contended that

the Ld.CIT had set aside the order of the Assessing Officer

with the directions to make fresh assessment de novo which

could not have been done in the proceedings u/s 263 of the

Act. The Ld. counsel for assessee relied upon the order of

the Coordinate Bench of the I.T.A.T. in the case of M/s

Vardhman Industries Ltd. Vs. ITA No.511/Chd/2014 dated

15.3.2016 in this regard.

before us dated 7.2.2018 reiterating the contentions of the

Ld.CIT and vehemently supporting the order passed by him.

The contents of the written submissions are reproduced

hereunder:

Sub: ITA No.456/Chandi/2013 M/s Motia Township Pvt Ltd-order u/s 263- A.Y.2008-09-Regarding The case is listed for hearing on 07.02.2018. 2. In reference to the above, it is submitted that the assessment order u/s 143(3)/153A of the Act was passed in this case on 23.12.2010. Subsequently, order u/s 263 of the Act was passed on 25.03.2010. The Ld CIT has concluded that the assessment order passed is erroneous and prejudicial to the interest of the revenue as the assessing officer has failed to examine various issues. 2.1 In this regard, it is observed from the assessment order that the issues raised by Ld CIT has not been examined at all by the assessing officer. In fact, the Ld AO has passed a one page assessment order accepting the return of income/loss reported by the assessee. The Ld AO has not even left any office note explaining the seized documents/details examined by her. 2.2 The Ld CIT has discussed in the order that in the course of search proceedings at the premises of Sh. Krishna Goyal, Director of one of the concerns of Motia group, certain documents were found and seized and inventorised as annexure A-4. Page 62 of this annexure gives details of project wise investment and sale of properties at various places by different concerns of the Motia group including the assessee. 2.3 Based on the appreciation of this particular document additions have been by respective assessing officers of different concerns of the Motia group whose details are appearing in page 62 of annexure A-4.

2.4 The Ld AO in the present case did not carry out any worthwhile investigation in respect of page 62 of annexure A-4. In fact, the Ld AO did not even bother to seek information from other assessing officers in respect of their stand on this paper so as to better appreciate the contents of the said seized document. 2.5 It has been mentioned by the Ld CIT at para 4 of his order that almost 50% of the entries appearing in the relevant seized documents match and reconcile with the regular books in the case of M/s.Motia Construction Limited. This establishes the authenticity of this document. 2.6 In this regard it may be submitted that the Department conducts search operations in very few cases based on reliable actionable information only where there is likelihood of huge tax evasion. In such cases the assessing officers are expected to be more vigil and more proactive in carrying out investigation in respect of the seized documents so as to take such investigation to a logical end. Needless to say that in the present case the Ld AO has not carried out any enquiry in respect of the seized document. Mere raising a query in respect of the seized document does not absolve the assessing officerfrom carrying out further investigation. Calling for documents/explanation in respect of the seized document is just the beginning for carrying out in-depth investigation. 2.7 In view of the above, it is submitted that it is a case of non enquiry by the assessing officer in respect of issues discussed by the Ld CIT. 2.8 The Ld CIT therefore held that the order passed by the assessing officer is erroneous and prejudicial to the interest of the revenue. 3. In this regard reliance is placed on following case laws (copies enclosed for reference) to substantiate that the order passed by Ld AO is erroneous and prejudicial to the interest of the revenue: a. Bassera Realtors P Ltd vs CIT - 55 taxmann.com 327 (ITAT, Chandigarh) b. CIT vs Ansal Housing & Construction Ltd. - 51 taxmann.com 376 (SC) c. CIT, Karnal vs Rajesh Mahajan - 16 taxmann.com 85 (P&H) d. Vodafone South Ltd vs CIT (TDS) - 61 taxmann.com 108 (ITAT, Chandigarh) e. CIT vs Shree Manjunathesware Packing Products And Camphor Works - 231 ITR 53 (SC). 4. The above submission may please be taken on record. .

issue in challenge before us in the exercise of power by the

CIT u/s 263 of the Act, setting aside the order of the AO

holding it to be erroneous so as to cause prejudice to the

revenue.

u/s 263 of the Act, the existence of twin conditions, i.e. of

the assessment order being erroneous and also prejudicial

to the interest of the revenue, is an essential prerequisite

and must be exercised only if the CIT is of the said

opinion. The foundation for the exercise of power being the

formation of an opinion or conclusion, there is no escape

from the view that the CIT must record his conclusion on

the matter before setting aside an order u/s 263. Further

the power being quasi judicial, the opinion/conclusion of

the CIT must be reached after hearing the assessee, which

is mandated by the statute itself and after recording the

reasons for the conclusion reached, which requirement is

consistent with the well settled principle of exercise of

judicial power.

the order of the CIT and after carefully perusing the

documents referred to before us, we find that in the facts of

the present case the CIT has failed to record his findings

of the existence of the aforestated twin conditions in

accordance with the aforesaid well settled principles of

exercise of judicial power. Our reasoning for the said conclusion

follows.

be erroneous so as to cause prejudice to the revenue, for the

reason that a document found during search giving details of

profits on funds used during the period included in the impugned

year, which included details in the name of the assessee also, was

not adequately inquired into by the AO and no addition made on

account the same by the AO, though identical entries contained

in the said documents in the name of another company i.e. M/s

Motia Constructions Ltd. had resulted in addition being made in

its hands. At this juncture it would be relevant to reproduce the

contents of the document vis-a-vis the assessee:

PROFIT ON FUNDS USED S.No. Name of Company Total Fund Sale Total Amt. Duration Cost s Profit/Mar of of funds Used ket share used Considerat of i on profit for funds used 10. Motia 22.00 8.61 48.00 26.00 10.18 01.04.07 to Township Pvt 31.12.07 Ltd. 19. Admittedly the AO had confronted the said document to the

assessee who had disowned the same. Before the CIT, on the show

cause notice being issued to the assessee, the assessee contended

that the entry in the said documents had no relation with the

actual transaction under taken by the assessee during the year.

The same was demonstrated by the assessee by pointing out that

none of the figures of either total cost, fund used or even sale in

the document, could be co-related with the books of the assessee.

The assessee also pointed out that while the document reflected

sale made by the assessee, the facts as reflected in the

books of the assessee was that no sale had been made by

the assessee during the year. The assessee therefore

contended that there was no question of any profit being

earned by the assessee also as reflected in the document .

It was thus contended by the assessee that the entries

reflected in the documents had no link at all with the

actual transaction undertaken by the assessee and thus

could not form the basis of any addition to be made in the

hands of the assessee. It was also demonstrated by the

assessee that the parity drawn by the CIT with the case of

Motia Constructions Ltd. was incorrect by pointing out that

in the case of Motia construction ltd., the figure reflected

against its name in the document matched with its books in

some cases which led the AO to conclude that the

document reflected actual transaction undertaken by

Motia construction ltd. and thus addition was made on

account of the same, while in the case of the assessee no

entry matched or was co-relatable with the books of the

assessee. The assessee therefore contended that even if

inadequate inquiry was conducted by the AO, no prejudice

was caused to the revenue, since ultimately it would not

have resulted in any addition being made. The CIT

thereafter, we find, proceeded to hold the order passed by

the AO as erroneous and prejudicial to the interest of

revenue on the same reasons as mentioned in the show

cause notice issued to the assessee, without even dealing

and controverting the aforesaid contentions of the assessee.

The assessee having duly demonstrated to the Ld.CIT that

the inadequacy of inquiry on the impugned issue would not

have caused any prejudice to the revenue, to hold the order

erroneous and prejudicial to the interest of the revenue

thereafter, the CIT should have recorded findings to the

effect that on consideration of the explanation submitted

and for the reasons shown the assessment has to be

reiterated to be erroneous and prejudicial to the interest of

the Revenue. The CIT should have considered the

contentions of the assessee, verified the same and then

given his finding that either the contentions were incorrect

or the despite the said contention the said document still

required further investigation and addition was to be made

the account of the same, thus making it erroneous and

prejudicial to the interest of the Revenue. On the contrary,

we find that the CIT, without himself finding any error in

the order of the AO subsequent to the explanation furnished

by the assessee before him, has left this to be done by the

AO, directing him to examine & properly inquire into the

transaction reflected in the document. This course of action

adopted by the CIT, we hold, is not in permissible in law.

identical issue in the case of M/s A.V. Industries vs ACIT in

ITA No.3469/M/2010 dt.06-11-2015, held that once reply

has been filed by the assessee the CIT is duty bound to

examine it and form a prima facie opinion as to whether the

order of the AO was erroneous so as to cause prejudice to

the revenue. The ITAT held that in the absence of the same

the order passed by the CIT u/s 263 is unsustainable in

law. The relevant findings of the ITAT at paras 10, 13 & 23

of its order are as under:

“10. As per the provisions of section 263 as enumerated above, after getting the explanation from the assessee, the Ld. CIT was supposed to examine the contention of the assessee. Before passing an order of modifying, enhancing or cancelling the assessment, he was supposed either to himself make or cause to make such an enquiry as he deems necessary. The words "as he deems necessary", in our view, do not mean that the Ld. CIT is left with a choice either to make or not to make an enquiry. As per the relevant provisions of section 263, it was incumbent upon the Ld. CIT to make or cause to make an enquiry. So far as the words "as he deems necessary" are concerned, the said words suggest that the enquiries which are necessary to form a view as to whether the order of the AO is erroneous and prejudicial to the interest of Revenue or not? A perusal of the above reproduced queries numbering (i) to (v) reveals that the Ld. CIT had asked the assessee about the genuineness/validity of various claims to which the assessee had given a detailed reply. Once a point wise reply was given by the assessee, then a duty was cast upon the Ld. CIT to examine the reply of the assessee and form a prima-facie opinion as to whether the order of the AO was erroneous so far as it was prejudicial to the interest of Revenue. We further note that the Ld; CIT did not raise any query as to what enquiries were made by the AO before proceeding to pass the assessment order in question. The Ld. CIT, in fact, had made queries regarding the validity of the claim of the assessee under different heads, however, has proceeded to hold that the order of the AO is erroneous so far as its prejudicial to the interest of Revenue on the ground that the AO had not made proper enquiries in this respect. In our view, once the Ld. CIT had proceeded to make an enquiry regarding the genuineness of the claim of the assessee, he was supposed to make a prima-facie opinion which may not be a concluding opinion to hold that the order of the AO in his view was erroneous so far as it was prejudicial to the interest of Revenue. The opinion of the Commissioner that the AO had not made proper enquiries or verifications should be based on his objective satisfaction and not a substantive satisfaction from the assessment order. 13. In the case in hand, after getting the necessary details and explanation from the assessee, the Ld. CIT has not given his opinion regarding the validity or genuineness of the claims made by the assessee. He has simply opined that the AO had not made the necessary enquires. He has neither asked the assessee to show as to what enquiries were made by the AO nor himself has looked into the explanations submitted by the assessee.

present case having failed to give his finding after duly

considering and examining the explanation of the assessee

justifying no addition being made on account of the

document found during search, that the order of the AO was

erroneous and prejudicial to the interest of the revenue, he

could not have validly assumed jurisdiction to revise the

order of the AO u/s 263 of the Act. The order passed by the

CIT is therefore set aside.

Order pronounced in the Open Court.

Sd/- Sd/-

(SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 17th May, 2018

*Rati* Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR

Assistant Registrar, ITAT, Chandigarh