M/S UMA GLASS WORKS,AGRA vs. PR.CIT.-1, AGRA

आदेश /O R D E R PER C.N. PRASAD, J.M. These two appeals are filed by the assessee against different

orders of the Ld. PCIT, Agra – 1, dated 8.3.2021, passed u/s 263 of the Act for the assessment years 2014-15 and 2015-16. As the issue in both

the appeals is identical these two appeals are clubbed, heard and disposed off together with this common order for the sake of

convenience.

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

common grounds of appeal:

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

business of manufacture and sale of glass products filed its return of

income for A.Y. 2014-15 on 4.11.2014 declaring total income of

Rs.11,66,380/-. The assessment was completed U/s 143(3) of the Act

determining the income at Rs.13,79,320/-. Thereafter a survey was

conducted on 3.8.2016 at the business premises of the assessee and

during the course of survey various documents/loose sheets, laptop, hard

disk (HD-1) were impounded. On the basis of the information contained

in the impounded hard disk and comparing the same with the return of

income filed by the assessee the assessment of the assessee for A.Y 2014-

15 was reopened by recording reasons and issue of notice u/s 148 of the

Act. In the reasons recorded the Assessing officer stated that income of

Rs.19,83,32,367/- (being the difference in opening stock, purchases,

sales and closing stock, GP/NP as per ITR and hard disk impounded) has

escaped assessment for the assessment year 2014-15 and accordingly the

reassessment was completed on 30.12.2017 u/s 143(3) r.w.s 147 of the

Act by treating the net profit of Rs.19,90,13,470/- as per the stock

summary taken from the hard disk impounded during the survey as

income of the assessee and brought to tax accordingly. The assessee

preferred appeal before the Ld. CIT(A) against the action of the assessing

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

officer in assessing net profit of Rs.19,90,13,470/- as assessed income of

the Assessee which is pending adjudication till date.

263 of the Act stating that the difference in closing stock of

Rs.21,87,38,966/- was undisclosed and should be added to the income of

the Assessee and during the assessment proceedings the difference in

closing stock was not added U/s 68 of the Act but net profit of

Rs.19,90,13,469/- was assessed as income and therefore the assessment

order dated 30.12.2017 passed U/s 143(3) r.w.s 147 of the Act appears to

be erroneous as well as prejudicial to the interest of the revenue and the

Assessee was asked to give explanation.

objecting for treating difference in closing stock as addition U/s 68 of the

Act stating as under:

“It must be appreciated that the alleged net profit of Rs.19,90,13,470 which has been worked out from the stock summary takes into account the impact of the figure of the so-called closing stock of Rs.30,31,62,405. This is evident from the reasons recorded reproduced in page 2 of the assessment order. The perusal of the same will reveal that under the column “As per stock summary taken from hard disks impounded during survey” reproduced in Para 1 above the alleged net profit is the resultant of the so called (Sales + Closing Stock) minus (Opening Stock + Purchases + Direct expenses + Indirect expenses). The last column in the said table i.e. difference is merely an arithmetical calculation between the figures as per the ITR and the figures taken from stock summary sheet generated from the impounded hard disk. This difference does not show that there was excess stock and even during the course of survey no material 4

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

in relation to the value of the closing stock for the impugned year was found to show that this alleged difference was actual. Hence on a mere hypothesis this working has been made and the so-called net profit which takes into impact the closing stock of Rs.30,31,62,405 has been already been taken as income of the assessee for the impugned year.” 6. It was also further submitted that the addition made on account of

alleged net profit which is on account of resultant impact of the so-

called closing stock of Rs.30,31,62,405/- the assessee filed an appeal

before the Ld. CIT(A), Agra and therefore since the subject matter of

impugned proceedings U/s 263 is already subject matter of appeal

proceedings, the proceedings initiated u/s 263 are bad in law. The

Assessee relied on the following decisions for the proposition that when

the subject matter of addition/disallowance made by the Assessing

Officer is a subject matter of appeal before the Commissioner of Income

Tax (Appeals), no proceedings u/s 263 can be invoked.

i) Smt. Renuka Philip Vs ITO (2018) 101 Taxman.com 119 (Mad)

ii) CIT Vs. Vam Resorts & Hotels (P) Ltd. (2019) 111 Taxman.com 62 (All)

iii) Pr.CIT Vs. Oil India Ltd. (2019) 103 Taxman.com 339 (Gauhati)

iv) Haryana Paper Distributors P Ltd. (2018) 95 Taxman.com 152 (Guj) 7. The Ld. PCIT, however, by order dated 31.03.2021 cancelled the

assessment order dated 30.12.2017 passed U/s 143(3) r.w.s 147 of the

Act holding that the said order passed by the Assessing Officer is

erroneous as well as prejudicial to the interest of the revenue and

directed the Assessing Officer to pass a fresh order after examining the 5

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

issue as discussed in her order and after affording reasonable opportunity

of being heard to the Assessee.

2015-16 holding that the assessment order dated 30.12.2017 passed U/s

143(3) of the Act by the Assessing Officer is erroneous as well as

prejudicial to the interest of the revenue and directed the Assessing

Officer to pass a fresh order after examining the issue as discussed in her

order and after affording reasonable opportunity of being heard to the

Assessee.

263 of the Act for A.Y 2014-15 and 2015-16, the Assessee is in appeal

before us.

submits that the addition of net profit of Rs.19,90,13,470/- made by the

Assessing Officer while completing the assessment U/s 143(3) r.w.s 147 is

based on stock summary taken from hard disk impounded during survey

and the alleged net profit is the resultant of the so called (Sales + Closing

Stock) minus (Opening Stock + Purchases + Direct expenses + Indirect

expenses). It is submitted that the said alleged difference is merely an

arithmetical calculation between the figures as per the ITR and the

figures taken from stock summary sheet generated from the impounded

hard disk and this difference does not show that there was excess stock

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

and even during the course of survey no material in relation to the value

of the closing stock for the impugned year was found to show that this

alleged difference was actual. Therefore it is submitted that on a mere

hypothesis the working has been made and the so-called net profit which

takes into impact the closing stock of Rs.30,31,62,405/- has been already

taken as income of the assessee for the impugned years. The Ld. Counsel

submits that since entire addition of net profit on alleged difference in

closing stock is the subject matter of appeal before the Ld.CIT(A), the

assumption of jurisdiction by the Ld. PCIT is bad in law. Reliance was

placed on the decision of the Jurisdictional High Court in the case of CIT

Vs. Vam Resorts & Hotels (P) Ltd. (418 ITR 723) and the decision of the

Hon’ble Supreme Court in the case of CIT Vs. Shri Arbuda Mills Ltd., (231

ITR 50). Reliance was also place on the following decisions for the above

proposition.

i) Smt. Renuka Philip Vs ITO (409 ITR 567 (Mad)).

ii) CIT Vs. Ratilal Bacharilal & Sons (282 ITR 457 (Bom))

iii) Parin Furniture Ltd. Vs. PCIT, ITA Ns.86 to 89/Rjt/2022 Dt: 20.07.2022

iv) Kathivaran Ananthalakshmi Vs. PCIT, ITA No.30/Chny/2022 Dt:3.8.2022

v) Rabi Pal Vs. ITO, ITA No.193/Kol/2022 Dt: 05.09.2022

vi) R.M.Tradelink Vs. PCIT, ITA No.68/Rjt/2022 Dt: 16-09-2022

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

in the case of CIT Vs. Vam Resorts & Hotels (P) Ltd. (supra) held that

when an appeal is pending before the Commissioner (Appeals), the

exercise of jurisdiction by the Commissioner is barred under clause (c) of

Explanation 1 to section 263 of the Act. It is submitted that similar view

has been taken in the other decisions. Therefore the Ld. Counsel

contends that the decision of the Jurisdictional High Court squarely

applies to the Assessee and the order passed by the Ld. PCIT U/s 263 is

liable to be quashed.

assessment order passed by the Assessing Officer is erroneous and

prejudicial to the interests of revenue. This conclusion was arrived at by

the Ld. PCIT for the reason that the Assessing Officer did not make

addition of alleged difference in closing stock under section 68 of the

Act. The Ld. Counsel for the assessee submits that the entire order of 14

pages of the Ld. PCIT contains the submissions/objections of the assessee

running into 11 pages and the conclusion of the Ld. PCIT is in one small

para on last page. The Ld. Counsel submits that the Ld. PCIT in her

entire order nowhere demonstrated as to how the assessment order

passed U/s 143(3) r.w.s 147 of the Act in not making addition U/s 68

resulted in erroneous and prejudicial to the interests of revenue except

stating that the Assessing Officer should have been made addition U/s 68

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

instead of treating the net profit as assessed income of the Assessee on

account of alleged difference in closing stock.

Assessing Officer had made no enquiries and therefore the assessment

order passed by him is erroneous and prejudicial to the interests of

revenue. The Ld. Counsel in this regard referring to page 6 para 5 of the

reassessment order (page 30 of the paper book) submits that the

Assessing Officer has given finding that in the course of assessment

proceedings vide order sheet entry dated 20.12.2017, the Assessee was

required to furnish explanation and justification regarding the difference

in stock as per stock summary and as per ITR and Audit Report and the

Assessee by written reply dated 29.122017 furnished along with charts

showing reconciliation of the data between the stock summary

impounded during the course of survey and the Audited Balance sheets of

the assessee. The Ld. Counsel therefore submits that since the Assessing

Officer made all enquiries and examined the evidences, submissions and

replies filed, the allegation of the Ld. PCIT that the Assessing Officer has

not made enquires is baseless and contrary to record.

failed to point out which enquires the Assessing Officer failed to make

during the course of assessment proceedings. The Ld. Counsel for the

Assessee submits that if the Ld. PCIT is of the view that the Assessing

Officer failed to make enquiries, then Ld.PCIT should have made at least 9

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

minimal enquiry on the issue before arriving at the conclusion that the

assessment order passed u/s 143(3) was erroneous and prejudicial to

interest of Revenue. The Ld. Counsel for the Assessee relying on the

decision of the Hon’ble Delhi High Court in the case of DIT Vs. Jyothi

Foundation (357 ITR388) submits that the High Court held that where

revisionary authority opined that further inquiry was required such

inquiry should have been conducted by revisionary authority himself to

record finding that assessment order passed by Assessing Office was

erroneous and prejudicial to revenue. The Ld. Counsel also relied on the

decision of the Hon’ble Delhi High Court in the case of CIT Vs. Anil Kumar

Sharma (194 Taxman 504). The Ld. Counsel for the assessee placing

reliance on the decision of the Hon’ble Supreme Court in the case of

Malabar Industrial Co. Ltd. Vs. CIT (109 Taxman 66) submits that when

two views are possible and the Assessing Officer adopted one of the

possible views with which the PCIT does not agree, Assessment Order

cannot be treated as erroneous and prejudicial to interests of revenue

unless the view taken by the AO is unsustainable in law.

jurisdiction by the PCIT u/s 263 of the Act during pendency of appeal,

submits that the issue before the Ld.CIT(A) is in respect of assessment

made by the Assessing Officer on the working of net profit based on stock

summary sheet retrieved from hard-disk impounded during the survey

operation. While the issue raised during the proceedings u/s 263 is

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

altogether different. Ld. DR submits that as per stock summary taken

from the hard-disk closing stock was Rs.30,31,62,406/-, however, the

closing stock disclosed by the assessee in the ITR filed by the assessee

was Rs.8,44,23,439/-. The excess closing stock of Rs.21,87,38,966/- was

found undisclosed and, therefore, it was required to be added as an

unexplained investment. Therefore, the Ld. DR submits that the

contention of the assessee that the order passed by the AO is subject

matter of appeal before the Ld. Commissioner(Appeals) and no

proceedings u/s 263 of the Act can be initiated is not acceptable. The

Ld. DR submits that the PCIT has rightly assumed jurisdiction u/s 263 on

issues which are not at all subject matter of appeal much less considered

and decided in appeal. Reliance was placed on the decision of the

Allahabad High Court in the case of Mehra Brothers Partnership vs. CIT in

WT No.185/2015 dated 11.03.2015. The decision of the Hon’ble Delhi

High Court in the case of BSES Rajdhani Power Ltd. vs. PCIT in ITA

No.387/2017 dated 08.11.2017. The Ld. DR placing reliance on this

decision submits that the Hon’ble Delhi High Court held that non

consideration of larger claim of depreciation and the consideration of

only a part of it by the Assessing Officer who did not go into the issue

with respect to the whole amount was an error that could be corrected

u/s 263 of the Act.

to the interest of Revenue submits that in the instant case no enquiry

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

into excess stock and unaccounted purchases has been made by the AO.

Ld. DR submits that it is the duty of the AO to ascertain the truth of the

facts stated in the return when the circumstances of the case are such as

to provoke an enquiry. Reliance was placed on the decision of the Delhi

High Court in the case of Geevee Enterprise vs. Addl. CIT (99 ITR 375).

Placing reliance on the decision of Hon’ble Supreme Court in the case of

Malabar Industrial Co. Ltd. vs. CIT (243 ITR 83). The Ld. DR submits that

it has been held that the AO is not supposed to accept a claim in the

absence of supporting materials without making an enquiry. The Ld. DR

also placed reliance on the decision of the Hon’ble Supreme Court in the

case of Ram Pyari Devi Sarogi vs. CIT (67 ITR 84) and Tara Devi Aggarwal

vs. CIT (88 ITR 323).

relied on by the Ld. DR has been considered by the Hon’ble Delhi High

Court in the case of DIT vs. Jyoti Foundation (supra) while holding that

where revisionary authority opined that further enquiry was required

such enquiry should have been conducted by revisionary authority itself

to record finding that the assessment order passed by the AO was

erroneous and prejudicial to interest of Revenue. The Ld. DR submits

that the Hon’ble High Court considered a situation where an order passed

by the AO was made without enquiry or investigation and orders which

are passed after enquiry/investigation and it was held that where

revisionary authority feels and opines that further enquiry/investigation

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

was required deeper or further scrutiny should be undertaken, if there is

no enquiry/investigation made by the AO. Ld. DR submits that in its case

it is a categorical finding given by the AO in the assessment order as

submitted earlier that in the course of assessment proceedings the

assessee was required to explain the difference in closing stock and the

assessee has furnished its replies with charts, reconciliation of the

closing stock differences and on making enquiries and verifications the

AO treated the alleged difference in stock, difference in net profit as

assessed income of the assessee while completing the assessment and,

therefore, it cannot be said that there is no enquiry/investigation made

by the AO while passing the assessment order.

authorities below and the decisions relied on and the material placed

before us. The first contention of the assessee in ground nos. 1 & 2 is

that the assumption of jurisdiction by the Ld. PCIT u/s 263 of the Act is

bad in law for the reason that the subject matter of addition of net profit

on account of difference in opening stock, purchases, sales, closing

stock, GP and net profit are under appeal before the Ld. CIT(Appeals).

glass products filed its return of income for AY 2014-15 on 04.11.2014

declaring income of Rs.11,66,380/- and the assessment was completed

u/s 143(3) on 11.07.2016 determining the income at Rs.13,79,320/-. A

survey operation u/s 133A of the Act was conducted at the business 13

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

premise of the assessee on 3rd August, 2016 and in the course of survey

whereas documents/loose papers and hard-disk were impounded. On the

basis of the information contained in the hard-disk the assessment was

reopened by issue of notice u/s 148 of the Act. The reassessment was

completed u/s 143(3) of the Act read with Section 147 of the Act

determining the income of the assessee by making an addition of

Rs.19,90,13,470/-. The said Rs.19,90,13,469/- represents the difference

in opening stock, purchases, sales, closing stock and the net profit as

shown by the assessee in its return of income and as per the stock

summary taken from hard-disk impounded during the survey. The

assessee challenged the order of the Assessing Officer in assessing

Rs.19,90,13,469/- as net profit of the assessee and as assessed income

for AY 2014-15.

noticed that the assessee has challenged the addition of

Rs.19,90,13,470/- which was arrived at on account of difference in

opening stock, purchases, sales, closing stock and gross profit/net profit.

We could see from the grounds of appeal that the assessee disputed the

entire addition including the difference in closing stocks and, therefore,

when the larger issue of whether there is any difference in closing stock

at all is the subject matter of appeal before the Ld. CIT(Appeals) and is

still pending adjudication the Ld. PCIT could not have assumed

jurisdiction u/s 263 of the Act.

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

Hotels Pvt. Ltd. (supra) held that when an appeal is pending before the

Ld. Commissioner (Appeals) the exercise of jurisdiction u/s 263 of the Act

by the CIT is barred as per clause (c) of Explanation 1 to Section 263 of

the Act. While holding so the Hon’ble High Court held as under:

“25. As Clause (c) of Explanation 1 to Section 263 of the Act provides that when an appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act by CIT is barred. Thus, in the present case, the CIT wrongly exercised jurisdiction under Section 263 of the Act by remanding back the matter to assessing authority on 25.03.2013, while the appeal was decided by CIT(A) on 05.06.2013. Thus, the order passed by the ITAT does not suffer from any irregularity and needs no interference.” 22. We also observe that similar view has been taken by the Hon’ble

Madras High Court in the case of Smt. Renuka Philip Vs. ITO (supra),

wherein the Hon’ble High Court held as under:

“22. The above explanation makes it clear that when the appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act is barred. The Commissioner in the order dated 14.03.2012 states that the appeal pertains to the claim made by the assessee under Section 54 of the Act and it has got nothing to do with the order passed by the Assessing Officer under Section 54F of the Act. The said finding rendered by the Commissioner is wholly unsustainable, since the assessee went on appeal against the re-assessment order dated 31.12.2009 stating that his claim for deduction u/s 54 of the Act should be accepted. 23. Therefore, in the process of considering as to what relief the assessee is entitled to, the Assessing Officer held that the assessee is entitled to claim deduction under Section 54F of the Act and assigned certain reasons for that. Therefore, the larger issue was pending before the Commissioner of Appeals, and in such circumstances, the 15

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

Commissioner could not exercise power under section 263 of the Act on account of the statutory bar. Therefore, on this ground also, the assumption of jurisdiction under Section 263 of the Act was wholly erroneous. 24. As noticed above, the Assessing Officer while completing the reassessment proceedings has assigned certain reasons for coming to a conclusion that the assessee is entitled for deduction under Section 54F and not under Section 54 of the Act. This reason assigned by the Assessing Officer has been found by us to show due application of mind. As observed, we cannot expect an Assessing Officer to write a judgment. In such circumstances, the view taken by the Commissioner in his order under Section 263 of the Act has to be termed as a change of opinion, or in other words, the Assessing Officer adopted one of the two views possible and in such circumstances, it cannot be stated that the order is prejudicial to the interest of the Revenue as well as erroneous. For the purpose of exercise of jurisdiction under Section 263 of the Act, the twin tests are to be satisfied and even assuming, the reassessment order is to be held as erroneous, it cannot be stated to be prejudicial to the interest of Revenue as every erroneous order cannot be subject matter of Revision under Section 263 of the Act. Furthermore, if the order passed by the Commissioner under Section 263 of the Act as confirmed by the Tribunal is allowed to stand, then the very purpose of the remand order against the original reassessment proceedings would become a fait accompli. 25. Thus, for the above reasons we are fully satisfied that the assumption of jurisdiction by the Commissioner under Section 263 of the Act was wholly without jurisdiction as the twin tests have not been satisfied and consequently, the order dated 14.03.2012 as confirmed by the Tribunal by order dated 13.07.2012 calls for interference.” 23. Similar view has been taken by various Benches of the Tribunal

which were relied on by the Ld. Counsel for the assessee. The ratio of

the decisions of the Jurisdictional High Court in the case of CIT Vs. Vam

Resorts and Hotels Pvt. Ltd. (supra) and the decision of the Madras High

Court in the case of Smt. Renuka Philip (supra) squarely applies to the

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

facts of the assessee’s case. The decisions relied on by the Ld. DR are

distinguishable on facts. Thus, respectfully following the decision of the

Jurisdictional High Court since the larger issue of whether there is any

difference in closing stock at all is the subject matter of appeal before

the Ld. CIT(A) we hold that the Ld. PCIT is barred in assuming jurisdiction

u/s 263 of the Act.

assessment order passed by the Assessing Officer was held to be

erroneous and prejudicial to the interest of the Revenue stating that the

AO has not made enquiries. The Ld. PCIT is also of the view that the

difference in closing stock should have been added as income u/s 68 of

the Act.

proceedings are concerned as we have already noted above that it is the

categorical finding of the AO in para 5 page 6 of assessment order that in

the course of assessment proceedings the assessee was required to

explain the difference in closing stock and the assessee has furnished

charts, reconciliation statement, explanations etc., which was examined

by the AO and decision was taken to treat the difference in opening stock,

purchases, sales, closing stock, GP/net profit as income of the assessee.

Therefore, the observations of the Ld. PCIT that the AO has not carried

out any enquiries are not borne out from record. We also observe that

the Ld. PCIT having observed that the AO has not made an enquiry the Ld.

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

PCIT failed to point out any deficiency in enquiries and also not made any

minimal enquiry by himself to prove that the order passed by the

Assessing Officer is erroneous and prejudicial to the interest of Revenue.

held that where revisionary authority opined that further enquiry was

required such enquiry should have been conducted by revisionary

authority himself to record a finding that the assessment order passed by

the AO was erroneous and prejudicial to the interest of Revenue. In the

case on hand before us enquiries were certainly made by the Assessing

Officer as observed above and it is not a case of no enquiry at all. In view

of the decision of the Hon’ble Delhi High Court in the case of DIT vs. Jyoti

Foundation (supra), we hold that the Ld. PCIT should not have set aside

the assessment order and directed the Assessing Officer to conduct

enquiry.

jurisdiction u/s 263 by the Ld. PCIT is bad in law and accordingly the

order of the Ld. PCIT is set aside.

facts are identical in both these years the decision taken for the AY 2014-

15 applies mutatis mutandis to the appeal for the AY 2015-16. We order

accordingly.

I.T.A.Nos.17 & 18/Agra/2021/A.Ys.2014-15 & 2015-16

2015-16 are allowed.

Order pronounced in the open court on 02.11.2022

Sd/- Sd/- (ANIL CHATURVEDI) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 02.11.2022 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order

Assistant Registrar, ITAT: Agra Benches-Agra