DINESH KUMAR SINGH,MIRZAPUR vs. PR. COMMISSIONER OF INCOME TAX, ALLAHABAD

PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal in ITA No.11/Alld./2019 for assessment year 2016-17 is filed by assessee which has arisen from revisionary order dated 13.11.2018 passed by Learned Principal Commissioner of Income Tax, Allahabad (herein after called “the PCIT”), u/s 263 of the Income-tax Act, 1961(hereinafter called “the Act”) , wherein ld. PCIT held that the assessment order dated 22.02.2018 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the 1961 Act as erroneous in so far as prejudicial to the interest of Revenue which stood set aside by ld. PCIT under its revisionary powers u/s 263 of the 1961 Act, and ld. PCIT issued directions to the AO to

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. make full and proper inquiry and apply the provisions of law properly while making fresh assessment denovo.

“1-That in any view of the matter order passed u/s 263 of the Act dated 13/11/2018 is bad both on the fact and in law and the Pr. Commissioner of Income Tax, Allahabad passed the order without examination the assessment record and order sheet specially when assessing officer examined the books hence the order u/s 263 of the Act is liable to be cancelled. 2-That in any view of the matter the Pr. Commissioner of Income Tax, Allahabad is highly unjustified in saying that the assessment order passed by the assessing officer is erroneous in so for as prejudicial to the interest of revenue when required examination was done by assessing officer. 3-That in any view of the matter finding and observation of the Pr. Commissioner of Income Tax, Allahabad in his order are incorrect illegal and unjustified especially when scrutiny was done. 4-That in any view of the matter after considering the entire fact the assessing officer make the addition of Rs. 20,000/- considering all the facts therefore the observation of the Pr. Commissioner of Income Tax, Allahabad that matter was not properly adjudicated by the assessing officer is not correct hence order u/s 263 of the Act is liable to be cancelled. 5-That in any view of the matter the appellant reserves his right to take any fresh ground before hearing of the appeal.”

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. Expenses. The assessee was asked to furnish supporting evidence such as bills and vouchers in support of his claim under these heads for verification purposes, but the assessee submitted only few of them as evidences. Therefore, the AO disallowed Rs. 10,000/- under the head Labour Charges, Rs. 5,000/- under the head Travelling expenses and Rs. 5,000/- under the head Office expenses , as these expenses remained unverifiable in lack of supporting evidences, and addition to the income of the assessee the tune of Rs. 20,000/- was confirmed by the AO. Thus, the income of the assessee was assessed by the AO at Rs. 6,40,470/- as against returned income of Rs. 6,20,470/- , vide assessment order dated 22.02.2018 passed by AO u/s 143(3) of the 1961 Act.

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. powers under Section 263 issued show cause notice to the assessee,on 26th July, 2018 fixing the date of compliance for 31st July, 2018, which is reproduced herein below:

“During the course of examination of the assessment records in your case of A.Y. 2016-17, it is found that AO has passed the assessment order u/s 143(3) dated 22.02.2018 without making any inquiry regarding low income from TCS receipts being the reason for selection of the case for full scrutiny. When this case was selected for scrutiny, it was the responsibility of the AO to make intensive inquiry and to cause effective investigation as to whether income from liquor business was correctly shown by the assessee in his return of income. It is however, noticed from the assessment proceeding and assessment order that the assessing officer has not made full and proper inquiry, and has proceeded to complete the proceeding in haste, in a manner which is prejudicial to the interest of the revenue. It is also found from the assessment order and assessment records, that AO has passed the order which is erroneous and in so far as prejudicial to the interest of revenue. The visible facts noticed from the assessment records are briefly summarized as under: (i) In the assessment order AO has mentioned last hearing as on 04.09.2017 whereas in note sheet proceedings, there is an entry of attendance of the assessee on various dates up to 12.02.2018 which means assessment proceedings was conducted even after 04.09.2017. It is also noticed from the note sheet proceeding as that on 04.09.2017 none has attended the proceeding; hence AO has issued notice u/s 142(1) on 03.11.2017 fixing the date for hearing on 13.11.2017. Further on 13.11.2017, none has attended the proceeding; hence AO has issued a further notice on 04.12.2017, fixing date for hearing an 11.12.2017. On 11.12.2017, the AR of the assessee has appeared and for the first time has filed the basic information: like copy of ITR, balance sheet, profit and loss account, and bank statement On this date of hearing, AO has directed the assessee/AR to produce books of accounts, cash book, ledgers, bills and vouchers .Case was adjourned for compliance on 08.01.2018. On this date of hearing, as appears from the note sheet that books of accounts was not produced, but only some reply was submitted. On next date of hearing also no documents has been produced. AO has mentioned that, learned AR has explained the reason for low profit but no such explanation is there either in his reply or in note sheets Thus, it is very evident that AO has not examined the relevant documents nor had made any independent inquiries about the purchase price of liquors, selling price and also about the margin of profit. (ii) It is very evident from the assessment records that AO has mentioned date of hearing only on 04.09.2017 which is factually incorrect. Further, it is noticed that date of order is 22.02.2018 whereas copy of order and demand notice was served on 20.03.2018 after superannuation of the assessing officer on 28.02.2018. Obviously, there is a visible discrepancy in the proceeding, preparation of assessment order and service thereof. (iii) It is found from the assessment records that AO has taken on record the very cryptic reply and copy of challan form 43A, copy of cheques and copy of some of the vouchers, ITR, copy of bank statements but has not obtained any information from the seller of liquor and has not made investigation about the initial cash deposits which are in lakhs and about their Sources. (iv) In assessment order AO has disallowed Rs. 10,000/ from the labour charges of Rs. 55,610/- and Rs. 5,000/- from travelling expense of Rs 47,864/- and Rs. 5,000/- from head office expenses of Rs. 13,580/-on the ground that such expenses are remained unverifiable because of lack of supporting evidence. Obviously, such lump sum disallowances is nottenable in the eye of law because AO has failed to specify as to which expenditure is not having supporting evidence. If there is no supporting evidence of labour charges, travelling expenses and office expenses, then entire expense was to be disallowed and not of some lump sum expenses like 10,000/-, 5,000/- and 5,000/- This reveals the fact that AO has made the disallowances without application of mind, disrespecting the various decisions of the Hon'ble Appellate Authorities and Court, hence such assessment order is erroneous as well as prejudicial to the interest of revenue. (v) It is also found from the return of income and computation of income that assessee has claimed refund of Rs. 3,28,310/ against the TCS of Rs. 3,80,726/-. It is also seen that in the preceding year also the assessee has claimed refund against the TCS, it means profit is not being shown properly that is why this case was selected for deep scrutiny, but AO has failed to do so. It can be seen from the profit and loss

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. account that assessee has shown license fees of Rs. 27,38,000/- in profit and loss account and not trading account. If this direct expenditure is debited in trading account then gross profit would have been 11,34,410/- and not of Rs. 38,72,410/-. If one calculates the ratio of Gross Profit in the business of liquor contract or liquor business of the assessee, it would be @ 2.70% whereas by showing licensee fees in profit and loss account, not in trading account, assessee has shown gross profit @ 9.22% which is nothing but distorting facts for revelation of good Gross Profit. It is very evident that assessee has suppressed the Gross Profit, but has tried to project better Gross Profit by deleting licence fees in profit & loss account and not in trading account of liquor business. (vi) It is also found from the bank statements of four banks that there is a huge cash deposits, but AO has not verified the genuineness of source of deposits. As visible, he has not examined the cash flow, cash book and financial statements as there is nothing on record which can reveal such attempt. Thus, it is very apparent that AO has not made any verification, proper inquiry and consequential investigation into the accounts. (vii) It is also seen from the profit and loss account that there is no entry of income from other sources. Assessee has not shown interest from saving bank account, commission income and interest on income tax refund, totaling of Rs. 84,663/- whereas assessee claims to have maintained books of account on mercantile system of accounting. Such income from other sources has only been shown in computation of total income. This fact proves that books of accounts are not being properly maintained as per the actual transaction that is why commission income and interest from saving bank account have not been shown in profit and loss account. AO has never pointed out this discrepancy to the assessee nor has verified this fact from the respective angle. (viii) While making lump sum disallowance, AO has failed to reject the books of accounts and velocity of accounting system and has proceed to lump sum disallowances which proves the fact that neither assessment proceeding is as per the procedure laid down by the department nor is investigation made as expected in scrutiny assessment, hence it is very much visible that assessment has been completed without application of mind, without proper inquiry and without the consequential investigation in the business transactions. It is also very apparent from the assessment record that AO has not made any apparent inquiry about assets and investments whereas this case was selected for full inquiry and scrutiny. It is also visible from the assessment records that AO has not examined the source of cash deposits and utilization of cash correctly in the accounts.” 4b. The assessee during revisionary proceedings conducted by Ld. Pr. CIT u/s 263

submitted that the assessee is individual and derives income from liquor business and

assessed to tax for last number of years . The assessee claimed that he is maintaining

regular books of accounts which are subject to audit . The assessee submitted that in the

earlier years assessment made by Revenue under Section 143(3) of the Act, the trading

results were more or less accepted by the Department. The assessee explained that for the

impugned assessment year, the return of income was selected by Revenue for framing

scrutiny assessment, and the assessment was completed by AO under Section 143(3) of the 1961 Act vide assessment order dated 22nd February, 2018. The assessee further

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. submitted that, thereafter, ld. PCIT issued show cause notice u/s 263 dated 26th July, 2018 , raising as many as eight issues on which it was alleged by ld. PCIT that assessment order dated. 22.02.2018 passed by AO u/s 143(3) was erroneous so far as prejudicial to the interest of Revenue. The assessee submitted that the aforesaid SCN mainly raised the issue that main reason for selection of the assessee’s case for scrutiny assessment was that the TCS receipt income was shown to be on lower side , and further that the AO has not conducted proper inquiries with respect to claim of expenses, claim of refunds, cash deposited in bank etc.. The assessee submitted that the AO has made detailed inquiries during assessment proceedings vides notices dated 18.02.2017 and 03.11.2017, and in compliance thereof the assessee has filed written submission on each and every issue. The assessee submitted before ld. PCIT during revisionary proceedings u/s 263 that during assessment proceedings before AO, the assessee produced books of accounts which were examined in detail by AO, and after considering facts and evidences brought on record , the AO has formed an opinion , and had made certain disallowances and assessment was completed by the AO. The assessee submitted that all the details related to TCS , purchase and sale as well expenses were filed before the AO during the assessment proceedings, books of accounts were produced which evidence is already on record, G.P. & N.P. during the years are progressive as compared to earlier years, no discrepancies found in books and the AO after proper application of mind and proper verification framed assessment order , and it cannot be said that the assessment order as framed by AO is erroneous and prejudicial to interest of revenue. The assessee submitted

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. that the AO has taken a plausible view and it cannot be said to be erroneous order in the

eyes of law.

4c. The Ld. Pr. CIT after considering the contentions of the assessee and the assessment record held that the assessment order passed by the AO under Section 143(3) dated 22nd

February, 2018 is erroneous in so far as prejudicial to the interest of the revenue and ld.

PCIT set aside assessment order dated 22.02.2018 passed by AO u/s 143(3) , by invoking

its revisionary powers u/s 263 of the 1961 Act vide revisionary orders dated 13.11.2018,

and direction were issued by Ld. Pr. CIT to AO to make full and proper inquiries and

apply the provisions of the law while make fresh assessment denovo in light of

observations made by Ld. Pr. CIT in its revisionary order dated 13.11.2018 under Section

263 of the Act, by holding as under:

“I have considered the assessment proceedings of the assessing officer, it is found that assessing officer has not made proper investigation with regard to low income of TCS receipts being the reason for the selection of the case from scrutiny in the notice dated 26.07.2018 specific points has been raised for initiation of the notice u/s 263 of the I.T. Act but assessee has not made full and proper compliance of issue for scrutiny and it is found that the reply of the assessee is general in nature whereas in the notice u/s. 263 dated 26.07.2018 specific points of order sheet, verification of expenses and details of TCS have been mentioned an intensive inquiry should have been made by the AO. In the notice eight points have been highlighted nevertheless assessee has not replied on specific points and has furnished reply which is general in nature. Thus, from the reply/explanation of the assessee dated 15.10.2018, it is very apparent that except general reply and substantiated clarification, the assessee has nothing to say. It is to be reiterated that in show cause notice u/s. 263 dated 26.07.2018 very specific points were raised and brought to the notice of the assessee demonstrating the facts as to how the assessment made by the AO is full of deficiency without expected inquiry and without consequential investigation about unsatisfactory income from the liquor business. From the reply of the assessee the facts mentioned in the notice u/s: 263 are got fortified as assessee has not been able to refute the factual findings. In view of the above discussion and on facts and circumstances, is found that AO has not examined the relevant document nor had made any independent inquiry about the purchase of liquor and the selling price and also about the margin of profit. It is very evident from the note sheet, that books of accounts were not produced during the course of assessment proceedings and only some reply was submitted. Further, it is evident from the assessment record that order was dated 22.02.2018 whereas copy of order and notice of demand was served on 20.03.2018 after superannuation of the assessing officer on 28.02.2018. The AO has not obtained any information from sell of liquor, Obviously, there is a visible discrepancy in the proceeding, preparation of assessment order and service thereof. These are additional facts prove as to how assessment proceedings and order are prejudicial to the interest of revenue. It is further, found from the assessment records that AO has taken on record the very cryptic reply and copy of challan form 43A, copy of cheques and copy of some of the vouchers, ITR, copy of bank statements 7

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. but has not obtained any information from the seller of liquor and has not made investigation about the initial cash deposits which are in lakhs and about their sources. In assessment order AO has disallowed Rs. 10,000/- from the labour charges of Rs. 55,610/- and Rs. 5,000/- from travelling expense of Rs. 47,864/- and Rs. 5,000/- from head office expenses of Rs. 13,580/ on the ground that such expenses are remained unverifiable because of lack of supporting evidence. Obviously, such lump sum disallowances is not tenable in the eye of law because AO has failed so specify as to which expenditure is not having supporting evidence. If there is no supporting evidence of labour charges, travelling expenses and office expenses, then entire expense was to be disallowed and not of some lump sum expenses like 10,000/-, 5,000/- and 5,000/-. This reveals the fact that AO has made the disallowances without application of mind, disrespecting the various decisions of the Hon'ble Appellate Authorities and Courts; hence such assessment order is erroneous as well as prejudicial to the interest of revenue. It is also found from the return of income and computation of income that assessee has claimed refund of Rs. 3,28,310/- against the TCS of Rs. 3,80,726/-. It is also seen that in the preceding year also the assessee has claimed refund against the TCS, it means profit is not being shown properly that is why this case was selected for deep scrutiny, but AO has failed to do so. It can be seen from the profit and loss account that assessee has shown license fees of Rs. 27,38,000/- in profit and loss account and not trading account. If this direct expenditure is debited in trading account then gross profit would have been 11,34,410/- and not of Rs. 38.72,410/- . If one calculates the ratio of Gross Profit in the business of liquor contract or liquor business of the assessee, it would be @ 2.70% whereas by showing licensee fees in profit and loss account, not in trading account, assessee has shown gross profit @ 9.22% which is nothing but distorting facts for revelation of good Gross Profit. It is very evident that assessee has suppressed the Gross Profit but has tried to project better Gross Profit by debiting licence fees in profit & loss account and not in trading account of liquor business. It is also found from the bank statements of four banks that there is a huge cash deposits, but AO has not verified the genuineness of source of deposits. As visible, he has not examined the cash flow, cash book and financial statements as there is nothing on record which can reveal such attempt. Thus, it is very apparent that AO has not made any verification, proper inquiry and consequential investigation into the accounts. It is also seen from the profit and loss account that there is no entry of income from other sources. Assessee has not shown interest from saving bank account, commission income and interest on income tax refund, totaling of Rs. 84.663/- whereas assessee claims to have maintained books of account on mercantile system of accounting. Such income from other sources has only been shown in computation of total income. This fact proves that books of accounts are not being properly maintained as per the actual transaction that is why commission income and interest from saving bank account have not been shown in profit and loss account. AO has never pointed out this discrepancy to the assessee nor has verified this fact from the respective angle. It is also very apparent from the assessment record that AO has not made any apparent inquiry about assets and investments whereas this case was selected for full inquiry and scrutiny. It is also visible from the assessment records that AO has not examined the source of cash deposits and utilization of cash correctly in the accounts. While making lump sum disallowance, AO has failed to reject the books of accounts and verocity of accounting system and has proceed to lump sum disallowances which proves the fact that neither assessment proceeding is as per the procedure laid down by the department nor is investigation made as expected in scrutiny assessment, hence it is very much visible that assessment has been completed without application of mind, without proper inquiry and without the consequential investigation in the business transactions. Thus, obviously the assessment order passed by the AO u/s. 143(3) of the I.T. Act dated 22.02.2018 is erroneous in so far as prejudicial of the interest of the revenue. The assessing officer is therefore, directed to make full and proper inquiry and apply the provisions of law properly while making the fresh assessment in the light of above observation. Needless to say that while making the fresh assessment, the assessing officer should give full and proper 8

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. opportunity of being heard to the assessee for his presentation and submission of necessary evidences. Thus, in the background of above findings, observations and references, assessment order dated 22.02.2018 is set aside u/s. 263 of the I.T. Act for denovo assessment.” 5. Aggrieved by revisionary order dated 13.11.2018 passed by ld. PCIT u/s 263 of the 1961 Act, the assessee has filed first appeal with the tribunal . The Ld. Counsel for the assessee opened arguments before the Division Bench , and submitted that this appeal is filed by assessee against the revisionary order dated 13.11.2018 passed by Ld. Pr. CIT under Section 263 of the Act. It was submitted that the assessee is in the business of purchase and sales of liquor, and is subject to control of UP Excise Department wherein license is required to conduct the liquor business . It was submitted by ld. Counsel for the assessee that the assessment order was passed by AO under Section 143(3) dated 22nd February, 2018 , and mainly owing to low income being shown by the assessee vis-à-vis TCS receipts, the case was selected for scrutiny assessment. Our attention was drawn to page No. 14 to 15 of the Paper-Book , wherein the assessment order dated 22.02.2018 passed by AO u/s 143(3) is placed. Our attention was also drawn by ld. Counsel for the assessee to Page No. 16-22 of the paper-book , in which the notice dated 18th August, 2017 u/s 143(2) as well another notice u/s 142(1) dated 3rd November, 2017 are placed. Our attention was also drawn to Page No. 23-39/paper book where the reply filed by assessee before AO during assessment proceedings is placed. Our attention was also drawn to Page No.40 to 43 where reply filed by the assessee before ld. AO during original assessment proceeding is placed. Our attention was also drawn by ld. Counsel for the assessee to the assessment order dated 23.12.2016 for ay: 2014-15 passed by the AO u/s 143(3) of the 1961 Act, which is placed in paper book at Page No.113 to 114. The ld.

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. Counsel for the assessee submitted that the AO had only made additions to the tune of Rs. 45,000/- to the returned income while framing assessment for ay: 2014-15, Rs. 10,000/- under the head Labour Charges, Rs. 20,000/- under the head Travelling Expenses and Rs. 15,000/- under the head Office Expenses, on the grounds that these expense remained unverifiable . The ld. Counsel for the assessee relied upon judgment and order of Hon’ble Allahabad High Court in the case of Commissioner of Income Tax & Ors. v. Metro and Metro , reported in (2018) 404 ITR 304(All.). The ld. Counsel for the assessee also relied upon the order of ITAT, Amritsar Bench in the case of Dharam Pal v. Pr. Commissioner of Income Tax, Bhatinda reported in (2017) 82 taxmann.com 83 (Amritsar-Trib.). The ld. Counsel for the assessee also relied upon the order of ITAT, Amritsar Bench in the case of Jiwan Kumar v. PCIT, Bhatinda, reported in (2017) 82 taxmann.com 221(Amritsar-tribunal). It was submitted that Section 263 was amended and an Explanation-2 was inserted by the Finance Act, 2015. Our attention was also drawn to the order of Delhi-tribunal in the case of Vodafone Essar South Ltd. v. CIT, New Delhi , reported in (2011) 12 taxmann.com 233 (Delhi). The ld. Counsel for the assessee also relied upon following judgments/orders:

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. 6. ITAT, Amritsar Bench-Vikrant Mehra v. ITO (2016) 48 ITR (Trib.) 382 ( Amritsar) 7. Hon’ble Bombay High Court judgment and order in the case of Moil Ltd. v. CIT, reported in (2017) 396 ITR 244 (Bom. HC) 8. Hon’ble Bombay High Court judgment and order in the case of CIT v. Fine Jewellery(India) Limited , reported in (2015) 372 ITR 303 (Bom. HC) 9. Hon’ble Allahabad High Court judgment and order in the case of CIT v. Krishna Capbox Private Limited, reported in (2015) 372 ITR 310 (All.HC) 10. ITAT, Kolkatta Bench- Sadhna Stocks and Securities Private Limited v. PCIT, Kolkatta, reported in (2018) 168 ITD 499(Kol.-trib.) 11. Hon’ble Bombay High Court judgment and order in the case of CIT v. Neerav Modi, reported in (2016) 138 DTR(Bom) 81 12. Hon’ble Delhi High Court judgment and order in the case of CIT v. Sunbeam Auto Ltd., reported in (2011) 332 ITR 167 (Delhi HC) 13. ITAT, Delhi- Delhi Airport Metro Express Pvt. Ltd v. PCIT, reported in (2017) 54 ITR (Trib.) 358 (ITAT Delhi Bench) 14. ITAT, Pune Bench- Priya Kishore Jagtiani v. PCIT, in ITA No. 1274 to 1276 /Pun/2017 15. ITAT, Delhi Bench- Hike Private Limited v. PCIT, in ITA No. 2906/Del/2018

5b. The Ld. CIT DR on the other hand submitted before Division Bench that the case

of the assessee was selected for framing scrutiny assessment because of low income

reported vis-à-vis TCS receipts. The ld. CIT-DR submitted that the assessee is engaged in

the business of purchase and sales of Liquor. It was submitted that the prices of Liquor

are fixed, but the AO did not collected any information and did not computed profits of

the assessee, from the business of Liquor. The ld. CIT-DR submitted that the AO did not

verify the purchase and sale , as the details were never produced by the assessee. The ld.

CIT-DR submitted that the AO did not verify the details of low profits shown by the

assessee vis-à-vis TCS. It was submitted that the purchase and sales have not been

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. verified by AO during assessment proceedings. It was submitted that the AO did not verify cash deposits in the bank, and the AO did not verify whether cash deposit in the bank are from cash sales only. It was also submitted by ld. CIT-DR that reasons for declaring low/insufficient profits by the assessee required proper scrutiny/verification which was not done by AO . The ld. PCIT would make prayers that revisionary order passed by ld. Pr. CIT be upheld.

5c. The ld. Counsel for the assessee in rejoinder drew our attention to page 23 of paper book and submitted that prices of liquor are fixed by Government, and both purchase as well sale price cannot be changed . The ld. Counsel for the assessee made prayers for quashing of the revisionary order dated 13.11.2018 passed by ld. PCIT u/s 263.

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. notice dated 28.08.2017 u/s 143(2) of the 1961 Act while framing original assessment , for compliance on 04.09.2017. Thereafter , the AO issued notice dated 3.11.2017 u/s 142(1), asking assessee to produce following documents:

a) Copy of ITR, P&L account and Audit Report for ay: 2016-17

b) Nature of business activities and comparative statement of GP and NP for the relevant year and preceding two years.

c) All books of accounts including cash book , journal , ledger , stock register, sale/purchase register , bills/vouchers.

d) Details of all bank accounts along with bank statements.

e) Statement of income from liquor business.

The assessee filed its reply before AO during assessment proceedings in which it submitted that he is an assessee for last many years. The assessee submitted that during the year under consideration, he has declared drawings of Rs. 2,00,000/- towards household expenses and income from agriculture is Rs. 56,800/- . The assessee claimed that his drawings are sufficient to meet his family expenses , as he live in Ouri village and children are studying in local school. The assessee also submitted before AO during assessment proceeding, turnover for last three years along with GP and NP ratio, as under :

A.Y. Turnover G.P. % N.P. %

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. 2014-15 3,22,55,410.00 29,42,820.00 9.2 2,90,790.00 0.9 2015-16 3,65,89,079.00 33,37,050.00 9.1 3,70,432.00 1.0 2016-17 4,19,97,858.00 38,72,410.00 9.2 5,55,640.00 1.3

The assessee also submitted that the assessee Liquor business is licensed , and the base of his business(Liquor) is license. The assessee also claimed that his GP and NP is better than preceding years. The assessee also claimed to have enclosed ledger account of expenses. The assessee also claimed to have enclosed the copies of challans for payment of license fee. It transpires from the ledger account of license fee that the assessee has claimed to have paid Rs. 27,38,000/- towards license fee for Financial year 2015-16, which were all claimed to have been paid in cash, from 04.02.2016 to 11.03.2016 (paper book page 24). The assessee enclosed challans paid during the period January-March 2015, aggregating to Rs. 23,99,000/- which is stated to be for financial year 2015-16, although paid in financial year 2014-15. The aforesaid challans for Rs. 27,38,000/- which were claimed to have been paid in the previous year 2015-16 (ay: 2016-17) as per ledger account filed by the assessee(challans were not enclosed by the assessee ) apparently relates to the assessment year 2017-18(previous year 2016-17), and the AO never asked for the paid challans to satisfy whether the expenses towards License Fee of Rs. 27,38,000/- as claimed were actually incurred or not. Moreover, these license fee of Rs. 27,38,000/- paid during the year apparently pertains to financial year 2016-17 (ay: 2017- 18)(no challans enclosed) but claimed as expenses during the year under consideration

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. viz. ay: 2016-17 , although as per tax audit report filed by the assessee, it is stated that the assessee is following mercantile system of accounting , but apparently the assessee claimed License Fee on cash basis ( even challans of Rs. 27,38,000/- were not enclosed and were never verified by the AO) . The AO merely accepted the documents filed by the assessee and never made the relevant enquiry before allowing the License Fee Expenses to the tune of Rs. 27,38,000/- during the year under consideration . The assessee also claimed before AO during assessment proceedings that the liquor business is controlled by Government authorities namely District officer and Abkari Officers, the liquor is purchased from Depot of Distilleries at fixed price and Tax is collected at Source(TCS) by Distilleries at the time of purchases made by assessee from the said Distilleries. The assessee claimed that the sale of liquor is at MRP. The assessee enclosed copy of ledger account of sale and purchase of liquor. Perusal of ledger account of purchase reveals that the assessee has purchased 34,175 pcs of different varieties of liquor aggregating to Rs. 3,80,72,837.50 during the year under consideration. Perusal of sale ledger reveals that the entire sale was made in cash aggregating to Rs. 4,19,97,858/- during the year under consideration, while no quantitative details of sales were given. The assessee has claimed that its opening stock at the beginning of the year and closing stock as at the end of the year , was Nil. The AO never verified and reconciled the sale and purchase of liquor in quantitative terms , to ensure that all the sales are duly booked in accounts and the income thereof is offered for taxation. The AO never looked to find out that stock is tallying , and the claim made by the assessee that stock as at year end is Nil , is correct . The AO never verified that the sales as claimed to be at MRP of liquor, was infact 15

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. booked in the books of accounts at MRP and no under-reporting of sale or escapement of income has taken place. The AO never made any enquiries from the Distilleries from whom the assessee claimed to have made purchases of Liquor. Further, the tax-audit report reveals that the sale and purchase of Liquor was 24,555 carats, while as per ledger account of purchases, the purchase of liquor was 34,175 pcs during the year under consideration , but the AO never called for the reconciliation of stock in carats v. pieces to ensure that all the sales and purchases are properly accounted for and tallied, and that no income has escaped assessment as well the entire Liquor stock is duly accounted for and tallied in the books of accounts, and consequentially entire income thereof is brought to tax. The assessee has shown a meager Net Profit rate of 1.3% of the turnover, and TCS to the tune of Rs. 3,28,309/- was claimed as refund as against total TCS of Rs. 3,80,726/. This was also the reason for putting the case under scrutiny, but the AO never looked into this aspect of declaration of meager profits by the assessee as the income chargeable to tax. This was happening year after year, and the AO was under duty to investigate the affairs of the assessee by making deeper probe to unravel truth, which AO failed to do so and merely replies of the assessee were accepted by AO. The reason for scrutiny assessment was the low income shown by the assessee vis-à-vis TCS receipts and large amount of refund claimed out of TCS, and even this aspect the AO failed to investigate and verify. Merely stating that the GP/NP ratio is better than the preceding years is not sufficient. The AO is both adjudicator as well investigator. The 1961 Act is an code in itself and there are several provisions under the 1961 Act such as compliances of provisions of Section 37(1) of the Act to substantiate that the expenses were 16

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. incurred wholly and exclusively for the purposes of the business of the assessee, Section 68 dealing with cash credits , compliances of Section 69, 69A, 69B , 69C of the 1961 Act dealing with unexplained investments, unexplained money, unexplained expenditure etc. , deducting of income-tax at source on payments made by tax-payers(Chapter XVII-B), prohibition on making payment otherwise than through prescribed banking modes beyond threshold limits(Section 40A(3) ), dealing at arm length price while dealing with relatives and associated concerns in which the tax-payer is interested (Section 40A(2)), disallowance of penalties and other payments made for infraction of law(Section 37(1)) , etc. etc. and so on and so forth, which has further bearing on computing income of the tax-payers chargeable to tax. The purpose of framing scrutiny assessment u/s 143(3) of the 1961 Act is , inter-alia, to see that the assessee is maintaining proper records, books of accounts etc. and compliance of various applicable provisions of the 1961 Act are made, to finally arrive at income chargeable to tax and compute tax liability of the tax-payer within the mandate of the provisions of the 1961 Act. In case of non compliances of various applicable provisions of the 1961 Act, consequential penal provisions are prescribed in the 1961 Act itself which will get attracted and which has direct bearing on computing income chargeable to tax. Thus, there is a complete non application of mind by the AO as the AO merely accepted the contentions of the assessee by accepting the replies filed by the assessee, without any verification . Interestingly, the AO who framed assessment for ay: 2014-15 is the same who framed the assessment for

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. ay: 2016-17(year under consideration), and exactly similar additions under the same head of disallowance of expenses ( Labour Charges, Travelling Expenses and Office Expenses) were made in both the years, albeit in ay: 2014-15, the additions for aggregate of disallowance of expenses were to the tune of Rs. 45,000/-, while in the year under consideration the aggregate of disallowance of expenses under the same heads were to the tune of Rs. 20,000/- . In both these years, the aforesaid disallowances of expenses were on adhoc basis, without pinpointing the particular expenses which could not be verified by the AO. Thus, it appears that there is complete non application of mind by AO while framing assessment u/s 143(3) vide assessment order dated 22.02.2018, and the replies filed by the assessee were merely accepted by AO without making any enquiry / verification whatsoever to arrive at the income chargeable to tax. In our considered view, the ld. PCIT has rightly invoked provisions of Section 263 of the 1961 Act , and rightly set aside the assessment order passed by AO , and directions were rightly issued by ld. PCIT for denovo assessment. The assessee in the proceedings before ld. PCIT u/s 263 of the 1961 Act gave general replies, but could not repel that the assessment order dated 22.02.2018 passed by the AO u/s 143(3) was suffering from complete non application of mind , and that merely contentions of the assessee were accepted by AO without any verification whatsoever. The order passed by ld. PCIT , dated 13.11.2018 is reproduced hereunder , in which he validly raised the issues for invoking revisionary powers u/s 263 of the 1961 Act:

“I have considered the assessment proceedings of the assessing officer, it is found that assessing officer has not made proper investigation with regard to low income of TCS receipts being the reason for the selection of the case from scrutiny in the notice dated 26.07.2018 specific points has been raised for 18

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. initiation of the notice u/s 263 of the I.T. Act but assessee has not made full and proper compliance of issue for scrutiny and it is found that the reply of the assessee is general in nature whereas in the notice u/s. 263 dated 26.07.2018 specific points of order sheet, verification of expenses and details of TCS have been mentioned an intensive inquiry should have been made by the AO. In the notice eight points have been highlighted nevertheless assessee has not replied on specific points and has furnished reply which is general in nature. Thus, from the reply/explanation of the assessee dated 15.10.2018, it is very apparent that except general reply and substantiated clarification, the assessee has nothing to say. It is to be reiterated that in show cause notice u/s. 263 dated 26.07.2018 very specific points were raised and brought to the notice of the assessee demonstrating the facts as to how the assessment made by the AO is full of deficiency without expected inquiry and without consequential investigation about unsatisfactory income from the liquor business. From the reply of the assessee the facts mentioned in the notice u/s: 263 are got fortified as assessee has not been able to refute the factual findings. In view of the above discussion and on facts and circumstances, is found that AO has not examined the relevant document nor had made any independent inquiry about the purchase of liquor and the selling price and also about the margin of profit. It is very evident from the note sheet, that books of accounts were not produced during the course of assessment proceedings and only some reply was submitted. Further, it is evident from the assessment record that order was dated 22.02.2018 whereas copy of order and notice of demand was served on 20.03.2018 after superannuation of the assessing officer on 28.02.2018. The AO has not obtained any information from sell of liquor, Obviously, there is a visible discrepancy in the proceeding, preparation of assessment order and service thereof. These are additional facts prove as to how assessment proceedings and order are prejudicial to the interest of revenue. It is further, found from the assessment records that AO has taken on record the very cryptic reply and copy of challan form 43A, copy of cheques and copy of some of the vouchers, ITR, copy of bank statements but has not obtained any information from the seller of liquor and has not made investigation about the initial cash deposits which are in lakhs and about their sources. In assessment order AO has disallowed Rs. 10,000/- from the labour charges of Rs. 55,610/- and Rs. 5,000/- from travelling expense of Rs. 47,864/- and Rs. 5,000/- from head office expenses of Rs. 13,580/ on the ground that such expenses are remained unverifiable because of lack of supporting evidence. Obviously, such lump sum disallowances is not tenable in the eye of law because AO has failed so specify as to which expenditure is not having supporting evidence. If there is no supporting evidence of labour charges, travelling expenses and office expenses, then entire expense was to be disallowed and not of some lump sum expenses like 10,000/-, 5,000/- and 5,000/-. This reveals the fact that AO has made the disallowances without application of mind, disrespecting the various decisions of the Hon'ble Appellate Authorities and Courts; hence such assessment order is erroneous as well as prejudicial to the interest of revenue. It is also found from the return of income and computation of income that assessee has claimed refund of Rs. 3,28,310/- against the TCS of Rs. 3,80,726/-. It is also seen that in the preceding year also the assessee has claimed refund against the TCS, it means profit is not being shown properly that is why this case was selected for deep scrutiny, but AO has failed to do so. It can be seen from the profit and loss account that assessee has shown license fees of Rs. 27,38,000/- in profit and loss account and not trading account. If this direct expenditure is debited in trading account then gross profit would have been 11,34,410/- and not of Rs. 38.72,410/- . If one calculates the ratio of Gross Profit in the business of liquor contract or liquor business of the assessee, it would be @ 2.70% whereas by showing licensee fees in profit and loss account, not in trading account, assessee has shown gross profit @ 9.22% which is nothing but distorting facts for revelation of good Gross Profit. It is very evident that assessee has suppressed the Gross Profit but has tried to project better Gross Profit by debiting licence fees in profit & loss account and not in trading account of liquor business. It is also found from the bank statements of four banks that there is a huge cash deposits, but AO has not verified the genuineness of source of deposits. As visible, he has not examined the cash flow, cash book and financial statements as there is nothing on record which can reveal such attempt. Thus, it is very apparent that AO has not made any verification, proper inquiry and consequential investigation into the accounts. It is also seen from the profit and loss account that there is no entry of income from other sources. Assessee has not shown interest from saving bank account, commission income and interest on 19

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. income tax refund, totaling of Rs. 84.663/- whereas assessee claims to have maintained books of account on mercantile system of accounting. Such income from other sources has only been shown in computation of total income. This fact proves that books of accounts are not being properly maintained as per the actual transaction that is why commission income and interest from saving bank account have not been shown in profit and loss account. AO has never pointed out this discrepancy to the assessee nor has verified this fact from the respective angle. It is also very apparent from the assessment record that AO has not made any apparent inquiry about assets and investments whereas this case was selected for full inquiry and scrutiny. It is also visible from the assessment records that AO has not examined the source of cash deposits and utilization of cash correctly in the accounts. While making lump sum disallowance, AO has failed to reject the books of accounts and verocity of accounting system and has proceed to lump sum disallowances which proves the fact that neither assessment proceeding is as per the procedure laid down by the department nor is investigation made as expected in scrutiny assessment, hence it is very much visible that assessment has been completed without application of mind, without proper inquiry and without the consequential investigation in the business transactions. Thus, obviously the assessment order passed by the AO u/s. 143(3) of the I.T. Act dated 22.02.2018 is erroneous in so far as prejudicial of the interest of the revenue. The assessing officer is therefore, directed to make full and proper inquiry and apply the provisions of law properly while making the fresh assessment in the light of above observation. Needless to say that while making the fresh assessment, the assessing officer should give full and proper opportunity of being heard to the assessee for his presentation and submission of necessary evidences. Thus, in the background of above findings, observations and references, assessment order dated 22.02.2018 is set aside u/s. 263 of the I.T. Act for denovo assessment.”

Reference is drawn to Explanation 2 to Section 263(1) inserted by Finance Act, 2015 ,

w.e.f. 01.06.2015, which as was applicable at the relevant time when ld. PCIT passed

revisionary order, reads as under:

[Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.]

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. Thus, we hold that the clause (a) to Explanation 2 to Section 263(1) is clearly applicable , as the AO has passed an assessment order u/s 143(3) , dated 22.02.2018, without making inquiries and verifications which should have been made, and the replies filed by the assessee were simply accepted by AO without any application of mind whatsoever and without making any verifications .Thus, the assessment order passed by AO was clearly erroneous so far as prejudicial to the interest of Revenue and was rightly set aside by ld. PCIT by invoking his revisionary powers u/s 263 , and we uphold the revisionary order dated 13.11.2018 passed by ld. PCIT u/s 263 of the 1961 Act. Thus, the assessee fails in this appeal. We order accordingly.

ITA No.11/Alld/2019 Assessment Year: 2016-17 Dinesh Kumar Singh, Mirzapur, U.P. v. Pr. Commissioner of Income Tax,Allahabad, U.P. 5. The Guard File

Sr. P.S.