TaxTMI 
TaxTMI 
2009 (1) TMI 343
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....t. Madhu Rani Bansal Rs. 1,50,000/- (b). Smt. Anju Bansal Rs. 5,00,000/- (c). Shri Manish Kumar Bansal Rs. 1,00,000/- (d). Smt. Pushpa Devi Rs. 2,50,000/- (e). Smt. Rajni Jain Rs. 2,50,000/- (f). M/s. Devki Nandan Agarwal & Co. Rs. 2,00,000/- (g). Shri Narendra Kumar Agarwal Rs. 1,50,000/- (h). Shri Amit Kumar Bansal Rs. 1,50,000/- Total Rs. 17,50.000/- 3. The assessee is an individual and derives income from manufacture and export of shoes. It is 100% export oriented undertaking claiming relief Under Section 80HHC of the Act. The assessee filed a return of income. The assessee's return of income was subject matter of scrutiny Under Section 143(2) and an assessment Under Section 143(3) was framed by the Assessing Officer on 20.6.2005. The CIT acting Under Section 263 considered the said order passed by the AO as erroneous and also prejudicial to the interest of the Revenue so far as it relates to certain cash credits appearing in the books of account. According to the learned CIT, the AO has made no query about the sources of amount of loan in the hands of the creditors and creditworthiness of the creditors and also the sour....
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.... the Act. In that written submissions he has also relied on the order of Id. Accountant Member in respect of his contentions. 6. I have gone through the records and also the impugned orders including the dissenting orders of the Division Bench, who have heard the appeal. In my view, the proceedings taken Under Section 263 of the Act cannot be justified having regard to the facts and circumstances of this case. In this case, the assessment record shows that the Assessing Officer issued a notice under Section 143(2) and 142(1) for the purpose of framing an assessment. He required the assessee to furnish the details of the confirmation of all the cash creditors at item No. 13 of the said notice and the assessee has filed the confirmation letters from all the cash creditors. He has also filed their affidavits and bank pass books. The details filed by the assessee shows that cash creditors wee assessed to tax and all this information is part of record. In the light of this information available in the assessment records, it cannot be said that the order of the Assessing Officer can be concidorod-s J erroneous and prejudicial to the interests of revenue. In fact, exactly the same situ....
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....the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interest of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. There must be material available on record called for by the Commissioner to satisfy him, prima facie, that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on records to satisfy ii in that regard. If the action of the authority is challenged before the Court, it would be open to the ....
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....banking channels. From the perusal of the records that were there before the Assessing Officer, it cannot be said that the Assessing Officer did not make any enquiry. It can only be said he did not reach the same conclusion as the Commissioner of Income-tax has done. Having regard to the facts and details that were there before him, he would have left with no other alternative but to definite conclusion that the cash credits deserve to be accepted. I, therefore, agree with the findings of the Id. Judicial Member. The matter will now go back to the Division Bench. DIVA SINGH, J.M. 1. This is an appeal, filed by the assessee against the order under Section 263 passed by the Commissioner of Income-tax-I, Agra dated 23-11-2006 for 2003-04 assessment on the following grounds: 1. That the Id. Commissioner of Income Tax-I, Agra has erred in law and on facts in assuming jurisdiction Under Section 263 of the income-tax Act. 1996 for the Assessment Year 2003-04 and consequently setting aside assessment order on certain issues. 2. That the Id. C.I.T.-I, Agra has erred in law and on facts in directing the Assessing Officer to complete the assessment after verifying the ....
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....55% as against 7.34% in the immediately preceding assessment year. Thus the GP which had increased by 2.44% in the year under consideration the net profit rate also increased by 2.2% and thus the assessee had shown an increase in turnover, gross profit and net profit. The AO found these to be progressive. After test checking the book results, the disclosed results were not disturbed. 3. After calling forth the assessee to give detailed bifurcation of the bank interest, on a scrutiny of the profit and loss account, it was observed by the AO that the assessee has debited Rs. 58,96,068/- being the financial expenses. The AO considering the assessee's submission and the position of law held that interest received on FDR was not business income, as such not entitled for deduction Under Section 80HHC which is not an issue in the present appeal. Apart from that the AO considered car expenses, car depreciation, telephone expenses, festival expenses, donation etc. in order to make the addition. 4. On a perusal of the said order the CIT came to the conclusion that the assessment order passed on total income at Rs. 1,96,52,955/- as against returned income of Rs. 1,84,96,279/- was pr....
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.... the CIT issued a detailed notice Under Section 263 of the Income-tax Act, 1961 dated 25-01-2006 to show cause as to why the assessment for the said year should not be revised as the assessment is erroneous in so far as it is prejudicial to the interests of the Revenue. As no enquiries had been made by the AO about the genuineness and credit worthiness of the creditors and the same had been accepted only on the basis of papers filed by the assessee without making any effort to enquire about the genuineness of the transaction and credit worthiness of the creditors. 6. A perusal of page 3 and 4 of the impugned order-shows that the assessee was represented by his Chartered Accountant who appeared and filed written submissions. As per the impugned order it was submitted on behalf of the assessee that the AO during the course of the assessment proceedings besides raising queries has also required the assessee to furnish confirmations of all creditors,, date of loan, Permanent Account No. and the names of their AOs. 6.2 It was also stated that the assessee has already furnished all the requisite details along with the evidences explaining the genuineness and credit worthiness of th....
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.... 3. Furnish copy of bank account in which sale realization has been credited. 13. Please furnish confirmation of all cash creditors/loans either these are old or new. The confirmation should contain/complete address of the creditors alongwith their PAN No., Name of the I.T. authority who is assessing him should also be clearly mentioned, if he is an assessee and if he is not as assessee it should be clearly mentioned on the confirmation. If cash creditor or loans are new, please furnish documentary evidence to prove its genuineness and also furnish evidence to prove the capacity/credit worthiness of the creditors. Please also furnish a list of squared up/cash credits with documentary evidence to prove the genuineness of these loans and to prove the capacity/credit worthiness of the creditors. 18. List of interest free loans taken or given in any name including his address. List of interest paid and given, rate of interest paid/charge to others & family members, interest paid and given, rate of interest paid/charge to others & family members. In response to this, attention was invited to reply furnished before the AO, photo copy of the same is placed at pages....
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....dgment emphasise that their Lordships of the Allahabad High Court in the said judgments have dismissed the application of the Department wherein the ITO made his order brief and cryptic. Relying on the said judgments, it was argued that this fact alone their Lordships have held by itself was not a sufficient reason to brand the assessment order as erroneous and prejudicial to the interests of the Revenue. Their Lordships therein took cognizance of the fact that writing an order in detail may be a legal requirement but the order not fulfilling these requirements cannot be said to be erroneous and prejudicial to the interests of the Revenue on this ground alone and it is for the Commissioner to reach to a conclusion that this order is erroneous and prejudicial to the interests of the Revenue. In the facts of the present case it was submitted that simply because the AO has not discussed this aspect in the assessment order and the assessee has led all necessary evidences of the fact that aspects were enquired into and examined by the AO non-discussion of the same in these peculiar facts in the Assessment Order it was argued does not make the order either erroneous nor prejudicial to th....
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....t was his submission that in such a situation it cannot be said that the AO has enquired into the same and examined it. This fact it was submitted is borne out from the fact that no discussion has been made in the Assessment Order. As such heavy reliance was placed upon the impugned order. 13. We have heard the rival submissions and perused the material available on record. On a careful consideration of the same, we are of the view that in the admitted peculiar facts and circumstances of the case the impugned order deserves to be quashed. The assessee has demonstrated before us that sufficient and relevant enquiries were made by the AO in the course of the assessment. This aspect has not been disputed by the learned DR. We have also seen that the assessee has responded to these queries and has offered a detailed explanation to the AO supported by relevant documents. 14. A perusal of these pages contained from pages 7 to 65 would show that all these persons were income-tax assessees even in 2002-03 assessment year and the fact has not been faulted with by the Commissioner in the 263 proceedings. It is seen that in the facts of the case the AO on examination in regard to the so....
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..... 50,000/- found deposited in his account was explained from Dalali of silver ornaments. Similarly in regard to Smt. Pushpa Devi although she did not appear, however, a written reply dated 20th Nov., 2006 was filed as found discussed at page 6 of the impugned order stating that she is engaged in the business of undergarments on job work basis. She further confirmed the advancement of loan of Rs. 2,50,000/- and apart from the money deposited from her independent business she also stated that the amounts representing the receipt of death claim of her husband from L.I.C. was also deposited in the same bank account. 17. Smt. Rajni Jain who advanced a loan of Rs. 2,50,000/-also submitted her income-tax return copy of which had been filed before the AO. Although she did not appear before the Commissioner in response to the summons, however copy of a bank account and return was filed. In the case of M/s Devaki Nandan Agarwal and Co. who advanced a loan of Rs. 2,00,000/- to the assessee, the creditor did not appear. However, the assessee relied upon the copy of account of the assessee existing in the books of the creditor i.e. M/s Devaki Nandan Agarwal and Co. certifying the amount of l....
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.... to the factum of examination on this issue does not make the order erroneous and prejudicial to the interests of the Revenue. The fact that the said issue was enquired into by the AO stands unrebutted on record the fact that it was responded to by the assessee before the AO also stands unrebutted on record. The fact that identical submissions were made before the Commissioner which have been discussed and not disputed qua the material available on record also stands unrebutted. However, the learned Commissioner did not agree with the conclusion of the AO being of the view that the creditors who were assessees in their own rights even in the preceding assessment year appeared before him and the one who could not appear filed confirmation, their identity as such has never been in doubt. The assessee as has been held in the case of Gauhati High Court if at the time of securing a loan in order to run his business is required to ascertain as to the source of the availability of the funds from which the creditors will give rise to a very strange and impossible situation. We are satisfied that the issue has been enquired into and has also been examined a possible and legal view has been ....
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....e in its P&L account the assessee claimed that portion of this amount is claimed by a third party and Writ Petition was pending in Court. The said claim of the assessee was accepted by the A.O. without enquiry and the amount was not included in the taxable income of the assessee. The Commissioner and their Lordships considered the aspect in the light of the fact that the amount continued to remain with the assessee and no part of it was refunded to the clients. As such, mere fact of pendency of the Writ Petition was considered to be not a ground for claiming that the amount is not income of the assessee. In this background the Commissioner held that the A.O. had accepted the claim of the assessee without making proper enquiries. The said action was rightly found to be erroneous and prejudicial to the interests of the Revenue. However, the facts are not pari materia with the case at hand. In the facts of the present case, the necessary details were called for by the A.O. as has been seen by us and the evidences in regard to the same were placed by the assessee before the A.O. which fact has been demonstrated by the assessee and the fact that necessary details were called forth has b....
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.... the Act as the assessment is erroneous in so far as prejudicial to the interests of revenue. The appellant responded to this show cause notice. Shri Mridul Pathak, FCA appeared and filed written submissions contending that the Assessing Officer during the course of assessment proceedings besides raising queries has also required the assessee to furnish confirmations of all creditors, date of loan, their PAN and the names of their Assessing Officers. It is also stated that the assessee has already furnished all the requisite details alongwith the evidences explaining the genuineness and creditworthiness of the creditors which the Assessing Officer ought to have examined the genuineness of transaction and creditworthiness of the creditors. It is further claimed that all the creditors are assessed to tax and transactions were made through account payee cheques and all the cheques were cleared from their respective bank accounts. The assessee has also filed affidavits of the creditors confirming the loans given by them. Vide this office letter dated 07.04.2006, the assessee was, however, required to produce the creditors. In spite of repeated adjournments the assessee did not produce ....
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....hri Manish Kumar Bansal has submitted his income-tax return for the A.Y. 2002-03-showing an income of Rs. 52,443/- with NIL tax liability. From his bank account, it is seen that before giving cheque of Rs. 1,00,000/- to the assessee he has deposited a cash of Rs. 50,000/-. The source of the cash deposited is stated to be out of income from dalali of silver ornaments for the year under consideration and also from past savings. However, he could not adduce any document in respect of his income from dalali as no accounts/documents are stated to have been maintained for the business of dalali. Further, he has sated that his annual income is between Rs. 28,000/- to 35,000/-. He has admitted his personal expenditure of Rs. 10,000/-. Therefore, it is not believable that after meetings his personal expenses, he could have deposited the cash of Rs. 50,000/- out of income earned of Rs. 35,000/- from dalali. Therefore, it is clear that he is filing return of income only to build up capital as income from business could not be established. Further, the fact of depositing cash of Rs. 50,000/- just before the lending of money to the assessee clearly shows that it is an accommodating entry in lie....
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....A.O. is, therefore, directed to verify the creditworthiness of the creditor. (vii) Shri Narendra Kumar Agarwal - Rs. 1,50,000/-: Shri Narendra Kumar Agarwal has given a loan on 17.02.2003 of Rs. 1,50,000/-. From the bank account of the creditor it is seen that a cash of Rs. 90,000/- was deposited on 1.02.2003. The creditor was examined and his statement on oath was recorded. He was required to state the source of investment of Rs 90,000/- deposited in cash in his bank account on 1.02.2003. A cash of Rs. 20,000/- was also found deposited on 18.11.2002. He has stated that the ash was lying in his home and he is not able to explain the source of the same. From the copy of the acknowledgement of return filed during the course of proceedings under Section 263, it is seen that he has filed return showing an income of Rs. 9,505/-. He has stated that he income from business shown at Rs. 85,000/-'is from Dalali of Gold and Silver ornaments. The family of the creditor consisted of self, wife and two children of the age of 23 and 21 years. The creditor has admitted his annual household expenditure at Rs. 35,000/- to 36,000/-. It is not believable that a person earning Rs....
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.... the identity and creditworthiness of the creditor. The Assessing Officer ought to have conducted inquiries about the source of amount of loans by seeking and examining the copies of bank account of the creditors which he has not done. The learned Commissioner of Income-tax supports his decision taken under Section 263 of the Act by the following judgments: (i) Malabar Industrial Co. Ltd. vs. CIT; (ii) Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del); (iii) Duggal & Co. vs. CIT (1994) 122 CTR (Del) 171 : (1996) 220 ITR 456, 459 (Del); (iv) CIT vs. Pushpa Devi (1986) 56 CTR (Pat) 251 : (1987) 164 ITR 639 (Pat); (v) CIT vs. Smt. Rambha Devi (1987) 59 CTR (Pat) 1 : (1987) 164 ITR 658 (Pat); (vi) CIT vs. Belal Nisa (1988) 69 CTR (Pat) 170 : (1988) 171 ITR 643 (Pat); (vii) CIT vs. Smt. Kaushalaya Devi (1988) 171 ITR 686 (Pat); (viii) CIT vs. Pushpa Devi (1988) 70 CTR (Pat) 148 : (1988) 173 ITR 445 (Pat); (ix) Dawjee Dadabhoy & Co. vs. S.P. Jain (1957) 31 ITR 872 (Cal); (x) Addl. CIT vs. Mukur Corporation (1978) 111 ITR 312 (Guj); (xi) CIT vs. Gabrial India Ltd.....
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.... the exercise of his powers had set aside the assessment, and directing the Assessing Officer to make further enquiries as were considered necessary, for satisfying the essentials of Section 68 of the Act. He, therefore, opposed the prayer of, the assessee and maintains that the order passed by the learned Commissioner of Income-tax-I, Agra being a reasoned order passed within the jurisdiction vested in him, does not require any interference. 7. Having heard the parties and taken myself through the entire material on record with reference to precedents that came for consideration of the Id. Commissioner of Income-tax-I, Agra and also the precedents cited at Bar by the assessee's counsel, I do not find any infirmity in the decision reached by the Id. Commissioner of Income tax-I, Agra in terming the assessment order dated 20.06.2005 to be erroneous in so far as it is prejudicial to the interest of Revenue and thereby directing the Assessing Officer to make further enquiries with respect to creditworthiness of credits appearing in the name of following eight persons: (a). Smt. Madhu Rani Bansal Rs. 1,50,000/- (b). Smt. Anju Bansal Rs. 5,00,000/- (c). Shri Manish....
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....earance, the further enquiry as envisaged in his order was thus necessary. Likewise, rest of the four persons namely, Madhu Rani Bansai, Manish Bansal, Narendra Kumar Agarwal and Amit Bansal, who appeared before him and had filed Income-tax particulars, appear to have given the accommodation entry only. The documents filed by them with respect to their assessment particulars also gave an impression that these are capital formation cases and as such, the affidavits which were filed by them needed further verification into facts as they were only self serving statements by the persons who have indulged in capital building only for giving accommodation entries to the appellant. The Assessing Officer was, thus, not found to have made any enquiry into the material that had come on record for satisfying himself about the creditworthiness of all these eight persons and as such, for lack of due and proper enquiry, which was necessary to be made, the order of assessment dated 20.06.2005 was rightly termed to be an erroneous order. The learned CIT-I, Agra himself also did not consider it proper to make such enquiries himself, but considered it proper that the enquiries with respect to credit....
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....so disclosed. The onus may not be discharged simply on production of the materials but, at the same time, once the materials were produced by the assessee and which were already on record, it was incumbent on the taxing authority to find out the creditworthiness of such materials and only after ascertaining the same, it could come to a conclusion. Otherwise, it would be a half-hearted or incomplete enquiry on the basis whereof no definite conclusion could be arrived at. 10. Once the learned CIT-I, Agra has thus found that further enquiry is necessary, action under Section 263 of the Act is to be upheld. This also finds support from the judgment rendered by High Court of Judicature at Allahabad in the case of Swarup Vegetable Products v. CIT (1990)187 ITR 412 (All.); 11. Having regard to the over all conspectus of the case, I am thus satisfied that the learned CIT-I, Agra has acted within the scope of powers vested in him under Section 263 of the Act when he terms the order to be erroneous in so far as it is prejudicial to the interests of Revenue and reference to various judgments in that regard is well founded. The appellant' counsel had canvassed that in the impugned or....