2016 (5) TMI 758

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....06.12.2010 u/s 143(3) after proper application of mind. (d) Various Observations and directions made by the ld. CIT in his section 263 order are either incorrect or are untenable in law and various case laws relied upon by the Id. CIT are not applicable to the appellant's case, being distinguishable on facts. 2. That, without prejudice to ground no.1 above the direction of Id. CIT to AO vide Para 8 to disallow proportionate interest paid by the assessee on advances are also illegal, unjust and untenable. 3. That without prejudice to above, grounds, the ld. CIT has grossly erred in law by making additions of Rs. 21,25,298/- and Rs. 28,30,711/- u/s 68 of the I.T. Act,1961 holding that the total amount of sundry creditors including expenses payable and total unsecured loans outstanding as on the last date of the previous year (including opening balance thereof brought over from earlier years) remained unexplained and unproved and the action of ld. CIT is perverse and has caused gross & great injustice to the appellant and that the proper opportunity of being heard on the issues has not been allowed and the order under appeal cannot be termed as a speaking order and ....

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....12.12.2013 issued u/s 263 of the Act and as such, the impugned order is not sustainable on account of denial of opportunity of being heard. 7. Ld. CIT in order to review the assessment order passed by the AO issued a notice u/s 263 of the Act, which is reproduced for ready reference as under :- "(a) Huge loss of Rs. 19,15,618/- on sales of Rs. 1,68,40,824/- and other income of Rs. 1,64,947/- claimed and allowed without enquiring into the correctness of the same. (b) Assessee has paid the interest on unsecured loans, but he has not charged the interest on advances. Therefore, the interest shall be disallowed on proportionate basis. (c) Sundry creditors of Rs. 21,25,298/- have not been enquired into properly before accepting the same. (d) Similarly, unsecured loans of Rs. 28,30,711/- have not been enquired into properly before accepting the same." 8. Ld. CIT, pursuant to the show cause notice, referred to above, returned the findings as to tax audit report qua the quantitative details in para 7 of the impugned order to the following effect :- "......The tax audit report and the observations of the tax auditor's there upon show that quantitative details etc. a....

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....in correct profits and apply the reasonable rate of profit on the turnover to be arrived at by the AO after considering the relevant accounts properly. While doing so, the assessee may be provided reasonable opportunity of being heard and furnishing, producing the evidence, if any, and explaining about the correctness of the books of account." 9. Ld. CIT raised the first query, "in the show cause notice as to huge loss of Rs. 19,15,618/- on sales of Rs. 1,68,40,824/- and other income of Rs. 1,64,947/- claimed and allowed without enquiring into the correctness of the same" and proceeded to decide the same on the basis of findings returned in the tax audit report. 10. In the judgments cited as Commissioner of Customs vs. Toyo Engineering India Ltd. - (2006) 7 SCC 592 and Commissioner of Income-tax vs. Ashish Rajpal - (2010) 320 ITR 674 (Del.). Hon'ble Supreme Court and High Court have thrashed the identical issue. Ratio of the judgments i.e. Toyo Engineering India Ltd. and Ashish Rajpal (supra) is that Commissioner while exercising a revisional power u/s 263 is not empowered to travel beyond the show cause notice and in case order passed by Commissioner u/s 263, refer to any ot....

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....ver of trading in the items dealt with by the assessee or on other income as credited to the profit & loss account was as such not acceptable unless and until the same was duly verified form the books of accounts and records which also needed to be correct and complete and maintained in such a manner from which true profits could be deduced, ascertain or verified. 15. However, from the bare perusal of the assessment order, it is apparently clear that the AO, after duly examining written submissions, audited copies of balance sheet, trading and profit & loss account, books of account, bills and vouchers, applied his mind and proceeded to make the disallowance of Rs. 35,000/- out of expenses. Whereas, on the other hand, ld. CIT, without examining the books of accounts and bills/vouchers, during the proceedings u/s 263, returned the findings on the basis of assumptions. It is un-understandable that from the cash book, ledger, day book, stock register, audited balance sheet, profit & loss account and details of all schedules mentioned therein, it is not ascertainable as to how from the final account, the true profit could be deduced, ascertained or verified, when the position would ....