TaxTMI 
TaxTMI 
2017 (4) TMI 816
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....before him to show that the assessment order dated 31.1.14 was neither erroneous nor prejudicial to the interest of the Revenue." 2. At the time of hearing before us, the learned counsel for the assessee argued at length. He stated that the assessee is an individual who derives income from export of various items like readymade garments, woollen garments, leather goods, handicraft goods etc. in the name and style of M/s DSM International. During the year under consideration, there was survey at the business premises of the assessee on 22nd September, 2010. In this survey, the assessee made a surrender of Rs. 18,25,22,250/- as additional income on account of excess stock found in his premises. The assessee declared the income surrendered at the time of survey and included the same in his returned income filed on 28.9.2011 declaring taxable income of Rs. 21,58,62,170/- which was inclusive of the sum of Rs. 18.25 crores declared at the time of survey. The assessment proceedings had commenced by issue of notice u/s 143(2) and after several hearings, the AO completed the assessment u/s 143(3) at Rs. 21,60,55,880/-. That the CIT issued show cause notice u/s 263 on 1st October, 2015 in ....
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....against the assessee and that too without bringing any material on record . iii. That the A.O. had duly examined the capital account of the assessee and that all withdrawals from the capital account were made out of its own funds as the opening capital of the assessee was Rs. 6.41 crores and the closing capital of the assessee was Rs. 14.86 crores. It was further explained that the entire income earned by the assessee during the instant year was duly declared in the return of income and that there is no other income accruing to the assessee during the instant year.(page 7 paperbook) iv. That the details of loans given to other parties by the assessee at Rs. 7,52,87,000/- stood duly disclosed in the audited Balance Sheet filed by the assessee and that all such loans were given by the assessee out of interest free funds available to the assessee which included his capital which was Rs. 6.41 crores as on 1.04.10 and Rs. 14.86 crores as on 31st March 2011. It was further explained that the capital of the assessee as also interest free loans available to the assessee of Rs. 3.16 crores and other interest free funds in the form of sundry creditors etc. were far in excess of the inter....
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....t proceedings and that the accounts of 13 parties out of 17 of such parties stood squared off in subsequent years and details were filed before Pr. CIT. vii. That the factory premises and the godown at Mehrauli were ancestral properties owned by the family of the assessee for more than 50 years and that no rent was required to be paid. viii. That the assessment was framed by the Assessing Officer after taking note that the assessee has duly submitted quantitative details of all items exported by him during the instant year in the tax audit report. It was further explained that there were nearly 67 different items exported by the assessee during the instant year and it is neither feasible nor required by the Act for the profitability of each of the items separately. 9. In order to support the aforesaid contentions of the assessee that the order passed by the A.O. in this case is neither erroneous nor prejudicial to the interests of Revenue, following cases were relied upon in the course of hearing of the case before the ITAT. Gist of the cases so cited is as under:- i) Delhi High Court - Director of Income Tax vs. Jyoti Foundation 357 1TR 388 The Hon'ble Delhi High Court h....
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.... Court - CIT vs. DLF Limited 350 ITR 555 In this case the Hon'ble Delhi High Court has held that it is not mere prejudice to the Revenue or a mere erroneous view which can be revised u/s 263 of the Income Tax Act, 1961 and that there should be the added element of unsustainability in the order of the Assessing Officer, which clothes the Commissioner with jurisdiction to issue notice, and proceed to make appropriate orders. v) Bombay High Court-CIT vs. Nirav Modi 138 DTR81 In this case the Hon'ble Bombay High Court has held as under:- "It is a settled position in law that powers under s. 263 can be exercised by the CIT on satisfaction of twin conditions viz. the assessment order should be erroneous and prejudicial to the Revenue. By erroneous is meant contrary to law. Thus, this power cannot be exercised unless the CIT is able to establish that the order of the AO is erroneous and prejudicial to the Revenue. Thus where there are two possible views and the AO has taken one of the possible views, no occasion to exercise powers of revision can arise. Nor can revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has ....
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.... definite conclusion. Since the material was there on record and the said material was considered by the Incometax Officer and a particular view was taken, the mere fact that different view can be taken should not be the basis for an action under section 263. The order of revision was not justified." viii) Supreme Court of India - CIT vs. Amitabh Bachchan 384 1TR200 It was held in this case that even though a notice to show cause is not the condition precedent for the CIT to hold that an order is erroneous and prejudicial to revenue, still an opportunity to be heard on all issues is mandatory. It was held as under:- "What is contemplated by section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. While the Commissioner is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert them and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the Commi....
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....igh Court laid down in case of Gee Vee Enterprises Vs Additional CIT 99 ITR 375(Del) where it has been held that AO is having role of an investigator and it is Duty of the AO to ascertain the truth of the facts stated in the Return when circumstances would make such an enquiry prudent. It has clearly held that the order becomes 'erroneous' because such an enquiry has not been made. 1.4 While deciding the case of NIIT Vs Commissioner of Income-tax (Central-ll) [2015] 60 taxmann.com 313 (Delhi - Trib ), Hon'ble E bench ITAT Delhi has analysed plethora of judgments on the issue and through order dated 27.03.2015, gave a ratio that the AO is required to conduct the inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry. The relevant portion of the order of Hon'ble ITAT is reproduced below:- "28.1 Ld. Special counsel has rightly pointed out that the expression, 'inquiry1, 'lack of inquiry' and 'inad....
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....the above ratio and the fact that amount to the tunes of crores were made to the assessee, would raise interest of normal person, leave alone ITO who is conversant with nuances of Income tax law, and he would like to make further enquiry as to where such payments are being utilised and whether these are generating income which has been disclosed before the department or not. 4. In the light of the above ratio, the fact that interest-free amount to the tunes of crores were made by the assessee, would raise interest of a normal person, leave alone ITO who is conversant with nuances of Income tax law, and he would like to make further enquiry as to whether such payments are being for Business purposes or not and how much deduction u/s 36(l)(iii) is actually allowable. 5. In light of ratio of Hon'ble Calcutta High Court in case of CIT Vs. Maithan International [2015] 56 taxmann.com 283(Calcutta), enquiry made by the AO in respect of unsecured loan would be in the category of 'no enquiry'. 6. It is undisputed fact that AO had asked for PANs of sundry creditors but in various cases these were neither provided during the assessment proceedings nor during proceedings u/s ....
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....ed, regard being had to the common course of natural events, human conduct and public and private business, in their relation to the facts of the particular case. Illustrations The Court may presume- ............ (e) That judicial and official acts have been regularly performed; ........... 3. The Finance Act, 2015 w.e.f. 1st June, 2015, has inserted Explanation 2 to section 263 so as to provide 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. 4.1 The Pr. CIT has given his opinion that no enquiry or inv....
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....ncy of material cannot be challenged in case of 'reason to believe'. Therefore, the same cannot be done in case of 'opinion', also. 2.3 Therefore, the presumption is in favour of the revenue because the revenue is saying that apparent is real and if the assessee wants to show otherwise, the law casts onus upon the assessee to prove with cogent material (that the apparent is not real). Reliance is placed upon the ratio laid down by the Hon'ble SC in case of CIT Vs Daulat Ram Rawatmull [1973] 87 ITR 349 (SC). However, the assessee has not submitted any cogent material to rebut this presumption. 2.4 The court can only see if this opinion is logical as per the material before the Pr. CIT during proceedings u/s 263. 3.1 During proceedings u/s 263, the assessee was required to show cause as to why the AO was not required to become inquisitor in the situations mentioned in the SCN dated 01.10.2015( page #46-48 of PB) . The main reply is as per letter dated 10.11.2015(page #5073). 3.2 A perusal of the reply dated 10.11.2015 shows that the assessee failed to show cause as to why the AO was not required to become inquisitor in the given situations. The specific situat....
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....ssessee did not furnish any cause as to why the AO should not become inquisitor. The emphasis of the assessee is that it has discharged it's onus. However, as stated above, the question here is of the AO becoming inquisitor. { ref. para 10(iv) of the reply dated 10.11.2015} 4.5 It is undisputed fact that AO had asked for PANs of sundry creditors but in various cases these were neither provided during the assessment proceedings nor during proceedings u/s 263. It is obvious that the role of AO as investigator starts from this point which he failed to carry out. The reply of the assessee does not make out a case that the AO should have become inquisitor in the situation. ) ref. para 10(v) of the reply dated 10.11.2015} 4.6 It is admitted that no rent has been paid for the office as well as go-down premises. It has been argued that these are ancestral properties and no rent is required to be paid. The assessee is not addressing the question qua investigator. The reply of the assessee does not make out a case that the AO should have become inquisitor in the situation. { ref. para 10(vi) of the reply dated 10.11.2015) 4.7 It is undisputed that the assessee dealt in readymade garmen....
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....rt is available, it would be prudent to apply the ratio of those decisions to the facts of the assessee's case rather than going into the facts/interpretation of section 263 gone into by the ITAT. With this background, we first deal with the decisions relied upon by the ld. CIT DR:- i) G.V. Enterprises vs Addl. CIT 99 ITR 375 " It is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income Tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, the Income Tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return w....
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.... scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, total income will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue " has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law." The decisions relied upon by the learned counsel are as under:- i) Di....
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.... which clothes the Commissioner with jurisdiction to issue notice, and proceed to make appropriate orders." iv) CIT vs Nirrav Modi 138 DTR 81 "It is a settled position in law that powers under s. 263 can be exercised by the CIT on satisfaction of twin conditions viz. the assessment order should be erroneous and prejudicial to the Revenue. By erroneous is meant contrary to law. Thus, this power cannot be exercised unless the CIT is able to establish the order of the Assessing Officer is erroneous and prejudicial to the Revenue. Thus where there are two possible views and the Assessing Officer has taken one of the possible views, no occasion to exercise powers of revision, can arise. Nor can revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry. The power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquiry in cases of inadequate inquiry." v) CIT vs Arvind Jewellers 259 ITR 502 "The provisions of section 263 of the Income Tax Act, 1961, cannot be invoked to correct each and every type of mistake or error committed by th....
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....s. 6.41 crores as on 01.04.2010 and Rs. 14.86 crores as on 31.03.2011; that the AO had made discreet enquiry about the sundry creditors mentioned in the show cause notice and detail thereof was duly filed by the assessee; that the factory premises and goddown at Mehrauli is the ancestral property of the assessee for which no rent is required to be paid; that the AO has framed the assessment on the basis of quantitative details of all items exported during the year under assessment in the tax audit report. 6. However, on the other hand, ld. DR for the Revenue to repel the arguments addressed by the ld. AR contended inter alia that the AO as an investigator is required to be an inquisitor and presumption lies in favour of the Revenue u/s 114 of the Indian Evidence Act; that the opinion of CIT is to be based upon certain amount of subjectivity which requires much lesser degree or material / evidence as compared to the satisfaction; that since the presumption is in favour of the Revenue, the onus shifts on the assessee to prove otherwise with cogent material that the assessee has failed to show cause as to why the AO was not required to become inquisitor in the given circumstances; th....
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....income no such income from making such investments has been shown by the assessee. 5. The assessee has claimed interest in the P&L account of Rs. 1,73,34,136 + Rs. 7,98,853/-. In the Balance Sheet the assessee has shown Secured Loan of Rs. 15.05 crores and unsecured Loan of Rs. 4.04 crores. The assessee has given loans to various parties and has been shown as assets under the head Loans to Party. The assessing officer has failed to make any enquiry as regards to business purposes of making such loans and advances. There could have been disallowance of interest u/s 36(1)(iii) following the decision of Hon'ble Punjab and Haryana High Court in the case of Abhishek Industries 286 ITR 1. 6. The assessee has shown loans from various persons. The assessing officer placed on record the banks statement of a few persons from whom the assessee has received loans. The assessing officer has failed to examine the genuineness of the transactions. No enquiry has been raised as regards nature of source of credit in the banks accounts of the persons who have given loans to the assessee. For example Sh. Abhishek Gupta has shown income of Rs. 6,66,619/- for the A.Y. 2011-12 whereas in the banks ....
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.... assessment u/s 263 of the I.T. Act, 1961. Your case is fixed for hearing on 12.10.2015. Sd/- (RAMAN KUMAR GOYAL) Pr. Commissioner of Income, Delhi - 11, New Delhi" 8. Ld. CIT proceeded u/s 263 on the premise that the AO has failed to make enquiries qua the issue show caused in the notice reproduced above whereas the assessee raised objection that all the enquiries now sought to be conducted by CIT have been duly conducted by the AO. 9. In the backdrop of the aforesaid facts and circumstances of the case, arguments advanced by the ld. Representatives of the parties and order passed by the authorities below, the first question arises for determination in this case is :- "as to whether the assessment order passed by the AO suffers from inadequate enquiry or lack of enquiry?" 10. First ground taken by the ld. CIT to invoke the provisions u/s 263 of the Act is as per P&L account, the assessee is selling the goods on loss and the loss determined by the assessee in the recasted trading account of Rs. 38,62,38,612/- and the CIT came to the conclusion that the AO has not made any enquiry qua incurrence of trading loss. 11. Undisputedly, during assessment proceedings, AO issued no....
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....e course of survey on 22.09.2010 on account of alleged excess stock found in the assessee's premises and consequently, the assessment was completed u/s 143 (3) on 31.01.2014. 13. So far as question of suffering loss to the tune of Rs. 38,62,38,612/- pointed out by the ld. CIT in selling the goods on loss is concerned, the ld. CIT observed that the AO has failed to make any enquiry qua incurrence of trading loss by the assessee. However, we are of the considered view that when the assessee has brought on record audited profit & loss account, balance sheet, statement of affairs and capital account of the assessee which have been duly examined and the AO has also verified the books of account, vouchers, etc., there is no question of lack of enquiry on the part of the AO qua loss of trading account of Rs. 38,62,38,612/-. More so, during the enquiry conducted by the CIT, no concrete findings have come on record that the assessee has suffered trading loss during the year under assessment. 14. Moreover, the loss of Rs. 38,62,38,612/- computed by ld. CIT is factually incorrect because export incentive of Rs. 42,39,41,070/- and fluctuation in exchange rate of Rs. 3,42,08,969/- linked to t....
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....e loan to the assessee. CIT further recorded that "in case of Abhishek Gupta his income is shown at Rs. 6,06,619/- for AY 2011-12 whereas in the bank statement there are a number of credits even in crores and immediately a cheque was issued either on the same day or within 2 - 3 days to some persons which shows that Abhishek Gupta is perhaps indulging into providing accommodation entries". Assessee proved on record the fact that the loan amounting to Rs. 7,52,87,000/- is duly disclosed in the audited balance sheet, from which it is apparently clear that all the loans given by the assessee out of interest free funds available with him which included his capital to the tune of Rs. 6.41 crores as on 01.04.2010 and Rs. 14.86 crores on 31.03.2011, assessee further explained that the capital of the assessee as also interest free loans available to the assessee of Rs. 3.16 crores and other interest free funds in the form of sundry creditors etc. were in excess of the interest free loans advanced by the assessee at Rs. 7.52 crores. 19. When the assessee submitted the complete details of unsecured loans along with confirmation of each of the transaction, bank account of each of the person ....
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....6, Mehrauli, New Delhi and as to how the assessee is operating from these premises. Assessee brought on record the fact that the factory premises and goddown at Mehrauli is the ancestral property of the assessee for more than last 50 years and no rent was required to be paid. In the face of facts brought on record by the assessee, there is not an iota of doubt on the file to dispute the fact that the factory premises and goddown is ancestral property of assessee's family. Moreover, when no rent has been claimed in the balance sheet qua the property in question it would not affect the tax liability of the assessee in any manner. 23. Next ground taken by the CIT to invoke the provisions contained u/s 263 is the assessee has made investment of Rs. 5,52,00,000/- for the year ending 31.03.2011 but AO has not made any enquiry regarding disallowance u/s 14A / Rule 8D. Strangely enough, when the assessee has categorically submitted before the ld. CIT that the assessee has earned no exempt income on investment during the year under assessment and relied upon the decision rendered by Hon'ble High Court of Delhi in case of Cheminvest Ltd. vs. CIT - 387 ITR 33 (Del.), ld. CIT instead of exami....
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....ry as the assessee has declared low income, which is not sustainable in the eyes of law. 27. Bare perusal of the written submissions filed by the Revenue, reproduced in the preceding para 3 of the order, goes to prove that the Revenue has merely relied upon the case law to clarify the legal position so as to invoke the provisions contained u/s 263 of the Act but has failed to bring on record that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue by bringing on record the evidence as we have discussed in detail in the preceding paras. 28. Hon'ble Supreme Court in Malabar Industrial Company Limited vs. CIT (supra)held that the phrase "prejudicial to the interest of the Revenue" has to be read in conjunction with an erroneous order passed by the AO and where the Income-tax Officer adopted one course permissible in law and resulted in loss of revenue or where two views are possible and the Income-tax Officer has taken one view with which Commissioner does not agree, it cannot be treated as erroneous order "prejudicial to the interest of the Revenue" unless the view taken by the AO is unsustainable in law. Not a single fact has been brought on rec....
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.... upon by the assessee during proceedings u/s 263 of the Act to which the CIT is not empowered. It was for the CIT to decide that the order was erroneous. 32. Hon'ble Delhi High Court in case of DG Housing Projects Ltd. (supra) explained the distinction in the cases where the AO does not conduct an enquiry and in that case, the lack of enquiry itself renders the order erroneous and prejudicial to the interest of the Revenue and cases where the AO conducts an enquiry but the finding recorded is an erroneous and which is also prejudicial to the interest of the Revenue. In the second set of cases, the Commissioner cannot direct the AO to conduct further enquiry to verify and find out whether the order passed is erroneous or not. This judgment is applicable to the facts and circumstances of the case because CIT finds the enquiry conducted by AO inadequate and directed the AO to conduct further enquiry to verify and find out whether order passed is erroneous or not. 33. Ld. DR for the Revenue by relying upon the case cited as NIIT vs. CIT - (2015) 60 taxmann.com 313 (Delhi-Trib.) contended that expression "lack of enquiry" and "inadequate enquiry" have not been defined and, therefore, ....