TaxTMI 
TaxTMI 
2018 (10) TMI 851
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....tion; exercising jurisdiction under Section 263 of the Act and setting aside the order passed under Section 143(3) of the Act by the Asstt. Commissioner of Income Tax, Circle-1, Muzaffarnagar (AO) for AY.: 2013-14. 2. The learned Pr. CIT has erred in holding that the assessment order dated 29 March 2016 passed by the AO is erroneous in so far as it is prejudicial to the interest of the revenue in respect of two issues. First issue related to an addition made u/s 41(1) of the Act of amounting to Rs. 3,88,79,832/- being 10% of total amount outstanding against Sundry Creditors of a sum of Rs. 38,87,98,316/-. Second issue being related to an amount of Rs. 33,60,500/- for which the AO initiated penalty proceeding u/s 271D of the Act and penalty was also levied equal to the amount of credits. 3. The learned Pr. C1T while holding that assessment order dated 29-03-2016 is erroneous in so far as it is prejudicial to the interest of revenue has failed to appreciate:- a) that the assessment order passed u/s 143(3) by the AO dated 29.03.2016 is not erroneous in so far as it is prejudicial to the interest of revenue, therefore, twin conditions laid down u/s 263 of the....
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....y Creditors and levy of penalty u/s 271D on the loans of Rs. 33,60,500/- were challenged by the Assessee in appeals filed before CIT(A) Muzaffarnagar which were finally heard on 09-01- 2018 and the assessee was awaiting order of CIT(A) which according to CBDT circulars was to be issued by CIT(A) within 15 days of final conclusion of hearing. This fact was brought to the notice of Pr. CIT who has conveniently ignored the same. The order passed by Pr. CIT is against the intent and purpose of clause (c) of Explanation 1 to section 263 of the Act. f) that extensive enquiry having been made in respect of both the above mentioned issues by the AO during the course of assessment proceedings, it cannot be termed as a case of "lack of enquiry" or non-application of mind by the AO, therefore also power u/s 263 has been wrongly exercised by the Pr. CIT. h) that the order passed u/s 263 vitiated on the ground of non following of principles of natural justice as no reasonable opportunity of hearing was provided to the assessee. i) That in respect of issues other than two issues pointed out in the show-cause notice, the impugned order is vitiated as no opportunity of h....
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....n in one go. 3. In none of them there is signature of any lender/share applicant. 4. Some of the vouchers are made in old yellowish paper as palpably appearing from yellowness of paper & some vouchers are made on fresh white paper vouchers." The AO initiated the penalty proceedings u/s 271D of the Act for the said loans received in violation of provisions of Section 269SS of the Act. 5. The AO made an addition of Rs. 3,77,000/- which was the amount received by the assessee from 9 different persons on account of share application money for the following reasons: "i) It is an admitted & indisputable fact that inter-alia, no receipt has been issued to the alleged share applicants on receipt of cash share application money. ii) When even simple receipt as to receive of money has not been issued then there is no question of receiving of any share application money forms from them. iii) It is seen that all the seven alleged share applicants produced have bank accounts with them. Despite this no plausible explanation brought on records that then why nobody has given the alleged money through banking channels. iv) All the said per....
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....erns had furnished reply. He also pointed out that only for a few persons, some alleged confirmations as to the copies of accounts as appearing in the books of the assessee company had been filed which were self-serving documents. According to the AO, there were numerous anomalies which were palpable from accounts & financial statements and that in the financial statements, sales had been shown at Rs. 7.11 Crores including excise duty in the profit and loss accounts while as per the sales ledger, the sale had been at 12.46 Crores. The AO rejected the books of accounts by invoking the provisions of Section 145(3) of the Act and also observed that no plausible explanation along with evidence had been filed to justify the declared results. The AO made the addition of Rs. 2,17,09,248/-, the said figure denotes the retuned loss. The AO also made the disallowance of Rs. 3,88,79,832/- on account of cessation & remission of liability u/s 41(1) of the Act by observing in para 8 of the assessment order dated 29.03.2016 as under: "Addition on account of cessation & remission of liability u/s 41(1). As already discussed in detail, the sundry creditors shown at such a large fi....
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....CIT exercised his powers u/s 263 of the Act and observed that the AO had completed the assessment without examining the case properly. He issued the notice u/s 263 of the Act on 22.01.2018 to the assessee stating there in as under: "On examination of the records, it has been noticed that: i) The AO has made the addition under section 41(1) at Rs. 3,88,79,832/- @ 10% out of total sundry creditors of Rs. 38,87,98,316/-. It is observed that no confirmation was received in compliance of notices issued u/s 133(6) of Income Tax Act, 1961 from the parties. Not a single creditor was produced before the AO. Further, no evidence in the form of bank statement showing debit entries has been filed to prove that in subsequent years amount has been paid. Therefore, the addition of Rs. 38,87,98,316/- should have been made by the AO. ii) As per clause 24(a) of the Audit Report the assessee has accepted loans aggregating to Rs. 33,60,500/- which have been accepted other than by account payee cheques or drafts in violation of provisions of section 269SS. The AO has not examined the identity, creditworthiness of the persons from whom these loans were taken by the assessee in....
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.... the assessee observed that the AO had issued notices u/s 133(6) of the Act to 45 parties at the addresses provided by the assessee, out of those notices, one party denied any transaction with the assessee and maximum number of the notices received back unserved from the postal department and in the cases where the notices u/s 133(6) of the Act were not received back, no response was received by the AO and that not a single creditor was produced before the AO for examination. The ld. Pr. CIT further observed that no evidence in the form of bank statement showing debit entries had been filed to prove that in the subsequent years amount had been paid, under these circumstances, the identity, creditworthiness and genuineness of the transactions were not proved and no basis had been given by the AO for making additions only @ 10% of the sundry creditors of Rs. 38,87,98,316/- shown by the assessee in the balance sheet. According to him, the AO should have made the addition of the entire amount of sundry creditors shown by the assessee. The ld. Pr. CIT also observed that clause 24(a) of the audit report revealed that the assessee had accepted loans aggregating to Rs. 33,60,500/- other th....
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....ssessee observed that the claim of the assessee that it had accepted those loans from 177 persons had been rejected by the AO by giving detailed reasons in the assessment order and the tax audit report submitted by the assessee. He further observed that although the AO invoked the provisions of Section 269SS of the Act. Even then, the he should have examined identity and creditworthiness of the persons, whose names were mentioned in the list given by the Auditor in column 24(a) of the Audit Report furnished to the AO. The ld. Pr. CIT held that the order passed by the AO was erroneous in so far as it was prejudicial to the interest of the revenue. The reliance was placed on the following case laws: • Swarup Vegetable Products Industries Ltd. Vs CIT (1991) 187 ITR 412 (All.) • Umashankar Rice Mill Vs CIT (1991) 187 ITR 638 (Ori.) • Jagdish Kumar Gulati Vs CIT 269 ITR 71 (All.) • Gee Vee Enterprises Vs Addl. CIT 99 ITR 375 (Del.) • Rampyari Devi Saraogi Vs CIT (1968) 67 ITR 84 (SC) • Tara Devi Aggarwal Vs CIT (1973) 88 ITR 323 (SC) • Duggal & Co. Vs CIT (1996) 220 ITR 456 (Del.) • S....
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....wever, there was no such failure on the part of the AO to examine the above mentioned two issues and also the income had not been assessed at a lower amount as had been alleged in the show-cause notice. The ld. Counsel for the assessee submitted that it was brought to the notice of ld. Pr. CIT, Muzaffarnagar that most of the sundry creditors were brought forward relating to the purchases made by the assessee which could not have been added in the year under consideration and that while examining this issue, the AO had made intensive inquiries relating to the outstanding balances in the names of the sundry creditors and that attention of the ld. Pr. CIT was drawn to the notice dated 20.12.2015, in response to which, the reply was filed by the assessee on 22.02.2016 alongwith which the assessee had filed complete partywise list of the sundry creditors with complete addresses and copies of the purchase bills vide which the raw material/consumables were purchased. It was stated that the assessee furnished the confirmations from 16 parties, thereafter, the AO vide order sheet entry dated 03.03.2016 required the assessee to furnish confirmations from 11 parties and the assessee stated th....
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....er submitted that the outstanding balances in the names of the sundry creditors were on account of purchase of raw material which had been utilized in production of finished goods and the copies of all the purchase bills were filed before the AO on which not only full particulars and addresses of the parties from whom those purchases were made, were described but also full particulars of registration under various Acts such as sales tax and excise duties were also mentioned. Therefore, it could not have been said that merely because some of the notices were not served and most of the notices issued by the AO were not responded, the creditors were unexplained to be added u/s 68 of the Act. It was stated that the assessee in addition to furnishing the copies of purchase bills also furnished the confirmations from the parties for whom the AO had asked to furnish the same. Therefore, merely on the basis that no response of letters was received by the AO from the party to whom the notices u/s 133(6) of the Act were sent, could not be adversely viewed against the assessee. It was submitted that the opening balance outstanding as on 01.04.2012 which pertained to the raw material purchased....
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....dry creditors with complete addresses, a reference was made to page nos. 50 & 51 of the assessee's paper book which is the copy of the said notice. It was further submitted that to comply with the above notice, the assessee filed reply dated 12.01.2016 and submitted certain details, thereafter another reply was filed on 20.01.2016 and party-wise list of the sundry creditors was furnished, in support of the above, a reference was made to page nos. 53 to 55 of the assessee's compilation. It was also submitted that when the AO asked the assessee to furnish confirmatory letters from sundry creditors, the assessee submitted confirmatory letters from 16 parties vide letter dated 29.02.2016 and also requested the AO to call the information u/s 133(6) of the Act, a reference was made to page no. 57 of the assessee's paper book. It was emphasized that the AO vide order sheet entry dated 03.03.2016, asked the assessee to furnish confirmation from 11 parties and in response, the assessee submitted that confirmations were already filed in respect of 7 persons vide letter dated 29.02.2016, the confirmations from 3 more persons were furnished and it was stated that the assessee was trying to loc....
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....my honour is 24 which may kindly considered." 17. It was further submitted that the explanation given in respect of the provisions of Section 269SS of the Act, invoked by the AO vide para 11 of the aforesaid letter was as under: "11. That as regard the confrontation regarding alleged old balances in some cases of Rs. 20000/- or more it is submitted that all the loaners are agriculturist only which are only 18 members out of 177 members. The assessee hopes that your honor will find the above in order." 18. The ld. Counsel for the assessee submitted that the list of sundry creditors showing credit balances as on 01.04.2012 and 31.03.2013 were furnished alongwith confirmatory letters. Therefore, from the query raised by the AO and the replies given by the assessee, it could be ascertained that the AO had made intensive inquiries, issued letters to the sundry creditors u/s 133(6) of the Act, he also asked to give the reasons for non-service of certain letters issued by him u/s 133(6) of the Act and the assessee had been filing confirmatory letters in respect of most of the parties, thus, ample evidences were furnished to the AO which could lead him to form a view that ad....
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.... provisions of Section 269SS of the Act. It was stated that the details regarding each of the persons involved were submitted to the AO alongwith their identity and documentary evidences of holding of agriculture land which was sufficient evidence to discharge the onus to prove the genuineness of the credit. It was contended that the only objection of the AO was that such submission of the assessee was contrary to clause 24(a) of the audit report as in the same, instead of writing names of all 177 persons, the names of 12 persons were mentioned. Thus, in the opinion of the AO, it was only a case of violation of Section 269SS of the Act which provides that the cash loans could not have been obtained/taken exceeding a sum of Rs. 20,000/-. It was stated that the names of 12 persons were written in the audit report on the ground that cash loans from 177 persons were received through 12 persons, therefore, the auditor had written the names of 12 persons only. On that basis, the AO expressed that those loans were in violation of Section 269SS of the Act and levied the penalty u/s 271D of the Act vide order dated 05.12.2016, a reference was made to page nos. 242 to 250 of the assessee's c....
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....e never required to explain/show cause that why the order passed by the AO on other issues may not also be considered erroneous and prejudicial to the interest of the revenue and moreover, it had not been shown by the ld. Pr. CIT in the impugned order that how and in what manner the order passed by the AO was erroneous and prejudicial to the interest of the revenue. Therefore, the action of the ld. Pr. CIT was clearly indicated to the fact that the powers u/s 263 of the Act had been exercised in an arbitrary manner, without any basis and even without forming such an opinion that the assessment order passed by the AO on so called "other issues" was erroneous in so far as it was prejudicial to the interest of the revenue and without confronting the assessee with such an opinion, the exercise of power u/s 263 of the Act was contrary to the provisions contained in the said section and therefore, the impugned order of the ld. Pr. CIT in setting aside the other issues alongwith two issues mentioned in the show-cause notice was vitiated in law and deserves to be quashed. 21. In her rival submissions, the ld. CIT DR strongly supported the impugned order passed by the ld. Pr. CIT and fur....
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....ee without making any enquiry or verification and it is well settled law that mere failure to make inquiries makes an order erroneous and the ld. Pr. CIT may consider an order of the AO to be erroneous not only if it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo typed order which simply accepted what the assessee had stated in his return and failed to make enquiries which are called for the circumstances of the case. The reliance was placed on the following case laws: • Rampyari Devi Saraogi Vs CIT (1968) 67 ITR 84 (SC) • Tara Devi Aggarwal Vs CIT (1973) 88 ITR 323 (SC) 23. It was contended that the impugned order passed by the ld. Pr. CIT was well within the ambit of law and in keeping with the provisions of the Income Tax Act, 1961. It was further contended that the present case was a clear cut case wherein no enquiry had been made by the AO and hence, it was erroneous within the meaning of clause (a) of explanation 2 to Section 263 of the Act. The reliance was placed on the following case laws: • CIT Vs DLF Powers Ltd. in ITA 973/2011, order dated 29.11.2011 (Del.) ....
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....R 84 (SC) • Tara Devi Aggarwal Vs CIT (1973) 88 ITR 323 (SC) • ITO Vs D.G. Housing Projects Ltd. (2012) 343 ITR 329 (Del.) • CIT Vs Goetze (India) Ltd. 361 ITR 505 (Del.) • NIIT Vs CIT(Central) (2015) 60 Taxmann.com 313 (Del.) • Deepak Maurya in ITA No. 4271/Del/2014 • Financial Inclusion Trust in ITA No. 3268/Del/2014, order dated 14.08.2017 of the ITAT Delhi Bench "B", New Delhi 26. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is an admitted fact that the AO framed the assessment u/s 143(3) of the Act vide order dated 29.03.2016. Thereafter, the ld. Pr. CIT exercised his revisionary powers u/s 263 of the Act and issued the notice dated 22.01.2018 for revision of the aforesaid assessment order and mentioned in the said notice as under: "2. On examination of the records, it has been noticed that: i) The AO has made the addition under section 41(1) at Rs. 3,88,79,832/- @ 10% out of total sundry creditors of Rs. 38,87,98,316/-. It is observed that no confirmation was received in compliance of notices iss....
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....y loss of revenue cannot be treated as prejudicial to the interest of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view-with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under the law. (vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under Sec. 263, is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. (viii) The CIT, before exercising his jurisdiction under Sec. 263, must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and t....
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....you for FY 2012-13. (12) Complete party wise list as to Sundry creditors with complete addresses. (13) Break up of expenses payable of Rs. 11,51,963/-. (14) Party wise break up of advance to suppliers. (15) Month wise break up as to sales & purchases & also furnish ledger account as to sales & purchase for the month of March 2013. (16) Explain nature of business & furnish detailed note on manufacturing process involved giving process wise Input-Output ratio. Also furnish input-output ratio at the final stage & justify the same. (17) Copy of service tax, Excise & Vat Tax return filed by you for FY 2012-13." 29. From the aforesaid questionnaire issued by the AO having the jurisdiction on the assessee, it would be clear that the details of purchase invoices and sale invoices, unsecured borrowings & share application money, details of inventories, photocopies of expenses, reasons for loss and complete details of sundry creditors etc. were asked. In response, the assessee vide replies dated 20.01.2016, 22.02.2016 & 29.02.2016 (copies of which are placed at page nos. 54 to 57 of the assessee's compilation) furnished the complete pa....
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....es of sundry creditors in spite of the fact that all the creditors were related to the purchases of raw material which had been utilized in production of the finished goods and were accepted in the preceding year and it was not the case of the department that the assessee either inflated the purchases or suppressed the sales. In our opinion, when the purchases were considered to be genuine and utilized in the production of finished goods then the creditors relating to those purchases cannot be considered to be bogus or non-genuine. In the present case, nothing is brought on record to suggest that there was the cessation of the liabilities and the assessee did not own/accept the creditors which were relating to the purchases made in the regular course of business, the AO during the course of assessment proceedings conducted intensive enquiries which is apparent from the fact that the he had issued notices u/s 133(6) of the Act to all the sundry creditors and the assessee also furnished confirmatory letters from the creditors. In the present case, it is claimed that most of the creditors were relating to the earlier years which were accepted as genuine, the said claim is evident from....
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....as received in cash and that the tax auditor wrongly mentioned the names of 12 persons only through whom the loans from different persons who had given cash loans of value less than Rs. 20,000/-, were received, therefore, there was no violation of the provisions of Section 269SS of the Act. However, the AO was not satisfied with the above said explanation of the assessee and levied the penalty u/s 271D of the Act which was equivalent to Rs. 33,60,500/- that the amount received by the assessee. Therefore, it cannot be said that the AO had not made the enquiries relating to the unsecured loans and after making the proper enquiries, he considered that the loans were received by the assessee in violation of provisions of Section 269SS of the Act and levied the penalty of equivalent amount i.e. Rs. 33,60,500/- u/s 271D of the Act. In other words, he has taken one of the possible views. 32. As regards to the other issues, on which the additions were made by the AO, the ld. Pr. CIT has not made any comment while exercising the powers u/s 263 of the Act. She did not mention anything about those issues in the show-cause notice dated 22.01.2018 and had not discussed in the impugned order ....
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....fficer is erroneous and prejudicial to the interests of the Revenue. In the second set of cases, the Commissioner cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not." 34. In the present case, the AO conducted the enquiries and had taken a possible view, therefore, the ld. Pr. CIT was not justified in directing the AO to conduct further enquiry relating to the sundry creditors and unsecured loans and also on the other issues which were not considered at all by the ld. Pr. CIT. 35. A similar view has been taken by the Hon'ble Jurisdictional High Court in the case of DIT Vs Jyoti Foundation (2013) 357 ITR 388 (supra), wherein it has been held as under: "Revisionary power under section 263 of the Income-tax Act, 1961, is conferred by the Act on the Commissioner/Director of Income-tax when an order passed by the lower authority is erroneous and prejudicial to the interests of the Revenue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interests of the Revenue, but orders which are passed after inquiry/investigation on the question/issue....
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....atisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The 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 erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interest of the 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....