TaxTMI 
TaxTMI 
TaxTMI 
2018 (10) TMI 851
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....ct 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 Act for invoking powers conferred therein on Pr. CIT were not fulfilled. ....
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....sessee 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 hearing was provided by the Pr. CIT as the so called other issues were neither subject matter of show-cause notice no....
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....pably 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 persons have admitted modest savings & therefore investment from 40,000 to more than Rs. 50,000/- remained inexplicable by them & also at the end of the assessee company. v) Significantly, it....
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.... 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 figure of as much as of Rs. 38.87 Crores largely remained unproved. Further as specifically called from this end vide order sheet entries, not a single creditor produced before the under signed. Further, no evidence in the form of bank statements showing debi....
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....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 view of section 68 of the Income Tax Act, 1961." 10. In response, the assessee vide written submission dated 08.03.2018 submitted as under: "(b) ........A.O, had conducted enquiry regarding outstanding balance of unsecured loans and asked the assessee to furnish evidence. The assessee furnished reply....
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....e 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 than by account payee cheques or drafts in violation of provisions of Section 269SS of the Act and the AO had not examined identity, creditworthiness of the persons from whom those loans were taken by the assessee. In this regard, the assessee submitted before the ld. Pr. CIT as under: "So far as it relates to se....
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.... 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.) * Sh. Virendra Kumar Gupta Vs CIT in ITA No. 2595/Del/2009, order dated 21.01.2011 13. Accordingly, the Pr. CIT set aside the assessment order framed by the AO by observing that the AO failed to examine the case properly on the issues which rendered the assessment order erroneous in so far as it was prejudicial to the interest of the revenue. He directed the AO to pass a fresh assessment order in accordan....
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....e 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 that the confirmatory letters of 7 persons had already been furnished with reply dated 29.02.2016 and in addition to those confirmatory letters, the assessee further furnished confirmatory letters of three more parties alongwith the reply to other queries. It was contended that the assessee vide letter dated 18.03.2016 brought to the notice of the ld. Pr. CIT that the assessee furnished confirmed copies of ac....
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....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 by the assessee in the earlier years, could not have been added as unexplained credit as the same did not pertain to this year. 15. The reliance was placed on the following case laws: * CIT Vs Gabriel India Ltd. 203 ITR 108 (Bom.) * CIT Vs Usha Stud Agricultural Farms Ltd. (2008) 301 ITR 384 (Del.) 16. It was further submitted that in the present case although books had been rejected u/s 145(3) of ....
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....ade 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 locate the persons as most of the industries/traders had closed their business, explanation was also given in respect of objection of the AO in violation of the provisions of section 269SS of the Act by stating that the assessee had taken loans only below Rs. 20,000/- from various persons, so there was no such violation, in support of the above contention, our attention was drawn towards page nos. 58 & 59 of the assessee's compilatio....
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.... 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 addition of the entire amount outstanding in the name of sundry creditors was not sustainable in law. Therefore, he adopted a safe mode by restricting the addition to the extent of 10% of the amount outstanding in the name of sundry creditors which was almost equivalent to the difference between opening and closing balances outstanding in the names of sundry creditors. It was also stated that the closing balances as on 31.03.2012 were accepted, therefore, ....
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....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 compilation which is the copy of the said order passed by the Addl. CIT, Range-1, Muzaffarnagar u/s 271D of the Act. It was contended that according to the AO, the course of levy of penalty u/s 271D was more beneficial to the interest of the revenue, as the evidences were submitted by the assessee, it was clear that requirements of Section 68 of the Act were met and making addition u/s 68 of the Act would not be liable to be sustained, on the other hand, the amount of penalty levied u/s 271D of the Act would be equal to the amount of cash loans wh....
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....hout 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 further submitted that on examinations of the records, the ld. Pr. CIT noticed that the AO had completed the assessment without examining the case properly, therefore, the notice u/s 263 of the Act was issued to the assessee on 22.01.2018. It was also submitted that since not a single creditor was produced before the AO, the genuineness of transactions, identity and creditworthiness of the creditors was not proved. Therefore, the order passed by the AO was erroneous as well as prejudicial to the interest of the revenue and the ld. Pr. CIT was entitled....
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....* 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.) * BLB Ltd. Vs ACIT in Writ Petition (Civil) No. 6884/2010, order dated 01.12.2011 * CIT Vs Gabriel India Ltd. (1993) 203 ITR 108 (Bom.) * CIT Vs Jawahar Bhattacharjee (2012) 341 ITR 434 (Gau.) (F.B.) * Malabar Industrial Co. Ltd. Vs CIT (2000) 243 ITR 83 (SC) 24. It was further submitted that the word "prejudicial to the interest of the revenue", can only mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized and in this case the ld. Pr. CIT has rightly invoked the revisional juri....
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....f 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 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/- 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 view of section 68 of the Income Tax Act, 1961. 3. In view of para 2 above, the assessment order passed by the ACIT, Circle-1, Muzaffarnagar is erroneous and prejudicial to t....
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....ot 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 the assessee has given detailed explanation by a letter in writing and the AO allowed the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard." 28. Reverting to the facts of the case, it is an admitted fact that the AO during the course of assessment proceedings issued the notice u/s 142(1) of the Act dated 28.12.2015 (copy of which is placed at page nos. 50 to 52 of the assessee's paper book) and asked the assessee to furnish following details/explanation: "(1) Comprehensive note on the history & business activities of the case. (2) Please furnish copy of cash book & bank book for the period 01.03.2013 to 31.03.2013. (3) You are requested to furnish photocopies of all TDS certificates as issued by you for FY 2012-13 in r/o TDS deducted under section 194C,....
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....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 party-wise list of sundry creditors with complete address, copies of bills through which raw material/consumable had been purchased and confirmatory letters. The assessee also informed that due to heavy loss and the close down of the business on 25.01.2013 significant payments could not be made to the creditors. The assessee vide letter dated 29.02.2016 furnished confirmatory letters (copy of which is placed at page no. 57 of the assessee's paper book) from the following 16 parties: "1. M/s Shri Shantinath Buildwell Pvt. Ltd. 9454381.00 2. M/s Isha Trading Co. 293411.00 3. M/s N. P. Scrap Traders 1313185.00 4. M/s Paras Scrap Traders 999632.00 5. M/s Shanu Scrap Traders 948224.14 6. M/s M. S. Iron Traders 1203947.50 7. M/s Royal Scrap Traders 500113.00 8. M/s Sonu Cement Stores 394420.00 9. M/s Nidhi Trading Co. 5163380.00 10. M/s Ganga Enterprises 1445273.00 11. M/s Lakshya Traders 1557081.00 12. M/s Vardhman Interprises 4837590.00 13. M/s Shri Baba Vish....
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....ditors were relating to the earlier years which were accepted as genuine, the said claim is evident from page no. 76 of the assessee's paper book which is the copy of the age wise list of Sundry Creditors which revealed that the majority of Sundry Creditors as on 31.03.2012 amounting to Rs. 35,21,29,184.06 were still outstanding as on 31.03.2013 i.e. relevant for the assessment amounting to year under consideration and other new creditors relate to the current year, the outstanding sundry creditors as on 31.03.2013 were at Rs. 38,87,98,316.29, in other words, the increase in creditors in comparison to the earlier year was of Rs. 3,66,69,132.23 (Rs.38,87,98,316.29 - Rs. 35,21,29,184.06) while the AO had made the disallowance of Rs. 3,88,79,832/- which was more than the increase in the sundry creditors from the preceding year. In our opinion, the ld. Pr. CIT was not justified in treating those creditors pertaining to the earlier years as non-genuine for the year under consideration, particularly when, creditors which were related to the earlier years and were outstanding in the books of account of the assessee maintained in the regular course of business. In the present case, the AO ....
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.... those issues in the show-cause notice dated 22.01.2018 and had not discussed in the impugned order as to how and in what manner, the order passed by the AO on those issues was erroneous in so far as it was prejudicial to the interest of the revenue and nothing is brought on record to substantiate that the ld. Pr. CIT had given any opportunity of being heard on the issues other than the two issues mentioned in the show-cause notice to the assessee. Therefore, without conducting necessary inquiry and without giving/recording a finding that the assessment order framed by the AO on those issues was erroneous in so far as it was prejudicial to the interest of the revenue, the remanding of the matter to the AO on those other issues alongwith the two issues mentioned in the show-cause notice issued u/s 263 of the Act, is vitiated in law. 33. On a similar issue, the Hon'ble Jurisdictional High Court in the case of ITO Vs D.G. Housing Projects Ltd. (2012) 343 ITR 329 (supra) held as under: "A finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Income-tax Act, 1961. The matter cannot be remitted f....
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.... orders which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interests of the Revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. In cases where there is inadequate enquiry but not lack of enquiry, the Commissioner must record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in law. An order of remit cannot be passed by the Commissioner to ask the Assessing Officer to decide whether the order was erroneous." It has further been held as under: "That inquiries were certainly conducted by the Assessing Officer. It was not a case of no inquiry. The order under section 263 itself recorded that the Director felt that the inquiries were not sufficient and further inquiries or details should have been called for. The inquiry should have been conducted by the Director himself to record the finding th....