TaxTMI 
TaxTMI 
2019 (12) TMI 263
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.... in the quantum, and even at the time of hearing, the main arguments have been addressed in the case of Loil Continental Foods Ltd. ("LCFL" for short), therefore for the facility of reference, we take up the facts mainly from "LCFL". 4. Brief facts of the case are that appellants were engaged in trading of foodgrains viz. paddy and rice. The National Spot Exchange Ltd. ("NSEL" for short) was constituted for taking up the activities of spot exchange for trading in commodities, and it is a platform provided to enable buyers and sellers to transact on the spot against actual delivery of the goods through licenced members appointed by the NSEL. All the appellants were appointed as licenced members to deal in Paddy. For this purpose, a settlement account of licensed member is maintained by NSEL with a designated bank in which amount of net proceeds are credited to settlement account. In the case of "LCFL" settlement account was opened with HDFC Bank, Feroze Gandhi Market, Ludhiana. The appellants have filed their returns of income electronically and notices for scrutinizing returns were issued under section 143(2) on 4.8.2015. The ld.AO after issuance of questionnaire under section 1....
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.... survey no stock was found at business premises at Khamanon. Further, there was no representative of NSEL at the premises at Khamanon. Neither any record of any warehouse receipts, Transportation documents relatable to the stocks were found at Khamanon. These findings of the survey report were not considered by the A.O during assessment proceedings. (ii) It is further observed that during the course of survey at Khamanon loose paper as per annexure A-l, 1 to 250 and A-2, 1 to 206 were impounded. These documents were never examined and considered during the course of assessment proceedings. During the course of survey at Khamanon statement of Sh. Janak Raj Singh S/o Sh, Balbir Singh Uppal was recorded who categorically stated that no stock related to NSEL was lying at the premises at Khamanon. This, finding regarding stocks and other documents were not considered in assessment proceedings. (iii) Action u/s 1.33A was also carried out at SCO-18-19, Sector-9D, Chandigarh being the office of the assessee company. During the course of survey documents in form of Annexure-A-l to A-6, 13 CDs as per A-7, 5 CDs as per A-8 and one hard disk were impounded. However, ....
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.... purchase during the year. The A.O failed to make necessary inquiries regarding these trade credits. Even the details of such creditors were not called for. d. There is an increase of Rs. 15.44 Crores under the head 'short term loans and advances, despite the fact that the company has not made any sale/purchase during the year. The A. O failed to examine the genuineness and purpose of these loans advanced during the year. Even the details of such advances were not called for. e. Company has shown dividend income of Rs. 12,50,000/- during the year which has been claimed as exempt but AO has not examined as to whether any disallowances u/s 14A was required to be made. No inquiry/verification in this regard has been made. (vii) Apart from the above, the impounded documents/hard disks/CDs were required to be examined in the light of allegations about the genuineness of purchases, source of payments against equal purchases and user of funds received in view of reported substantial outstanding to the National spot exchange Limited (NSEL), after the payment crisis of NSEL surfaced in July, 2013. (viii) The criticality of these issues, their examinat....
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....versy, therefore, it is pertinent to take note of this section. It reads as under:- "263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Incometax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the perform....
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....med an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. 8. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of H....
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....ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 and Gee Vee Enterprises Ltd vs. Addl. Commissioner of Income Tax (99 ITR 375). In the case of Sun Beam Auto, the Hon'ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon'ble Delhi High Court are worth to note: "12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of....
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.... an inquiry prudent that the word 'erroneous' in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct." 5. In the light of the above, let us evaluate the impugned orders as well as record before us. A perusal of the show cause notice issued under section 263 of the Act would reveal that this show cause notice can be divided into two compartments; first issue contained in the reasons assigned by the ld.Commissioner at serial no.1 to 4, and second fold is contained in reasons nos.6 to 8 extracted (supra). As far as first fold of reasoning of taking cognizance under section 263 of the Act is concerned, it shows that the ld.Commissioner was of the view that NSEL was a platform where commodity trading had taken place. This exchange found to be involved in nefarious activities, which gave rise to various scams, and therefore, its operation has been suspended by the Ministry of Consumer Affairs, New Delhi on 31.7.2013. The ld.CITfurther noted that all the appellants were members of this exchange and t....
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.... case of all the appellants are placed on the paper books, and for the purpose of reference, we take note of the observation of the AO in the case of Loil Continental Food Ltd., which reads as under: "9. In view of the detailed facts stated aforesaid - The books of accounts of the assessee are not reliable and rejected. It may be further pointed out that as per the reports submitted by Sharp & Tannan Associates submitted to Board of Directors of NSEL., recoveries have been worked out from various members of NSEL. The following amounts have been shown as receivable from assessee as on 31.08.2013: M/s.Loil Continental Foods Ltd = Rs. 338.40 cr. Assessee failed to even file confirmation of accounts from NSEL as on date. 10. Therefore amount of Rs. 338.40 crore shown as recoverable by NSEL from M/s.Loil Continental Food Ltd. is taken as unaccounted income of the assessee." 6. The ld.Commissioner has made an analysis of the stand taken by the appellants. In para-8 of the impugned order while dealing replies of the assessees, the ld.Commissioner has observed that from the opening paragraphs of replies submitted by all the appellants exhibit....
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....erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assess....
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.... will be caused to the Revenue. Let us consider all these three aspects. As observed earlier, first observation made by the ld.Commsisioner is with respect to the information revealed in the data base of the NSEL. The second observation referred by him is the report of "S&TA", and the third discovery of the papers in Annexure-A-1 1 to 250 and Annexure-A/2, 1 to 206 during the course of survey. No doubt no discussion is available in the assessment order qua these materials. It is pertinent to note that the ld.AO has issued a questionnaire under section 142(1), and this questionnaire is available on page no.1 to 6. He called for information from all appellants on 37 counts. They have filed their detailed submissions along with audited accounts. The ld.AO made discussion, and then passed impugned assessment orders. It is further observed that no-doubt the assessment year 2013-14 is altogether an independent year. The inquiry conducted in that year might not have any bearing on the assessment of income for the Asstt.Year 2014-15, but while evaluating and branding an assessment order as an erroneous, whether that information which has been discussed in the immediately preceding assessme....
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.... Dated: 18.03.2016 To The Principal Officer, M/s Loil Continental Foods Ltd., SCO 18-19, 1st Floor, Sector 9-D, Chandigarh. Sir, Sub:- Assessment pending for the JA..Y.2013-14 - Regarding - Reference to the aforesaid matter. 2. In connection with the assessment proceedings, you are required to furnish the following details :- i) a) Copy of account of NSEL in your books since beginning. b) NSEL Settlement/Account (Settlement Bank Account copy) c) Details of Debit and Credit Entries more than One Crore with complete name & addresses of the parties; iii) Commodity wise position of stock as per your books of accounts and the stock disclosed to NSEL. Relevant stock registers in this regard be produced. Details of Rent paid godown wise (amount per month I mode of payment i.e. cheque / cash, original rent agreement, TDS details etc. be also furnished.) iii) Inward outward registers of the ware house be produced alongwith relevant receipt furnished to the NSEL. Inspection....
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....rom this office at any time (If not already taken). 2. Statements of Sh. Janak Raj Singh dated 22.08.2013 u/s 131 is enclosed." 9. Similarly, questionnaires have been issued to other two concerns, and they have submitted a detailed reply. The ld.AO thereafter again issued questionnaire on 24.3.2016, and the details asked for were replied by the assessee. The questionnaire issued by the ld.AO is noted here as under: "Present Sh. Balbir Singh Uppal, Sh. Janak Raj Singh Uppal, Sh. Sudhir Sehgal, CA, and Sh. P.C. Jain attended the assessment proceedings and asked to furnish the following details :- 1. Settlement A/c of NSEL with HDFC Bank Ludhiana. 2. All bank accounts of M/s Loil Health foods Ltd. M/s Lo/l Continental Foods Ltd. & M/s Loil Overseas Foods Ltd. 3. All Bank Ledger A/c copies in the books with narrations. 4. Purchase Book/ register and delivery book/ register 5. Sales Book/register 5 a. Delivery books/ register 5.b. Delivery receipts book at warehouse/ register with acknowledgement proof. 6. Copy of agreement with NSEL 7. Mandi wise Committee purchase account with Mandi tax paid. ....
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....Industries Ltd. with assessment particulars /PAN / P & L A/c / Balance Sheet with annexure with narration of bank account (Debit / Credits). Loil Health Foods Ltd. Loil Continental Foods Ltd. Remarks 1. Sales to NSEL (Member LCFL) = 4,18,824.82 (M.T.) Purchase from NSEL (member LHFL)=2,21,721.21 Kindly explain the discrepancy Loil Continental Foods Ltd. Loil Overseas Foods Ltd. 1 Purchase from NSEL (Member Loil Overseas)=2,01,600 (M.T.) Sales to NSEL (Member Loil Continental)=NIL Kindly explain the discrepancy Loil Health Food Ltd. Loil Overseas Foods Ltd. 1 Sales to NSEL (Member Loil Overseas)=2,38,406 (M.T.) Purchase from NSEL (Member Loil Overseas)=NIL Kindly explain the discrepancy. 11. All these questionnaires were duly replied; they were discussed by the AO. But she did not make any addition on the basis of information in the data of NSEL. She did not make any addition qua loose papers found during the course of survey, because survey was conducted much before the assessment year 2013-14. She had made specific reference about the loose paper in the questionnaire dated....
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....m of NSEL. Therefore, after 31.03.2013 there is no question for the assessee to have transacted any business activity through the platform of NSEL. The Ld. Counsel for the assessee also filed receipt of membership of the assessee, certifying the assessee company was Member of NSEL till 31.03.2013. The copy of the assessment order in the case of group concern M/s. Lakshmi Energy & Foods Ltd. u/s 143(3) for assessment year 2013-14 is filed in which no additions have been made for purchases from whom the substantial purchases have been made by the assessee. The assessee also filed copy of the procedure of operation from NSEL platform. The assessee also filed copy of the Civil Suit filed against NSEL in which NSEL is restrained from printing or publishing or circulating any notice or advertisement in newspapers or others against the assessee. I.T.A .No.-98 & 99/CHD/2017 19. The AO in the assessment order specifically mentioned the fact that NSEL was a platform provided to enable the buyers and sellers to transact on spot against actual delivery of the goods through licensed members appointed by NSEL. Ld. CIT(A) in his finding also affirmed same facts. It is, therefore....
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....uring the course of the assessment proceedings so as to prove the case of the Revenue. The AO was not able to explain the nature of the transaction conducted by the assessee, whether it was purchase or loan? It was an inference of the AO that the assessee might have made some unaccounted purchase from NSEL for which no evidence or material have been collected or brought on record. No right to cross-examine the Report of M/s Sharp and Tannan Associates have been provided to the assessee at the assessment stage. Hon'ble Supreme Court in the case of Kishanchand Chelaram vs CIT (1980) 125 ITR 713 held that "any material collected at the back of the assessee unless confronted to the assessee and allowed cross-examination cannot be read any evidence against the assessee." In this case only copy of Exhibit (A) Paper Book page 181 was supplied to the assessee after completion of the assessment proceedings I.T.A .No.-98 & 99/CHD/2017 according to the submissions of the Ld. Counsel for the assessee. The complete report of M/s Sharp and Tannan Associates dated 02.04.2014 have been placed on record by the Ld. DR during the course of hearing of the appeal, therefore, such ....
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.... against the assessee, the AO should have examined NSEL and M/s Sharp and Tannan Associates. However, the AO did not make any investigation from them so as to make any addition of the impugned amount against the assessee. Since the AO failed to make proper investigation into the matter and no basis have been shown for making the addition on account of the recoveries to be made by NSEL, the AO failed to discharge the onus upon him to make the addition of the aforesaid nature. There cannot be negative onus on assessee to prove it has not made purchases from NSEL in dispute. No evidence of any sham purchases/transactions have been brought on record. No evidence of any purchase made by assessee from NSEL have been brought on record. 20. The above discussion clearly prove that the AO without any basis rejected the books of accounts of the assessee and without bringing any evidence or material on record, made the addition of the impugned amount. Even during the course of hearing of the appeal, the AO was present in the Court but could not I.T.A .No.- 98 & 99/CHD/2017 provide any evidence or material so as to sustain the orders of the authorities below. In such circumstances, we ....
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....this information on the assessability of these appellants, and how non-consideration of this made the assessment order as erroneous. The AO has taken note of all these things, because these very materials were available in the immediately preceding year. The only addition made and confirmed by the ld.CIT(A) in the Asstt.Year 2013-14 has been struck down. Thus, the ld.Commissioner ought to have looked into order of the ITAT, and thereafter, analysed the details, whether any income has escaped on account of failure of the AO to conduct adequate inquiry (in the opinion of CIT). The ld.Commissioner nowhere made out that case. 13. In para-15 of the impugned order, the ld.Commissioner recorded a finding that the AO ought to have called for report of "S&TA", and then should have examined. The discussion made by the ld.Commissioner with regard to this issue is worth to note, which reads as under: "15. The AR in Para B, (v), (c) and Para C in his reply has referred to the report of Sharp and Tannan, and stated that the said complete report was not made available and only one page of the report was confronted during the assessment proceedings for the A.Y. 2013-14. This o....
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....e not the proceedings where criminal liabilities or title pertained to civil dispute could be resolved. It is not ascertainable, what is the dispute between the NSEL and the appellants. During the course of hearing, we have put a question to both the representatives, whether any civil suit at the end of the NSEL against the appellants for recovery of any due is pending. The ld.counsel for the assessee gave reply in negative. Similarly, the ld.CIT-DR has expressed his ignorance about the above facts. He only pointed out that from the material, it is discernible that civil suits were filed against other parties. But he could not specify, whether any civil suit is being filed against the assessee. We fail to understand how the cognizance of such report or report of "S&TA" can have effect on the taxability of the present assessees; more so, when no investigation or inquiry has been conducted by the ld.Commissioner before branding the assessment orders as erroneous. Therefore, as far as first compartment of show cause notice is concerned, we are of the view that the ld.Commission failed to point out any reasons which can suggest that the assessment orders are erroneous. The materials re....
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....ing enclosed in Annexure-12. Thus, details of all the trade payables have been submitted to the AO along with complete address. Such details are available on page no.25 and these amounts payable to Loil Overseas Foods Ltd., and Laxmi Energy Foods. Thus, details with regard to these concerns were also with the AO. He was also in seisin of assessing the income of one of the trade creditors viz. Loil Overseas Foods Ltd. He might have been satisfied with the accounts submitted before him. What verification would require i.e. genuineness of the transaction or identity of the parties? These were before him. We have minutely examined each and every reason assigned by the ld.Commissioner under serial no.VI of the reasons given by him in the show cause notice. It is discernible that all these details were submitted before the AO during the course of assessment proceedings. The assessment proceedings continued for almost more than eight to nine months, and the accounts were provided before the AO. The ld.Commissioner just made narrations in the show cause notice, but has not conducted any inquiry, and has not held how assessment order is erroneous by pointing out short-comings of these accou....