TaxTMI 
TaxTMI 
2019 (12) TMI 1035
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.....03.2014 was passed by the AO under Section 263/ 143(3) of I.T. Act, in pursuance of the aforesaid order dated 18.03.2013 of the Ld. CIT(A); wherein total income was assessed at Rs. 95,10,830/- (rounded off) as against returned loss of aforesaid Rs. 1,75,55,380/-/. The relevant portion of aforesaid Order dated 18.03.2013 is reproduced as under: "In this case an assessment order under section 143(3) of the Income-tax Act, 1961' was passed on 26.11.2010 by the ACIT, Circle-2, Meerut. 2. On examination of records, it was found that the assessment was done without proper enquiry in so far as discussed in subsequent paras, 3 Accordingly, notice un4er section 263 of the Income-tax Act , 1961 was issued pointing out as follows:- a) On the turnover loss of Rs. 1,69,62,106/-, loss of Rs. 1,75,74,887/- has been claimed. A.O. did not make any enquiry while accepting such huge unexplained logs. b) Under the heads selling and administrative expenses of Rs. 56,74,304/- debited in the Income & Expenditure A/C, the assessee hag wrongly claimed a loss on sale of machinery at Rs. 49,46,196/-, The AO has failed to enquire into the same and has failed t....
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.... and machinery, loss on sale of plant and machinery sold out of block is not allowable. Sale and of any asset under any block can only increase or decrease the value of block and depreciation can be accordingly claimed/ allowed. f) A.O. did not enquire into properly before accepting the unsecured loan of Rs. 30.00 Iacs. g) A.O. did not enquire into properly before accepting the Sundry creditors of Rs. 7,16,533/-. h) Freight debited is amounting to Rs. 6,93,425/- on which applicability of provisions of TDS have not been examined. 4. In view of above, the &der passed by the AO was found to be erroneous and prejudicial to the interest of revenue since at the time of the assessment the AO was duty bound to call for such details and examine them. In the case of M/s. Malabar Industries, the Hon'ble Apex court has held that incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall order passed without applying the principles of natural justice or without application of mind. 5. The fundamental principles emerged from the Hon'ble Apex Court judgement in ....
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....laced by the assessee on their face value. Where the AO complete the assessment proceedings under section 143(3) and admitted that he could not make proper inquiries as assessment was becoming time barred, there was valid assumption of jurisdiction under section 263 by Commissioner and the Tribunal, in such a situation, did not commit any error in law in confirming the order of CIT(A) for setting aside the assessment and directing the AO to make an order of assessment. ii. Gee Vee Enterprises vs. AddI. CIT, 99 ITR 375 (Del.) in which it is held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, ITO should have made further inquiries before accepting the statements made by the assessee in his return and it was observed that is obvious. The position and functions of the ITO are very different from that of civil court. 5.3. On the facts of the present case, it is evident that the AO accepted the version of the assessee without making any inquiry or verification, whereas it is very well settled that mere failure to make inquiries makes an order erroneous. In order that the Commissioner may consider an order to ....
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....toon, (1988) 171 ITR (Sh.N.) II (Pat); CIT vs. Smt. Chandrawati Devi, (1988) 171 ITR (Sh.N.) III (Pat); CIT vs. smt. Devi, (1987) 59 CTR (Pat) 3; CIT vs. Bhagwant kaur, (1987) 63 CTR (Pat) 326; CIT vs. Pushpa Devi, (1988) 173 ITR 445 (Pat). 5.6. The Hon'ble Jurisdictional ITAT Delhi Bench In the case of Shri Virendra Kumar Gupta Vs CIT in ITA No. 2595/D/2009 dated 21/01/2011 relying upon aforesaid judgments has held that the facts of the case were in pari-materia with above judgments. Further, on consideration of these cases the Hon'ble ITAT viewed that the Id. CIT was right in exercising the revisionary jurisdiction dismissing the appeal filed by the assessee. 5.7. In view of the foregoing, it is evident that the order passed by the AO is erroneous as well as prejudicial to the interests of revenue for the reasons as stated above. 6. During the course of 263 proceedings, Shri Paramjit Singh, CA & counsel of the assessee attended and filed written submissions and the case was discussed with him. 7. As regards the points on which notice under section 263 was given, regarding point (a) the AO did not inqu....
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....as assessee has evidently concealed income and furnished inaccurate particulars of income. The AO is further directed to inquire into the correctness of the claim towards financial charges which are claimed at more than double of the previous year. Regarding point (f) & (g), the unsecured loans and sundry creditors have also not been inquired into by the AO during the assessment proceedings and the assessee failed to explain the same for which the onus lies solely and .squarely on the assessee. Reliance is placed on the following judgments: (i) CIT vs. La Medica (2001) 250 ITR -575 (Delhi) (ii) Sri Ganesh Rice Mills vs. CIT (2007) 294 ITR 316 (Alld.) (iii) CIT vs. United Commercial and Industrial co.(199) 187 ITR 596 cal. (iv) CIT vs Precision Finance Pvt. Ltd. (Cal) 208 ITR 465 (v) CIT v/s Koriay Trading co. Ltd. (Cal.) 232 ITR 820. (vi) Krishan Kumar Jhanb VIS ITO and Anr (Punjab & Haryana) 17 DTR 249 (vii) M/S Sejai International Ltd v/s CIT Meerut (All.) Appeal No.306 of 2010. (viii) CIT Vs Durga Prasad More, 82 ITR 540 (SC) (ix) CIT vs P. Mohnakala, 291 ITR 278 (SC) (x) ....
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....ning the actual profit/loss. Accordingly, the assessee, vide notice under section 142(1) of the Income Tax 1961 dated 4.2.2014 was requited to submit the following details with supportive details as: "1. Please provide details of addition in Fixed asset along with details of purchases and put to use. (Provide supportive document in respect of assesee's claim) 2. Details of financial changes. i) Provide details Of interest paid during the year (party wise) ii) Provide details of application where this fund were used. 3. Submit explanation regarding heavy loss in comparison with last two year. 4. Assessee is required to produce fresh confirmation with confirmed copy of a/c of sundry creditor, with list current address, PAIN details ets. 5. Assessee is required to produce a separate list of sundry creditor, where amount was outstanding more than I year. Assessee is required to produce fresh confirmation of unsecured loan with list of complete current postal address & bank transaction details, (Copy of ITR for A.Y. 2008-09 & A. Y. 2007-08) Provide details of freight debited with copy Of ledger a/c. Provide list....
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....e inference could be drawn. In spite of producing the books on the specified date, the assessee has sent a reply dated 21.3.2014 by post which was received in this office on 24.3.2014, where it has been submitted by the assessee that they were unable to trace the bank account of the year in which they have received deposits from unsecured loan depositors at such a short notice We may be given time to get the same from bank. But till date i.e. 28.3.2014, the assessee has neither attended the office nor filed any details regarding the unsecured loan depositors and sundry creditors. 9. Regarding the heavy loss, the assessee has submitted as under: "... ....The assessee company took a huge term loan of Rs. 190 lakhs and CC limit of Rs. 50 lakhs from Bank of Baroda. However, due to inexperience of the promoters the assessee company could not manufacture proper quality of goods. Further the unit was installed at Roorkee but the required skilled labour was not available there. Most of the textile business is centered at Meerut. The promoters had installed the factory at Roorkee to avail the benefit Of Sales Tax at Uttaranchal (1% rebate is allowed in CST) and there is 10....
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....see is computed as under: Net Profit as estimated above. : 8,48,105 Add: Addition made by the Id. CIT, Meerut vide order 263 of the I.T. Act, 1961 dated 18.3.2013. on account of loss on sale of machinery. : 49,46,196 Add: Addition made by the Id. CIT, Meerut vide Order u/s 263 of the I.T. Act, 1961 dated 18.3.2013. on account of unsecured loans : 30,00,000 Add: Addition made by the Id. CIT, Meerut vide Order u/s 263 of the I.T. Act, 1961 dated 18.3.2013. on account of sundry creditors. : 7,16,533 Total Income : 95, 10,834 Rounded off : 95, 10,830 (B.2) The Assessee filed appeal before the Ld. CIT(A), Meerut. The Ld. CIT(A) decided the appeal vide the impugned appellate order dated 07.03.2016, wherein the aforesaid additions of Rs. 8,48,105/- and the aforesaid addition of Rs. 49,46,196/- were confirmed. This present appeal has been filed by Assessee against the aforesaid impugned appellate order dated 07.03.2016 of the Ld. CIT(A). The grounds of appeal, as revised by the assessee during appellate proceedings in Inc....
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.... submission 21. Photocopy of Audit Report along with Profit & Loss A/c and Balance Sheet year ending on 31-03-2007 & 31-03-2009 22. Photocopy of Bills , Ledger & Trade Tax Order" 23. Copy of Acknowledgment of Return along with Computation of Income for A.Y. 2008-09 24. Copy of Acknowledgment of Return along with Computation of Income for A.Y. 2007-08 25. Copy of letter dated 19.03.2014 filed before the Ld. A.O. 26. Copy of original assessment order dated 26.11.2010 passed u/s 143(3) for AY 2008-09 27. Copy of order u/s 263 for AY 2008-09 dated 128.03.2013. 28. Copy of order of Hon'ble ITAT in the case of M/s P.K. Cotton Mills Pvt. Ltd. vs. CIT, AY 2008-09, ITA No. 2055/2013, order dated 18.11.2016 29. Copy of Acknowledgment f Return along with Computation of Income for AY 2008-09. 30. Copy of Acknowledgment of Return for AY 2007-08." (B.3.1) A compilation of case laws / CBDT circular was also filed from the Assessee's side during appellate proceeding in ITAT, containing the following particular: "1. CIT vs. Bishambhar Dayal & Co., (1994) 210 ITR 0118, High Court of Allahabad.....
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....an.- (Para-8) • CIT vs. Jain Construction Co. & Ors., (2000) 245 ITR 0527, High Court of Rajasthan.- (Para-8) • CIT vs. Chopra Bros. India (P) Ltd., (2001) 252 ITR 0412, High Court of Punjab & Haryana. - (Para 4-6) • CBDT Circular No: 29-D (XIX-14), dated 31.08.1965- reproduced in 245 ITR 527 (Raj.) in Para 8. Appellant's detailed reply with respect to interest paid is reproduced at page 3 of the assessment order. PB 64 is evidence to show that books were produced in original assessment proceeding. GROUND NO. 4 is not pressed in view of the direction already given by Ld. CIT(A) at page 4 of the CIT(A) Order." (B.4) At the time of hearing before us, we have heard both sides patiently. We have also perused the materials on record, carefully, including the materials referred to in the foregoing paragraphs (B.3), (B.3.1) and (B.3.2) of this order. We accordingly proceed to decide the issues in dispute before us (C) The first issue before us, is the estimation of profit @ 5% of gross business receipts, after the AO rejected the book results by invoking the provisions of Section 145(3) of the I.T. Act. The Ld. Counse....
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.... Financial Charges. (ii) Correctness of the Unsecured Loan and Sundry Creditors. (iii)Fright debited Rs. 6,93,000/- to examine the provision of TDS and disallow U/s 40A(ia). These issues are already considered by the A.O. and after going through the books of account, bills and vouchers, the A.O. was satisfied and not made any addition in the total income of the assessee. The view taken by the A.O. one of the best, while he framing assessment U/s 143(3) of I.T. Act, to set aside these issues for further inquiry is nothing but duplicacy of work, which not permitted U/s 263 of I.T. Act 4. That penalty proceeding initiated by the CIT is arbitrary, unjust and routine & mechanical manner, which is against the law. 5. That the assessee has right to add, delete or modify any grounds during the appeal proceeding." 2. The facts in brief of the case are that the assessee, a private limited company, was engaged in the business of textiles. The assessee filed return of income on 30/09/2008, declaring net loss of Rs. 1,75,55,380/-. The case was selected for scrutiny and notice under section 143(2) of the Act was issued and complied with. In t....
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....e assessee submitted that all the details in respect of above issues were duly submitted before the Assessing Officer and considered by him and he formed an opinion on the basis of the material on record and hence power given under section 263 of the Act cannot be resorted to as the order of the Assessing Officer was neither prejudicial to the interest of Revenue nor erroneous. 5. However, the learned Commissioner of Income Tax held that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of Revenue. On the issue of loss from sale of machinery, the addition of Rs. 49,46,196/- was quantified and on other issues, directions for making enquiries were given as under: a. the Assessing Officer did not enquire into the loss of the magnitude, which is even higher than the entire turnover; b. the AO is directed to look into and verify the relevant accounts properly before ascertaining and determining the actual profit/loss, after examining books of accounts which were not produced during the course of 263 proceedings; c. the loss on sale of machinery amounting to Rs. 49,46,196/- was claimed wrongly because the same was ....
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.... the sale of machinery. The learned Authorized Representative further submitted that the Assessing Officer had made enough inquiry on the issue of acquisition of asset, loss on sale of machinery as well as depreciation claimed and, therefore, it was not of the case of lack of enquiry warranting invoking of jurisdiction by the learned Commissioner of Income Tax under Section 263 of the Act. 4. In ground No. 3, the assessee has raised the issue that enquiries were made by the Assessing Officer in respect of the issues of correctness of the claim towards financial charges, correctness of unsecured loan and sundry creditors and provisions of TDS and disallowance under section 40(a)(ia) of the Act in respect of the freight expenses of Rs. 6.93 lacs. 5. Before us, the learned Authorized Representative of the assessee referred to pages no. 14 and 15 of the assessee's paper book, which is a copy of notice under section 142(1) of the Act calling for information in respect of the assessment year and submitted that the Assessing Officer called for confirmation of sundry creditors & unsecured loan creditors and examined TDS liability. He submitted that the assessee also duly ....
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....d in the case of Meerut Roller Flour Mills Ltd Vs. Commissioner of Income-tax (2013) reported in 35 taxmann.com 183 (Allahabad). In support of the contention that it was not necessary for the Commissioner of Income Tax to come to a firm conclusion that the order of the Assessing Officer was erroneous, insofar as, it is prejudicial to the interest of Revenue and the Commissioner of Income Tax can remand the matter to the Assessing Officer to make fresh assessment after giving an opportunity of hearing to the assessee, he relied on the judgement of the Hon'ble Gujarat High Court in the case of Additional Commissioner of Income Tax Vs. Mukur Corporation reported in 111 ITR 312 (Guj). 4.3 We have heard the rival submissions of the parties and perused the relevant material on record including the paper book containing 32 pages filed by the assessee. The mandate of section 263 of the Act is attracted only when the assessment order is found to be erroneous insofar as to be prejudicial to the interest of the Revenue. These twin conditions have to be cumulatively satisfied for obtaining a valid jurisdiction under this section. If the assessment order is only prejudicial to the inte....
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..../2010. According to the notice, the hearing was fixed on 20/05/2010 and the assessee was asked to furnish various details listed at serial Nos. 1 to 10, inter alia, business activity, audit report, bank accounts, Director/Shareholders, confirmation of sundry creditors, proof of payment under section 43B, confirmation of unsecured loans and details in table format, gross profit/net profit rate, liability of TDS etc. A further reminder/notice under section 142(1) of the Act was issued on 23/06/2010 calling for the reply in respect of the information as called for vide notice under section 142(1) of the Act dated 13/05/2010. In response to the said queries raised by the Assessing Officer, the reply submitted by the assessee is placed on pages 11 to 12 of the paper book. Before us, the assessee has also submitted a copy of reply dated 15/11/2010 claimed as submitted to the Assessing Officer on his verbal queries. This reply contains computation of loss on sale of machinery. One more reply of the assessee, which is signed by the counsel of the assessee on 25/11/2010, is available on page 9 of the paper book, which contains justifications of the loss and sale of machinery to M/s Apin Tax....
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....r dated 21/10/10, which is available on pages 11 of the assesses paper book, as under: "Answer No. 4: The details of sundry creditors are enclosed. We are trying to get their confirmation. Answer No. 6: The confirmation of Unsecured Loan of following with PAN are enclosed:- 1. Sanjay Bharadwaj 70,00,000.00 2. Yash Pal Singh 10,00,000.00 (Copy of his Kisan Bahi having agriculture land 4.290 hectare at village Rajpura is also enclosed.). 4. Kamal Singh 50,00,00.00 (Copy of his Kisan Bahi of agriculture land 1.292 hectare at Villate Rajpura is enclosed.) 5. Brajpal Singh 80,00,00.00 (Copy of his Kishan Bahi of agriculture land 2.2560 hectare at Village Rajpura is enclosed.) 4.7 In reply dated 15/11/2010, which is placed on page 18 of the assessee's paper book, reply in respect of creditors was as under: Answer No. 2: Copy of a/c of following creditors in our books of a/c: (a) M/s. ABN Enterprises Hissar (b) M/s. Apin Textiles. 4.8 Thus, it is evident from the submission of the assessee that no ....
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....ner." 4.10 The Hon'ble Gujarat High Court in the case of Mukur Corporation (supra) has upheld the action of the Commissioner of Income Tax in order under section 263 of the Act, remanding the matter to the Assessing Officer for fresh examination. The relevant finding of the Hon'ble High Court is reproduced as under: "15. The third step is as regards an inquiry as the CIT "deems necessary". It is with regard to this step that Shri Patel vehemently contended that the CIT had committed an error in not allowing the assessee to cross-examine Dr. Vyas, whose affidavit dt. 10th March, 1971, was very material. Now, after reading the relevant portion of sub-s. (1) of s. 263, we do not find any justification for the view that in every case the CIT is expected to make an inquiry before passing the final order. The concluding portion of this sub-s. (1) of s. 263 shows that the CIT can pass various orders such as enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. If the CIT in this case had enhanced or modified the assessment, then looking to the facts of the present case, Shri Patel would have been justified in contending that....
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.... there was no violation of the principles of natural justice on the question of opportunity being given to the assessee. That opportunity was reasonably given, by stating the basic grounds on which the CIT thought that the ITO's order was erroneous and giving a reasonable opportunity to the assessee even to produce evidence along with facts of that case, the High Court further observed that all that the CIT did was to cancel the assessment and ask the ITO to make a fresh assessment according law after making proper enquiries and investigations with regard to the jurisdiction, carrying on the business, possession of initial capital and the sources of moneys invested in the name of the assessee and, therefore, the assessee would again get full opportunity to produce evidence, if any, in support of her case. 16. In view of this, we find that considering the facts of this case, the CIT was not bound to make any inquiry before passing the final order and that in substance no prejudice is caused to the assessee by failure of the CIT to give it any opportunity to cross-examine Dr. Vyas. 17. Next question is whether at the time of passing the final order, the CIT was ....
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....roper inquiry with regard to both the deductions during the course of his original assessment was clearly prejudicial to the Revenue, because the deductions in question were quite substantial in nature. In our opinion, therefore, the decision relied upon by Shri Patel is of no help to the respondent-assessee. 19. In view of what is stated above, we are of the opinion that the Tribunal was not justified in law in setting aside the order of the Addl. CIT under s. 263 on the ground that the Addl. CIT had not come to a firm conclusion that the order passed by the ITO was erroneous. In other words, our answer to the question referred to us is in the negative, i.e., in favour of the Revenue and against the assessee. The respondent-assessee shall bear the costs of the Revenue of this reference. 5. In the light of foregoing discussion and respectfully following the findings of the Hon'ble Allahabad High Court in the case of Meerut Rolling Mills Ltd. (supra) and Hon'ble Gujarat High Court in the case of Mukur Corporation (supra), we are satisfied that the learned Commissioner of Income Tax was justified in cancelling the assessment order by holding it as erroneous and prej....
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....ched or contrary to law having regard to the facts and circumstances of the case. In view of the foregoing, we confirm the order of the lower authorities invoking provision of Section 145(3) of I.T. Act for the purpose of estimating business profits and we further confirm the estimation of business profits @ 5% of gross business receipts. (D) The second issue before us, is regarding the aforesaid addition of Rs. 49,46,196/-. The Ld. Counsel for assessee contended that the aforesaid addition amounts to double addition of the same amount. He drew our attention to the fact that the entire loss claimed by the assessee has been disallowed by the AO and the profit of Rs. 8,48,105/- has been brought to tax on account of estimation of business profit. The aforesaid amount of Rs. 49,46,196/- was part of the business loss claimed by the assessee and once that loss is disallowed, and estimated net profit is assessed as income; the aforesaid amount of Rs. 49,46,196/- stands disallowed automatically. Therefore, the Ld. Counsel for the assessee submitted that there was no justification for once again making repeated addition on the aforesaid amount of Rs. 49,46,196/- in the Assessment Order. ....