TaxTMI 
TaxTMI 
2022 (5) TMI 895
X X X X Extracts X X X X
X X X X Extracts X X X X
....o reveals that there was a survey operation at the business premises of the assessee company on 13.11.2014 and which continued up to 14.11.2014 and during the course of such survey, the assessee disclosed an amount of Rs. 3.25 crore as additional "business income" in the case of the company under the following heads: I. Increase in the stock valuation Rs. 2.45 crore II. Unexplained receivables Rs. 0.80 crore 2.1 Subsequently, after, the completion of assessment, the Ld. PCIT proceeded to issue a show cause notice in terms of provision of section 263 of the Act to which the assessee objected. However, the Ld. PCIT did not find the objections of the assessee worth any merit and proceeded to hold that the assessment order was erroneous and prejudicial to the interest of revenue within the meaning of section 263 of the Act read with explanation 2 below section 263. The Ld. PCIT set aside the assessment on the issues forming the subject matter of the impugned order and directed the AO to pass a fresh assessment order in line with the observations made by the Ld. PCIT. 2.2 Aggrieved, the assessee has now approached this Tribunal challenging the exercise of powers ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....also due application of mind was made by the Assessing Officer during the course of assessment proceedings. It was submitted that the assessee is into the business of manufacturing and sale of yarn and the basic raw material for the manufacturing of yarn is 'Acrylic Fibre/ Tow'. It was submitted that the assessee is duly maintaining day-to-day quantitative records of the raw material purchased, work-in-progress, finished goods, etc. which was evident from the copy of the 'Tax Audit Report' placed at pages 142 to 159 of Paper Book-II and wherein complete stock details of various types of raw material, consumption, production, sales and closing stock in quantity during the year had been given and no adverse view had been drawn by the Assessing Officer in this regard, while framing the assessment. 4.1 It was further submitted that there was a survey operation at the business premises of the company on 13.11.2014 and 14.11.2014 and during the course of such survey, the assessee disclosed an amount of Rs. 3.25 crore as additional "business income" in the case of the company in respect of increase in the stock valuation amounting to Rs. 2.45 crore; and unexplained receivables amountin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....out the stock tally. It was further submitted that the assessee had duly replied thereto by drawing reference to the Tax Audit Report which contained the quantitative details of stock. 4.4 It was further submitted that based on certain queries raised by the AO during the course of assessment proceedings, another reply dated 15.02.2017 was filed by the assessee wherein the AO's query regarding the surrender of Rs. 2.45 crores on account of valuation of stock was replied to. For ready reference, this reply of the assessee is also being reproduced herein under: "Sub: Assessment Proceeding for AY 2015-16 (PAN AAACG8869Q) During the year under review survey has been conducted by the Income Tax department and in order to have our peace of mind we have surrender Rs. 79.96 lac and the same is shown as other income under the head Non Operation Income. We are maintaining quantities records (on day to day basis) for our Raw Material, WIP and Finished goods and quantity of various stocks were reconciled with physical verification conducted by the department however there was surrender of Rs. 2.45 cr. on account of valuation of closing stock. We are follow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent proceedings. 4.9 Our attention was further drawn to the copies of the 'order sheet' entries placed at pages 114 to 117 of the paper book to demonstrate that the AO had asked for a copy of the surrender letter, then had verified the bills and vouchers, which were examined from time to time and further clarifications and explanations were sought by the AO from time to time on various issues emerging from the impounded material. It was submitted that complete verification was made by the Assessing Officer during the course of assessment proceedings and that he was satisfied about the correctness of the results declared by the assessee and, therefore, under such circumstances, the assessment cannot be held to be erroneous and prejudicial to the interest of the revenue. 4.10 It was further submitted that after the assessment had been framed by the Assessing Officer vide order dated 27.04.2017 an 'audit objection' was raised by the audit wing of the department and a reply to the said objection was also filed by the assessee vide reply dated 29.11.2019. It was pointed out that the objection again related to the increase in the valuation of the stock. Our attention was drawn to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee furnished before the Ld. PCIT wherein the trading and manufacturing accounts from 01.04.2014 to 12.11.2014 and from 13.11.2014 to 31.03.2015 were also submitted as annexure. The said reply is being reproduced herein under for a ready reference: "Sub: Show Cause Notice u/s 263 of the Income Tax Act 1961 AY 2015-16 (AAACG8869Q) With reference to above it is submitted that Survey was conducted at our premises on 13- 14th November2014 & during the survey, entire stocks in all premises was physically verified by department & same was tallied with our records. There was no difference with respect to quantity & purchase value of our raw material, consumables, packing etc. However we have surrendered the following: - During the year under review survey has been conducted by the Income Tax department and Assessee Company has surrendered Rs. 0.80 cr. and the same was shown as other income under the head Non-Operating Income. - We are maintaining quantities records for our Raw Material, WIP and Finished goods and there was 100% physically reconciliation of stocks & was matching with our records. However we have agreed for increase in valuation of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....our profit for the year ending 31.03.2015. As such no book entry was required on the date of survey. It is submitted that as per accounting practice, we record and valued closing stock in our books of accounts on the date of finalization of our accounts for any given period. At the time of finalization of our audited results as on 31.03.2015 we valued our closing stock at lower of Cost or Net Realizable Value & same value was taken for closing stock in our audited results. However upon being asked to provide manufacturing account (with increased in value of stocks) for pre-survey period and post-survey period, we have provided the same vide our letter dated 18.03.2020. The only implication of increased in valuation of stocks on the date of survey is notional increase in profit (for the period up to the date of survey and notional decrease in profit after the date of survey. On detail analysis of manufacturing account for pre-survey period and post- survey period it is clear that such notional profit (in 'between financial year) has increased our gross profit in pre-survey period and decreased our profit in post-survey period and has no impact on the profits of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g consistent method of account, which method has not been challenged by the Assessing Officer and our books of accounts have been accepted and not rejected u/s 145(3) at all. iii). Further, the comparison of 'Gross profit' and 'Net Profit' as explained at page 72 read with page 71, which again proves beyond any iota of doubt and order sheet entries, where the bills and vouchers have been examined, fall in the gross profit details have been asked, impounded material, has been verified and, thus, the contention of the PCIT is not correct. PARA 4.1 ISSUES RAISED BY THE Ld. PCIT OUR REPLY It has been stated in para 4.1 that how the entries has been passed in the account and there is no such enquiries. i). It is submitted that each and everything cannot be mentioned in the assessment order and then one has to gauze from the replies and information furnished before the Assessing Officer and though, the Assessing Officer has rightly understood that the offer of Rs. 2.45 crores, how, it is 'subsumed' in the trading results as on 31.03.2015, but it is again very much clear from the trading accounts furnished to the PCIT, which is placed at page 125 & 125A of the pape....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t entry, dated 16.04.2017. ii). Thus, the contention of the PCIT about this further verification is of no consequences and even the paper furnished to PCIT clearly proves that offer of Rs. 2.45 crores has subsumed in the trading account as on 31.03.2015 on the basis of consistent method of accounting followed by assessee, not disputed by the Assessing Officer/PCIT and book results accepted and not rejected u/s 145(6). PARA 4.4 ISSUES RAISED BY THE Ld. PCIT OUR REPLY The PCIT has mentioned that the Assessing Officer has not made any enquiry about the method of valuation by calling the detail of opening and closing stocks as well as value. This contention is not correct as all such stock lists on different dates have been verified during the course of assessment proceedings. 4.16 It was submitted by the Ld. AR that the Ld. PCIT had completely chosen to ignore the fact that the AO had made proper and adequate enquiries and the assessee had given proper responses which were duly supported by evidences and that it was only after considering these evidences and responses that the AO had completed the assessment. It was argued that the Ld. PCIT had merely acted ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th on merits as well as by holding that 263 proceedings could not have been initiated on the basis of audit objection, the respective orders u/s 263 were set aside. 5.0 Per contra, the Ld. CIT DR supported the observations of the Ld. PCIT and submitted that the AO had not made due enquiries and also that there was no application of mind by the AO on the issue of the increase in the valuation of stock. It was argued that although the assessee, while filing the return of income, had failed to honour the surrender made on this issue but no specific enquiries were made by the AO on this issue during the course of the assessment proceedings. It was further argued that by not disclosing the amount of Rs. 2.45 crore on account of increase in the valuation of stock, the gross profit had been reduced but the AO had failed to take note of the same. The Ld. CIT (DR) further argued that the Ld. PCIT has only set aside the issue and that the assessee would have ample opportunity again before the AO to demonstrate the veracity of its contentions in this regard. The Ld. CIT DR also placed reliance on numerous judicial precedents which have been filed in form of a separate paper book and have b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m the record that the assessee is maintaining day to day quantitative stock of raw material, work-inprogress and finished goods and that the assessee has been following consistent method of accounting year after year and even the stock lists as on 31.03.2014, 12.11.2014 and 31.03.2015, both quantity-wise and value-wise had been submitted, along with the copies of the bills, before the AO and no defects were found by the Assessing Officer during the course of assessment proceedings. We also note that the books of accounts of the assessee have not been rejected u/s 145(3) of the Act and, therefore, under such circumstances, when no adverse view has been taken by the AO on the voluminous details submitted by the assessee before the AO, we find it difficult to accept the finding of the Ld. PCIT that the Assessing Officer had not applied his mind to the issue of 'increase in the stock valuation' of Rs. 2.45 crore which had not been reflected while filing the return of income. It is also worth our observation that the Assessing Officer was conscious of the fact that non-declaration of Rs. 2.45 crore would result in the fall in the gross profit/net profit and the same was enquired into by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore, we have no hesitation in holding that the Assessing Officer had applied his mind to the issue as raised by the Ld. PCIT. 6.6 At this juncture, it would be relevant to make a reference to the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd reported in [2011] 332 ITR 167 (Del.) wherein the Hon'ble Delhi High Court has ruled that one has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry' and further if there was any inquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass orders u/s 263 of the Act, merely because he has a different opinion in the matter. It was further held by the Hon'ble Delhi High Court that if any Assessing officer, acting in accordance with law, makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. 6.7 In the present case also, the A.O. made the requisite enquiries, therefore, it is not a case of no enquiry and if the Ld. Pr. CIT was not satisfied with the enquiries made by the AO, he should have conducted the enquiries himself to rec....