TaxTMI 
TaxTMI 
2018 (11) TMI 1903
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....ed jurisdiction under section 263 of the Act to set-aside the assessment order dated 25.05.2015 passed by the Assessing Officer in as much as the order is neither erroneous nor prejudicial to the interest of Revenue and as such the assumption of jurisdiction under section 263 of the Act is beyond his competence. 2. That the Ld. Commissioner of Income Tax has erred in failing to consider the various replies and submissions placed on record in-proceedings before him which is arbitrary and unjustified. 3. That the assessment order having been passed by the Assessing Officer after due application of mind and taking into consideration the various replies, material on record and books of account, the action resorted to by the Commissioner of Income Tax is unwarranted and uncalled for. 3. The ld. AR inviting attention to the impugned order and the Paper Book filed submitted that the specific issues raised by the Pr. CIT in the Show Cause Notice issued to the assessee which has been extracted in the impugned order itself has been a subject matter of detailed enquiries and queries by the AO in the course of the regular scrutiny assessment proceedings. This fact, it was submitted, is....
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....inquiries before allowing the impugned expenditure. (ii) It is noted that the firm has claimed loss on account of foreign currency variation of Rs. 4.19 crores in the profit & loss account. The AO has neither examined nor carried out any verification to determine whether the loss incurred is wholly and exclusively for business purposes or whether the same is on Revenue or Capital account. (iii) It is noted from record that substantial additions are made to the fixed assets during the year as under:- Machinery 53.98 lacs Plant &Machinery 3.58 crs. Building 2.94 crs. Furniture & Fixture 58.54 lacs Fan & Cooler 6.44 lacs Car 1.63 crs. Computer 21. 14 lacs The AO has allowed the entire claim of depreciation without making any inquiries or verification to ascertain whether the assets were installed and put to use in the previous year. (iv) Purchases made from persons covered u/s 40A(2)(b) :- As per annexure C of Balance Sheet, the firm has raised unsecured loans from the persons specified in section 40A(2)(b) and also made purchases and got job work done from them. The A.O. has not examined as to whether expenditure incurred on account of such purchases a....
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....these 'expenses with respect to Nalagarh & Samba unit and show cause as to why these proportionate expenses be not disallowed as belongs to those units in respect of which deductions u/s 80IB and 80IC had already been claimed. In response the AR of. the 'assessee submitted that foreign travelling & foreign trade fare have not been apportioned because there is no export from Nalagarh & Samba unit. The assessee further stated that issue has been decided in. their favour by the CIT (A) -for the A.Y, 20 10- 11. The reply of the AR alongwith the . facts of the case on this issue have been taken On record and considered but found to be untenable. Since the assessee has not Allocated foreign travelling expenses and trade fair .expenses to Nalagarh & Samba Unit as such these expenses are allocated on proportionate basis on the basis of total turnover. Head Total Allocation Head Total Allocation Ludhiana Unit-m Nalagarh Samba Addition 66.69 18.06 15.25 Foreign Travelling, 13, 91, 533 9, 28, 013 2, 51, 311 2, 1.2, 209 4, 63, 520 Foreign Trade Fair 9, 49, 648 633, 320 1, 71, 507 1, 44, 8....
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....ustria E. Comercio Ltda. Rua Max Mangels Senior, 777 Cep: 09895-900 Sao Bernardo-do Campo -SP- Brazil requiring the (remitters) (beneficiary) above remittance as well as the relevant documents and books of account required for ascertaining the nature of remittance and for determining the rate of deduction of tax at source as per provisions of sub-section (6) of section 195. We-hereby certify the following:-- A Name and" address of the beneficiary of the remittance M/s, Mangels Industria E Comercio Ltda. Rua Max Mangels Senior, 777 Cep: 09895-900 Sao Bernardo do Campo -SP-Brazil B 1 Country to which remittance is made Country: Brazil J Currency: US$ 10. Nature of remittance as per agreement/ document Import of raw material 13. In case remittance is for supply of articles or things (e.g Plant , machinery equipment etc.) please indicate, yes (a) Whether the recipiet of remittance has any permanent establishment (PE) in India through which the beneficiary of the remittance is directly or indirectly carrying on such activity of supply of articles or things. No (b) Whether such remittance is attributable to or connected with such permanen....
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....eady reference, same is reproduced hereunder : 2. From the examination of profit & loss account it is noted that large amoun6t of other expenses were clamed major among them are as under Expenses FY 2012-13 Commission to agents 69, 06, 007 Foreign travelling expenses 6731961 Traveling expenses 35, 55, 232 Marketing staff traveling expenses 6091048 Sea /air freight on export 5685939 Inland fright &forwarding on exports 1, 02, 59, 616 Trade fair expenses 35, 48169 Business promotion expenses 73, 35, 578 Repair &Maintenance 1, 45, 08, 760 Foreign currency variation 4, 19, 01, 735 You are required to justify the large amount of above mentioned expenses alongwith documentary evidences such as bills of expenses clamed purpose of foreign and other traveling and repair and maintenance expenses you are also required to justify huge amount of foreign currency variation expenses clamed alongwith details and working of loss on account of foreign currency variation. 3. From the examination of details and AIR, it is noted that large amount of outward remittances were made during the year on account of commission and import of goods. You are requir....
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....details qua the forward contracts specifying the period, the contract order, export amount entered into on a non-judicial stamp paper which has been placed on record. It was submitted that the evidence was further supported by copies of bank statements filed alongwith the copies of the contracts entered into with Canara Bank specifying the purpose. These evidences, it was submitted, were all available before the AO and this argument alongwith supporting evidences was made before the Pr. CIT also. These evidence, it was submitted, go on upto 425 of the Paper Book. Inviting attention to Paper Book page 445, it was submitted, that the assessee before the Pr. CIT also provided a chart of month-wise U.S. Dollar rate in Indian rupees right from April, 2011 at which point of time, it was, however, around 44.30 INR and thereafter had peaked to 55.15 INR in May, 2012 and August, 2012. In March, 2013 it hovered around 54.20 INR. It was his submission that no error in any of these submissions have been pointed out by the Pr. CIT. The AO admittedly on going through the replies of the assessee on the queries raised also took into consideration the fact that the net profit rate of the assessee w....
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.... available from page 70 onwards and the specific issue was addressed at page 72 in point No. 15 and elaborated at Paper Book page 186 to 192. These submissions of the assessee, it was submitted, were also supported by sample vouchers filed before AO before whom entire record was made available and these were also made available to the Pr. CIT. Attention was invited to Paper Book page 190 to show that the assessee had included the particulars showing date of purchase, date on which the asset was put to use and the sample invoices. It was submitted that these details are available from pages 193 to 222. It was his submission that the assessee had included sample invoices before the AO in response to his query, however, in the course of the hearing, the assessee had carried out complete sale bills, invoices, books of account etc. and it is not even the allegation of the Pr. CIT, that the complete details were not made available. These details it was reiterated were also made available to the Pr. CIT, it was submitted, and they have not been upset by him. 9. Addressing the fourth issue raised by the Pr. CIT, attention was invited to the reply of the assessee before the Pr. CIT availab....
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....ture of business carried out including the name of the party including particulars of their address alongwith name of the partners/Directors, the percentage of their share etc. had been disclosed. These details, it was submitted, carry on till page 184 of the Paper Book. The claims were supported by supporting Certificates of Chartered Accountants. These evidences and arguments have been advanced and relied upon before the Pr. CIT. Relying upon the invoices which were specifically filed by way of sample Invoices before the Pr. CIT also it was submitted, these would show that complete details of purchases etc. from page 446 to 510 were made available. In the circumstances it was submitted by the Ld. AR it was incumbent upon the Pr. CIT to support his conclusion that there was no error in the order of the A.O by referring to atleast some fact or evidence on record to upset the conclusions drawn. The Pr. CIT has only casted doubts that there could be an error but that is not enough. It was submitted that as per law, he is to demonstrate that there is an error and that too, such an error which can be said to be prejudicial to the interests of the Revenue. In order to exercise the Revis....
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....t this is not first year of export and exports are being made for more than a decade in normal course and expenses are commensurate as well as incidental to the business. Similarly other expenses are incidental to business. That all expenses are vouched and books of account are kept in normal course. We are producing documentary evidence of expenses claimed as desired by you." 11.1 Attention was invited to Paper Book page 230 which is certificate of an Accountant u/s 15CB wherein the specific payment made to Jatinder Singh Kapoor as per column No. 10 has clearly been shown as payment towards commission. The fact that it has been made in foreign currency i.e. in U.S. Dollars is also clearly mentioned. The address of the party receiving commission in Russia is given. It has been clearly verified that payment is made to Non Resident Indian having no permanent establishment in India. Similarly, attention was invited to page 234 which is also a commission income as per Sr.No. 10 and has been made in U.S. Dollars to Dimple Agencies in Mumbasa, Kenya. The address is provided. Payment here also is made to non-resident having no permanent establishment in India. Similarly, attention was i....
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....cision. Challenging the impugned order, it was his submission that the allegation of the Pr. CIT is that it was a case of lack of enquiry. The said conclusion it was submitted has to be demonstrated by some evidence of material to justify. Reading from the order it was submitted that there is nothing in the order to support the conclusion. The allegation of the Pr. CIT(A) based on whims is incorrect on facts when he has seen the issues raised by the AO by way of specific questionnaires in the course of the assessment proceedings and considering the replies given by the assessee and considered by the AO. alongwith supporting documents, the order of the Pr. CIT may be quashed. The Pr. CIT, it was submitted, has not assailed the documentary evidences filed before the AO which has also been made available to the Pr. CIT. Thus, considering the queries raised in the scrutiny proceedings and the replies available on record, it was submitted that it cannot be a correct observation that the issues were not enquired into and in case the Pr. CIT wants to hold that the enquiry made by the AO was erroneous and prejudicial to the interests of the Revenue, then it is necessary and incumbent upon ....
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.... the Revenue. The Court in clear terms has held that the Commissioner exercising his Revisionary Powers cannot direct the AO to conduct further enquiry to verify and find out whether the order passed is erroneous or not. Reliance for similar proposition was also placed upon the order dated 09.04.20-18 in ITA 771/CHD/2017 in the case of Abhimanyu Gupta V Pr.cit. Specific attention was invited to page 44-46 where similar issue has been considered in para 4.4 (copy placed at pages 54 to 66 of the Paper Book) wherein specific finding addressing the legal position on facts in near similar facts relying upon the decisions of the Delhi High Court in the case of Delhi Airport Metro Express (supra) and considering the decision of the ITAT in the case of Narain Tatu Rane V ITO 70 Taxmann.com 227 (Mum) (copy placed at pages 43 to 54, 263 ), the ITAT quashed the 263 proceedings. 13.1 It was submitted that even where the Revisionary authority was of the view that further enquiry was required, the Delhi High Court in the case of DCIT Vs Jyoti Foundation 357 ITR 388 (Del) addressing the position of law has clearly held that in such a case also such an enquiry should have been made by the Revisio....
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....f the order. In the face of such a possible argument reliance is placed on Hari Iron Trading 263 ITR 437 (P&H). It was submitted that the Court has clearly held that if the issues have been accepted by the AO, then it may not necessarily require him to make a mention of the same. Referring to CIT Vs Eicher Ltd. 294 ITR 310, it was submitted that where all material facts are disclosed in assessment stage before the AO to apply his mind, failure of the AO to record a finding in the assessment order does not mean that income has escaped assessment. The mere fact that the order is a short order or a cryptic order does not lay the order open to 263 proceedings. Accordingly, it was his submission that on the basis of these facts and arguments, the 263 orders in the respective appeals deserves to be quashed as the exercise of the power in the facts of the present case in the manner done, was not warranted. 14. It was his submission that although it has been argued that the facts and submissions in ITA 520/CHD/2018 would fully apply to ITA 519/CHD/2018, however for the sake of completeness, it was submitted, he would invite attention to the assessment order to show that the AO after issui....
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.... for the business purposes i.e. there were used for inventory, trade receivable or payment of trade payable. The fact that the funds have been used for business purpose were explained before the AO and the explanation had been accepted by him. The said explanation alongwith supporting evidences was made available even before the Pr. CIT who has not faulted it. Accordingly, in the circumstances, reliance which the Revenue may seek to place on the conclusions of the Pr. CIT which the Revenue may want to argue is a speaking order cannot be upheld as the submissions of the assessee partly extracted in the order have remained completely unrebutted and unaddressed by Pr. CIT. Specific attention was invited to Paper Book page 65, specific page 67 at S.No. 13 demonstrate that queries have been raised and the issues have been replied. For ready reference, the relevant extract of the details required to be shown by the AO is extracted hereunder : 13. Details of addition to unsecured loans along with complete names of the persons/parties. Confirmations to be filed in following format: Name adress Amount of loan Rate at which interst paid Addition during the year Pan no Range Confirm....
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....tinder Singh with all necessary disclosures. Similar facts were available in ITA 519/CHD/2018. In the similar set of facts and circumstances relying upon similar arguments on the same set of facts as in ITA 320/CHD/2018, relying upon similar propositions of law, it was his submission that in the facts of the said case also, revisionary order passed by the Pr. CIT on facts is not justified. For ready reference, attention was invited to similar questionnaires issued by the AO. Replies thereof are also available which were also supported by Form 15CB in similar manner. 14.5 The last issue in ITA 519/CHD/2018 was also flagged by the A.O and replies by the assessee. Since the reply given by the assessee was accepted by the Pr. CIT. Accordingly the issue is not being addressed. Accordingly, it was submitted that on all the other issue the arguments advanced in ITA 520/CHD/2018 would fully apply to the present case also. 15. The ld. CIT-DR submitted that the arguments advanced on behalf of the Revenue would address both the appeals as issues are similar. Heavily relying upon the respective orders of the Pr. CIT, it was submitted that the orders are speaking orders and consequently the a....
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.... any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. In the above case, it is humbly submitted that the following decision may kindly be considered with regard to validity of proceedings u/s 263 of I.T.Act: 1. Malabar Industrial Co. Ltd. Vs CIT [20001 109 Taxman 66 (SC)/(2000) 243 ITR 83 (SC) (2000) 159 CTR 1 (SO where Hon'ble Supreme Court held that where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263(1) was justified. 2. Surya Jvoti Software Pvt. Ltd. Vs PCIT. I.T.A. No.2158/DEL/2017. ITAT Delhi Where Hon'ble ITAT Delhi has held that the Pr. CIT has amply demonstrated in his impugned order that this issue was neither enquired into nor was verified by the Assessing Officer on....
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....s have extensively argued the issues ITA 520/CHD/2018 with the understanding that the arguments advanced therein would fully apply to similar set of facts and circumstances of the case in ITA 519/CHD/2018. We find on going through the specific findings of the Pr. CIT in ITA 520/CHD/2018 which on each of the issues has been addressed in the present proceedings at page 5, 7, 9, 10 and 11 respectively in the impugned order and find that no error in the order passed by the AO has been referred to by the Pr. CIT in the order passed by the AO let alone such an error which can be said to be prejudiced to the interests of the Revenue. The relevant extracts of the specific findings on each of these issues which are being extracted in the foregoing paras for the sake of completeness fully supports the conclusions drawn. Admittedly, on each of these issues flagged by the Pr. CIT, the A.O raised queries by way of questionnaires and order sheet entries. Admittedly these arguments so made were strengthened by supporting documents. We find that no contrary evidence or fact has been referred to by the Pr. CIT let alone any justification for exercising his Revisionary Powers. On a perusal of the re....
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.... claimed. 6. Additions in Fixed Assets ............................................ .......................................... I have carefully considered the submissions of the AR. In the show cause notice WDV of various fixed assets are recorded as additions made during the year. The Assessing Officer did call for the details of assets added during the year which have been placed on record without any verification regarding its installation and user during the year. He has not called for the invoices of the fixed assets installed during the year even on random basis. On this ground therefore there is lack of inquiry by the AO. 7. Purchases made from persons covered u/s 40A(2)(b) of IT Act, 1961 .............................................. .............................................. It is noted from the assessment record that form No.3CEB detailing transactions" with associated enterprises with whom the assessee has entered into specified domestic transactions is furnished. However the AO has not make any verification or inquiry to determine that the said transactions are at arm's length. These transactions are not scrutinized and examined as to wh....
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....3-14 is set aside to be made afresh on the issues discussed above in para 5 to 8 and the show cause notice (supra) after properly examining the subject issues and conducting inquiries and verification after giving sufficient opportunity of being heard to the assessee." 17.2. We have seen that the Pr. CIT has invoked Explanation-2 to Section 263. For ready reference, the relevant provision is reproduced hereunder : "Revision of orders prejudicial to revenue. 263. (1) ........................... ... Explanation 1.... .................. a) .......................................... b)................................. c)....................................... Explanation 2................. (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim;- (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the....
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....each of the issues flagged by the Pr. CIT, the assessee's replies made available have been carelessly and arbitrarily brushed aside by stating that AO has not made any verification or enquiry. In order to demonstrate that there was an error, in terms of the judicial precedent available, the Pr. CIT should have carried the issue to its logical conclusion and not remanded the order with the bland direction directing that the assessment be made afresh. For the exercise of Revisionary Power, the error in the passing of the order should have been demonstrated. In the absence of the same, the power exercised by the Pr. CIT is open to the challenge of being arbitrarily whimsical and at best a fishing and roving enquiry. The fact that the assessment order passed is a cryptic order by itself at best can give rise to suspicion. Notwithstanding the fact that the writing of the order is not in the hands of the assessee, the assessee at best can rely on the questionnaires issued by the A.O requiring the assessee to address and explain the flagged issue. The fact remains that having raised various issues by way of questionnaires, the AO further raised questionnaires and order-sheet entries e....
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.... is not dealt with in the assessment order would not lead to a conclusion that no mind had been applied to it." 17.4. Reference may also be made to the strict view taken by the Delhi High Court in the case of statutory limitation of two years for the Revisionary Authority while exercising the Revisionary Power u/s 263 which can be extrapolated to the strict view taken by the Courts that the Revisionary power cannot be exercised casually and whimsically to carry out fishing and roving enquiries. Reference is being made herein qua limitation of two years in the case of Tulsi Tracom P.Ltd. V CIT (2018) 161 DTR 0148 where Court has held; "CIT(A) who issued order u/s 263 ought to have been fully satisfied that adequate opportunity was given to Assessee to controvert facts stated in notice u/s 263 and to explain circumstances surrounding such facts- Section 263(2) was clear bar for any order being passed pursuant to notice u/s 263, after expiry of two years from end of financial year in which order sought to be revised was passed-Thus, there was outer limit in statute u/s 263 which, was 31st March, 2013-Since, no useful purpose would be served in giving opportunity to Appellant of be....
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.... such an enquiry and in cases whe4re nothing has been done, then it is necessary for the Revisionary Authority to demonstrate that the error which the authority seeks to address is clearly set out in the order to show how the error can be said to be prejudicial to the interests of the Revenue. In the facts of the present case, the Pr. CIT has exercised the power by merely flagging certain issues extracting the Show Cause Notice, extracting part of the reply of the assessee and without caring to address the same has summarily arrived at the conclusion ignoring the facts, evidences and plethora of jurisprudence available on the issue which casts responsibility on the Pr. CIT to point being out the error and not any and every error but such an error which is prejudicial to the interests of the Revenue. The twin requirements and the sine-qua-non for exercising the Revisionary Power cannot be left at the mercy of whims and fancies of Revisionary Authority the same should be brought out on record mere suspicions are not enough. In order to support the conclusion drawn reference may also be made to the decision of the Co-ordinate Benches in Narain Tatu Rane V ITO (supra) which clearly bri....