TaxTMI 
TaxTMI 
2022 (8) TMI 1048
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.... is erroneous insofar as it is prejudicial to the interests of revenue in respect of any of the issues raised. 3. The learned Pr. CIT acted without jurisdiction in passing an order in respect of the claim for shrinkage on petrol and diesel which was duly considered by the Ld. AO before passing order u/s. 143(3). 4. For these and other grounds that may be adduced at the time of hearing, the order of the learned Pr. CIT may be quashed and the appeal allowed. The appellant craves leave to add to, or, amend/ alter/ withdraw any of the above grounds of appeal. All the grounds of appeal are without prejudice to each other." 2. The relevant facts of the case are that the returned income of Rs. 2,74,810/- filed by the assessee was accepted by the AO by passing an order u/s 143(3) of the Act on 24.11.2017. The assessee in the said return had also disclosed agriculture income of Rs.70,19,204/-. 2.1 The said case was selected for scrutiny through CASS specifically in view of the fact that "large agriculture income and low income shown as large contractors". 2.2 This order was subjected to the Revisionary Powers u/s 263 by issuing Show Cause Notice to the assessee. ....
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....ing and closing stock, purchase and sale and shortage of 9823 in HSD and 12772 in MS stood disclosed and considered. It was submitted that this was evidenced from replies and queries raised in Question No. 4 & 5. Replies to Question No. 6 and 7, it was submitted, would show that the purchase was only from IOC and sale was made to various clients in routine and it was responded that there were no sales to any sister concern as there is no sister concern. The response to question No. 12, 20 and 22, it was submitted, would show that the ledger account for expenses, debited to P&L Account and copies of bills and vouchers were all produced for verification before the AO. Bills and vouchers to support the agriculture income alongwith Jamabandi and Fard to establish ownership and bills and vouchers of commission agents to support the agriculture income, it was submitted, were all produced before the AO. 3.4 Attention was invited to another reply appended at page 2223 which would show that apart from addressing agriculture income, the assessee had also explained GP fluctuation as under: 3.5 Attention was also invited to Paper Book page 24 to 25 which is copy of the Stock Register of ....
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....s "large agricultural income & low income shown by large contractors". Statutory notice u/s. 143(2) of the Act, was issued on 25.07.2016. Subsequently, fresh notices U/s. 142(1) & 143(2) of the Act along with questionnaire were issued to the assessee on 18.08.2017." (emphasis supplied) 3.8 It was submitted that the AO after examining the entire details and being conscious of the fact that the order was selected for limited scrutiny and after addressing the GP rate etc. accepted the returned income of the assessee holding as under : "5. The submissions furnished by the assessee. have been considered. Further, Books of Account that were produced by the assessee have been examined. The reasons for selection of the case for scrutiny have been verified/examined and no adverse inference is drawn. 3.9 Inviting attention to the impugned order, it was his submission that this order has been directed to be revised without pointing to any error or mistake of such magnitude which can be said to be also prejudicial to the interests of the Revenue solely on account of the Audit Objection of shrinkage. This also, it was submitted, has been enquired into by the AO and has b....
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.... Portal. For ready reference, the same is extracted hereunder : 3.15 Accordingly, it was his submission that in the facts of the present case, the ld. PCIT not even caring to consider the said reply, not considering the record available blindly relying upon the very same audit objection has passed the order setting aside a validly passed order without pointing to any mistake in the order passed by the AO. The exercise of Revisionary power, it was submitted, is not in consonance to the twin conditions as addresses by Courts, nor is it an exercise after due application of mind. The order has been passed mechanically with pre-determination to set aside the assessment order. No efforts, it was argued, were made to go through reply of the assessee available on record. The ld. PCIT was fully aware of the fact that the case had been selected for limited scrutiny for the specific reason and ignoring the fact that the shrinkage already stood enquired into by the AO passed the order mechanically, blindly relying upon the very same audit objection setting aside a validly passed order without pointing out any error in the order passed. The fact that detailed assessment order had been passed....
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....een examined. The reasons for selection of the case for scrutiny have been verified/examined and no adverse inference is drawn." 3.16 Inviting attention to the impugned order it was re-iterated that the Show Cause Notice dated 28.02.2020 was received by the assessee on 04.03.2020and accordingly, assessee could not participate in the late afternoon in the proceedings which were fixed at 11.00 AM on the said date. However, that Show Cause Notice, it was re-iterated was replied to by the assessee. Paper Book pages 37 to 39 of the Paper Book were again relied upon which would show that the assessee argued that all these issues were enquired into by the AO. 3.17 Accordingly, action u/s 263, it was submitted, was contrary to law as it is not a case of non examination of the issues by the AO and law does not permit the ld. PCIT to substitute his opinion on same set of facts for the decision of the AO unless the twin requirements are met. The Revisionary power, it was submitted, as per settled legal precedent cannot be exercised on the grounds of possibilities and guess work. It was argued when all the documents were available on record, the evidences and the issues stood enquired in....
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....excess 7346 litres on sale of HSD and 8282 litres on sale of MS. By taking the closing valuation rate for HSD and MS at Rs. 48.62/- and Rs. 43.55/- respectively as on 31.03.2015, it appears that you have claimed excess loss on account of shrinkage/evaporation of these fuels at Rs. 3,19,918/- (7346*43.55) & Rs 4,02,670/- (8282*48.62) for HSD and MS respectively resulting thereby you have under reported your income by an amount of Rs. 7,22,588/-. This aspect has not been taken into consideration by the AO while framing the assessment under section 143(3) of the Act." 3.19 Inviting attention to the impugned order, it was submitted that ignoring the reply of the assessee, ld. PCIT unilaterally concluded that the assessee is not interested in giving any reply and without referring to the facts of the assessee's case proceeded to rely upon decisions which held that the Revisionary powers are justified where the order is erroneous and prejudicial to the interests of the Revenue. The order, it was submitted, is contrary to law and facts. 3.20 The decisions relied upon, it was submitted, are distinguishable on facts. The Apex Court in the case of Rampyari Devi Sarogi Vs CIT 67 ITR....
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....s allowed." 3.21 Attention was invited to para 23 of the said judgement wherein Court held as under : "This Court has also examined the question as to whether an opportunity of hearing could now be afforded to the Appellant. However, Section 263(2) of the Act is a clear bar for any order being passed pursuant to a notice under Section 263 of the Act, after expiry of two years from the end of the financial year in which the order sought to be revised was passed. Thus, there is an outer limited in the statue under Section 263 which, in the present case, is 31s' March, 2013. Since, no useful purpose will be served in giving an opportunity to the Appellant of being heard at this stage, this Court answers question No.1 in the negative i.e. in favor of the Assessee and against the Revenue. " (emphasis supplied) 3.22 Accordingly, relying upon the binding precedent as available in this decision rendered by Apex Court in the case of Sona Building and of the Delhi High Court in TulsiTracom Private Ltd. Vs CIT (supra) it was his prayer that the order may be quashed. It was further submitted that there is no independent application of mind of the ld. PCIT. Accordingly, re....
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.... Court and Chandigarh Bench of the ITAT and other, the proceedings as initiated by the PCIT are bad in law and deserves to be set aside. 4. On merits, it was argued that the issues already stood enquired into by the AO on account of the audit objection. The shrinkage, it was argued had specifically been addressed. The shrinkage, it was argued is a normal routine loss in this nature of business and the percentages of the IOC are at best estimates for addressing the issues between the parties. These percentages on an estimate basis cannot factor in each and every situation. The shrinkage occurs not only on account of loss suffered on account of evaporation etc. for which there are estimates. The shrinkage loss etc. also occurs on account of spillage etc. and on account of transportation loss etc. When the AO has already looked into this aspect and this fact was in the knowledge of the ld. PCIT as these documents and explanations were forming part of the record, the observations of the ld. PCIT in para 5 merely setting aside the order without referring to the facts and without pointing out at any error in the action of the AO in accepting the assessee's version, it was submitte....
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....ion 263 to the Assessing Officer who shall examine the facts of each case and take a suitable action as per his independent application of mind on the facts of each case. 5.2 Referring to the same, it was his submission that there is nothing wrong in the PCIT's assumption of jurisdiction. The PCIT has all the powers to call for records and pass appropriate Revisionary Orders u/s 263 when Audit Objections are flagged. It was his submission that in case the ld. PCIT does not choose to invoke powers u/s 263, then the said authority can refer the matter to the AO to pass an order u/s 154 etc. as per para 5.4 of the Instructions. 5.3 Accordingly, it was his submission that in law, there is no reason why the ld. PCIT cannot take recourse to powers u/s 263. Attention was invited to documents available on record on the basis of which it was argued that there was some mis-match in the details and it was his submission that if this aspect is enquired into by the AO, then the assessee has all the rights to argue whatsoever the assessee chooses to and by setting aside the order, no prejudice can be said to be caused to the assessee. 6. The ld. AR reiterated that he is strongly opposin....
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.... 1 and then, in para no. 5 also. It is submitted that for the purposes of section 263, it is the satisfaction of the PCIT independently, which is required, before it can be held that the assessment as framed by the Ld. PCIT is erroneous and prejudicial to the interest of revenue. It has been held that, where the assessment is cancelled by the PCIT on the basis of the proposal sent by the Assessing Officer, the order passed by the PCIT cannot be sustained for this reliance is being placed on the judgment of the 'Amritsar Bench' of ITAT, in the case of 'Ambey Construction Co.' placed at judgment set 140 to 167 and the relevant discussion on this subject is at page no. 147 to 149, 156, 160 & 167, wherein, by relying upon the various other judgments of the 'Jaipur Bench' and 'Pune Bench', the order passed by the Ld. PCIT has been quashed, though on merits also, the order as passed by the Ld. PCIT have been quashed. The following other judgments are there as under on the similar issue: i. Judgment in the case of 'Manish Chirani' vs PCIT in ITA No. 1161 /Kol/2019 copy of the judgment is placed at pages 187 to 194 ii. John Gait Int....
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.... Revisionary powers cannot be allowed to be exercised whimsically or arbitrarily. The Authority is expected to exercise the power after duly considering the record, and ensure a meaningful and effective opportunity of being heard is provided to the assessee after issuing a Show Cause Notice and only thereafter pass an order after active and conscious consideration of the record and the replies of the assessee which may be available in the course of the hearing. In the facts of the present case, ld. PCIT was conscious of the fact as to why the specific case was selected for scrutiny under CASS. The ld. PCIT also had the benefit of queries raised by the AO and the replies of the assessee. The fact that there was a shrinkage loss higher than the estimate, was also a fact available on record. In the facts of the present case the 263 action was triggered by the higher percentage loss as flagged by the Audit Objection is a fact on record. The fact that the issues were enquired into by the AO in the facts of the present case or that on the audit objections, the AO required the assessee to offer its explanation, the fact remains that the higher percentage or shrinkage loss is based on esti....
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....on makes it clear that the two reasons being considered by the Hon'ble High Court i.e. Audit Objection and the possibility of the Revisionary Authority having a view different from the view taken by the AO were by itself not sufficient to warrant the exercise of Revisionary Powers u/s 263. The decision proceeds on the well accepted legal position of law, namely the order sought to be set aside by the ld. PCIT must necessarily meet the twin requirements of pointing out the error in the order passed and such an error which is also prejudicial to the interests of the Revenue. By merely citing an Audit Objection and setting out facts that a different view is also possible on the same set of facts has been held to be not a valid exercise of the Revisionary powers u/s 263 of the Act. Thus, we find that the Hon'ble High Court in the aforesaid decision did not lay down the proposition that in any case where there is an Audit Objection, the ld. PCIT is barred to consider exercising powers u/s 263. For the sake of completeness, we reproduce para 7 from the aforesaid decision : "7. A reference to the provisions of s. 263 of the Act shows that jurisdiction thereunder can be ex....
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....submit clarifications/ information as under: 2. The detail of Agricultural Income & Expenditure is as under:- Ass. Year: 2015-16 Gross Receipt Rs. 93,64,354. Exp. 23,45,150. The Party wise breakup of Apple Sales is as under: S.No. 1 2 3 4 S 6 7 Party JCO Traders, C-124, New Subzi Mandi, Azadpur, Delhi Chauhan Apple Co., Shop 19A, Terminal Market, Pwn S.T.C Shop No. -44, Subzi Mandi, Dhalli, Shimla-2 Hateshwari Apple Co. Shop 19, Terminal Market, Pwn Universal Apple Ass. P Ltd, 28 Subzi Mandi, Pwn Chauhan Apple Co., Shop 19A, Terminal Market, Pwn Store Local Sale Amount 32,66,158. 16,05,596. 5,31,840. 3,69,980. 10,79,194 20,91,164. 4,20,422. 2. 3. 4. 5. TOTAL Rs. 93,64,354. The Ledger account for tanker expenses is on record and the analysis of the route wise consumption of Diesel and expenditure on trip basis is attached. The capital is introduced out of the agricultural receipt and drawings are also for personal and agricultural needs copy of capital account is attached. Proof of payment of VAT payable as on 31.03.2015 is attached. The GP Fluctuation is mainly....
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.... 22/02/2019 To The Income Tax Officer, Ward-2, Shimla (H.P) Sub.: Rajinder Chauhan S/o. Sh. Rama Nand Chauhan, Vill. Dhangvi, PO Kokonala, Tehasil Kotkhai, District Shimla (H.P) Sir, Ass. Year: 2015-16 PAN: AAZPC1684M Ref. your letter F No. ITO/WARD-2/Shimla/Audit/2018-19/1037 dated: 29/01/2019, I have been directed by my above noted client to submit reply as under: The revision shrinkage allowance for MS and HSD w.e.f. 01/11/2016 as per letter issued by IOC is attached. The shrinkage is allowed and deducted from the physical stock measurement and as such the value of the same automatically gets deducted from the closing stock as such is charged to revenue in form of deduction from stock in hand. This is the common practice followed across all petrol pumps. Thanking you, Yours sincerely, (CA. Dinesh Kumar Sood) Document 4 IndianOil Best price value to the customer for our growth and market leadership Ref: P-7 MSHSD For: EDS NR/ER/WR/SR Tel: 26447000 FAX: 26421844 Marketing Disos Head Office Mumbai 30 No: HO 858 SUB:REVISION SHRINKAGE 1. Effective from: 2. What is changed: 3. ....