AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (5) TMI 735
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.... the year under consideration declared loss at Rs. 2,19,44,882/- which was selected for scrutiny under CASS. Finally, the AO assessed the income at Rs. 91,19,044/- vide order dated 28th December 2017. 4. Subsequently, the learned Pr. CIT from the assessment records found that during the year the assessee firm received an amount of Rs. 3,22,78,000/- from 11 partners as capital introduction. The AO made addition of Rs. 12,00,000/- as unexplained credit on account of capital contribution from 2 partners only whereas no finding was given regarding remaining amount of Rs. 3,10,78,000/- representing capital received from 9 partners. 5. Likewise, the ld. PCIT further found that the AO made an addition of 10% of sundry creditor for Rs. 4,29,42,277/- (total) on ad-hoc basis to plug possible revenue leakage. However, as per the ld. PCIT, there is no provision under the Act to allow or disallow sundry creditors on ad-hoc and certain percentage basis. As such, the AO was required to verify the entire sundry creditor and accordingly reached to the logical conclusion. 6. The ld. PCIT also found that the AO vide paragraph number 9.2 of his order worked the amount of suppressed production at Rs....
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....whereas the capital was contributed by 11 partners in total. Thus, the stand taken by the AO is contradictory based on the facts available on record. The learned DR further contended that the AO has not carried out the necessary verification which should have been done under explanation 2 to section 263 of the Act. The ld. DR vehemently supported the order of the authorities below. 10. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether the assessment order has been passed by Ld. AO without making inquiries or verification or proper application of mind with respect to capital introduced by the partner of the assessee firm, the outstanding balance of the sundry creditor and alleged suppressed production which is erroneous insofar prejudicial to the interest of the Revenue and thus requiring revision by Pr. CIT u/s 263 of the Act. 11. An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on ....
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....mstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assess....
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....carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquires or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant." 15. The Hon'ble Supreme Court in recent case of Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates*[2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revised order after making addition to assessee's income under section 69A in respect of on money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of such on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case wer....
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....inciple which emerges is that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Assessing Officer adopts one of the course permissible in law and it has resulted in loss of revenue; or where two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax does not agree, it cannot be treated as an erroneous order causing prejudice to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law, or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind. 18. Now in the facts before us, the first allegation of the learned PCIT is that the AO has not carried out inquiry and given finding with regard to the capital contribution by 9 remaining partners. In this regard we note that the AO during the course of assessment proceedings, raises specific query on the issue capital contribution by....
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....ed by the 2 partner only. Thus, the allegation of Pr. CIT for initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification with regard to other partners is factually incorrect. At this juncture we also feel pertinent to refer the judgment of Hon'ble Delhi High Court in case of CIT vs. Vikas Polymers reported in 194 Taxman 57 where it was held that where the AO raised query but such query and reply thereto not reflected in assessment order, then such order cannot made subject to revision under section 263 of the Act. The relevant observation of the Hon'ble High court is extracted as under: This is for the reason that if a query is raised during the course of scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. 21. Thus, the order of the AO cannot be held erroneous on account of first allegation made by the learned PCIT i.e. the AO has not carried out inquiry and given finding rega....
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....est of revenue is that the AO made addition of outstanding sundry creditor on ad-hoc i.e. certain percentage of outstanding balance without making proper inquiry and reaching to the logical conclusion. Likewise, the third allegation of learned PCIT is that the actual amount worked out for supressed production and amount added while computing assessed income are different. Regarding both the issues, we note that the assessee is in appeal before the learned CIT(A). This fact can be verified from the memo of appeal filed by the assessee before the learned. CIT(A) against the assessment order framed under section 143(3) of the Act. The relevant extract of the memo of appeal is reproduced as below: "The learned Assessing Officer has erred in law as well as on facts in making addition of Rs.42,94,228/- on account of alleged unexplained sundry creditors." "The learned Assessing Officer has erred in law as well as on facts in making addition of Rs.2,02,36,851/- on account of alleged suppression of production of goods." 25. Once the issue is pending before the learned CIT(A), the same cannot be made subject matter of revision under the provisions of section 263 of the Act. In such fact....