TMI Blog2022 (8) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... t made available to the assessee to put in an effective hearing. Onerous responsibility to provide an effective and fair hearing was treated like a meaningless exercise of merely ticking the box. It is unfortunate that no effort was made to even address the written reply of the assessee received on the IT Portal. The exercise of Revisionary powers cannot be allowed to be exercised whimsically or arbitrarily. 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 estimated percentages in regard to evaporation etc. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion to initiate proceedings under section 263 of the Income Tax Act, 1961 (hereafter, the Act ) as the assessment order sought to be revised is neither erroneous nor prejudicial to the interests of the revenue. 2. The impugned order of the learned Principal Commissioner of Income Tax is bad in law as there is no specific finding in the order that the order of assessment 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pening and closing stock details etc. and all of these stood furnished before AO. Attention was also invited to notice u/s 142(1) dated 18.08.2017 at Paper Book page 19. The assessee's reply, it was submitted, is available at Paper Book pages 20-21. The assessee in its reply has shown its comparative GP rate which has been enquired into and the HSD and MS motor oil opening 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon by the ld. AR from the assessment order is reproduced hereunder : Return declaring income of Rs.2,74,810/- and agricultural income of Rs.70,19,204/- was filed by the assessee on 06.10.2015 and the same was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter the Act). Later on, the case of the assessee was selected for scrutiny through CASS on the reasons 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee still made efforts in good faith and replied to the Show Cause Notice within a reasonable time. The reply within days was filed on 09.03.2020. Copy of the said reply, it was submitted, is available at pages 37 to 40. It was elaborated that the specific reply is at pages 37 to 39 and page 40 is the evidence of the fact that the reply of the assessee stood filed on 09.03.2020 on the ITBA 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year whereas the margin on these items is on per liter basis. As such, there is a marginal fall in CP. The G.P. rate declared is comparable to the G.P. rate declared by all Oil dealers in the region and is specifically as per Trading Account. 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. 3.16 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng stock variation of Motor Spirit and Diesel evaporation/handling loss is @ 0.75% and 0.25% on quantity sold up to an annual sale of 600KLs and beyond 600KLs the permissible limits of evaporation loss are @ 0.60% and 0.20% on petrol and diesel respectively. On calculation of the permissible shrinkage allowance in the category of HSD and MS, it is noted that you have claimed 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&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DTR 0148 it was his submission that the order may be quashed. It was submitted that the Hon'ble Court therein held: Thus, there was an outer limit in the statue u/s 263 which was 31.03.2013- since no useful purpose would be served in giving the opportunity to the appellant of being heard to this stage, question answered in favor of the assessee - the assessee appeal is 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Bench) g) M/s Dashmesh Motors vs. Pr CIT in ITA No. 187/Asr/2015 order dated 23.05.2016 (Asr bench) h) ShriJagjit Singh vs.Pr CIT in ITA No. 2777/Del/2018 (ITAT Delhi) i) Shri Sunil ChhaganBhaybhangvs.Pr CIT in ITA No. 932/PUN/2016 (Pune Bench) Thus, on the basis of above said binding judgements of the Jurisdictional High 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the Revenue Audit objection is accepted, the PCIT shall decide if the relevant order under audit requires revision u/s 263 as remedial action. If yes, he shall call for the relevant records and proceed to initiate action u/s 263. 5.4 In other cases, the PCIT shall communicate his decision not to invoke section 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, the order as passed by the Ld. PCIT have been quashed. C. Besides the submission, already made, it may be stated that the Ld. DCIT has passed the order on the basis of the proposal sent by the Assessing Officer and this is borne out from the order of the Ld. PCIT u/s 263 at page no. 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 meri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an effective hearing. Onerous responsibility to provide an effective and fair hearing was treated like a meaningless exercise of merely ticking the box. It is unfortunate that no effort was made to even address the written reply of the assessee received on the IT Portal. The exercise of 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 Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposition of law as laid down by the jurisdictional High Court is that; Mere Audit Objection and merely because a different view could be taken were not enough to say that the order of the AO was erroneous or prejudicial to the interests of the Revenue. A plain reading of the said decision 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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