TMI Blog2009 (1) TMI 343X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT v. Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT] , I am entirely in agreement with the order of Id. JM, who has come to a correct conclusion that in the light of the decision of the Supreme Court in the case of Malabar Industrial Co. Ltd.[ 2000 (2) TMI 10 - SUPREME COURT] , the order of CIT u/s 263 cannot be sustained. She has correctly vacated the order and I agree with her finding on the first issue. The cash creditors are identified. They have also furnished the proof of source from which they have offered the credits to the assessee and most of the cases they were all assessed to tax. In a situation like this, it is for the AO to choose what he wants from out of such details. If he is not satisfied with the creditworthiness of any of the creditors, he could have made an addition in their hands. So far as the assessee is concerned, it has come from known source which has been properly explained. Moreover, in all these cases, the transactions have been conducted through regular banking channels. From the perusal of the records that were there before the AO, it cannot be said that the AO did not make any enquiry. It can only be said he did not reach th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of scrutiny Under Section 143(2) and an assessment Under Section 143(3) was framed by the Assessing Officer on 20.6.2005. The CIT acting Under Section 263 considered the said order passed by the AO as erroneous and also prejudicial to the interest of the Revenue so far as it relates to certain cash credits appearing in the books of account. According to the learned CIT, the AO has made no query about the sources of amount of loan in the hands of the creditors and creditworthiness of the creditors and also the source of the cash deposit immediately before the clearance of the cheque of the creditor as also the nature of the transfer entry has not been enquired into by the AO. According to him, the cash credits have been accepted by the AO on the basis of certain papers filed by the assessee without making any enquiries about the genuineness of the transaction and creditworthiness of the creditor. The order Under Section 263 was challenged before the ITAT. The learned JM who drafted the order for the Bench did not find favour with the order of the learned CIT and according to her, there was no error in the impugned assessment order, let alone causing prejudice to the interest of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 13 of the said notice and the assessee has filed the confirmation letters from all the cash creditors. He has also filed their affidavits and bank pass books. The details filed by the assessee shows that cash creditors wee assessed to tax and all this information is part of record. In the light of this information available in the assessment records, it cannot be said that the order of the Assessing Officer can be concidorod-s J erroneous and prejudicial to the interests of revenue. In fact, exactly the same situation was there before the Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. (supra) wherein their lordships of Bombay High Court have examined the scope of Section 263 and have held as under: The power of suo motu revision under Sub-section (I) of Section 263 is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interest of the Revenue. It has, therefore, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on records to satisfy ii in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. Any other view in the matter will amount to giving unbridled and arbitrary power to revising authority to initiate proceedings for revision in every case and start reexamination and fresh enquiries in matters which have already been concluded under the law. It is quasi-judicial power hedged with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, undoubtedly it is an administrative act, but on examination, to consider , or in other words, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Commissioner of Income-tax-I, Agra dated 23-11-2006 for 2003-04 assessment on the following grounds: 1. That the Id. Commissioner of Income Tax-I, Agra has erred in law and on facts in assuming jurisdiction Under Section 263 of the income-tax Act. 1996 for the Assessment Year 2003-04 and consequently setting aside assessment order on certain issues. 2. That the Id. C.I.T.-I, Agra has erred in law and on facts in directing the Assessing Officer to complete the assessment after verifying the credit worthiness of the following creditors/loans: Rs. Smt. Madhy Rani Bansal 150000/- Smt. Anju Bansal 500000/- Shri Manish Kumar Bansal. 100000/- Smt. Pushpa Devi 250000/- Smt. Rajni Jain 250000/- M/s Devki Nandan Agarwal Co. 200000/- Shri Narendra Kumar Agarwal 150000/- Shri Anil Kumar Bansal 150000/- 3. That the Id. Commissioner of Income Tax-I, Agra has failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the bank interest, on a scrutiny of the profit and loss account, it was observed by the AO that the assessee has debited Rs. 58,96,068/- being the financial expenses. The AO considering the assessee's submission and the position of law held that interest received on FDR was not business income, as such not entitled for deduction Under Section 80HHC which is not an issue in the present appeal. Apart from that the AO considered car expenses, car depreciation, telephone expenses, festival expenses, donation etc. in order to make the addition. 4. On a perusal of the said order the CIT came to the conclusion that the assessment order passed on total income at Rs. 1,96,52,955/- as against returned income of Rs. 1,84,96,279/- was prima facie erroneous in so far as it is prejudicial to the interests of the Revenue for the reason that in the year under consideration following new loans had been shown. 1. Smt. Madhu Rani Bansal 11.02.2003 150000 2. Shri Amit Kumar Bansal 11.02.2003 150000 3. Anju Bansal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. The source of the cash deposited immediately before the clearance by cheques by the creditors and the nature of transfer entry was also not enquired into by the AO. In regard to the other creditors he was of the view that the assessee has only filed copy of account in the books of the creditors, no copy of bank account etc. to prove the genuineness of the transaction and credit worthiness of the creditor had been filed. As such no query had been made by the AO about the source of amount of loan in the hands of the creditors and the credit worthiness of the creditors. 5. On the basis of the above facts the CIT issued a detailed notice Under Section 263 of the Income-tax Act, 1961 dated 25-01-2006 to show cause as to why the assessment for the said year should not be revised as the assessment is erroneous in so far as it is prejudicial to the interests of the Revenue. As no enquiries had been made by the AO about the genuineness and credit worthiness of the creditors and the same had been accepted only on the basis of papers filed by the assessee without making any effort to enquire about the genuineness of the transaction and credit worthiness of the creditors. 6. A perusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 1 and 2 by way of which the assessee would want to argue that the CIT-I, Agra has failed to consider and appreciate the aspect that all these above mentioned persons are assessed to tax, their identity is established and not in question. The transactions are genuine and credit worthiness of these persons had been proved before the AO who had accepted the same. Attention was invited to paper book page No. 1 and 2 which contains the notice under Section 143(2)/142(1) dated 24-1-2005 of the AO. Specific attention was invited to query 3, 13 18. For ready reference the same are reproduced hereunder: 3. Furnish copy of bank account in which sale realization has been credited. 13. Please furnish confirmation of all cash creditors/loans either these are old or new. The confirmation should contain/complete address of the creditors alongwith their PAN No., Name of the I.T. authority who is assessing him should also be clearly mentioned, if he is an assessee and if he is not as assessee it should be clearly mentioned on the confirmation. If cash creditor or loans are new, please furnish documentary evidence to prove its genuineness and also furnish evidence to prove the capacity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they stand the Commissioner, it was submitted, was not justified in coming to the conclusion that no queries have been found to have been made with regard to the genuineness of the transaction. The finding of the Id. Commissioner in the face of the evidence before him, it was argued is contrary to facts and record. Reliance was placed upon CIT v. Goyal Private Family Specific Trust (1988) 67 CTR (All) 206 : (1988) 171 ITR 698 (All). Copy of the same it was submitted, is placed at pages 1 to 4 in the paper book which contains case law. Specific attention was invited to para 6 of the said judgment emphasise that their Lordships of the Allahabad High Court in the said judgments have dismissed the application of the Department wherein the ITO made his order brief and cryptic. Relying on the said judgments, it was argued that this fact alone their Lordships have held by itself was not a sufficient reason to brand the assessment order as erroneous and prejudicial to the interests of the Revenue. Their Lordships therein took cognizance of the fact that writing an order in detail may be a legal requirement but the order not fulfilling these requirements cannot be said to be erroneous and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terests of the Revenue. Reliance was also placed upon CIT v. Max India Ltd. (2004) 191 CTR (P H) 397 : (2004) 268 ITR 128 (P H). 12. The learned DR Mr. C.L. Ambesh, on the other hand, heavily relied upon the impugned order. It was his submission that the Commissioner has given detailed reasons and has found on facts that the creditors have not been able to explain the availability of money with them and there is no discussion in the impugned order in regard to the same. It was argued that simply because a detailed notice was issued to the assessee and he offered an explanation thereto, it was his submission that in such a situation it cannot be said that the AO has enquired into the same and examined it. This fact it was submitted is borne out from the fact that no discussion has been made in the Assessment Order. As such heavy reliance was placed upon the impugned order. 13. We have heard the rival submissions and perused the material available on record. On a careful consideration of the same, we are of the view that in the admitted peculiar facts and circumstances of the case the impugned order deserves to be quashed. The assessee has demonstrated before us that sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mode and specific cheque Nos. through which the loans were given. The loans were stated to be explained from the amounts representing return of loans advanced by her and return from Smt. Kamlesh Rani and M/s M.S. Builders. The documents pertaining to her are found at pages 16 to 18 and she too was an assessee even in 2002-03 assessment year. 16. Similarly, Shri Manish Kumar Bansal who has advanced a loan-of Rs. 1,00,000/- attended before the Commissioner, and submitted his return for 2002-13 assessment year before him which had been placed before the AO also. The source of the cash of Rs. 50,000/- found deposited in his account was explained from Dalali of silver ornaments. Similarly in regard to Smt. Pushpa Devi although she did not appear, however, a written reply dated 20th Nov., 2006 was filed as found discussed at page 6 of the impugned order stating that she is engaged in the business of undergarments on job work basis. She further confirmed the advancement of loan of Rs. 2,50,000/- and apart from the money deposited from her independent business she also stated that the amounts representing the receipt of death claim of her husband from L.I.C. was also deposited in the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his own right. 18. We may make a reference on this aspect of the judgment of Gauhati High Court in the case of Nemichand Kothari 246 A.R. 254 (Gauhat) and the principles laid down therein.. We have also taken into consideration the judgment of the jurisdictional High Court in the case of CIT v. Goyal Private Family Specific Trust, Accordingly after considering the peculiar facts and circumstances of the case and on considering the legal position as discussed in the earlier paras of this order, we are of the view that simply because the assessment order does not make a specific reference to the factum of examination on this issue does not make the order erroneous and prejudicial to the interests of the Revenue. The fact that the said issue was enquired into by the AO stands unrebutted on record the fact that it was responded to by the assessee before the AO also stands unrebutted on record. The fact that identical submissions were made before the Commissioner which have been discussed and not disputed qua the material available on record also stands unrebutted. However, the learned Commissioner did not agree with the conclusion of the AO being of the view that the creditors who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et aside under Section 263 on the satisfaction of the learned Commissioner. The satisfaction so arrived at has to be arrived at objectively and not arbitrarily and on the facts available before their Lordships it was easily demonstrated that proper enquiries were not called forth by the A.O. and the assessee's claim was accepted without proper enquiries. A perusal of the said Judgment shows that in the facts of that case the refund of excise duty had been received back by the assessee amounting to Rs. 31..79,427/- which had been placed in the suspense account and for not placing the same in its P L account the assessee claimed that portion of this amount is claimed by a third party and Writ Petition was pending in Court. The said claim of the assessee was accepted by the A.O. without enquiry and the amount was not included in the taxable income of the assessee. The Commissioner and their Lordships considered the aspect in the light of the fact that the amount continued to remain with the assessee and no part of it was refunded to the clients. As such, mere fact of pendency of the Writ Petition was considered to be not a ground for claiming that the amount is not income of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b). Smt. Anju Bansal Rs. 5,00,000/- (c). Shri Manish Kumar Bansal Rs. 1,00,000/- (d). Smt. Pushpa Devi Rs. 2,50,000/- (e). Smt. Rajni Jain Rs. 2,50,000/- (f). M/s. Devki Nandan Agarwal Co. Rs. 2,00,000/- (g). Shri Narendra Kumar Agarwal Rs. 1,50,000/- (h). Shri Amit Kumar Bansal Rs. 1,50,000/- Total Rs. 17,50,000/- 3. The learned Commissioner of Income-tax had issued and served a show cause notice dated 25.01.2006 for the assessment year 2003-04 requiring the assessee to explain as to why the order of assessment made by the Assessing Officer on 20.06.2005 be not revised under Section 263 of the Act as the assessment is erroneous in so far as prejudicial to the interests of revenue. The appellant responded to this show cause notice. Shri Mridul Pathak, FCA appeared and filed written submissions contending that the Assessing Officer during the course of assessment proceedings beside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tend in response to the summon under Section 131 issued from this office. However, she has filed a written reply dated 20.11.2006 stating that she is engaged in the business of interior decorator. She had confirmed to have given a loan of Rs. 5 lacs to Shri Kulbir Singh vide cheque dated 20.01.2003 for Rs. 3 lac and cheque dated 21.03.2003 for Rs. 2 lacs. As regards the entries of similar amounts before giving cheques to the assessee, it is stated that these amounts represent return of loans from Smt. Kamlesh Rani and M/s. M.S. Builders. The A.O. is directed to verified the facts with regard to the return of loan from the above two persons. (iii). Shri Manish Kumar Bansal - Rs. 1.00,000/-: In response to summon under Section 131 from this office the creditor attended and his statement was recorded. From the papers filed by the assessee, it is seen that Shri Manish Kumar Bansal has submitted his income-tax return for the A.Y. 2002-03-showing an income of Rs. 52,443/- with NIL tax liability. From his bank account, it is seen that before giving cheque of Rs. 1,00,000/- to the assessee he has deposited a cash of Rs. 50,000/-. The source of the cash deposited is stated to be out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .O. is, therefore, directed to verify the creditworthiness of the creditor. (vi). M/s. Devki Nandan Agarwal Co. - Rs. 2,00,000/-: As mentioned above, the creditor did not attend in response to the summon under Section 131 issued from this office. During the course of assessment proceedings the assessee has filed only a copy of account of Shri Kulbir Singh in the books of M/s. Devki Nandan Agarwal Co. certifying the amount of loan of Rs. 2,00,000/- on 22.01.2003. No other evidence to prove the genuineness of transaction and creditworthiness of the creditor could be filed by the assessee during the course of assessment proceedings as well as during the course of proceedings under Section 263. Therefore, it is clear that the loan of Rs. 2,00,000/- in the name of M/s. Devki Nandan Agarwal Co. is not apparently proved. The A.O. is, therefore, directed to verify the creditworthiness of the creditor. (vii) Shri Narendra Kumar Agarwal - Rs. 1,50,000/-: Shri Narendra Kumar Agarwal has given a loan on 17.02.2003 of Rs. 1,50,000/-. From the bank account of the creditor it is seen that a cash of Rs. 90,000/- was deposited on 1.02.2003. The creditor was examined and his st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is in doubt. Therefore, the amount of Rs. 1,50,000/- deserves to be added under Section 68 of the I.T. Act. 4. As regards the contention of the assessee that required details in form of copies of lone accounts, complete postal addresses with PAN, copy of bank accounts from the lenders were filed, it was found from these details that creditworthiness of the creditors is not proved. Mere filing of confirmatory letter and simple acceptance of the transaction by the creditor was not found sufficient to take the assessee out of the clutches of the provisions of Section 68 of the Income Tax Act. The assessee was liable to prove the creditworthiness of the creditor and the Assessing Officer was bound to make inquiries about the creditworthiness of the creditors. In this case, the A.O. did not make any inquiry about the identity and creditworthiness of the creditor. The Assessing Officer ought to have conducted inquiries about the source of amount of loans by seeking and examining the copies of bank account of the creditors which he has not done. The learned Commissioner of Income-tax supports his decision taken under Section 263 of the Act by the following judgments: (i) Malabar I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer, the Id. Commissioner of Income-tax in his revisionary jurisdiction is precluded from substituting his judgment and cannot term the order erroneous merely for making further enquiries into the matter. It was, therefore, contended that the grounds in appeal be allowed and the order passed under Section 263 of the Act may be set aside. 6. On the other hand, the learned Departmental Representative Shri Ambesh contends that the learned Commissioner of Income-tax-I, Agra has found that the enquiries as were necessary in this case have not been conducted as is revealed from the detailed discussion made with respect to each of the eight credits aggregating to Rs. 17,50,000/-. The learned Commissioner of Income-tax within the exercise of his powers had set aside the assessment, and directing the Assessing Officer to make further enquiries as were considered necessary, for satisfying the essentials of Section 68 of the Act. He, therefore, opposed the prayer of, the assessee and maintains that the order passed by the learned Commissioner of Income-tax-I, Agra being a reasoned order passed within the jurisdiction vested in him, does not require any interference. 7. Having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduce these persons, he, on appellant's request and in order to assist him, issued summons to them. From the response made by these alleged creditors, he being satisfied about the identity of all of them, did not direct enhancement of income within the powers vested in him under Section 263 of the Act. However, taking of the fact that the material such as bank details and assessment particulars etc. of so called creditors had come on record and the Assessing Officer hying not made any enquiry to verify the facts nor the creditworthiness thereof, accepted the same without application of mind, was satisfied that the Assessing Officer has committed an error in framing the assessment. Furthermore, out of the eight such persons, four persons namely, Anju Bansal, Pushpa Devi, Rajni Jain and Devki Nandan made no appearance and filed certain information confirming the transaction only and as such, the correctness of affidavit so filed by them has remained unsubstantiated besides the same being not verifiable in absence of their appearance, the further enquiry as envisaged in his order was thus necessary. Likewise, rest of the four persons namely, Madhu Rani Bansai, Manish Bansal, Naren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after ascertaining the same it could come to the conclusion. Otherwise, it was a case of half hearted or incomplete enquiry on the basis whereof no definite conclusion as reached by the Assessing Officer could be arrived at. The finding reached by the learned CIT-I, Agra, therefore, has to be upheld. The view so entertained finds support from the judgment rendered by Hon'ble Calcutta High Court in the case of Hindustan Tea Trading Co. (2003) 182 CTR (Cal) 585 : (2003) 263 ITR 289 (Cal) as under: But when the income-tax file numbers were disclosed, even though despite service of notices, the 1 persons failed to respond, it was incumbent on the income-tax authority to ascertain from the income-tax file numbers whether the files were in existence and on the basis of such files the identity of the shareholders could be established or not an their creditworthiness and genuineness of the transaction could be proved. Until such enquiry was made, it cannot be said that the income-tax authority had acted upon the materials so disclosed. The onus may not be discharged simply on production of the materials but, at the same time, once the materials were produced by the assessee and whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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