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TMI Blog2012 (6) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... cient enquiry in respect of the loans taken by the assessee during the year completely disregarding the fact that the A.O. had made sufficient enquiry and had accepted the loan as being genuine. (4) That the Ld. CIT erred in holding that sufficient enquiry was not done in the case of loans, when the A.O. had given a categorical finding in the assessment order regarding enquiry having been conducted through the departmental Inspector. (5) That the ld. CIT erred in setting aside the order of the AO and directing to frame the assessment de novo only on the basis of her change in opinion and suspicious which is clearly contrary to law." 2. The facts which are requisite to be stated for adjudication of the appeal are that the assessee filed its return on 20/9/2004 declaring income of Rs. 99,52,040/-, which was assessed by the A.O. vide assessment order passed u/s. 143(3) of the Act dated 15/12/2006 at Rs. 1,15,83,589/-. Thereafter, on going through the assessment records of the assessee, the ld. C.I.T. observed that the A.O. had framed the assessment without proper enquiries, causing the assessment order to be erroneous. She, therefore, issued notice u/s. 263 of the Act d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est thereon, etc. are also clearly appearing from the said loan confirmations. It is further submitted that the A.O. deputed his Inspector to verify the fresh loans taken during the year and the report filed by the said inspector was also placed on record. Therefore the objection raised in the above mentioned notice regarding non-examination of the loans by the A.O. is not correct." In addition to the above submissions, the ld. A/R of the assessee challenged the validity of the proceedings u/s. 263 of the Act. He submitted before the ld. C.I.T. that jurisdiction u/s 263 of the I.T. Act can be exercised only in a case where an order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue. In support of his submissions, the ld. A/R cited the following decisions :- (a) Jagadhri Electric Supply & Industrial Co. v. CIT [1987] 166 ITR 143/32 Taxman 23 (Punj. & Har.) (b) Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) (c) CIT v. Trustees Anupam Charitable Trust [1987] 167 ITR 129/31 Taxman 335 (Raj.) (d) CIT v. Goyal (P.) Family Specific Trust [1988] 171 ITR 698/[1987] 35 Taxman 522 (All.) (e) CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd. received Rs. 10 lakhs from M/s Pushpak Trading Consultancy (P) Ltd. on 15th December and advanced Rs. 10 lakhs to the assessee on 16th December. Similarly, M/s Unique Merchant (P) Ltd. received Rs. 5 lakhs from Puspak Trading Co. on 15th December and advanced the same to the assessee on 16th December. From the nature of these credit and debit entries in the bank account of the parties, the loans appear to be in the nature of accommodation entries, which require further investigation by the Assessing Officer specially regarding the credit worthiness of the parties. The AO has mentioned in the assessment order that the Inspector was deputed to verify the fresh loans during the year and his report is on record. The Inspector has given identical reports in respect of the enquiries made by him in respect of six parties. His report is very elementary and simply mentions that he has verified bank passbook, P/L account and balance sheet. But in none of the reports, he has commented on the issue of credit worthiness i.e., whether these parties had sufficient means to advance such huge loan. It is well established that loan credits from parties, who are of no means can not be accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action with those associated concerns, let alone any export sales. According to the ld. A/R, the ld. C.I.T. has also not been able to bring on record such international transaction with associated concerns. In that event, the notice u/s. 263 of the Act itself was erroneous on the face of it. The A.O. after taking into consideration the provisions of sec. 92 of the Act and verifying the lists of parties to whom sales were made and associated enterprises of the assessee, tax audit report and other evidences on record has accepted the assessee's export turnover. The ld. A/R further submitted that before initiating proceeding u/s. 263 of the Act, the ld. C.I.T. has to be satisfied himself of twin conditions, viz., (i) the order of the A.O. sought to be revised is erroneous and (ii) it is prejudicial to the interests of the Revenue. If one of the conditions above is absent, no recourse can be taken u/s. 263(1) of the Act just to re-examine or re-verify the issues already examined/verified at the assessment level. He, therefore, submitted that by the action of the A.O., no prejudice has been caused to the revenue and thus the order of ld. C.I.T. directing the A.O. to pass de novo ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through such list has decided the issue of export turnover of the assessee-company during the year under appeal without making any reference to T.P.O. for determination of arms length price as required u/s. 92 of the Act. Therefore, when there was no enquiry at all before deciding the issue, the ld. C.I.T. was justified in issuing show-cause notice u/s. 263 of the Act and validly directed the A.O. to make de novo assessment on the issue of applicability of sec. 92 of the Act in the case of the assessee. In regard to the other issue of unsecured loan claimed to have been obtained by the assessee, the ld. Departmental Representative submitted that although the A.O. deputed Inspector to enquire into the affairs of the lenders, but the reports submitted by him were stereo typed. He further submitted that on perusal of the bank statements of the lenders it was revealed that equal amounts were deposited just one or two days before withdrawal of the amounts for allegedly advancing loan to the assessee. Considering the creditworthiness of the lenders vis-à-vis volume of loan advanced by them, the A.O. should not have entirely relied on the Inspector's report and he should have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises, the cost or expense allocated or apportioned to, or, as the case may be, contributed by, any such enterprise shall be determined having regard to the arm's length price of such benefit, service or facility, as the case may be." On reading of the aforesaid sub-section, it is manifest that for determining the arm's length price there must be international transaction at least with two of the associated enterprises of the assessee and only export sales cannot invite the provisions of sec. 92 of the Act. The ld. A/R referring to Tax Audit Report has stated that there was no mention of any international transaction with the assessee's associated enterprises and this assertion of the assessee has not been disputed in the order passed u/s. 263 of the Act. Further, no evidence has been brought on record by the ld. C.I.T. to the effect that international transactions by way of mutual agreement/arrangement with the associated enterprises have been entered into by the assessee during the assessment year under consideration. It is further observed that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not satisfied about the enquiry conducted by the A.O. to find out the source of the source. On perusal of the assessment order, it is observed that the A.O. deputed his Inspector to enquire into the matter from the lenders. The A.O. was also made available with the return of income, balance sheet, P/L Account, bank statement etc. of the lenders. Confirmations from the lenders were also filed before the A.O. We find from the assessment order itself that as many as on six occasions the A.O. heard the assessee and discussed the case with him. Therefore, it cannot be said that the A.O. has not at all enquired into the matter and applied his mind before dealing with the loan creditors and taking a possible view. It is a settled position that the proceedings u/s. 263 of the Act cannot be initiated by the ld. C.I.T. merely in his supervisory capacity. Before invoking the powers u/s. 263 of the Act, it is necessary for the ld. C.I.T. to demonstrate that the A.O. had committed a patent error which resulted in prejudice to the revenue. On the contrary, where the ld. A.O. has conducted enquiries and after due consideration of the facts and circumstances of the case he comes to a conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udiciously and conducted enquiries in the course of assessment proceedings. There is a distinction between 'lack of enquiry' and 'inadequate enquiry'. If there is an enquiry, even inadequate, that would not by itself give occasion to the ld. C.I.T. to pass order u/s. 263 of the Act, merely because he has a different opinion in the matter. 10. We find from the above facts and circumstances that the assessee has categorically stated before the ld. C.I.T. vide its letter dated 20/1/2009 that it had not entered into any international transaction of purchase or sale of any goods or any services/facilities with its associated enterprises within the meaning of Sec. 92A of the Act and even as per Tax Audit Report there was no mention of any international transaction with the assessee's associated concerns. In such circumstances, in our considered opinion, when the assessee's case does not fall under the purview of sec. 92 of the Act, the A.O. had no occasion to call for list of associated concerns and to refer the matter to T.P.O. for determining the arms length price as per sec. 92 of the Act, as alleged by the ld. C.I.T. In regard to other issue of unsecured loan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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