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M/s. Fazal Frozen Foods (Pvt.) Ltd. Versus Commissioner of Income-tax, Meerut.

2016 (2) TMI 402 - ITAT DELHI

Revision u/s 263 - as per CIT(A) AO has not examined the GP result of the assessee - Held that:- As find that in earlier years, the books of account of the assessee were accepted by the AO and so were the trading results. We find in the year under consideration, the assessee has shown GP rate of 7.04% whereas in the previous assessment year it was 6.42%, which has been accepted by the Department. We also find that pursuant to the impugned CIT order, the AO has passed the assessment order in purs .....

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est checked by the AO and found to be in order. Therefore, it cannot be called as a lack of enquiry by the AO. In the previous year’s also, the department has been accepting books of accounts of the assessee, therefore, without pointing out any defect in the books of accounts just because there are certain inflated nature of purchases on account of cash payment cannot be the basis for rejection of books of accounts u/s 145 of the Act and moreover GP rate was more than the previous year. So, we d .....

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ssee, is directed against the order of the Commissioner of Income-tax, Meerut dated 15.03.2013 for the assessment year 2008-09. 2. The assessee has taken the following grounds of appeal :- 1. That the Worthy Commissioner of Income Tax has erred in law as well as facts of the case in invoking provisions of section 263 of the Income Tax Act, 1961 and the order U/S 263 as passed, is arbitrary, unjust and illegal on various legal and factual grounds including the following:- (1) The L'd Assessin .....

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ax in her order passed U/S 263 are incorrect, unreasonable or are untenable in law. (4) Directions issued in section 263 order to restore back/ set aside the issue of four sundry creditors to the file of the L'd Assessing Officer for verification is unjust, uncalled for and illegal. (5) The Worthy Commissioner of Income Tax has made a departure from the accepted past history of the issue of purchases account, which is akin to the specific nature of the trade and resorted to applying percenta .....

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t ). The case was selected for scrutiny through CASS and statutory notice u/s 143(2) was issued on 20.08.2009, which was duly served upon the assessee. From the details of trading results for the last three years, the AO observed that there was decrease in turnover during the year but there was slight improvement in the GP and NP rate. The AO examined the trading results on test check basis from the books of accounts produced and other details and documents furnished by the assessee. The AO noti .....

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97/- on account of PF deposited late after due date and added to the total income of the assessee. Accordingly, the assessment was completed u/s 143(3) on the total income at Nil. 4. The CIT, Meerut, after examining the records, found that the assessment was done without proper enquiry and accordingly, notice u/s 263 of the Act was issued on the following points :- (i) In the preceding year and subsequent year, addition on account of bogus liabilities under the head of Sundry Creditors was made .....

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year under consideration, all the payments towards purchase and expenses have been made in cash. AO has not given any finding in this regard and accordingly has not made any addition or disallowance. The CIT, in view of the above, found the order passed by the AO to be erroneous and prejudicial to the interest of revenue since at the time of the assessment, according to CIT the AO was duty bound to call for such details and examine them. For this proposition, the CIT relied on various judicial .....

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ment in Malabar Ind Co. Ltd Vs. CIT (2000) 243 ITR 83 (SC) include as follows: i. An incorrect assumption of facts or incorrect application of law will suffice the requirement of the order being erroneous. ii. If the order is passed without application of mind, such order will fall under the category of erroneous order. 5.1. Further, it has been held in CIT vs. V.N.M.A. Rathinasabapathy Nadar, (1995) 215 ITR 309, 315 (Mad.), that if an order is passed in ignorance without taking into considerati .....

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.)]. In that case, refund of excise duty was received by the assessee and the same was placed in the suspense account and not in the P&L A/c. Such amount of refund was claimed not to be included in the income of the assessee because, apart from the above fact, a large part of that amount was claimed by a third party by filing a suit and also a writ petition and the same were pending. The officer accepted the claim of the assessee and did not include any part of the amount so refunded in the .....

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by the Commissioner who felt that there should be a further enquiry. Reliance is further placed on the following: i. Jagdish Kumar Gulati vs. CIT, 269 ITR 71 (All.) in which it is held that while framing the assessment under section 143(3), it is expected from the AO that he will make a detailed inquiry to find out correct income of the assessee and not to facts placed by the assessee on their face value. Where the AO complete the assessment proceedings under section 143(3) and admitted that he .....

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cumstances of the case, ITO should have made further inquiries before accepting the statements made by the assessee in his return and it was observed that reason is obvious. The position and functions of the ITO are very different from that of civil court. 5.3. On the facts of the present case, it is evident that the AO accepted the version of the assessee without making any inquiry or verification, whereas it is very well settled that mere failure to make inquiries makes an order erroneous. In .....

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cumstances of the case [Rampyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal vs. CIT, (1973), 88 ITR 323 (SC). 5.4. It is not necessary for the Commissioner to make further enquiries before cancelling the assessment orders of the AD. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the AO should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. Unlike t .....

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f this context. The word "erroneous" in that section includes cases where there has been a failure to make the necessary inquiries [Gee Vee Enterprises vs. Addl.CIT, (1975) 99 ITR 375, 386 (Del.)]. 5.5. It is incumbent on the officer to investigate the facts stated in the return, when circumstances would make such an enquiry prudent and the word 'erroneous' in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not b .....

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(Pat); CIT vs. Smt. Devi, (1987) 59 CTR (Pat) 3; CIT vs. Bhagwant Kaur, (1987) 63 CTR (Pat) 326; CIT vs. Pushpa Devi, (1988) 173 ITR 445 (Pat). 5.6 The Hon'ble Jurisdictional ITAT Delhi Bench In the case of Shri Virendra Kumar Gupta Vs CIT in ITA No.2595/D/2009 dated 21/01/2011 relying upon aforesaid judgments has held that the facts of the case were in pari-materia with above judgments. Further, on consideration of these cases the Hon'ble IT AT viewed that the ld. CIT was right in exer .....

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it abundantly clear that the order passed by the A.O was erroneous and prejudicial to the interest to the revenue the same is not being repeated here for the sake of brevity. 8. As regards the issue relating to sundry creditors, the contentions of the ld. counsel are reproduced above, which are not being repeated here for the sake of brevity. I have considered the contention of the ld. counsel that there were running accounts of the creditors from whom purchases were being made on regular basis .....

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blished and no adverse inference is called for on this account. It was also argued that a large number of confirmations and all the copies of account of all the creditors along with the details thereof were already filed during the course of assessment proceedings. After considering the entire facts and circumstances relating to the issue as well as the contentions taken by the ld. counsel, as briefly stated above, I hold that following major creditors were required to be examined by the AO prop .....

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rchases in cash are due to the nature of purchased item i.e. meat where transactions are made in cash only. Moreover, the purchases are essential for effecting sales and, hence, the same cannot be discarded merely because those were made in cash. After considering the arguments of ld. counsel, I hold that the business results of the assessee were not acceptable and the books of account with cash purchases remained unproved were not reliable for ascertaining true profits earned by the assessee. A .....

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₹ 7,989,553/-. A.O. is directed to issue fresh demand notice and challan. 5. The ld. AR reiterated the submissions made before the ld. CIT (A) and for the sake of clarity, the same are reproduced below :- 7. That for the year under consideration, the assessee has filed a return of income on 07-10-2008 declaring an income of Rs.Nil and the said return was picked up for scrutiny by the ACIT, Circle 1, Meerut. That however, various queries were raised on several dates and after submission of .....

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ent is erroneous and prejudicial to the interest of the revenue. The submissions of the assessee on each of the issues raised are as under:- AO has accepted confirmations from the alleged sundry creditors without any enquiry or verification:- That it appears that your honour's satisfaction for initiating proceedings U/S 263 is based on additions for AIY 2007-08 and 2009-10. Under the Income Tax Act, each year is a separate year and has to be assessed on the facts of the particular year in qu .....

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same, i.e she has adopted one possible view to the entire issue involved. It needs to be appreciated here that all the sundry creditors are actually trade creditors and have been accepted as such year after year by the department. Moreover, if they are believed t be untrue than it goes to show that even the sales declared would not have been achieved and after having considered this aspect of the matter, the AO accepted the same. In view of the above facts and submissions, your honour may kindly .....

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ready allowed the assessee's appeal vide his order dated 8-9-2010 copy enclosed herewith at annex and in respect of AY 200-10, the same is sub-judice. The AO has not given a finding in respect of accepting the purchases made in cash That in para 2 of the assessment order, the AO has given a finding as under:- "The assessee company is engaged in the business of processing and trading of buffalo meat. From the details of trading results for the last three years it is seen that there is de .....

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ong to assume that no finding in this regards has been given. That thus, it would be seen that in respect of each of the issues referred to by your honour, the Assessing Officer has called for full details, and once they were submitted, has either verified them from the books of accounts or through making external enquiries and then formed an opinion and took a possible view, in terms of the latest legal position and thereby accepted the trading results of the assessee. For the proposition that .....

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Vs CIT 22 SOT 68( Mumbai) CIT Vs Munjal Castings 303 ITR 23 ( P&H) CIT V s RK Construction Co. 313 ITR 65( Guj) Reliance for this proposition is placed on:- CIT V s Valliammal D. 230 ITR 695 Madras Dhruv N Shah Vs DCIT 273 ITR (AT) 59 Bombay Various courts have held that under the revisionary powers, it is not open for the CIT to prescribe the nature and level of enquiries, if the AO has already considered them and taken a possible view. Reliance in this regard is place on : CIT Vs Arvind J .....

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he assessment order and only such points are taken note of on which the assessee's explanation are rejected and additions / disallowances are made. Thus, the impugned order can neither be termed as erroneous nor prejudicial to the interest of the revenue and when an order is not erroneous it could not be deemed to be prejudicial to the interest of the revenue and for the purpose of invoking 263, it is mandatory that both the conditions of the order being 'Erroneous' and 'prejudic .....

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he CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interests of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it is only when an order is erroneous, than the said section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice for the requirement of order being erroneous. (iv) If the order is p .....

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ines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under Section 263 of the Act, is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT .....

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ny is engaged in the business of processing and trading of buffalo meat. The details of the trading results for the last three years show that there is decrease in the turnover during the year but there is slight improvement in the GP and NP rate. So, from the said fact that the AO had test checked the books of accounts of the assessee and has gone through the audited reports and balance sheet, it cannot be said that the AO has not examined the GP result of the assessee. We also find that in ear .....

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