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Arabinda Roy, C/o Somnath Ghosh Versus Commissioner of Income Tax-XX, Kolkata

2016 (10) TMI 417 - ITAT KOLKATA

Revision u/s 263 - erroneous order - genuineness of the unsecured loan - Held that:- In the instant case, the Ld. CIT has not established anywhere in the impugned order that the assessment order of the AO is erroneous as well as prejudicial to the interests of the revenue. The non-compliance with the statutory prescription as evident from the impugned order is a serious infirmity vitiating the validity of the proceedings. In a situation where the Assessing Authority as an adjudicator decides an .....

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must be recorded. The jurisdictional precondition stipulated is that the Ld. CIT must come to the conclusion that the order is erroneous and is unsustainable in law. The finding of an "error" is the condition precedent for proceedings u/s. 263 of the Act which is palpably missing in his order and accordingly, the specious conclusion of the Ld. CIT without laying down any basis therefore is totally contrary to law. Therefore, the conditions precedent for invoking the provisions of sec 263 of the .....

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osh, Advocate By Respondent Shri Sachchidananda Srivastva, CIT-DR ORDER Per Waseem Ahmed, Accountant Member:- This appeal has been filed by the assessee relating to assessment year (AY ) 2008-09 is against the order passed by Commissioner of Income Tax-XX, Kolkata under the provision of Section 263 of the Act of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide No. CIT-XX/Kol/Revision u/s. 263/28/2012- 13 dated 06/19.03.2013. Assessment was framed by ITO Ward-1(4), Hooghly u/s .....

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8-08-2012 is therefore ab initio void, ultra vires and ex-facie null in law. 2. FOR THAT the Ld. Commissioner of Income Tax, Kolkata-XX, Kolkata acted unlawfully in setting aside the assessment order dated 23-12-2010 framed u/s 143(3) of the Income Tax Act, 1961 by the Ld. Income Tax Officer, Ward 1(4), Hooghly on the tenuous premise of inadequate-enquiry but, not on account of lack of enquiry' is fraught with the taint of illegality and the impugned finding reached on that behalf on extrane .....

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ision in the context under consideration and the impugned finding on that account is wholly illegal, illegitimate, illogical and infirm in law. 4. FOR THAT the impugned order passed by the Ld. Commissioner of Income Tax. Kolkata-XX, Kolkata directing the Ld. Income Tax Officer, Ward 1(4) Hooghly to conduct further enquiries on the issues which stood explained before him and the specious conclusion reached in this respect culminating in a mandate instruction to frame the assessment de novo in spi .....

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r section 263 of the Act. 3. Facts in brief as have been brought on record that assessee, an individual, is engaged in the trading business of potato. The assessee filed its income tax return for the year under consideration on 19.09.2008 showing total income of ₹ 1,13,464/-. Thereafter the case was selected for scrutiny assessment and accordingly notice u/s 143(2) r.w.s. 142(1) of the Act issued. The assessment was framed at ₹ 2,18,330/- after making certain disallowance / addition .....

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tors with their creditworthiness was not established in the assessment proceedings. Accordingly, the interest debited on such loan for an amount of ₹ 60,000/- is liable to be disallowed. Ld. CIT further observed that even it is presumed that the loan creditors are genuine then also the interest expense is not allowed for deduction by virtue of the provision of Sec. 40(a)(ia) of the Act. (b) There were three credit entries reflecting in the bank statement of assessee for total amount of  .....

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ceived in aggregate the sum of ₹ 21.80 lakh from assessee. The payment on a particular date was exceeding ₹ 20,000/-. Therefore, these payments were in contravention of the provision of Sec. 40A(3) of the Act and this issue was not at all examined by the AO while framing his assessment order. (e) The assessee has shown agricultural income of ₹ 5,000/- per annum for the year under consideration but he owns no agricultural land by way of ownership as per its balance-sheet. 5. In .....

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aken during the year under consideration. The dispute of the genuineness/ identity and creditworthiness of the four loan creditors were duly examined by AO in AY 2005-06. There was no adverse remarked in the audit report given by qualified Chartered Accountant u/s 44AB of the Act with regard to the loan creditors. It was submitted that loan creditors had furnished declaration in Form 15H / 15G for non deduction of TDS on the payment of interest. Therefore, assessee was not liable to deduct TDS o .....

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t case, is a fictitious therefore propose addition u/s. 263 of the Act is not warranted. (iii) The payment of ₹ 1,50,000.00 and ₹ 1,25,000.00 was made to two parties which are the creditors of assessee and their balances were carried forward from the earlier year. The payment was made in the current year for the purchases made in the preceding year. (iv) With regard to cash cheque issued by assessee, it was submitted that Shri U Tiwari is the regular employee and he was authorized to .....

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nce-sheet of assessee. However the agricultural income was also shown in the earlier year which was duly verified by predecessor of AO without any dispute. Therefore, it should be accepted as normal agricultural income of assessee. However, Ld. CIT in his order u/s. 263 of the Act disregarded the claim of assessee by observing as under:- i) The contention of the assessee that the loans of ₹ 2,50,000.00 were brought forward from the earlier years needs to be verified by the AO with referenc .....

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chases which the assessee claimed to have made in the earlier year. iv) The verification with regard to the withdrawal of sum of ₹ 21.80 lacs from the bank and cash payment exceeding the limit by violating the provisions of section 40A(3) of the Act need to be verified. v) The inherited property and its agricultural use need to be ascertained by the AO with reference to the documents and earlier year records. Accordingly the ld. CIT(A) disregarded the submission of the assessee by holding .....

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the same only tend to vaguely support the AR/s contentions. No concrete inference can be drawn therefrom. I am, therefore, left with no other alternative but to set aside the assessment order dated 23.12.2010 u/s. 263 of the IT Act with the direction to the AO to frame the assessment de novo in the light of the observations made in the foregoing paragraphs and after conducting the requisite enquiries to that effect it is needless to say that while doing so, the AO shall afford a reasonable oppor .....

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eedings u/s. 263(1) of the Act on as many as six issues which were not verified in the course of assessment proceedings by the AO which had rendered the assessment erroneous in so far as it was prejudicial to the interest of revenue. In so far as the application of s. 40(a)(ia) read with s. 194A of the Act is concerned. the appellant incurred expenses of ₹ 60.000/- on "Interest paid" on unsecured loan from Tatini Ghosh, Nemai Ghosh, Manju Bhuniya and Tapan Kumar Ray since decease .....

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efore him at the time when the interest was paid. he was not liable to deduct tax therefrom under section 194A and; if he was not liable to deduct tax u/s 40(a)(ia) was not attracted [VIPIN P. MEHTA -VS- I.T.O. (2011) 46 SOT 71 (MUM)]. However, the Ld CIT in exercising his powers u/s 263 of the Act in the instant case has remitted the issue back to the file of the AO without concluding that the assessee had any legal liability for deduction of tax at source from the payments made to them. 6.1 Fu .....

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editworthiness of the parties which renders the assessment order erroneous. The AO was satisfied with the genuinity of the payments received by the assessee and no adverse proof was led by the Ld. CIT to prove the contrary. However, the specious conclusion drawn in this respect is bereft of legal sanctity by conceiving that the deposits in the names of Debol Angami on 28-06-2007 of Rs, 1 lakh Durlov Sharma on 02-07- 2007 of ₹ 1 lakh and Shri Balaji Comm. on 28-12-2007 of ₹ 1.50 lakh .....

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respect will not stand the test of judicial scrutiny. 6.2 The issue relating to the payment of ₹ 2.75 lakh is that it was found that the assessee had issued two cheques to two parties aggregating to the aforesaid amount during the previous year relevant to the assessment year under dispute who were not included in such details of purchase parties furnished by him. In course of assessment proceedings, it was apprised to the AO that such payments were made on account of discharge of liabili .....

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7; 1.50 lakh and No. 4239 to Haradhan Samanta on 07-07- 2007 amounting to ₹ 1.25 lakh were payments outstanding on account of purchase of potato during the preceding assessment year. In fact, such payments were on account of discharge of creditors which was outstanding as on 31-03-2007 as evidenced by the balance-sheet for the assessment year 2007-08. The AO was impressed with such categorical evidence on record and accepted such payments. However, the Ld. CIT brushed aside the evidence an .....

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bank records his name was recorded as recipient of the cheque value. The cash withdrawn by Shri U. Tiwary were deposited in the cash book of the assessee wherein the inflow and outflow of cash are duly recorded therein. In course of the assessment proceedings, the assessee had produced his cash book and ledger account. It was proved that Shri U. Tiwary was not paid such amounts on any account. In other words, those were not expenditures incurred by the assessee. However, the Ld. CIT in exercise .....

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Shri U. Tiwary is recorded in the salary register of the assessee which was adduced in course of the assessment proceedings. The entire amount was merely withdrawals from the bank account through his trusted employee which did not represent any expenditure and as such, the provisions of s. 40A(3) of the Act is not applicable. It is undisputed fact that the withdrawals made were deposited in the cash book were proved before the AO in the course of the assessment proceedings The provision of s. 40 .....

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awal in excess of ₹ 20,000/- from bank has no connotation for inviting the mischief of s. 40A(3) of the Act is wrongly conceived by the Ld. CIT since the basis to invoke the provision of s. 40A(3) of the Act is altogether non-existent in the instant case. However, the Ld. CIT in exercising his powers u/s. 263 of the Act in the instant case remitted the issue back to the file of the Assessing Officer to verify the contention of the assessee. 6.4 Apropos the exemption claimed by the assessee .....

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ural operations on the said land are clearly the subject-matters of verification by the AO through enquiry or with reference to appropriate legal documents." The claim of exemption of agricultural income of ₹ 5,000/- was passed muster year in and year out. The Ld CIT was seriously remiss in the stand taken by him in view of the rationale established in this respect from year to year. It can be verified from the records of the assessee that income under the head "Agricultural Inco .....

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f accounts and other relevant evidence. On the other hand the ld. CIT vehemently supported the order of the CIT. 7. We have heard rival parties and perused the materials available on record. From the foregoing discussion, we find that it is beyond doubt that the proceedings conceived u/s. 263(1) of the Act has been initiated on the basis of the Internal Audit Objection dated 09-12-2011. The issues raised in the notice dated 08-08-2012 under section 263 of the Act by the Ld. CIT are simply copied .....

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is own discretion and judgment, such notice is invalid. 2) [B AND A PLANTATIONAND INDUSTRIES LID AND ANOTHER -VSC. LT. (2007) 290 ITR 395 (GAU)]. Revision-Erroneous and prejudicial order-Absence of finding/reasons by CIT-An order cannot be termed erroneous unless it can be shown to be an order which is not in accordance with law-Every error of an assessing authority is not open to exercise of powers under s. 263-Error committed by the primary authority must be an error of jurisdiction-Assessing .....

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e order of the AO as erroneous merely because in his view certain amount of bonus should have been disallowed-Further, CIT could not initiate revisional proceedings on the basis of audit objection-There is nothing to show that the CIT has applied his independent mind to come to the conclusion that the assessment needs to be revised-That apart, the assessment order had merged in the order dropping the rectification proceedings-In such circumstances, the assessment order could not be revised witho .....

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tration granted to the firm was illegal in view of Punjab & Haryana High Court s judgment in the case of Hardit Sing Pal Chand & Co. (1979) 8 CTR(P&H) 365 as the assessee was a firm dealing in liquor and the ITO had not made necessary enquiries before granting registration. The assessee challenged the validity of the order of Commr. setting aside the order of registration on the ground that he had relied upon the audit party s report for initiating revision proceedings whereas that r .....

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Act and the absence thereof, will render the proceedings ab initio void and ex-facie null in law. There is no doubt or dispute that the initiation of the instant proceedings was made on an advice of the Audit Party and not on the independent application of mind. In other words, it is the sole prerogative of the Ld. CIT which alone will be a ground for action u/s. 263 of the Act and any departure therefrom negates the jurisdiction vested in him under the law. Where it is clear that the Ld. CIT i .....

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t a few points, ostensibly borrowed from revenue audit objections, on the basis of which revision proceedings were initiated, but it was not even the Ld. CIT's case that he had any opinion of his own beyond this borrowed opinion to even consider the assessment order as erroneous and prejudicial to the interest of the revenue. Clearly, therefore, the conditions precedent for initiating revision proceeding u/s 263 of the Act were not satisfied. There is no doubt or dispute that the Ld, CIT had .....

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of the Income Tax from the examination of the records of the proceedings under the Act. The Explanation appended to s. 263 of the Act defines 'records' as all records relating to an) proceedings under the Act available at the time of examination by the Ld. CIT. The audit objections under no circumstances can be called as constituting record empowering the Ld. CIT to exercise jurisdiction u/s. 263 of the Act. Where it is apparent that the Ld. CIT has initiated the revision proceedings onl .....

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dent application of mind by the Commissioner which is conspicuously lacking in the instant case. The act taken u/s. 263 of the Act in the instant case is solely borrowed opinion from the report of the audit party and hence untenable in law. Therefore, in the instant case, neither the assessment order framed by the AO was proved to be erroneous nor it was proved that there was any prejudice caused to the revenue and there being no material on record to justify his action for assuming jurisdiction .....

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i.e. lack of enquiry by the Assessing Officer. There is a distinction between 'lack of enquiry' and 'inadequate enquiry'. If there is an enquiry, even inadequate that would not by itself confer authority on the Ld. CIT to assume jurisdiction u/s. 263 of the Act merely because he has a different opinion in the matter. In this connection we rely in the following judgments. 1. [PLASTIC CONCERN -VS- A.C.I.T. (1998) 61 TTJ (CAL) 87]. Revision-Validity-Change of opinion-Confidential no .....

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ant of time-This extension of period of limitation is not within powers vested with revisional authority-Further, since CIT was convinced that no further enquiry was possible cannot now change his opinion and hold that order of AO is erroneous 2. [CHROMA BUSINESS LTD. -VS- D.C.I.T. (2004) 82 TTJ (CAL) 540] The assessment order passed by the AO under s. 143(3) is a brief assessment order and the AO has not discussed in the said order the details of the discussions and details of examinations made .....

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ares to the AO. The AO before completing the assessment, conducted enquiries and thereafter, has passed a brief assessment order. If an order passed by the AO is brief or cryptic but it has been passed after conducting the proper enquiries into the facts stated in the return, such an order cannot be held erroneous inasmuch as prejudicial to the interest of the Revenue for that reason alone. Further, the CIT while setting aside the assessment has also not given any reason as to whether the loss c .....

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resentative of the assessee that even if the brokers do not respond to the summons issued by the AO, the transactions still will have to be treated as genuine. Thus, the order of the CIT in the circumstances, is not justifiable and has to be cancelled.-CIT vs. Gabriel India Ltd. (1993) 114 CTR (Bom) 81 : (1993) 203 ITR 108 (Bom), Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC), CIT vs. Smt. D. Valliammal (1997) 140 CTR (Mad) 433 : (1998) 230 ITR 695 (Mad) and A .....

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ch details therein. Therefore one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. One has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate that would not by itself give occasion to the Ld. CIT to pass orders under section 263 merely because he has different opinion in the matter. It is only in cases of 'lack of .....

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ry but not lack of enquiry. The Ld. CIT must record a clear finding that the inadequate inquiry has resulted in passing an erroneous order. An order of remit cannot be passed by the Ld. CIT to ask the AO to decide whether the order was erroneous. This is not permissible. A finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 [I.T.O. - VS- DG HOUSING PROJECTS LTD. (2012) 343 ITR 329 (DEL)]. The purported action of .....

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own that the jurisdiction of the Ld. CIT can only be exercised if there is a specific finding to the effect that the order passed by the Assessing Authority is erroneous in so far as it is prejudicial to the interest of revenue. In other words, the provision of s. 263 of the Act can only be invoked when the Commissioner of Income Tax is satisfied about the existence of the two preconditions: (1) The action of the Assessing Officer sought to be revised is erroneous; (2) It is also prejudicial to .....

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