TMI Blog2017 (2) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... charges, correctness of unsecured loan and sundry creditors and provisions of TDS and disallowance under section 40(a)(ia) of the Act in respect of the freight expenses - Held that:- The submission of the assessee that no confirmation were filed in respect of the sundry creditors. Similarly, it is clear from the queries raised by the Assessing Officer that no details in respect of deduction of TDS on freight charges was examined by the Assessing Officer. Similarly, neither detail in respect of financial charges was also asked by the Assessing Officer nor any information was filed by the assessee. In view of the above, the learned Commissioner of Income Tax is correct in holding that further enquiry was necessary to examine the sundry creditors, financial charges, liability of TDS on freight charges. The Hon’ble jurisdictional High Court in the case of Meerut Roller Flour Mills Ltd (2013 (6) TMI 11 - ALLAHABAD HIGH COURT) held the assessment order as erroneous and prejudicial to the interest of the Revenue when the Assessing Officer had not conducted a proper Inquiry to verify cash credits and trade creditors and the matter remanded to the Assessing Officer under section 263 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase are that the assessee, a private limited company, was engaged in the business of textiles. The assessee filed return of income on 30/09/2008, declaring net loss of ₹ 1,75,55,380/-. The case was selected for scrutiny and notice under section 143(2) of the Act was issued and complied with. In the scrutiny assessment completed under section 143(3) of the Act on 26/11/2010, the Assessing Officer made following two additions: 1. disallowance of ₹ 41,253/- towards expenses on duties and taxes on the ground that same were not related to business expenses and disallowed under section 43B of the Act; 2. disallowance of ₹ 21,744/- to cover of the possible leakage due to self-made and internal vouchers under the head repair and maintenance, welfare expenses, freight and cartage and vehicle maintenance, at the rate of 10% of the expenses. 3. Subsequently, the learned Commissioner of Income Tax examined the records and issued notice under section 263 dated 06/03/2013 stating that the assessment order was erroneous so as to prejudicial to the interest of Revenue and it was passed without inquiring on the following points: (a) the loss of ₹ 1,75,74,887/- on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ascertaining and determining the actual profit/loss, after examining books of accounts which were not produced during the course of 263 proceedings; c. the loss on sale of machinery amounting to ₹ 49,46,196/- was claimed wrongly because the same was to be taken to the balance sheet in the fixed asset as block of asset existed there. The Assessing Officer also failed to look into whether the transaction was collusive one or whether the sales were made to parties covered under section 40A(2)(b) of the Act; d. the AO is directed to inquire into correctness of the claim towards financial charges which claimed it more than double of the previous year; e. the Assessing Officer did not enquire into unsecured loan and sundry creditors and the assessee failed to explain the same; f. the AO is further directed to inquire into correctness of applicability of TDS and disallowance under section 40(a)(ia) of the Act in respect of freight expenses debited to the tune of ₹ 6.93 Lacs. 4. Against the above order under section 263 of the Act passed by the learned Commissioner of Income Tax, the assessee is in appeal before the Tribunal raising grounds as reproduced above. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for information in respect of the assessment year and submitted that the Assessing Officer called for confirmation of sundry creditors unsecured loan creditors and examined TDS liability. He submitted that the assessee also duly complied with the queries asked by the Assessing Officer and the assessment has been completed after considering all the submission of the assessee and, therefore, on those issues there is no lack of enquiry by the Assessing Officer. He further submitted that the view taken by the Assessing Officer was one of the best, while framing the assessment under section 143(3) of the Act and setting aside those issues for further Inquiry was nothing but duplication of work, which was not permitted under section 263 of the Act. 4.1 He further submitted that learned Commissioner of Income Tax has not carried out enquiries in the respect of the above issues himself and arrived at whether the order was erroneous as well as prejudicial to the interest of the Revenue. 4.2 In response to this, the learned Commissioner of Income Tax (Departmental Representative) submitted that the Assessing Officer did not call for any information in respect of loss claimed on sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be prejudicial to the interest of the Revenue. These twin conditions have to be cumulatively satisfied for obtaining a valid jurisdiction under this section. If the assessment order is only prejudicial to the interest of the Revenue, it is not sufficient to invoke the jurisdiction under section 263, unless it is shown that it is erroneous also. An assessment order may be termed as erroneous in various circumstances. Not making enquiry on the relevant issues, which the Assessing Officer is required to look into, makes the assessment order erroneous. Similarly, after making investigation but thereafter taking the patently erroneous view, also makes an order erroneous. But, however, if there are two possible view on the point of issue, then order cannot be said to be erroneous. In other words, if issue is debatable and the Assessing Officer has taken one possible and legally sustainable view, then the Commissioner of Income Tax, cannot be allowed to substitute his view holding the order as erroneous. In another situation, any order may be erroneous due to lack of enquiry on the issue. When the investigation was made by the Assessing Officer, but the circumstances warrant that further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore reply of the assessee, which is signed by the counsel of the assessee on 25/11/2010, is available on page 9 of the paper book, which contains justifications of the loss and sale of machinery to M/s Apin Tax. Both the reply dated 15/11/2010 and 22/11/2010 are not bearing any stamp of acknowledgement either by the Assessing Officer or by the Income Tax Department. A perusal of the questionnaire issued by the Assessing Officer manifest that no query in respect of acquisition and sale of assets including machinery was raised by the Assessing Officer. It is also clear that no query in respect of sale of machinery was made by the Assessing Officer. In absence of any stamp of acknowledgement by the Department on the letter dated 15/11/2010 and 25/11/2010, it cannot be treated that same were filed before the Assessing Officer. Even if it is considered that the assessee filed reply dated 15/11/2010 and 25/11/2010 before the Assessing Officer, the Assessing Officer was required to carry out Inquiry in respect of the claim of loss on sale of machinery, however, no such enquiry was made by the Assessing Officer, and, therefore, the case of the assessee falls in the category of complete lac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny of the expenses. 4.7 In reply dated 15/11/2010, which is placed on page 18 of the assessee s paper book, reply in respect of creditors was as under: Answer No. 2: Copy of a/c of following creditors in our books of a/c: (a) M/s. ABN Enterprises Hissar (b) M/s. Apin Textiles. 4.8 Thus, it is evident from the submission of the assessee that no confirmation were filed in respect of the sundry creditors. Similarly, it is clear from the queries raised by the Assessing Officer that no details in respect of deduction of TDS on freight charges was examined by the Assessing Officer. Similarly, neither detail in respect of financial charges was also asked by the Assessing Officer nor any information was filed by the assessee. In view of the above, the learned Commissioner of Income Tax is correct in holding that further enquiry was necessary to examine the sundry creditors, financial charges, liability of TDS on freight charges. 4.9 The Hon ble jurisdictional High Court in the case of Meerut Roller Flour Mills Ltd (supra) held the assessment order as erroneous and prejudicial to the interest of the Revenue when the Assessing Officer had not conducted a proper Inquiry to ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of this sub-s. (1) of s. 263 shows that the CIT can pass various orders such as enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. If the CIT in this case had enhanced or modified the assessment, then looking to the facts of the present case, Shri Patel would have been justified in contending that, before passing the final order of enhancement or modification of the assessment, the assessee ought to have been given an opportunity to cross-examine Dr. Vyas. But here the CIT has not himself passed any final order as regards the assessment. What he has done is to cancel the original assessment and to direct a fresh assessment by the ITO with a further direction to the ITO to give proper opportunity to the assessee to substantiate its pleas as well as to cross-examine Dr. Vyas. Therefore, the question is whether it is obligatory on the CIT acting under s. 263 to enter into a regular inquiry in all cases before the original assessment order is cancelled and the ITO is directed to make a fresh assessment. There is nothing in the section itself which would justify such a view, because, on the question of inquiry, the section specifical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, we find that considering the facts of this case, the CIT was not bound to make any inquiry before passing the final order and that in substance no prejudice is caused to the assessee by failure of the CIT to give it any opportunity to cross-examine Dr. Vyas. 17. Next question is whether at the time of passing the final order, the CIT was bound to record final conclusion. Now, even on this question, we find that there is nothing in s. 263(1) to show that before passing the final order under that section, the CIT must necessarily and in all cases record final conclusions about the points in controversy before him. As already noted by us above, we would have expected him to record final conclusions, which he thought proper if he was to settle the assessment finally but since he has not settled the assessment finally, and has preferred to direct the ITO to make an order for fresh assessment, it was proper that he did not express any final conclusions and recorded only prima facie conclusions at which he had arrived with reference to the facts of the case. Here it should be noted that, as the assessment was to be freshly made by the ITO, the only proper course for the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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