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TMI Blog2017 (3) TMI 1465X X X X Extracts X X X X X X X X Extracts X X X X ..... passed the order which can't be held as erroneous and prejudicial to the interest of revenue only on surmises and conjectures. 2. The brief facts of the case are that the assessee had filed its return on 19.09.2011 declaring income of Rs. 10,66,290/- and the assessment u/s 143(3) was completed on 29.01.2014 at total income of Rs. 11,42,520/-. The ld. CIT thereafter issued notice u/s 263 dated 12.02.2016 on the following issues: (a) During the year, there was increase in turnover but G.P. had declined substantially which is accepted by the AO without carrying out any verification of the explanation furnished by the assessee and simply accepted the same without any cogent reasons. (b) The AO as per query letter dated 28.02.2013 and 16.12.2013 required assessee to furnish copies of capital account of partners and the explanation towards source of addition to the capital account. The assessee filed detailed capital account but no details regarding source of addition to the capital account is furnished and therefore the same remained unverified and not properly enquired by the AO. (c) The AO as per query letter dated 16.12.2013 required assessee to furnish details of unsecured loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of accretion/addition to capital are found to have been furnished and the AO proceeded to complete the assessment proceedings on the basis of such incomplete details filed before him. As per record, it reveals that out of the seven partners there was accretion/addition to capital in the case of six partners, as per their capital accounts. Under such circumstances the source of accretion/addition to partners capital account during the year under consideration has remained unverified and not properly inquired by the AO. (3) Unsecured loans/cash credits: Perusal of assessment record reveals that as per query letter dated 16.12.2013, the AO had required the assessee to furnish details in respect of the unsecured loans (whether squared up or not) along with complete details and explanation towards the identity, genuinity and credit-worthiness of these parties. In response to the same, only copies of ledger accounts are found to have been furnished by the assessee, as available on record, but no details regarding the detailed query raised by the AO on the genuinity and creditworthiness of these transactions are found to have been furnished and the AO proceeded to complete the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it is prejudicial to the interest of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the AO or cancelling the assessment and directing fresh assessment. 53.2 The interpretation of expression "ërronerous in so far as it is prejudicial to the interest of the revenue" has been a contentious one. In order to provide clarity on the issue, section 263 of the Income Tax Act has been amended to provide that an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if, in the opinion of the Principal Commissioner or Commissioner (a) the order is passed without making inquiries or verification which, should have been made (b) the order is passed allowing any relief without inquiring into the claim (c) the order has not been made in accordance with any order direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any jurisdictional High court or Supreme Court in the case of the assessee or any other person. 53.3 Applicability: This amendment has taken ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue it cannot be held that AO has not enquired into the factors which impacted the decline in GP/NP rate. 4.2 In respect of addition to the capital account, assessee filed copy of the capital account of the partners. In reply dated 12.12.2013, assessee filed detailed copies of the partners capital account with their PAN and postal address and submitted that all the partners are assessed to tax, the source of deposit made by them can be examined in their individual hand and not in the hands of the firm. In reply dated 20.01.2014 copies of the return of the partners were enclosed and it was submitted that in view of the same there is no need to file the copy of the partners bank account. In proceedings u/s 263, the specific explanations to the source of deposit is submitted in which no discrepancy is found by the CIT. Thus it is evident that AO made the necessary enquiry in respect of addition in the partners capital account and therefore his order on this issue cannot be held to be erroneous or prejudicial to the interest of revenue. 4.3 In respect of unsecured loans, assessee filed confirmed copy of the account of the cash creditors giving all the details required in the query let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of CIT vs. Vatika Township Pvt Ltd (2014) 367 ITR 466 in Para nos. 31 & 32 of its order has laid down the law relating to retrospective legislation which is reproduced as under: "31. Of the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips vs. Eyre, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not adequate, cannot authorise him u/s 263 to level the order passed by AO as erroneous and prejudicial to the interest of revenue. In this connection, reference is made to the decision of ITAT Mumbai Bench in case of Narayan Tatu Rane Vs. ITO dt. 06.05.2016 47 CCH 309 which is subsequent to the decision in case of Anuj Jayendra Shah where in para 19 & 20 of the order, the insertion of Explanation 2 to section 263 by FA, 2015 is explained as under:- "19. The law interpreted by the High Courts makes it clear that the Ld Pr. CIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquires or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant." 6. If the principal laid down in case of Narayan Tatu Rani is applied to the facts of the case of the assessee it can be noted that on the issue of trading addition, AO raised specific query requiring the assessee to explain the reasons in the variation of g.p./n.p. rate. This is replied by the assessee which is verified by the AO with reference to the books of accounts and the quantitative and qualitative details furnished by the assessee. On the issue of addition to the partner's capital account, AO raised query vide letter dt. 28.02.2013 and 16.12.2013 in response to which the assessee furnished copy of partner's capital account, copy of their return and its own bank account in support of the amount received from the partner and thereafter AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or verification which should have been made and he has accordingly set-aside the assessment order passed by the AO with the direction to pass order afresh after examining all the issues and making proper enquiries. There are three issues on which the ld. CIT has held that the order passed by the AO u/s 143(3) is erroneous in so far as it is prejudicial to the interest of Revenue. It would be relevant to examine each of the three issues raised by the ld. CIT to see whether the matter falls within the revisionary jurisdiction of ld CIT. 6.1 The first issue is regarding decline in GP rate from 5.19% in AY 2010-11 to 3.17% in the impugned assessment year. In this regard, the AO has made the necessary enquiry vide his letter dated 28.02.2013 asking the assessee to file head wise chart showing amount of total sales, GP rate, NP rate for the relevant and preceding two years along with reasons for the variation and the contemporary verifiable evidences. In reply, the assesee vide its letter dated 12.12.2013 has submitted a comparative chart showing the sales, GP rate and the NP rate for the relevant and preceding 2 years for the reasons of fall in the GP rate. The assessee submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the details of capital account of the partners and copies of their return of income were furnished by the assessee during the course of assessment proceedings. However, copies of the partner's individual bank accounts were not furnished by the asessee. Further, it is noted that during the revision proceedings before the ld CIT, the assessee submitted its explanation as to the source of deposit in the individual's capital account. It was submitted by the assessee that the partners have introduced the capital out of the withdrawals made by them from their capital account on the earlier occasions and it is not the case where the partners have introduced fresh capital from other source of income. It was therefore submitted that the capital account of the partners maintained with the asessee is itself the sources of the amount credited in the capital account. As per ld. CIT, no details regarding the explanation on the sources in the capital accounts were furnished by the assessee and the AO proceeded to complete the assessment proceedings on the basis of such incomplete details filed before him. The ld. CIT further stated that as per records, it revealed that out of the seven partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding the source of deposits in the partner's capital account and having considered the said explanation, the ld. CIT is correct in remanding the matter back to the AO to examine the said explanation of the asessee. Had the assessee furnished the said explanation before the AO, the ld. CIT may not have the occasion to exercise his revisionary powers u/s 263 of the Act. In our view, these are the basic and the relevant enquiries in terms of examining the source of accretion to the capital account which the AO should have been made at the first place and the AO having been failed to do, the ld. CIT was correct in exercising his revisionary powers u/s 263 of the Act. 6.3 Now coming to the third issue in respect of unsecured loans, the AO as per his query letter dated 16.12.2013 has asked the assessee to furnish details in respect of unsecured loans alongwith complete details and explanation towards the identity, creditworthiness of these parties and genuineness of the loan transactions. In response to that, the assessee had filed copy of account of the cash creditors duly confirmed by them. During the course of revision proceedings, it was submitted that all the cash creditors are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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