TMI Blog2017 (4) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... en no rent has been claimed in the balance sheet qua the property in question it would not affect the tax liability of the assessee in any manner. The assessee argued that the assessee could not furnish PAN of only those parties in whose case there was no further transactions at the time of assessment proceedings and that the account of the 13 parties out of 17 parties stood squared off in subsequent years and details thereof was filed before ld. CIT. This fact goes to prove that a discreet enquiry has been conducted by the AO qua all the sundry creditors and the findings of the ld. CIT that the AO did not make any enquiry even on sample basis to find out the genuineness of the sundry creditors is based upon surmises. At the most, it can be a case of inadequate enquiry, in which ld. CIT has no power to intervene u/s 263 of the Act. Bare perusal of the written submissions filed by the Revenue, it goes to prove that the Revenue has merely relied upon the case law to clarify the legal position so as to invoke the provisions contained u/s 263 of the Act but has failed to bring on record that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings had commenced by issue of notice u/s 143(2) and after several hearings, the AO completed the assessment u/s 143(3) at ₹ 21,60,55,880/-. That the CIT issued show cause notice u/s 263 on 1st October, 2015 in response to which the assessee filed the detailed written submissions in which each and every point was explained. The ld. CIT(A) alleged that the Assessing Officer did not make the inquiry on various points and he set aside the matter back to the file of Assessing Officer to make fresh assessment. Ld. Counsel explained in respect of each and every point raised by the CIT(A) and claimed that proper inquiry was made by the Assessing Officer in respect of each and every point and the allegation of CIT is factually as well as legally untenable. He has also furnished the written submissions, the relevant portion of which is reproduced below for ready reference:- 8) SUBMISSIONS BEFORE ITAT It is respectfully submitted that the assessment in this case was framed after making all inquiries and verification which were required to be made and that the assessment order in this case is neither erroneous nor prejudicial to the interest of the Revenue.lt is further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.04.10 and ₹ 14.86 crores as on 31st March 2011. It was further explained that the capital of the assessee as also interest free loans available to the assessee of ₹ 3.16 crores and other interest free funds in the form of sundry creditors etc. were far in excess of the interest free loans advanced by the assessee at ₹ 7.52 crores. It was further explained that the A.O. has taken note of all this information when he had examined the Balance Sheet of the assessee, statement of affairs of the assessee, bank statements of the assessee as also the details of debtors, creditors and unsecured loans which were duly asked for vide notice dated 23.07.13. (page no.38 of paperbook) v. The assessee further submitted that the details of all unsecured loans along with confirmations of each of the transactions, bank account of each of the persons and income tax acknowledgment return of each of the persons from whom unsecured loans were received, were duly furnished before the Assessing Officer and were examined by him during the course of assessment proceedings. It was further explained that out of 11 persons whose loans were outstanding, fresh loans have been received o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case is neither erroneous nor prejudicial to the interests of Revenue, following cases were relied upon in the course of hearing of the case before the ITAT. Gist of the cases so cited is as under:- i ) Delhi High Court - Director of Income Tax vs. Jyoti Foundation 357 1TR 388 The Hon ble Delhi High Court has held in this case as under:- In cases where there is inadequate enquiry but not lack of enquiry, the Commissioner must record a finding that the order//inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in law. An order of remit cannot be passed by the Commissioner to ask the Assessing Officer to decide whether the order was erroneous . The Hon ble Delhi High Court in this case followed its judgment in the case of D.G. Housing Projects Limited reported in 343 ITR 329. ii) Delhi High Court - 1TO vs. D.G. Housing Projects Limited 343 ITR 329 In this case the Hon ble Delhi High Court has held as under:- A distinction must be drawn in the cases where the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercised unless the CIT is able to establish that the order of the AO is erroneous and prejudicial to the Revenue. Thus where there are two possible views and the AO has taken one of the possible views, no occasion to exercise powers of revision can arise. Nor can revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry. The power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry. In this case the Hon ble High court has further held as under: Enquiry of a source of source is not the requirement of law. Once the A.O. is satisfied with the explanation offered on inquiry, it is not open to the CIT in exercise of his revisional powers to direct that further enquiry has to be done. At the very highest, the case of the Revenue is that this is a case of inadequate inquiry and not of no enquiry . It is well-settled that the jurisdiction u/s 263 can be exercised by the CIT only when it is a case of lack of enquiry and not one of inadequate enquiry. It is very important to note that the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. While the Commissioner is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert them and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the Commissioner prior to the finalization of the decision. In the instant case, a perusal of the impugned order would show that the CIT has drawn adverse inference against the assessee on the basis of alleged information regarding DRI action in the case of the brother of the assessee namely Sehdev Gupta, with whom the assessee did not have any trading transaction . There was no material on record to support such allegations and the CIT neither issued any show cause to the assessee in this regard nor confronted the assessee on this issue during the course of s.263 proceedings. 3. Ld. DR, on the other hand, was of the opinion that the alleged inquiry made by the Assessing Officer was, in effect, no inquiry at all because the Assessing Officer has to disch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry. The relevant portion of the order of Hon'ble ITAT is reproduced below:- 28.1 Ld. Special counsel has rightly pointed out that the expression, 'inquiry1, 'lack of inquiry' and 'inadequate inquiry', have not been defined and, therefore, when the action of the AO would be suggestive of lack of inquiry or inadequate inquiry, will depend upon the facts obtaining in a particular case. What emerges as a broad principle from the various decisions is that where the AO has reached a rational conclusion, based on his inquiries and material on record, the Commissioner should not start the matter afresh in a way as to question the manner of his conducting inquiries. It is not the province of the Commissioner to enter into the merits of evidence; it has only to see whether the requirements of essential inquires and of law have been duly and properly complied with by AO or not. 28.2 It is wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness purposes or not and how much deduction u/s 36(l)(iii) is actually allowable. 5. In light of ratio of Hon'ble Calcutta High Court in case of CIT Vs. Maithan International [2015] 56 taxmann.com 283(Calcutta), enquiry made by the AO in respect of unsecured loan would be in the category of 'no enquiry'. 6. It is undisputed fact that AO had asked for PANs of sundry creditors but in various cases these were neither provided during the assessment proceedings nor during proceedings u/s 263. Accepting such creditors as on the face of it (without making any further enquiry) is no application of mind as well as 'lack of enquiry' as per above stated ratio. 7.1 It is not disputed that there is investment of ₹ 5,52,00,000/- which makes it incumbent upon AO to investigate from angle of excluding expenditure which are made in relation to earning of exempt income or made not wholly and exclusively for earning the taxable income. 7.2 It is a fact that AO did not make any enquiry in this regard. 7.3 The case law of Holcim is not applicable to expenditure which are made not wholly and exclusively for earning the taxable income. 7.4 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r,- (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 decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 4.1 The Pr. CIT has given his opinion that no enquiry or investigation was made by the AO on the above discussed issues. 4.2 The opinion is bound to have a certain amount of subjectivity. The opinion certainly requires much lesser degree of material/evidence as compared to 'satisfaction' which in turn requires much lesser degree of material/evidence as compared to 'reason to believe'. It has been laid down by Hon'ble SC in case of Raymond Woollen Mills Ltd. that sufficiency of material cannot be challenged in case of 'reason to believe'. Therefore, the same cannot be done in case of 'opinion', also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not submitted any cogent material to rebut this presumption. 2.4 The court can only see if this opinion is logical as per the material before the Pr. CIT during proceedings u/s 263. 3.1 During proceedings u/s 263, the assessee was required to show cause as to why the AO was not required to become inquisitor in the situations mentioned in the SCN dated 01.10.2015( page #46-48 of PB) . The main reply is as per letter dated 10.11.2015(page #5073). 3.2 A perusal of the reply dated 10.11.2015 shows that the assessee failed to show cause as to why the AO was not required to become inquisitor in the given situations. The specific situations are discussed in subsequent paragraphs. 4.1 The fact that the sale proceeds were less by ₹ 38.62 crores as compared to purchase cost is undisputed. The reply of the assessee doesn t not show any cause qua investigator . The reply of the assessee( para 10(i) of the reply dated 10.11.2015) is basically address the query as to whether an adjudicator in such a situation would make an addition or not. 4.2 The fact that the assessee did withdraw heavy amounts running into crores of Rs. is undisputed. The very fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stigator starts from this point which he failed to carry out. The reply of the assessee does not make out a case that the AO should have become inquisitor in the situation. ) ref. para 10(v) of the reply dated 10.11 . 2015} 4.6 It is admitted that no rent has been paid for the office as well as go-down premises. It has been argued that these are ancestral properties and no rent is required to be paid. The assessee is not addressing the question qua investigator. The reply of the assessee does not make out a case that the AO should have become inquisitor in the situation. { ref. para 10(vi) of the reply dated 10.11.2015) 4.7 It is undisputed that the assessee dealt in readymade garment as well as diamonds. The assessee has not disputed the fact that profitability of diamond would not be same as that of readymade garment. The assessee has also not disputed the fact that only one (consolidated) trading account was before the AO. Therefore, it is apparent the AO as an investigator would have become inquisitor in such situation. The assessee is submitting that the act does not require such bifurcation or such examination. This plea is without any force because actual steps o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner can regard the order as erroneous on the ground that in the circumstances of the case, the Income Tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income Tax officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word erroneous in section 263 includes the failure to make such an enquiry. The order becomes errone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer. Every loss of revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law. The decisions relied upon by the learned counsel are as under:- i) Director of Income Tax vs Jyoti Foundation 357 ITR 388 (Del.) Revisionary power under section 263 of the Income Tax Act, 1961 is conferred by the Act on the Commissioner/Director of Income tax when an order passed by the lower authority is erroneous and prejudicial to the interests of the Revenue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interests of the Revenue, but orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed unless the CIT is able to establish the order of the Assessing Officer is erroneous and prejudicial to the Revenue. Thus where there are two possible views and the Assessing Officer has taken one of the possible views, no occasion to exercise powers of revision, can arise. Nor can revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry. The power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquiry in cases of inadequate inquiry. v) CIT vs Arvind Jewellers 259 ITR 502 The provisions of section 263 of the Income Tax Act, 1961, cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. It is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer and every loss of revenue as a consequence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has framed the assessment on the basis of quantitative details of all items exported during the year under assessment in the tax audit report. 6. However, on the other hand, ld. DR for the Revenue to repel the arguments addressed by the ld. AR contended inter alia that the AO as an investigator is required to be an inquisitor and presumption lies in favour of the Revenue u/s 114 of the Indian Evidence Act; that the opinion of CIT is to be based upon certain amount of subjectivity which requires much lesser degree or material / evidence as compared to the satisfaction; that since the presumption is in favour of the Revenue, the onus shifts on the assessee to prove otherwise with cogent material that the assessee has failed to show cause as to why the AO was not required to become inquisitor in the given circumstances; that the assessee borrowed interest bearing loans of about ₹ 19 crores but extended interest free loans about ₹ 7.52 crores about which neither any query was raised nor any document / reply was submitted by the assessee and as such, the contention of the assessee that the has orally explained these loans were out of interest free funds available with hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as regards the purpose of withdrawal so as to know whether the assessee is investing these amounts to earn any income. In the return of income no such income from making such investments has been shown by the assessee. 5. The assessee has claimed interest in the P L account of ₹ 1,73,34,136 + ₹ 7,98,853/-. In the Balance Sheet the assessee has shown Secured Loan of ₹ 15.05 crores and unsecured Loan of ₹ 4.04 crores. The assessee has given loans to various parties and has been shown as assets under the head Loans to Party. The assessing officer has failed to make any enquiry as regards to business purposes of making such loans and advances. There could have been disallowance of interest u/s 36(1)(iii) following the decision of Hon'ble Punjab and Haryana High Court in the case of Abhishek Industries 286 ITR 1. 6. The assessee has shown loans from various persons. The assessing officer placed on record the banks statement of a few persons from whom the assessee has received loans. The assessing officer has failed to examine the genuineness of the transactions. No enquiry has been raised as regards nature of source of credit in the banks accounts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial to the interests of the revenue. You are given an opportunity to being heard and show cause as to why the impugned order be not enhanced/modified or set-aside for fresh assessment u/s 263 of the I.T. Act, 1961. Your case is fixed for hearing on 12.10.2015. Sd/- (RAMAN KUMAR GOYAL) Pr. Commissioner of Income, Delhi 11, New Delhi 8. Ld. CIT proceeded u/s 263 on the premise that the AO has failed to make enquiries qua the issue show caused in the notice reproduced above whereas the assessee raised objection that all the enquiries now sought to be conducted by CIT have been duly conducted by the AO. 9. In the backdrop of the aforesaid facts and circumstances of the case, arguments advanced by the ld. Representatives of the parties and order passed by the authorities below, the first question arises for determination in this case is :- as to whether the assessment order passed by the AO suffers from inadequate enquiry or lack of enquiry? 10. First ground taken by the ld. CIT to invoke the provisions u/s 263 of the Act is as per P L account, the assessee is selling the goods on loss and the loss determined by the assessee in the recasted trading a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee stated to have filed the necessary documentary evidence vide letters August 2013, November 2013, December 2013 and 13.01.2014, available at pages 40 to 45 of the paper book. Undisputedly, assessee has declared taxable income of ₹ 21,58,62,170/- inclusive of amount of ₹ 18,25,22,250/- as additional income declared during the course of survey on 22.09.2010 on account of alleged excess stock found in the assessee s premises and consequently, the assessment was completed u/s 143 (3) on 31.01.2014. 13. So far as question of suffering loss to the tune of ₹ 38,62,38,612/- pointed out by the ld. CIT in selling the goods on loss is concerned, the ld. CIT observed that the AO has failed to make any enquiry qua incurrence of trading loss by the assessee. However, we are of the considered view that when the assessee has brought on record audited profit loss account, balance sheet, statement of affairs and capital account of the assessee which have been duly examined and the AO has also verified the books of account, vouchers, etc., there is no question of lack of enquiry on the part of the AO qua loss of trading account of ₹ 38,62,38,612/-. More so, during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any such loans or advances. 18. Ld. CIT in para 6 of the show-cause notice categorically recorded that, the AO placed on record the bank statement of few persons from whom the assessee has received loans but failed to examine the genuineness of the transactions and came to the conclusion that no enquiry has been made as to the nature of source of credit in the bank accounts of the persons who have given the loan to the assessee. CIT further recorded that in case of Abhishek Gupta his income is shown at ₹ 6,06,619/- for AY 2011-12 whereas in the bank statement there are a number of credits even in crores and immediately a cheque was issued either on the same day or within 2 3 days to some persons which shows that Abhishek Gupta is perhaps indulging into providing accommodation entries . Assessee proved on record the fact that the loan amounting to ₹ 7,52,87,000/- is duly disclosed in the audited balance sheet, from which it is apparently clear that all the loans given by the assessee out of interest free funds available with him which included his capital to the tune of ₹ 6.41 crores as on 01.04.2010 and ₹ 14.86 crores on 31.03.2011, assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any enquiry even on sample basis to find out the genuineness of the sundry creditors is based upon surmises. At the most, it can be a case of inadequate enquiry, in which ld. CIT has no power to intervene u/s 263 of the Act. 22. The next ground to invoke section 263 by CIT is that the AO has not made any enquiry as to the ownership of the premises / factory located at 6 / 848-849, Main Bazar, Mehrauli, New Delhi and goddown located at T-117, Ward No.6, Mehrauli, New Delhi and as to how the assessee is operating from these premises. Assessee brought on record the fact that the factory premises and goddown at Mehrauli is the ancestral property of the assessee for more than last 50 years and no rent was required to be paid. In the face of facts brought on record by the assessee, there is not an iota of doubt on the file to dispute the fact that the factory premises and goddown is ancestral property of assessee s family. Moreover, when no rent has been claimed in the balance sheet qua the property in question it would not affect the tax liability of the assessee in any manner. 23. Next ground taken by the CIT to invoke the provisions contained u/s 263 is the assessee has made inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. Furthermore, in para 10 of the impugned order, CIT proceeded to hold that, there was lack of enquiry as regards the modus operandi of the assessee particularly when the assessee has declared low income even after getting huge duty drawback , which shows that again the CIT without disputing the audited balance sheet and quantitative details of items exported by assessee during the year under assessment proceeded on the basis of surmises that it is a case of lack of enquiry as the assessee has declared low income, which is not sustainable in the eyes of law. 27. Bare perusal of the written submissions filed by the Revenue, reproduced in the preceding para 3 of the order, goes to prove that the Revenue has merely relied upon the case law to clarify the legal position so as to invoke the provisions contained u/s 263 of the Act but has failed to bring on record that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue by bringing on record the evidence as we have discussed in detail in the preceding paras. 28. Hon ble Supreme Court in Malabar Industrial Company Limited vs. CIT (supra) held that the phrase prejudicial to the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner must record a finding that the order made is erroneous. This is only possible if an enquiry and verification is conducted by Commissioner and he is able to establish and show the error or mistake by the AO, making the order unsustainable in law. CIT cannot pass an order of remit to ask the AO to decide whether the order is erroneous. In the instant case, CIT has specifically directed the AO to examine the sustainability of the claim of the assessee u/s 14A in the light of the case laws i.e. Holcim and Cheminvest Ltd. (supra) relied upon by the assessee during proceedings u/s 263 of the Act to which the CIT is not empowered. It was for the CIT to decide that the order was erroneous. 32. Hon ble Delhi High Court in case of DG Housing Projects Ltd. (supra) explained the distinction in the cases where the AO does not conduct an enquiry and in that case, the lack of enquiry itself renders the order erroneous and prejudicial to the interest of the Revenue and cases where the AO conducts an enquiry but the finding recorded is an erroneous and which is also prejudicial to the interest of the Revenue. In the second set of cases, the Commissioner cannot direct the AO to conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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