TMI Blog2018 (7) TMI 1485X X X X Extracts X X X X X X X X Extracts X X X X ..... free basis was not reflected in the AO’s order. Likewise, on the issue of purchases, the lack of any factual foundation and why despite verification only 37 out of 111 parties came forward, the expenses could be allowed, is absent. For the other years, the reasoning why 22 parties could have been taken into account, for a vast majority of others (58) is absent, for AY 2011-12. ITAT’s findings amount to supplying reasons in respect of the AO’s order, on aspects, which are not expressly reflected in the assessment order. It is no doubt the duty of the CIT to record why revision is warranted; however, the ITAT’s jurisdiction is not to rewrite the AO’s order and improve upon it, in a manner of speaking. Clearly, the orders of the ITAT cannot be sustained. They are set aside. Question of law is answered in favour of the Revenue and against the assessee - ITA 907/2017, C.M. APPL.38789/2017, ITA 1162/2017, C.M. APPL.46234/2017 - - - Dated:- 20-7-2018 - MR. S. RAVINDRA BHAT AND MR. A.K. CHAWLA JJ. Through: Sh. Zoheb Hossain, Sr. Standing Counsel with Sh. Deepak Anand, Jr. Standing Counsel and Sh. Piyush Goyal, Advocate, for the appellant. Sh. Salil Aggarwal with Sh. Madhur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is also in the same kind of business. The AO has failed to make any enquiry as regards the huge duty drawback claimed by the assessee and the modus operandi of the assessee. During the scrutiny carried out under Section 263 of the Act, it was found that the assessee could not supply the PAN of certain creditors. Even during the proceedings under Section 263, the assessee failed to supply the same. Therefore, there was a lack of inquiry on the part of the AO to find out bogus purchases or inflation of expenses so as to reduce profits. The AO should get necessary information from concerned authorities like DRI as regards the role of assessee in making bogus exports and the low profits being shown by the assessee. It was also held that the assessee claimed interest in P L account (Rs.1,81,32,989/-), and, on the other hand, made interest free advances by saying that these are out of interest free funds. The AO did not make any inquiry as regards the utilization of borrowed funds for non-business purposes. The CIT also faulted the AO in failing to inquire about genuineness of these transactions. It was held that there were a number of credits, even in crores of rupees, and im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in response to the notice issued by AO, the question of lack of enquiry on the Private Mortgage Insurance (PMI) of the AO does not arise. 6. As regards unsecured loans received by the assessee, the ITAT observed that the loan amount was duly disclosed in the audited balance sheet. Further, when the assessee submitted the complete details of unsecured loans along with confirmation of each of the transaction, bank account of each of the person, and acknowledgement of ITR of lenders, which have been duly examined by the AO, it cannot be the case of lack of enquiry. The ITAT faulted the CIT in doubting the genuineness of those transactions without any substantive evidence. The AO at best made inadequate inquiries, and did not omit to do so. The assessee furnished details of 22 out of 80 sundry creditors, and claims to not have filed the details of the rest because they have been squared out in the subsequent years, or no further transactions took place during assessment proceedings. This established a discreet enquiry by the AO. On the issue of ownership of factory premises, the assessee submitted that it was his ancestral property and no rent was payable. There is no iota of doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to establish under Section 68 that the expenditure claimed or the investment or the amounts received were from authentic source. Without proving the identity of the creditor, the genuineness of the transaction or the creditworthiness of the individual or concerns, which had allegedly advanced the amounts, the assessee s claim for the entries, which it treated as loans, could not have been allowed. Learned counsel emphasized that the AO s order was silent on most of the aspects and facially needed to be corrected for the purpose of which the powers under Section 263 were correctly invoked. Reliance is placed on Toyota Motor Corporation v. CIT 2008 (306) ITR 52 (SC). 8. Learned counsel for the assessee submitted that the order of the ITAT made for both years was correct given the facts and circumstances. It was submitted that the AO s order was duly made after enquiry into the question of the profit loss statement; the AO took note of the fact that the assessee had received incentives. Learned counsel submitted that the order of the AO was not based on ignorance of facts; rather, he took into account the amounts advanced by various creditors. It was argued that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant in the absence of any supporting material and without making any inquiry. On these facts, the conclusion that the order of the ITO was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under section 263(1) was justified 11. In this case, as far as the issue of drawback is concerned, the CIT spelt out why the AO had to investigate the matter further: The firms of Sh. Sahdev Gupta are under scanner of DRI. The raids were also conducted by DRI. This information is on record that raids were conducted in August 2015. It. appears that the assessee is also in same kind of business and duty drawback is taken from the Government. It needs to be investigated as whether the assessee obtained duty drawback. on bogus exports. As far as Income tax is concerned the assessee has offered it as its income. A survey u/s 133A was also conducted wherein the assessee has voluntarily accepted additional income of ₹ 18 crores. Complete investigation was not carried out by the AO. There was lack of inquiry as regards the modus operandi of the assessee, particularly when th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO but not the CIT. As a matter of fact, the AO records no observation or findings on these issues; nor the issue of the loans, which the assessee received, or the amounts claimed by him as interest. Given these matters of record, this Court finds it difficult to validate the ITAT s approach reading into the AO s order, reasons which are simply not there. The ITAT s order itself discloses that the AO did not investigate into the question of advances given to others, (having regard to the assessee s claim for having taken loans, for which interest expenditure was claimed). This is apparent from the following observations, for AY 2011-12: the assessee has furnished copies of account of 22 parties out of 80 sundry creditors to the AO vide letter dated November 2013, available at pages 41 to 43 of the paper book, who has raised specific queries qua the creditors vide letter dated 23.07.2013, available at page 38 of the paper book. The ld. AR for 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 parties out of 17 parties stood squ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sister concerns for nonbusiness purposes without any interest.. 17. In this Court s opinion, the ITAT s approach was entirely faulty; it overlooked that the explanation, if any, why interest deduction was necessary, given that it had advanced substantial amounts on interest free basis was not reflected in the AO s order. Likewise, on the issue of purchases, the lack of any factual foundation and why despite verification only 37 out of 111 parties came forward, the expenses could be allowed, is absent. For the other years, the reasoning why 22 parties could have been taken into account, for a vast majority of others (58) is absent, for AY 2011-12. 18. In Toyota Motor Corporation vs. Commissioner of Income Tax (2008) 306 ITR 52 (SC) it was held by the Supreme Court as follows: We are unable to appreciate this reasoning given by the Tribunal simply because that the AO himself did not say any such thing in his order. There is no doubt that the proceedings before the AO are quasi-judicial proceedings and a decision taken by the AO in this regard must be supported by reasons. Otherwise, every order, such as the one passed by the AO, could result in a theoretical poss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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