TMI Blog2018 (10) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed that the AO on the basis of the tax audit report asked the assessee to explain as to why the loans amounting to ₹ 33,60,500/- were accepted other than the account payee cheques or draft as has been mentioned in clause 24(a) of the tax audit report. The explanation of the assessee was that no loans exceeding to ₹ 20,000/- was received in cash and that the tax auditor wrongly mentioned the names of 12 persons only through whom the loans from different persons who had given cash loans of value less than ₹ 20,000/-, were received, therefore, there was no violation of the provisions of Section 269SS. AO was not satisfied with the above said explanation of the assessee and levied the penalty u/s 271D which was equivalent to ₹ 33,60,500/- that the amount received by the assessee. Therefore, it cannot be said that the AO had not made the enquiries relating to the unsecured loans and after making the proper enquiries, he considered that the loans were received by the assessee in violation of provisions of Section 269SS of the Act and levied the penalty of equivalent amount i.e. ₹ 33,60,500/- u/s 271D of the Act. In other words, he has taken one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax, Muzaffarnagar ('learned Pr. CIT') under section 263 of the Income tax Act, 1961 ('Act') for AY: 2013-14, on the following grounds, each of which is without prejudice to one another: 1. The learned Pr. CIT has erred in initiating proceedings/ assuming jurisdiction; exercising jurisdiction under Section 263 of the Act and setting aside the order passed under Section 143(3) of the Act by the Asstt. Commissioner of Income Tax, Circle-1, Muzaffarnagar (AO) for AY.: 2013-14. 2. The learned Pr. CIT has erred in holding that the assessment order dated 29 March 2016 passed by the AO is erroneous in so far as it is prejudicial to the interest of the revenue in respect of two issues. First issue related to an addition made u/s 41(1) of the Act of amounting to ₹ 3,88,79,832/- being 10% of total amount outstanding against Sundry Creditors of a sum of ₹ 38,87,98,316/-. Second issue being related to an amount of ₹ 33,60,500/- for which the AO initiated penalty proceeding u/s 271D of the Act and penalty was also levied equal to the amount of credits. 3. The learned Pr. C1T while holding that assessment order dated 29-03-2016 is erroneous i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder cannot be said to be prejudicial to the interest of revenue as it is not a case of any loss to the revenue as penalty levied is 100% of the deposit as against 30% tax to be levied if treated as unexplained credit. e) that both the additions namely addition regarding Sundry Creditors and levy of penalty u/s 271D on the loans of ₹ 33,60,500/- were challenged by the Assessee in appeals filed before CIT(A) Muzaffarnagar which were finally heard on 09-01- 2018 and the assessee was awaiting order of CIT(A) which according to CBDT circulars was to be issued by CIT(A) within 15 days of final conclusion of hearing. This fact was brought to the notice of Pr. CIT who has conveniently ignored the same. The order passed by Pr. CIT is against the intent and purpose of clause (c) of Explanation 1 to section 263 of the Act. f) that extensive enquiry having been made in respect of both the above mentioned issues by the AO during the course of assessment proceedings, it cannot be termed as a case of lack of enquiry or non-application of mind by the AO, therefore also power u/s 263 has been wrongly exercised by the Pr. CIT. h) that the order passed u/s 263 vitiated on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons who had given cash loan less than ₹ 20,000/-. The AO pointed that there were number of anomalies in the vouchers passed while accepting cash loan which were as under: 1. All the vouchers are found unnumbered 2. All the vouchers have been apparently written in one go. 3. In none of them there is signature of any lender/share applicant. 4. Some of the vouchers are made in old yellowish paper as palpably appearing from yellowness of paper some vouchers are made on fresh white paper vouchers. The AO initiated the penalty proceedings u/s 271D of the Act for the said loans received in violation of provisions of Section 269SS of the Act. 5. The AO made an addition of ₹ 3,77,000/- which was the amount received by the assessee from 9 different persons on account of share application money for the following reasons: i) It is an admitted indisputable fact that inter-alia, no receipt has been issued to the alleged share applicants on receipt of cash share application money. ii) When even simple receipt as to receive of money has not been issued then there is no question of receiving of any share application money forms from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(6) of the Act to the entities. The AO observed that the notices issued u/s 133(6) of the Act to the sundry creditors were either received back with comments such as no such concern found at the given address or remained unresponded and that only a very few concerns had furnished reply. He also pointed out that only for a few persons, some alleged confirmations as to the copies of accounts as appearing in the books of the assessee company had been filed which were self-serving documents. According to the AO, there were numerous anomalies which were palpable from accounts financial statements and that in the financial statements, sales had been shown at ₹ 7.11 Crores including excise duty in the profit and loss accounts while as per the sales ledger, the sale had been at 12.46 Crores. The AO rejected the books of accounts by invoking the provisions of Section 145(3) of the Act and also observed that no plausible explanation along with evidence had been filed to justify the declared results. The AO made the addition of ₹ 2,17,09,248/-, the said figure denotes the retuned loss. The AO also made the disallowance of ₹ 3,88,79,832/- on account of cessation remiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ROC for increase in authorized capital. The AO held that the said amount was capital expenditure and made the disallowance of ₹ 1,14,775/-. Accordingly, assessment was framed at an income of ₹ 3,93,71,607/- instead of returned loss of ₹ 2,17,09,248/-. 9. Thereafter, the ld. Pr. CIT exercised his powers u/s 263 of the Act and observed that the AO had completed the assessment without examining the case properly. He issued the notice u/s 263 of the Act on 22.01.2018 to the assessee stating there in as under: On examination of the records, it has been noticed that: i) The AO has made the addition under section 41(1) at ₹ 3,88,79,832/- @ 10% out of total sundry creditors of ₹ 38,87,98,316/-. It is observed that no confirmation was received in compliance of notices issued u/s 133(6) of Income Tax Act, 1961 from the parties. Not a single creditor was produced before the AO. Further, no evidence in the form of bank statement showing debit entries has been filed to prove that in subsequent years amount has been paid. Therefore, the addition of ₹ 38,87,98,316/- should have been made by the AO. ii) As per clause 24(a) of the Audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2000] 243 ITR 83(SC). To substantiate the above contentions, the assessee refers to the copies of the replies submitted to the A.O. along with enclosures. The filing of these submissions before the A.O. may be verified from the assessment record. 11. The ld. Pr. CIT after considering the submissions of the assessee observed that the AO had issued notices u/s 133(6) of the Act to 45 parties at the addresses provided by the assessee, out of those notices, one party denied any transaction with the assessee and maximum number of the notices received back unserved from the postal department and in the cases where the notices u/s 133(6) of the Act were not received back, no response was received by the AO and that not a single creditor was produced before the AO for examination. The ld. Pr. CIT further observed that no evidence in the form of bank statement showing debit entries had been filed to prove that in the subsequent years amount had been paid, under these circumstances, the identity, creditworthiness and genuineness of the transactions were not proved and no basis had been given by the AO for making additions only @ 10% of the sundry creditors of ₹ 38,87,98,316/- s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 271D, which is equivalent to the amount of deposit, it cannot be said that order passed by the A.O. is in any case prejudicial to the interest of the revenue as if section 68 is invoked then the tax leviable would be much lower than that amount. 12. The ld. Pr. CIT after considering the above explanation of the assessee observed that the claim of the assessee that it had accepted those loans from 177 persons had been rejected by the AO by giving detailed reasons in the assessment order and the tax audit report submitted by the assessee. He further observed that although the AO invoked the provisions of Section 269SS of the Act. Even then, the he should have examined identity and creditworthiness of the persons, whose names were mentioned in the list given by the Auditor in column 24(a) of the Audit Report furnished to the AO. The ld. Pr. CIT held that the order passed by the AO was erroneous in so far as it was prejudicial to the interest of the revenue. The reliance was placed on the following case laws: Swarup Vegetable Products Industries Ltd. Vs CIT (1991) 187 ITR 412 (All.) Umashankar Rice Mill Vs CIT (1991) 187 ITR 638 (Ori.) Jagdish Kumar Gulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned order on 13.03.2018. It was stated that the ld. Pr. CIT invoked the provisions of Section 263 of the Act on the ground that the AO had not examined the two issues relating to the sundry creditors and the loans received and assessed the income at a lower amount. However, there was no such failure on the part of the AO to examine the above mentioned two issues and also the income had not been assessed at a lower amount as had been alleged in the show-cause notice. The ld. Counsel for the assessee submitted that it was brought to the notice of ld. Pr. CIT, Muzaffarnagar that most of the sundry creditors were brought forward relating to the purchases made by the assessee which could not have been added in the year under consideration and that while examining this issue, the AO had made intensive inquiries relating to the outstanding balances in the names of the sundry creditors and that attention of the ld. Pr. CIT was drawn to the notice dated 20.12.2015, in response to which, the reply was filed by the assessee on 22.02.2016 alongwith which the assessee had filed complete partywise list of the sundry creditors with complete addresses and copies of the purchase bills vide which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, to be on safer side he adopted the route of making 10% addition of outstanding balance of sundry creditors, in other words, the AO had taken a possible view and as such the ld. Pr. CIT was not justified in observing that the AO had not made any inquiry. It was further submitted that the outstanding balances in the names of the sundry creditors were on account of purchase of raw material which had been utilized in production of finished goods and the copies of all the purchase bills were filed before the AO on which not only full particulars and addresses of the parties from whom those purchases were made, were described but also full particulars of registration under various Acts such as sales tax and excise duties were also mentioned. Therefore, it could not have been said that merely because some of the notices were not served and most of the notices issued by the AO were not responded, the creditors were unexplained to be added u/s 68 of the Act. It was stated that the assessee in addition to furnishing the copies of purchase bills also furnished the confirmations from the parties for whom the AO had asked to furnish the same. Therefore, merely on the basis that no response ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the issues considered by the ld. Pr. CIT. The ld. Counsel for the assessee submitted that a notice u/s 142(1) of the Act was issued by the AO on 28.12.2015 wherein vide point no. 12, the AO asked the assessee to furnish complete party-wise list of the sundry creditors with complete addresses, a reference was made to page nos. 50 51 of the assessee s paper book which is the copy of the said notice. It was further submitted that to comply with the above notice, the assessee filed reply dated 12.01.2016 and submitted certain details, thereafter another reply was filed on 20.01.2016 and party-wise list of the sundry creditors was furnished, in support of the above, a reference was made to page nos. 53 to 55 of the assessee s compilation. It was also submitted that when the AO asked the assessee to furnish confirmatory letters from sundry creditors, the assessee submitted confirmatory letters from 16 parties vide letter dated 29.02.2016 and also requested the AO to call the information u/s 133(6) of the Act, a reference was made to page no. 57 of the assessee s paper book. It was emphasized that the AO vide order sheet entry dated 03.03.2016, asked the assessee to furnish confirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain the actual positions. 10. That the list where credit balance as on 01/04/12 is shown as on 31/03/13 is enclosed herewith. The confirmatory letter in respect of 5 persons are also enclosed herewith as such total are of confirmatory letters-------my honour is 24 which may kindly considered. 17. It was further submitted that the explanation given in respect of the provisions of Section 269SS of the Act, invoked by the AO vide para 11 of the aforesaid letter was as under: 11. That as regard the confrontation regarding alleged old balances in some cases of ₹ 20000/- or more it is submitted that all the loaners are agriculturist only which are only 18 members out of 177 members. The assessee hopes that your honor will find the above in order. 18. The ld. Counsel for the assessee submitted that the list of sundry creditors showing credit balances as on 01.04.2012 and 31.03.2013 were furnished alongwith confirmatory letters. Therefore, from the query raised by the AO and the replies given by the assessee, it could be ascertained that the AO had made intensive inquiries, issued letters to the sundry creditors u/s 133(6) of the Act, he also asked to give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnished with regard to an aggregate sum of ₹ 33,60,500/- which were cash loans received from 177 persons and each of the cash loan was below ₹ 20,000/-, so there was no violation of the provisions of Section 269SS of the Act. It was stated that the details regarding each of the persons involved were submitted to the AO alongwith their identity and documentary evidences of holding of agriculture land which was sufficient evidence to discharge the onus to prove the genuineness of the credit. It was contended that the only objection of the AO was that such submission of the assessee was contrary to clause 24(a) of the audit report as in the same, instead of writing names of all 177 persons, the names of 12 persons were mentioned. Thus, in the opinion of the AO, it was only a case of violation of Section 269SS of the Act which provides that the cash loans could not have been obtained/taken exceeding a sum of ₹ 20,000/-. It was stated that the names of 12 persons were written in the audit report on the ground that cash loans from 177 persons were received through 12 persons, therefore, the auditor had written the names of 12 persons only. On that basis, the AO express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case had been fixed for hearing on 08.03.2018, on the said date the assessee filed written submissions. It was further submitted that apart from the issues raised in the show-cause notice, the assessee never required to explain/show cause that why the order passed by the AO on other issues may not also be considered erroneous and prejudicial to the interest of the revenue and moreover, it had not been shown by the ld. Pr. CIT in the impugned order that how and in what manner the order passed by the AO was erroneous and prejudicial to the interest of the revenue. Therefore, the action of the ld. Pr. CIT was clearly indicated to the fact that the powers u/s 263 of the Act had been exercised in an arbitrary manner, without any basis and even without forming such an opinion that the assessment order passed by the AO on so called other issues was erroneous in so far as it was prejudicial to the interest of the revenue and without confronting the assessee with such an opinion, the exercise of power u/s 263 of the Act was contrary to the provisions contained in the said section and therefore, the impugned order of the ld. Pr. CIT in setting aside the other issues alongwith two issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Kumar Gulati Vs CIT 269 ITR 71 (All.) Gee Vee Enterprises Vs Addl. CIT 99 ITR 375 (Del.) 22. It was further submitted that the AO accepted the version of the assessee without making any enquiry or verification and it is well settled law that mere failure to make inquiries makes an order erroneous and the ld. Pr. CIT may consider an order of the AO to be erroneous not only if it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo typed order which simply accepted what the assessee had stated in his return and failed to make enquiries which are called for the circumstances of the case. The reliance was placed on the following case laws: Rampyari Devi Saraogi Vs CIT (1968) 67 ITR 84 (SC) Tara Devi Aggarwal Vs CIT (1973) 88 ITR 323 (SC) 23. It was contended that the impugned order passed by the ld. Pr. CIT was well within the ambit of law and in keeping with the provisions of the Income Tax Act, 1961. It was further contended that the present case was a clear cut case wherein no enquiry had been made by the AO and hence, it was erroneous within the meaning of clause (a) of explanation 2 to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rampyari Devi Saraogi Vs CIT (1968) 67 ITR 84 (SC) Tara Devi Aggarwal Vs CIT (1973) 88 ITR 323 (SC) ITO Vs D.G. Housing Projects Ltd. (2012) 343 ITR 329 (Del.) CIT Vs Goetze (India) Ltd. 361 ITR 505 (Del.) NIIT Vs CIT(Central) (2015) 60 Taxmann.com 313 (Del.) Deepak Maurya in ITA No. 4271/Del/2014 Financial Inclusion Trust in ITA No. 3268/Del/2014, order dated 14.08.2017 of the ITAT Delhi Bench B , New Delhi 26. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is an admitted fact that the AO framed the assessment u/s 143(3) of the Act vide order dated 29.03.2016. Thereafter, the ld. Pr. CIT exercised his revisionary powers u/s 263 of the Act and issued the notice dated 22.01.2018 for revision of the aforesaid assessment order and mentioned in the said notice as under: 2. On examination of the records, it has been noticed that: i) The AO has made the addition under section 41(1) at ₹ 3,88,79,832/- @ 10% out of total sundry creditors of ₹ 38,87,98,316/-. It is observed that no confirmation was received in compliance of notices i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y loss of revenue cannot be treated as prejudicial to the interest of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view-with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under the law. ( vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under Sec. 263, is not permitted to substitute his estimate of income in place of the income estimated by the AO. ( vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. ( viii) The CIT, before exercising his jurisdiction under Sec. 263, must have material on record to arrive at a satisfaction. ( ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y 2012-13. ( 12) Complete party wise list as to Sundry creditors with complete addresses. ( 13) Break up of expenses payable of ₹ 11,51,963/-. ( 14) Party wise break up of advance to suppliers. ( 15) Month wise break up as to sales purchases also furnish ledger account as to sales purchase for the month of March 2013. ( 16) Explain nature of business furnish detailed note on manufacturing process involved giving process wise Input-Output ratio. Also furnish input-output ratio at the final stage justify the same. ( 17) Copy of service tax, Excise Vat Tax return filed by you for FY 2012-13. 29. From the aforesaid questionnaire issued by the AO having the jurisdiction on the assessee, it would be clear that the details of purchase invoices and sale invoices, unsecured borrowings share application money, details of inventories, photocopies of expenses, reasons for loss and complete details of sundry creditors etc. were asked. In response, the assessee vide replies dated 20.01.2016, 22.02.2016 29.02.2016 (copies of which are placed at page nos. 54 to 57 of the assessee s compilation) furnished the complete party-wise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, it is also noticed that the ld. Pr. CIT herself in para 4 of the impugned order has mentioned that the AO had issued notices u/s 133(6) of the Act to 45 parties at the addresses provided by the assessee and out of those only one party denied any transaction with the assessee. It is also noticed that the ld. Pr. CIT although mentioned that not a single creditor was produced for examination but she ignored this vital fact that the assessee vide letter dated 18.03.2016 made a request that the commission may be issued to the respective AOs or notices u/s 131(1) of the Act may be issued to ascertain the actual position. However, no cognizance has been taken. In the instant case, the AO rejected the books of accounts by invoking the provisions of Section 145(3) of the Act and disallowed 10% of the outstanding balances of sundry creditors in spite of the fact that all the creditors were related to the purchases of raw material which had been utilized in production of the finished goods and were accepted in the preceding year and it was not the case of the department that the assessee either inflated the purchases or suppressed the sales. In our opinion, when the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration vis- -vis the preceding year, therefore, it can be said that in the present case, the AO had taken one of the possible views, after making the intensive enquiries relating to the sundry creditors, so it was not a case of lack of enquiry or non-enquiry, at the most it may be categorized as a case of inadequate enquiry but that is not sufficient to discard the possible decision taken by the AO. 31. As regards to the second issue relating to the unsecured loans is concerned, it is noticed that the AO on the basis of the tax audit report asked the assessee to explain as to why the loans amounting to ₹ 33,60,500/- were accepted other than the account payee cheques or draft as has been mentioned in clause 24(a) of the tax audit report. The explanation of the assessee was that no loans exceeding to ₹ 20,000/- was received in cash and that the tax auditor wrongly mentioned the names of 12 persons only through whom the loans from different persons who had given cash loans of value less than ₹ 20,000/-, were received, therefore, there was no violation of the provisions of Section 269SS of the Act. However, the AO was not satisfied with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot direct reconsideration only when the order is erroneous. An order of remit cannot be passed by the Commissioner to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. The Commissioner must after recording reasons hold that the order is erroneous. A distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry ; as lack of enquiry by itself renders the order erroneous and prejudicial to the interests of the Revenue and cases where the Assessing Officer conducts an enquiry but the finding recorded is erroneous and which is also prejudicial to the interests of the Revenue. In the latter cases, the Commissioner has to examine the order or the decision taken by the Assessing Officer on the merits and then form an opinion on the merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. In the second set of cases, the Commissioner cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not. 34. In the present case, the AO conducted the enquiries and had taken a possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The provision 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. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase prejudicial to the interests of the Revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X
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