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2019 (4) TMI 285

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..... the present case, the Assessing Officer did nothing in the matter and without enquiry or verification of the facts, accepted the returned income. Thus, there was no application of mind while passing assessment order. Therefore, Explanation-2 to Section 263 of the Income Tax Act, 1961, would be clearly attracted in the case of the assessee. We may also note that there is no bar u/s 263, if a reference is made by the AO to the Pr. CIT to invoke jurisdiction u/s 263. Pr. CIT may get information from any source, but, before proceeding under section 263, the Pr. CIT shall have to satisfy the conditions of Section 263 of the Income Tax Act before invoking jurisdiction. In the present case, as noted above, the Learned Pr. CIT has satisfied all the conditions of section 263 before taking action against the assessee under section 263. Pr. CIT was justified in invoking jurisdiction under section 263 - Decided against assessee. - ITA.No.1987/Del./2018 AND Stay Application No.261/Del./2018 - - - Dated:- 2-4-2019 - Shri Bhavnesh Saini, Judicial Member And Shri O.P. Kant, Accountant Member For the Assessee : Shri Anil Kakkar, C.A. For the Revenue : Ms. Parmita M. Biswas, CIT-D .....

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..... by PCIT-16 and conclusion:- I have gone through assessment order and also through assessee's submission. It is found that during assessment no details were called regarding meat processing and purchase account by the AO. Details were called by AO only through notice dated 30.10.2017, in which he called details of only other expenses and loss from currency fluctuation . Besides this only details of unsecured loans were called from balance sheet. No details other than mentioned above were called. No books of accounts were called. No further notice was issued and no details were called through order sheet. Even though it was a case selected under CASS for limited scrutiny, one of the reason for selection was low net profit or loss . But AO stopped at gathering details of only other expenses and did not gather any details on expenses shown in manufacturing account namely purchases of ₹ 191.34 crores, packing material expenses of ₹ 1.29 crore, processing and freezing charges of ₹ 5.31 crore. As a result genuineness and veracity of such expenses could not be examined. The AO also did not examine short fall in GP NP both from 24.40 per cent (GP) .....

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..... im of appellant and yet AO accepted the entry in the statement of account in absence of any supporting material and without making any inquiry. On these f acts the conclusion that order of Income Tax Officer was erroneous is irresistible. It is incumbent on the officer to investigate the facts stated in the return. The order becomes erroneous if such an enquiry has not been made as held, in case of Duggal Co, vs. CIT (1996) 220 ITR 657 (Del.). If officer is expected to make an enquiry of a particular item of income and he does not make enquiry as expected, order p assed by officer is erroneous and prejudicial to the interest of revenue, as held in case of K.A. Ramaswamy Chettiar vs CIT (1996) 220 ITR 456 (Mad.) In view of these facts and position of law, the assessment order is set aside as being both erroneous and prejudicial to the interest of the revenue. AO is directed to examine the issue of low net profit by calling details of purchases, packing material charges, processing and freezing charges, addition to sundry creditors, advances from customers. AO must also examine as to why opening and closing stock are NIL why there is sharp fall in net profit rate and gross p .....

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..... have been made by the Assessing Officer, therefore, Explanation-2 to Section 263 of the Income Tax Act is clearly attracted in the case of the assessee. The Departmental Representative in support of the above proposition relied upon the following decisions : 1. Order of Hon ble Supreme Court in the case of Daniel Merchants Pvt. Ltd., vs. ITO Appeal No.2396 of 2017, dated 29.11.2017. 2. BSES Rajdhani Power Ltd., vs. PCIT [2017] 399 ITR 228 (Del.) (HC) 3. Surya Financial Services Ltd., vs. PCIT Order of ITAT Delhi in ITA.No.2158/Del./2017. 4. Malabar Industrial Co. Ltd., vs. CIT [2000] 243 ITR 83 (SC). 5. Rajmandir Estates (P.) Ltd., vs. PCIT [2016] 386 ITR 162 (Calcutta) (HC). 6. Rajmandir Estates (P.) Ltd., vs. PCIT [2017] 245 Taxman 127 (SC). 7. Order of Hon ble Supreme Court in the case of CIT, Mumbai vs. Amitabh Bachan Civil Appeal No.5009 of 2016, Dated 11th May, 2016. 5.1. The Departmental Representative further submitted that Assessing Officer did not enquire into the reasons for fall in GP and NP rate and no details with regard to purchases, sundry creditors etc., have been examined by the Assessing Officer, therefore, Pr. CIT was justified in sett .....

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..... the 1st day of June, 1988], the powers of the [Principal Commissioner or] Commissioner under this sub-section shall extend [and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.] [Explanation-2] For the purpose of this section, it is hereby declared that an order passed by the Assessing officer shall be deemed to be erroneous in so far as it is prejudicial to the interests 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 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.] [(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order soug .....

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..... r limited scrutiny with reference to four items including low net profit or loss. The Assessing Officer, however, in the assessment order did not discuss anything of any of the items, for which, the case was selected for scrutiny. The Assessing Officer accepted the returned income as it is without making any enquiry or without verification of the return of income. The Departmental Representative filed the copy of the Order Sheet of the Assessing Officer which shows that the Assessing Officer did not call for the books of account of assessee and also did not ask for the explanation of assessee on the proposed items, including reasons for low net profit. The Assessing Officer merely on three dates discussed the matter with the Representative of the Assessee and accepted the returned income. It is not in dispute that there is a sharp fall in gross profit and net profit rate as per the data noted in the impugned order. In the preceding assessment year 2014-2015 gross profit and net profit ratio was 24.40% and 6.33%. However, in the assessment year under appeal i.e., 2015-2016, the gross profit and net profit ratio is 2.21 % and. 0.07% respectively. The Pr. CIT on examination of the .....

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..... arlier year and that the case was selected for limited scrutiny on four items including unsecured loans, expenses and low net profit, therefore, it was the duty of the Assessing Officer to have examined the issues in detail before accepting the explanation of assessee. However, in the present case, the Assessing Officer did nothing in the matter and without enquiry or verification of the facts, accepted the returned income. Thus, there was no application of mind while passing assessment order. Therefore, Explanation-2 to Section 263 of the Income Tax Act, 1961, would be clearly attracted in the case of the assessee. The Hon ble Delhi High Court in the case of Gee Vee Enterprises vs., Addl. CIT, Delhi-1 And Others (1975) 99 ITR 375 (Del.) held as under : 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 erroneous because .....

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..... Tax Act, 1961. In these orders also, it is observed that the Commissioner has been vests with the powers to call for the record of any proceeding under this Act and if he considers that any order passed therein by the Assessing Officer is erroneous and prejudicial to the interests of revenue, he can proceed under section 263 of the Income Tax Act. In the present case, the twin conditions of Section 263 of the Income Tax Act are satisfied because the Pr. CIT has examined the assessment order as well as assessment record and was satisfied that the order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue. Therefore, the satisfaction of the Pr. CIT is there before invoking jurisdiction under section 263 of the Income Tax Act and such fact is also mentioned in the show cause notice issued before taking action under section 263 of the Income Tax Act, 1961. We may also note that there is no bar under section 263 of the Income Tax Act, if a reference is made by the Assessing Officer to the Pr. CIT to invoke jurisdiction under section 263 of the Income-Tax Act. The Pr. CIT may get information from any source, but, before proceeding und .....

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