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TMI Blog2019 (12) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... ring, the main arguments have been addressed in the case of Loil Continental Foods Ltd. ("LCFL" for short), therefore for the facility of reference, we take up the facts mainly from "LCFL". 4. Brief facts of the case are that appellants were engaged in trading of foodgrains viz. paddy and rice. The National Spot Exchange Ltd. ("NSEL" for short) was constituted for taking up the activities of spot exchange for trading in commodities, and it is a platform provided to enable buyers and sellers to transact on the spot against actual delivery of the goods through licenced members appointed by the NSEL. All the appellants were appointed as licenced members to deal in Paddy. For this purpose, a settlement account of licensed member is maintained by NSEL with a designated bank in which amount of net proceeds are credited to settlement account. In the case of "LCFL" settlement account was opened with HDFC Bank, Feroze Gandhi Market, Ludhiana. The appellants have filed their returns of income electronically and notices for scrutinizing returns were issued under section 143(2) on 4.8.2015. The ld.AO after issuance of questionnaire under section 142(1) as well as show cause notice under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no representative of NSEL at the premises at Khamanon. Neither any record of any warehouse receipts, Transportation documents relatable to the stocks were found at Khamanon. These findings of the survey report were not considered by the A.O during assessment proceedings. (ii) It is further observed that during the course of survey at Khamanon loose paper as per annexure A-l, 1 to 250 and A-2, 1 to 206 were impounded. These documents were never examined and considered during the course of assessment proceedings. During the course of survey at Khamanon statement of Sh. Janak Raj Singh S/o Sh, Balbir Singh Uppal was recorded who categorically stated that no stock related to NSEL was lying at the premises at Khamanon. This, finding regarding stocks and other documents were not considered in assessment proceedings. (iii) Action u/s 1.33A was also carried out at SCO-18-19, Sector-9D, Chandigarh being the office of the assessee company. During the course of survey documents in form of Annexure-A-l to A-6, 13 CDs as per A-7, 5 CDs as per A-8 and one hard disk were impounded. However, these documents and data contained in CDs and in hard disks were never examined or verifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors were not called for. d. There is an increase of Rs. 15.44 Crores under the head 'short term loans and advances, despite the fact that the company has not made any sale/purchase during the year. The A. O failed to examine the genuineness and purpose of these loans advanced during the year. Even the details of such advances were not called for. e. Company has shown dividend income of Rs. 12,50,000/- during the year which has been claimed as exempt but AO has not examined as to whether any disallowances u/s 14A was required to be made. No inquiry/verification in this regard has been made. (vii) Apart from the above, the impounded documents/hard disks/CDs were required to be examined in the light of allegations about the genuineness of purchases, source of payments against equal purchases and user of funds received in view of reported substantial outstanding to the National spot exchange Limited (NSEL), after the payment crisis of NSEL surfaced in July, 2013. (viii) The criticality of these issues, their examination/verification, to determine their implication on the assessment of the company cannot be over emphasized. This, viewed, in the perspective of allegation(s) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsiders that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Incometax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. 8. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon'ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263. (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment order can be branded as erroneous. The following observations of the Hon'ble Delhi High Court are worth to note: "12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as record before us. A perusal of the show cause notice issued under section 263 of the Act would reveal that this show cause notice can be divided into two compartments; first issue contained in the reasons assigned by the ld.Commissioner at serial no.1 to 4, and second fold is contained in reasons nos.6 to 8 extracted (supra). As far as first fold of reasoning of taking cognizance under section 263 of the Act is concerned, it shows that the ld.Commissioner was of the view that NSEL was a platform where commodity trading had taken place. This exchange found to be involved in nefarious activities, which gave rise to various scams, and therefore, its operation has been suspended by the Ministry of Consumer Affairs, New Delhi on 31.7.2013. The ld.CITfurther noted that all the appellants were members of this exchange and the department had information that certain concerns including the appellants engaged in commodity trading at this exchange, were involved in issuing bogus warehouse receipts which were not supported by actual delivery, and contracts for sale and purchases were entered into with a view to raise finance, and not with intention to provide delivery of commodity. Therea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reports submitted by Sharp & Tannan Associates submitted to Board of Directors of NSEL., recoveries have been worked out from various members of NSEL. The following amounts have been shown as receivable from assessee as on 31.08.2013: M/s.Loil Continental Foods Ltd = Rs. 338.40 cr. Assessee failed to even file confirmation of accounts from NSEL as on date. 10. Therefore amount of Rs. 338.40 crore shown as recoverable by NSEL from M/s.Loil Continental Food Ltd. is taken as unaccounted income of the assessee." 6. The ld.Commissioner has made an analysis of the stand taken by the appellants. In para-8 of the impugned order while dealing replies of the assessees, the ld.Commissioner has observed that from the opening paragraphs of replies submitted by all the appellants exhibit the details of sequence of the assessment proceedings for the Asstt.Year 2014-15. It is general statement made by him that the AO had issued questionnaire, and they have furnished the replied. Qua that proposition, the ld.Commissioner has no dispute; but he was of the opinion that whether the AO had made investigation Had he applied his mind ? He could not close his eyes on the material available befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 18. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment order qua these materials. It is pertinent to note that the ld.AO has issued a questionnaire under section 142(1), and this questionnaire is available on page no.1 to 6. He called for information from all appellants on 37 counts. They have filed their detailed submissions along with audited accounts. The ld.AO made discussion, and then passed impugned assessment orders. It is further observed that no-doubt the assessment year 2013-14 is altogether an independent year. The inquiry conducted in that year might not have any bearing on the assessment of income for the Asstt.Year 2014-15, but while evaluating and branding an assessment order as an erroneous, whether that information which has been discussed in the immediately preceding assessment year, could be relevant information for formation of belief at the end of the ld.Commissioner that the assessment order in the Asstt.Year 2014-15 is to be revised. To our mind, a discussion made in the Asstt.Year 2013-14 on these materials, and thereafter no action was taken by the AO on the basis of the material, is an important factor which deserves to be taken into consideration. During the course of hearing, our attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement/Account (Settlement Bank Account copy) c) Details of Debit and Credit Entries more than One Crore with complete name & addresses of the parties; iii) Commodity wise position of stock as per your books of accounts and the stock disclosed to NSEL. Relevant stock registers in this regard be produced. Details of Rent paid godown wise (amount per month I mode of payment i.e. cheque / cash, original rent agreement, TDS details etc. be also furnished.) iii) Inward outward registers of the ware house be produced alongwith relevant receipt furnished to the NSEL. Inspection reports of the officers of NSEL be also produced. iv) a) Names, addresses, contact persons, Contacts numbers and copies of accounts of all suppliers in respect of stock mentioned in ware house receipts(WRs). b) Party wise goods (Quantity) and amount of goods supplied. c) Photocopy of bills from whom purchases/sales more than Rs. One Crore. v) Bills and records relating to transport and delivery of commodities including transportabilty from supplier to the godown of the assessee and to the designated ware house of the NSEL. vi.) Names of the directors with PAN Numbers and sister concerns with PAN Numb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erseas Foods Ltd. 3. All Bank Ledger A/c copies in the books with narrations. 4. Purchase Book/ register and delivery book/ register 5. Sales Book/register 5 a. Delivery books/ register 5.b. Delivery receipts book at warehouse/ register with acknowledgement proof. 6. Copy of agreement with NSEL 7. Mandi wise Committee purchase account with Mandi tax paid. Documentary proof of Mandi tax exemption certificate. 8. Procedure of operation at NSEL platform 9. Details of purchase at NSEL platform 10. Details of top 5 Buyers/Brokers with their copies of accounts 11. Party ledgers. 12. Stock registers 13. Trial Balance 14. Any court proceedings by you/ NSEL with documentary evidences. 15. Confirmation of account from NSEL Case fixed for hearing on 26.03.2016 at 9.00 AM." 10. We also incline to take note of questionnaire issued on 26.3.2016 which reads as under: "Present Sh. Janak Raj Singh Uppal, Sh. Sudhir Sehgal, CA, and Sh. P.C. Jain, CA, attendee! the assessment proceedings and asked to furnish the following details:- 1. As per order sheet entry dated 2.03.2016 you were asked to explain the procedure of operation at NSFL Platform (alongwith documentary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of survey, because survey was conducted much before the assessment year 2013-14. She had made specific reference about the loose paper in the questionnaire dated 13.3.2016 extracted (supra). Only addition made by the AO is based upon "S&TA" report. The addition made on the basis of "S&TA" report travelled to the Tribunal, and the Tribunal has deleted the addition even summoned the AO to the Tribunal for pointing out as to how he has made addition. The finding recorded by the Tribunal in the case of Loil Continental Foods Ltd. in ITA No.98/CHD/2017 and ITA No.99/CHD/2017, which reads as under: "16.1. We may also note here that after hearing the arguments of both parties, the AO was directed to appear in person for clarification on certain points on this matter. The AO, Sh. Amit Pratap Singh , DCIT, Central Circle-3, Ludhiana appeared before the Bench on final date of hearing of appeal on 16.03.2017. The AO after going through the record submitted that no statements of any responsible persons from NSEL or M/s Sharp and Tannan Associates have been recorded in support of showing recoveries against the assessee at the assessment stage. The AO submitted that the record would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the goods through licensed members appointed by NSEL. Ld. CIT(A) in his finding also affirmed same facts. It is, therefore, proved on record that NSEL provides platform to its Members to enable buyers and sellers to transact on spot against actual delivery of the goods. The NSEL, therefore, do not indulge directly in sale and purchase of any goods. The settlement account is maintained by the NSEL for the assessee with HDFC bank, Ludhiana in respect of all the transactions conducted through NSEL. As per settlement of account, NIL amount was due against the assessee as is mentioned by the AO in the assessment order. The AO also specifically mentioned in the assessment order that though the recovery suit is pending before the Bombay High Court but it was between other parties. The assessee filed affidavit to prove that no recovery suit is pending against the assessee in any Court of law on behalf of the NSEL. It is, therefore, highly unbelievable that as per Report of M/s Sharp and Tannan Associates if huge amount is due against the assessee, NSEL would not file any recovery suit against the assessee. The authorities below have heavily relied upon the Report of M/s Sharp and Tannan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .04.2014 have been placed on record by the Ld. DR during the course of hearing of the appeal, therefore, such report cannot be read in evidence against the assessee so as to make the addition. Further, this report showing recovery against the assessee pertained to the period from 01.08.2013 to 31.08.2013 when the assessee was not Member of the NSEL and same would not fall in AY 2013-14 under appeal. Therefore, such Report cannot be a basis for making addition against the assessee. Since NSEL do not indulge in actual sale and purchase, therefore, there cannot be purchases made by the assessee from NSEL. No evidence of any loan obtained by the assessee from NSEL have been brought on record to prove any recoveries to be made by NSEL from the assessee. The AO did not make any addition for any alleged discrepancies in the accounts of the assessee with its group concerns as regards transactions conducted through NSEL. The charges paid to NSEL for using their platform have not been doubted by the AO. All the stocks purchased were transferred to godown to NSEL on behalf of the assessee have been supported by all relevant evidences. The transactions were made through banking channels. All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce or material so as to sustain the orders of the authorities below. In such circumstances, we do not find it appropriate to remand the matter to the AO for fresh investigation as is argued by the Ld. DR. 21. In view of the above discussion and in the absence of any cogent and relevant evidence, we do not find any justification for the authorities to have rejected the books of accounts of the assessee u/s 145(3) of the Act or to make an addition of Rs. 338.40 crores. We accordingly, set aside the orders of the authorities below and delete the addition of Rs. 338.40 crores. 22. In the result, the appeal of the assessee is allowed. ITA No.99/Chandi/2017 (M/s Loil Health Foods Ltd.) 23. This appeal by the assessee has been directed against the order of Ld. CIT(A)-V, Ludhiana dated 28.12.2016 for AY 2013-14 challenging the rejection of the books of accounts and addition of Rs. 287.48 crores as allegedly payable by the assessee to NSEL without any material and evidence on record. 24. Ld. Representatives of both the parties submitted that the issues are same as have been considered in ITA No.98/Chandi/2017 in the case of M/s Loil Continental Food Ltd. vs DCIT (supra) and order i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings for the A.Y. 2013-14. This only buttresses the premise that the AO did not call for the Report of Sharp and Tannan despite reference to the same in assessment proceedings for A.Y. 2013-14 and for the A.Y. 2014-15. The AR has further stated that addition was made w.r.t certain documents of Sharp and Tannan in the A.Y. 2013-14 which again cannot be a basis for addition in A.Y. 2014-15. This warped argument of suggested replication of proceedings of A.Y. 2013-14 to A.Y. 2014-15 has been sufficiently dealt with in this order. Suffice, it is to say that the AO should have called for the report of Sharp and Tannan, examine the transactions of the assessee company with reference thereto and draw conclusions before completing the assessment for A.Y. 2014-15." 14. The above reasoning suggests in itself that how the ld.Commssioner has lost sight of all the relevant materials. In the Asstt.Year 2013-14 on the basis of "S&TA" report, an addition of Rs. 338 crore was made in the case of Loil Continental Foods Ltd, Rs. 287, and Rs. 85 crores in the hands of other two appellants. We have extracted relevant part of the assessment order in para-5 of this order. From the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment orders are erroneous. The materials referred by him are superficial, which at the most can rise a suspicion only. No firm conclusion can be drawn nor support the stand taken by the ld.Commissioner. 15. As far as the second compartment of the show cause notice is concerned, a perusal of serial no.VI to VII of the reasons assigned by the ld.Commissioner would indicate that he has made reference to the outstanding advances in the account, opening stock of finished goods, trade payables, and increase under the head short term loans and advances. A perusal of the reply given by the assessee would indicate that all these aspects have been gone through by the AO before finalizing assessment order. In the case of Loil Continental Foods Ltd. first issue raked up by the ld.Commissioner is that there were outstanding advances from buyers of Rs. 25.38 crores. In his opinion, this issue was not considered by the AO. The ld.counsel for the assessee took us through the record and submitted that copy of the questionnaire dated 27.6.2016 is available on page nos.1 to 6 of the paper book. At Sr.No.28, the ld.AO has called for following information: "Name and address of the person from who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out short-comings of these accounting entries. He should have verified from Laxmi Energy Food or Loil Overseas Foods Ltd., and thereafter recorded a finding that by acceptance of accounting entries, the AO has committed this error. Only then, he can relegate to the AO for re-adjudication, but no such steps have been taken. He just touched this issue peripherally without conducting any investigation. 17. The ld.CIT made reference to the Explanation-2 to Section 263 and also decision of Hon'ble Supreme Court in the case of CIT Vs. Amitabhachan, 384 ITR 200. It is pertinent to note that Explanation-2 of section 263(1) would help the ld.Commissioner to take cognizance under section 263 of the Act, if no inquiry was conducted by the AO before finalizing the assessment order. No doubt the assessment orders are very brief, and did not have elaborate discussion on these issues, but it is pertinent to bear in mind that assessees have no control over the AO and cannot persuade him to draft the assessment order in a particular manner. It is the discretion of the AO, how to pass an assessment order. Had an elaborate discussion available, then that would be an ideal situation for the higher ..... 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