TMI Blog2016 (2) TMI 1317X X X X Extracts X X X X X X X X Extracts X X X X ..... f color and chemicals have been made and therefore, both the allegation are part of the one single issue and cannot be seen separately. CIT also therefore rightly did not alleged making any separate addition or invoking section 41(1) - We agree with the contention of the ld AR that where the balances of sundry creditors having been examined during the course of assessment proceedings, the fact that these creditors relates to consumption of colour and chemicals and CIT not invoking section 41(1) the issue has to be seen in the context of consumption of colour and chemicals which we have already discussed above. Accordingly, on this account, it cannot be said that AO s order under section 143(3) call for intervention of ld CIT under section 263. Excess stock of gray cloth - AO has not examined the value taken for the purposes of valuation of gray cloth in the stock inventory as on 31st March 2011 and selling price of gray cloth processed which has been sold - From the perusal of the computation of income (PB 143), it is noted that in addition to profit as per profit and loss account, the assessee has offered an amount which is the amount surrendered during the course of survey. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted copy of TDS returns as well as copy of account of job work/process charges where it is shown that the assessee has done TDS on such payments. In our view, the same cannot form the basis for assuming jurisdiction under section 263 in the case of the assessee. We are of the view that the order passed by AO under section 143(3) cannot be held to be an erroneous order which is prejudicial to the interest of Revenue. The AO has made sufficient enquiries, considered the survey records and the surrender made by the assessee and after considering the submissions of the assessee and due application of mind completed the assessment proceedings under section 143(3) of the Act. Hence, the impugned order issued by ld CIT under section 263 lacks the inherent jurisdiction. - Decided against revenue. - ITA No. 142/JU/15 - - - Dated:- 26-2-2016 - Shri R.P. Tolani, JM Shri Vikram Singh Yadav, AM For the Assessee : Shri Mahendra Gargieya (C.A.). For the Revenue Shri M.S. Meena (CIT). ORDER PER SHRI VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of CIT-I, Jodhpur dated 27.03.2015 u/s 263 of the Income Tax Act, 1961 wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, a survey u/s 133A was conducted at the business premises of the assessee on 28.09.2010 wherein the assessee surrendered an amount of ₹ 65,04,000. Subsequently, he filed the return of income on 30.09.2011 declaring an income of ₹ 68,47,450/- which includes the surrendered amount of ₹ 65,04,000. The return was selected for scrutiny and assessment was completed u/s 143(3) determining total income at ₹ 69,78,704 after making an addition of ₹ 55,214/- on account of interest on I.T. Refund and lump sum addition of ₹ 76,000/- for probable leakage in trading account and personal element of use. 3.1 Thereafter, the ld. Pr. CIT-I, Jodhpur issued a show cause notice u/s 263 dated 24.12.2013 wherein the following issues were brought to the notice of the assessee: (i) That there was an increase in consumption of color and chemicals from 44.80% to 50.21% during the year under consideration and no explanation or enquiry has been made by the AO as to why purchase and use of colour and chemicals have gone up by 5.41% as compared to last year. (ii) That substantial amount has been disclosed in account of five sundry creditors and AO has not enqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he increase in uses of color chemicals and sundry creditors amount shown from purchases the color chemicals parties, the Assessing Officer ought to have examined genuineness of the transaction by calling of information u/s 133(6) or examining books of account u/s 131 of the Income Tax, 1961. (2) On perusal of payment of process charges of ₹ 41,42,107/-and particularly copy of ledger account of M/s Deep Shika Textiles, Balwant Process Pali and M/s Hitesh Bleaching Works, Pali, it is found that the assessee had paid payment by cash showing payment on number of days at ₹ 19,000/- so to avoid contravention of provision of section 40A(3). The Assessing Officer ought to have examined genuineness of work carried out by these parties. (3) The details /documents filed alongwith letter dated 19.05.2014 by the assessee had not been examined by the assessing Officer as no proof has been filed before the undersigned to suggest that these information /documents were produced before the assessing Officer. (4) During the course of assessment proceedings, the Assessing Officer has not examined as to why the TDS has not been deducted by payee on payment of job charges to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough CASS/Computer Selection Scrutiny System) and accordingly notice u/s 143(2) was issued on 21,09,2012 to the assessee fixing the case for hearing on 28.09.2012, later on questionnaire was issued on 12.01.2013 in compliance to said letter Shri M.C. Mehta with Shri Rajmal Kanwar the assessee attended on 08.01.2013 he was asked to submit/filed the require details as per order sheet dated 08.01.2013 and the date of next hearing was given 11.01.2013. On this date Shri M.C. Mehta A/R Shri Rajmal Kanwar attended and produced books of account and reply to the order sheet dated 08.01.20123 which was placed on record again some explanation were called and next date of hearing was fixed on 15.01.2013. On the date of hearing Shri M.C. Mehta, ITP attended produced cash book where from deposits in bank account confirmed written submission placed on record . There apart, in the later part of the order also queries were raised/explanation were sought. Thus, the AO had evidently made reasonably detailed enquiries, collected relevant information under the background of local knowledge of the trade and industry, the nature and prevalent practices therein. Presence of the ld. AR and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts additions/disallowances u/s 40A(3) or under other provisions were made. However, the Court s in several decisions have held that the moment accounts are rejected, revenue cannot rely on same accounts for further addition. Hence no separate disallowance could be made/alleged after application of adhoc NP rate or by feeling satisfied the GP rate at 6.80% by the AO and not objected by the CIT. (iii) Admittedly, the assessee declared better trading results this year in as much as the GP declared this year was at 6.80% as against 4.98% last year. The issue of alleged excess consumption of color and chemicals w.r.t. turnover of 5.41% which correctly should be 1.92% only is covered by the increase of 1.82% in the GP rate this year. Pertinently, the very surrendered income also included the surrender made on account of the excessive consumption of color and chemicals and cash. The AO clearly discussed the reasonableness of the GP rate in para 2 5 of the subjected assessment. (iv) Covered issue : All the issues raised by the CIT, have a direct bearing over the GP and NP, which aspect already considered by the AO. When, the accounts are impliedly rejected and the trading resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a balance of 2.41% (1.92% only correctly speaking) Another very important aspect to be considered is that when this aspect was examined by the survey team, based on the working , the consumption of the same color and chemicals was arrived at 72% and this fact having already been available in the survey folder as also accordingly before the present AO, there was no reason to have doubted the percentage of consumption by the assessee at 50.21% (w.r.t. purchases) or the 46.55% declared. Thus, for an assessing officer it was a good material which he duly considered because the record available before him at the time of making subjected assessment order on 18.01.2013 also comprised of the survey folder being relating to the subject assessment year itself. In the light of these facts if the AO has not made any further enquiry on the aspect of consumption of color and chemicals there was nothing wrong because these facts never called for/warranted any enquiry at all to be made by him. Second important aspect to be noted this year is that the total sale ( job done by the assessee) stood at ₹ 7.95 crores out of which 11.03% was got done from the market and was out sourced whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractice. Having kept these facts figures in mind, even if the AO has not elaborately discussed in the assessment order, that did not mean that the AO did not apply his mind well on the issues in hand. The AO applied full mind when he examined a/c invoices of color suppliers keep record of production, purchase, consumption, etc. Ref. letter 11.01.2013 to AO and the finding of the CIT at page 4,9 to 11 of his order where he refers to records. (ii) Increase in the amount of the Sundry Creditors namely M/s Manibhadra dye Chems. M/s Nageshwar Trading Co., M/s Manibhadra color and Chemicals Pali. A part of the purchases were made from these parties locally. Further as per the prevailing trade practice, the goods purchased has to be delivered FOR and buyer (the assessee here) is not required to take delivery on its own and hence its does not require any transportation facility. Otherwise, Pali is a small place and in case of emergent situation when some color chemicals of small quantity ranging between 50-100 kg. is required, the same is delivered through the manufacturer s loading vehicles scooter etc. Under these facts, there were no requirements of mentioning separate truck ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the transaction between the parties. The AO required the assessee to file confirmed copies of the accounts of all the trade debtors/creditors etc. which were duly filed by the assessee vide letter dated 11.01.2013 Interestingly, these facts are also evident from the very finding recorded by the ld. CIT himself. The facts, figures and closing balances, payment made ete. Copies of the detailed ledger account of those parties which certainly has been filed before the AO and were available in the assessment record at the time of inspection by the ld. CIT. If no enquiries made how the CIT referred to the Bills, invoices, entries of ledger etc. (iii) Cash payment in relation to sec. 40A(3): With regard to cash payment in relation to sec. 40A(3), it appears a mere suspicion in as much as the assessee admittedly made payments below ₹ 20,000/- to the small persons engaged in the work of washing etc. who does not require much investment and they are financially weak and therefore, they always insist for cash payment. They even do not have their bank a/c and therefore, cash payment has to be made but at the same time the assessee made TDS therefore, the purchases were found gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue alleging that the AO has not examined the value taken for the valuation of the grey cloth for the selling prices of the goods sold however, he has not at all taken the same in the final order. Therefore, to the extent the assessment order cannot be held to be erroneous prejudicial. (vi) Doubtful filing of letter dated 19.05.2014 by the assessee to the AO: With regard to the allegation ld. CIT at page-11 para III of the impugned order read as under: The details/document filed long with letter dated 19.05.2014 by the assessee has not been examined by the Assessing Officer as no proof has been filed before the undersigned to suggest that these information /documents were produced before the Assessing Officer. Strangely, however, the ld. A/R of the assessee had at no point of time filed any such letter dated 19.05.2014 before the assessing officer and more particularly when the subjected assessment itself stood completed on 18.01.2013, hence, there was no occasion to file such a letter after the close of the proceedings. This shows a clear cut pre-conceived notion and suspicion prevailing in the mind of the ld. CIT while deciding the proceedings u/s 263. 4.The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT under section 263 of the Act. In the context of survey proceedings, it is noted that both AO as well as ld CIT have acknowledged the fact that survey has been conducted, assessee has surrendered certain amount and the said surrendered amount has been duly offered to tax in the return of income. It is thus not the case of the ld. CIT that the assessee did not honor the surrender so made by not declaring the same in his return of income. It is also not the case of ld CIT that the AO has failed to consider the findings and report of the survey team while completing the assessment under section 143(3) of the Act. Here, it would be relevant to note as to which all account the assessee has surrendered the amount of ₹ 65,04,000. It consists of excess stock of colour and chemicals of ₹ 844,135, gray cloth of ₹ 57,59,935 and excess cash of ₹ 4,99,930. It would be equally interesting to note that in the show cause notice, ld CIT talks about AO not examining consumption of colour and chemicals and stock of gray cloth. We are unable to understand the dual approach taken by ld CIT. To our mind, ld CIT has to be consistent in his approach. Having not challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a micro approach which would have resulted in the same or even a different inference/consequences, in our view, the same cannot form the basis for exercise of jurisdiction under section 263 of the Act in the instant case. As per the case laws cited above by the Ld AR including that of Rajasthan High Court in case of Ganpat Ram Bishnoi 198 CTR 546, the same at best may be termed as a case of inadequate enquiry but clearly not a case of lack of enquiry. It is only in case of lack of enquiry, not application of mind by the AO and where the order passed by the AO not in accordance with law, the foundation lies for invoking jurisdiction under section 263 of the Act and not otherwise. Now let us examine the specific issues raised by the ld CIT in his order under section 263 of the Act. Firstly, the ld. CIT has objected that the increase in consumption by 5.41% this year as compared to the last year was not examined by the AO. As per ld AR, the ld. CIT considered the ratio of purchases to turnover as against the ratio of actual consumption of the turnover. During this year, the actual consumption stood at 49.63% as compared to 44.07% last year, resulting in increase of 4.92% only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n better GP results which includes the consumption of colour and chemicals shown by the assessee, the same have been accepted. In fact, the AO in his order has stated clearly that he has examined the manufacturing and trading account and felt satisfied. Accordingly, on this account, it cannot be said that AO has not the examined the matter or there is no application of mind which warrant an intervention by ld CIT under section 263 of the Act. Secondly, regarding amount standing in the account of the Sundry Creditors namely M/s Manibhadra Dye Chems, M/s Nageshwar Trading Co., M/s Manibhadra color and Chemicals Pali is concerned, the ld AR submitted that the AO required the assessee to file copies of the accounts of all the trade debtors/creditors etc. which were duly filed by the assessee vide letter dated 11.01.2013 Interestingly, these facts are also evident from the finding recorded by the ld. CIT himself where he refers to the facts, figures and closing balances, payment made etc. to these parties. It was further submitted that these are the same creditors from whom the purchases of color and chemicals have been made and therefore, both the allegation are part of the one sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the cashbook produced before him alongwith the Tax Audit Report in which the Tax Auditor has not reported any contravention of sec. 40A(3). On pursual of the assessment order, it is noted that the cash book was produced during the course of hearing on 15.01.2013 and it is also stated that the AO has done the verification of the cash deposits. It therefore cannot be said that the AO has not verified the cash book and it is likely that on examination of such cash book, he has found the same to be in order including compliance with section 40A(3). Accordingly, on this account, it cannot be said that AO s order under section 143(3) call for intervention of ld CIT under section 263 of the Act. Next is the issue raised by ld CIT that the AO has not examined as to why the third parties making the payment to the assessee have not made TDS and also the present AO has not intimated to the concerned AO of the such persons making payment to make disallowance u/s 40()(ia). In our view, the same cannot form the basis for assuming jurisdiction under section 263 in the case of the assessee. Next is the issue relating to payment of job work charges of ₹ 41,42,107/- where the ld CIT be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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