TMI Blog2022 (5) TMI 895X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 2.45 crore which had not been reflected while filing the return of income. It is also worth our observation that the AO was conscious of the fact that non-declaration of Rs. 2.45 crore would result in the fall in the gross profit/net profit and the same was enquired into by the AO by requiring the assessee to explain the reason for the fall in gross profit/net profit. Apparently, based on the submissions made by the assessee in this regard, the AO agreed with the claim of the assessee that the offer of increase in the valuation of stock made on 14.11.2014 got subsumed while preparing the financial result for the year ending 31.03.2015. Although, the AO might not have recorded his satisfaction in as many words but looking into the record before us, we can safely conclude that the AO had given a thoughtful consideration to the issue and had accepted the assessee s contention only after adequate enquiry and due application of mind. Also gone through the audit objection , copy of which was furnished before us and for which there is a reply furnished by the assessee on 29.11.2019 and it has been rightly contended by the Ld. AR that the same has to be considered for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notice in terms of provision of section 263 of the Act to which the assessee objected. However, the Ld. PCIT did not find the objections of the assessee worth any merit and proceeded to hold that the assessment order was erroneous and prejudicial to the interest of revenue within the meaning of section 263 of the Act read with explanation 2 below section 263. The Ld. PCIT set aside the assessment on the issues forming the subject matter of the impugned order and directed the AO to pass a fresh assessment order in line with the observations made by the Ld. PCIT. 2.2 Aggrieved, the assessee has now approached this Tribunal challenging the exercise of powers u/s 263 of the Act by raising the following grounds of appeal: 1. That the Ld. Pr. Commissioner of Income Tax-1, Ludhiana has erred in assuming the jurisdiction u/s 263 of the Income Tax Act 1961 and, thereby, setting aside the assessment already completed u/s 143(3) of the Income Tax Act, 1961. 2. That the PCIT has failed to appreciate the fact that the earlier assessment, which was framed u/s 143(3) have been completed after due application of mind and by taking into consideration all the facts and, thus, the sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein complete stock details of various types of raw material, consumption, production, sales and closing stock in quantity during the year had been given and no adverse view had been drawn by the Assessing Officer in this regard, while framing the assessment. 4.1 It was further submitted that there was a survey operation at the business premises of the company on 13.11.2014 and 14.11.2014 and during the course of such survey, the assessee disclosed an amount of Rs. 3.25 crore as additional business income in the case of the company in respect of increase in the stock valuation amounting to Rs. 2.45 crore; and unexplained receivables amounting to Rs. 0.80 crore. Our attention was drawn to the letter of surrender placed at page 160 of the paper book, which reads as under: Sub: Discloser of income during survey in the case of M/s. Ganga Acrowools Ltd. With reference to captioned matter it is submitted that a survey operation under section 133A of the Income Tax Act 1961 was conducted on 13.11.2014 at the business premises at village Kot Sekhon, G. T. Road, Tehsil Khanna and also at other business premises of M/s. Ganga Acrowool Ltd. During the course of survey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores on account of valuation of stock was replied to. For ready reference, this reply of the assessee is also being reproduced herein under: Sub: Assessment Proceeding for AY 2015-16 (PAN AAACG8869Q) During the year under review survey has been conducted by the Income Tax department and in order to have our peace of mind we have surrender Rs. 79.96 lac and the same is shown as other income under the head Non Operation Income. We are maintaining quantities records (on day to day basis) for our Raw Material, WIP and Finished goods and quantity of various stocks were reconciled with physical verification conducted by the department however there was surrender of Rs. 2.45 cr. on account of valuation of closing stock. We are following method of valuation of stock COST or MARKET VALUE whichever is lower and the same method have been followed by us for valuation of stock as on 31.03.2015. Hope you will find the same in order and proceeds accordingly. 4.5 It was further submitted by the Ld. AR that, subsequently, another query by the AO was responded to by the assessee vide reply dated 30.03.2017 wherein the comparison of the gross profit and the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was submitted that complete verification was made by the Assessing Officer during the course of assessment proceedings and that he was satisfied about the correctness of the results declared by the assessee and, therefore, under such circumstances, the assessment cannot be held to be erroneous and prejudicial to the interest of the revenue. 4.10 It was further submitted that after the assessment had been framed by the Assessing Officer vide order dated 27.04.2017 an audit objection was raised by the audit wing of the department and a reply to the said objection was also filed by the assessee vide reply dated 29.11.2019. It was pointed out that the objection again related to the increase in the valuation of the stock. Our attention was drawn to the reply to the audit objection and the same is being reproduced herein under for a ready reference: Sub: - Our Assessment Proceeding for AY 2015-16 (PAN No AAACG8869Q) This is with reference to Survey Conducted at our premises on 13-14thNovember 2014 during the survey our entire stock in all premises was physical verified by department result of physical verification was tallied with our records. There was not any diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the survey, entire stocks in all premises was physically verified by department same was tallied with our records. There was no difference with respect to quantity purchase value of our raw material, consumables, packing etc. However we have surrendered the following: - During the year under review survey has been conducted by the Income Tax department and Assessee Company has surrendered Rs. 0.80 cr. and the same was shown as other income under the head Non-Operating Income. - We are maintaining quantities records for our Raw Material, WIP and Finished goods and there was 100% physically reconciliation of stocks was matching with our records. However we have agreed for increase in valuation of stocks as on 13.01.2014 by Rs. 2.45 cr. We are following method of valuation of stocks COST or NET REALISABLE VALUE whichever is lower and the same method had been followed by us for valuation of our stocks as on 31.03.2015. While finalizing our audited results for the year ending March 31, 2015, we prepared a valuation chart of our stock as on 31.03.2015 have applied rate for valuation as per our accounting policy i.e. lower of COST or NET REALISABLE VA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing asked to provide manufacturing account (with increased in value of stocks) for pre-survey period and post-survey period, we have provided the same vide our letter dated 18.03.2020. The only implication of increased in valuation of stocks on the date of survey is notional increase in profit (for the period up to the date of survey and notional decrease in profit after the date of survey. On detail analysis of manufacturing account for pre-survey period and post- survey period it is clear that such notional profit (in 'between financial year) has increased our gross profit in pre-survey period and decreased our profit in post-survey period and has no impact on the profits of company for whole year. As any increase in stocks valuation(without having increase in physical stocks) as on13.11.2014 becomes part of opening stocks on 14.11.2014 same being sold at prevailing market price and duly reflected in our audited result for the whole year. Hope you will find the same in order. 4.14 The Ld. AR submitted that in spite of the submissions made by the assessee, the Ld. PCIT set aside the assessment as framed by the Assessing Officer by holding that the AO had pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s profit details have been asked, impounded material, has been verified and, thus, the contention of the PCIT is not correct. PARA 4.1 ISSUES RAISED BY THE Ld. PCIT OUR REPLY It has been stated in para 4.1 that how the entries has been passed in the account and there is no such enquiries. i). It is submitted that each and everything cannot be mentioned in the assessment order and then one has to gauze from the replies and information furnished before the Assessing Officer and though, the Assessing Officer has rightly understood that the offer of Rs. 2.45 crores, how, it is subsumed in the trading results as on 31.03.2015, but it is again very much clear from the trading accounts furnished to the PCIT, which is placed at page 125 125A of the paper book and the Ld. PCIT should have looked into that which is part of stock as per lists furnished to The Assessing Officer. ii). The figure of opening stock as on 1.4.2014, 12.11.2014 and 31.03.2015 tally as per the information given to the Assessing Officer in respect of stock list, with copies of the bills as per pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paper furnished to PCIT clearly proves that offer of Rs. 2.45 crores has subsumed in the trading account as on 31.03.2015 on the basis of consistent method of accounting followed by assessee, not disputed by the Assessing Officer/PCIT and book results accepted and not rejected u/s 145(6). PARA 4.4 ISSUES RAISED BY THE Ld. PCIT OUR REPLY The PCIT has mentioned that the Assessing Officer has not made any enquiry about the method of valuation by calling the detail of opening and closing stocks as well as value. This contention is not correct as all such stock lists on different dates have been verified during the course of assessment proceedings. 4.16 It was submitted by the Ld. AR that the Ld. PCIT had completely chosen to ignore the fact that the AO had made proper and adequate enquiries and the assessee had given proper responses which were duly supported by evidences and that it was only after considering these evidences and responses that the AO had completed the assessment. It was argued that the Ld. PCIT had merely acted on surmises and conjectures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been initiated on the basis of audit objection, the respective orders u/s 263 were set aside. 5.0 Per contra, the Ld. CIT DR supported the observations of the Ld. PCIT and submitted that the AO had not made due enquiries and also that there was no application of mind by the AO on the issue of the increase in the valuation of stock. It was argued that although the assessee, while filing the return of income, had failed to honour the surrender made on this issue but no specific enquiries were made by the AO on this issue during the course of the assessment proceedings. It was further argued that by not disclosing the amount of Rs. 2.45 crore on account of increase in the valuation of stock, the gross profit had been reduced but the AO had failed to take note of the same. The Ld. CIT (DR) further argued that the Ld. PCIT has only set aside the issue and that the assessee would have ample opportunity again before the AO to demonstrate the veracity of its contentions in this regard. The Ld. CIT DR also placed reliance on numerous judicial precedents which have been filed in form of a separate paper book and have been taken on record. 6.0 We have heard the rival submissions and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock of raw material, work-inprogress and finished goods and that the assessee has been following consistent method of accounting year after year and even the stock lists as on 31.03.2014, 12.11.2014 and 31.03.2015, both quantity-wise and value-wise had been submitted, along with the copies of the bills, before the AO and no defects were found by the Assessing Officer during the course of assessment proceedings. We also note that the books of accounts of the assessee have not been rejected u/s 145(3) of the Act and, therefore, under such circumstances, when no adverse view has been taken by the AO on the voluminous details submitted by the assessee before the AO, we find it difficult to accept the finding of the Ld. PCIT that the Assessing Officer had not applied his mind to the issue of increase in the stock valuation of Rs. 2.45 crore which had not been reflected while filing the return of income. It is also worth our observation that the Assessing Officer was conscious of the fact that non-declaration of Rs. 2.45 crore would result in the fall in the gross profit/net profit and the same was enquired into by the AO by requiring the assessee to explain the reason for the fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied his mind to the issue as raised by the Ld. PCIT. 6.6 At this juncture, it would be relevant to make a reference to the judgment of the Hon ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd reported in [2011] 332 ITR 167 (Del.) wherein the Hon ble Delhi High Court has ruled that one has to keep in mind the distinction between lack of inquiry and inadequate inquiry and further if there was any inquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass orders u/s 263 of the Act, merely because he has a different opinion in the matter. It was further held by the Hon'ble Delhi High Court that if any Assessing officer, acting in accordance with law, makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. 6.7 In the present case also, the A.O. made the requisite enquiries, therefore, it is not a case of no enquiry and if the Ld. Pr. CIT was not satisfied with the enquiries made by the AO, he should have conducted the enquiries himself to record the findings that the assessment order was erroneous and he should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.11 We, therefore, by respectfully following the ratio laid down by the Hon'ble Jurisdictional High Court in the aforesaid referred to case as well, are of the view that the Ld. PCIT was not justified in exercising his power to invoke the provision of Section 263 of the Act on the basis of audit objection raised by the Audit Wing of the Department. We also note that the above said judgment of Hon ble High Court has been followed by the Chandigarh Bench of the ITAT later on in the case of Kirti Anand vs. CIT in ITA No. 540/Chd/2013 CHDTRIB, Sh. Paramjit Singh vs. Pr. CIT in ITA No. 499/Chd/2016 vide order dated 09.11.2016 (Chd Bench), Shri Vikram Kaswan vs. CIT in ITA No. 519/Chd/2014 vide order dated 08.03.2016 (CHD Bench), Sh. Jaswinder Singh vs. CIT-II in ITA no. 690/Chd/2010 (Chandigarh Bench) vide order dated 09.03.2012. 6.12 Therefore, we hold that the impugned action u/s 263 of the Act was not justified both on the allegation of lack of enquiry by the AO as well as on the allegation of non-application of mind by the AO. We also hold the impugned action u/s 263 of the Act to be bad in law as it was initiated on the bases if audit objection. Accordingly, we quash the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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