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TMI Blog2022 (8) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... nterests of revenue in respect of any of the issues raised. 3. The learned Pr. CIT acted without jurisdiction in passing an order in respect of the claim for shrinkage on petrol and diesel which was duly considered by the Ld. AO before passing order u/s. 143(3). 4. For these and other grounds that may be adduced at the time of hearing, the order of the learned Pr. CIT may be quashed and the appeal allowed. The appellant craves leave to add to, or, amend/ alter/ withdraw any of the above grounds of appeal. All the grounds of appeal are without prejudice to each other." 2. The relevant facts of the case are that the returned income of Rs. 2,74,810/- filed by the assessee was accepted by the AO by passing an order u/s 143(3) of the Act on 24.11.2017. The assessee in the said return had also disclosed agriculture income of Rs.70,19,204/-. 2.1 The said case was selected for scrutiny through CASS specifically in view of the fact that "large agriculture income and low income shown as large contractors". 2.2 This order was subjected to the Revisionary Powers u/s 263 by issuing Show Cause Notice to the assessee. 2.3 Aggrieved by the order passed by ld. PCIT, Shimla, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in MS stood disclosed and considered. It was submitted that this was evidenced from replies and queries raised in Question No. 4 & 5. Replies to Question No. 6 and 7, it was submitted, would show that the purchase was only from IOC and sale was made to various clients in routine and it was responded that there were no sales to any sister concern as there is no sister concern. The response to question No. 12, 20 and 22, it was submitted, would show that the ledger account for expenses, debited to P&L Account and copies of bills and vouchers were all produced for verification before the AO. Bills and vouchers to support the agriculture income alongwith Jamabandi and Fard to establish ownership and bills and vouchers of commission agents to support the agriculture income, it was submitted, were all produced before the AO. 3.4 Attention was invited to another reply appended at page 2223 which would show that apart from addressing agriculture income, the assessee had also explained GP fluctuation as under: 3.5 Attention was also invited to Paper Book page 24 to 25 which is copy of the Stock Register of the assessee which had been duly shown to the AO. The narrations therein, it was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(2) of the Act, was issued on 25.07.2016. Subsequently, fresh notices U/s. 142(1) & 143(2) of the Act along with questionnaire were issued to the assessee on 18.08.2017." (emphasis supplied) 3.8 It was submitted that the AO after examining the entire details and being conscious of the fact that the order was selected for limited scrutiny and after addressing the GP rate etc. accepted the returned income of the assessee holding as under : "5. The submissions furnished by the assessee. have been considered. Further, Books of Account that were produced by the assessee have been examined. The reasons for selection of the case for scrutiny have been verified/examined and no adverse inference is drawn. 3.9 Inviting attention to the impugned order, it was his submission that this order has been directed to be revised without pointing to any error or mistake of such magnitude which can be said to be also prejudicial to the interests of the Revenue solely on account of the Audit Objection of shrinkage. This also, it was submitted, has been enquired into by the AO and has been accepted. The ld. PCIT, it was submitted, has passed the order in haste pre-determining to set it a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the present case, the ld. PCIT not even caring to consider the said reply, not considering the record available blindly relying upon the very same audit objection has passed the order setting aside a validly passed order without pointing to any mistake in the order passed by the AO. The exercise of Revisionary power, it was submitted, is not in consonance to the twin conditions as addresses by Courts, nor is it an exercise after due application of mind. The order has been passed mechanically with pre-determination to set aside the assessment order. No efforts, it was argued, were made to go through reply of the assessee available on record. The ld. PCIT was fully aware of the fact that the case had been selected for limited scrutiny for the specific reason and ignoring the fact that the shrinkage already stood enquired into by the AO passed the order mechanically, blindly relying upon the very same audit objection setting aside a validly passed order without pointing out any error in the order passed. The fact that detailed assessment order had been passed, it was submitted, is evidenced from the queries raised by the AO. Considering the facts, the AO accepted the retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting attention to the impugned order it was re-iterated that the Show Cause Notice dated 28.02.2020 was received by the assessee on 04.03.2020and accordingly, assessee could not participate in the late afternoon in the proceedings which were fixed at 11.00 AM on the said date. However, that Show Cause Notice, it was re-iterated was replied to by the assessee. Paper Book pages 37 to 39 of the Paper Book were again relied upon which would show that the assessee argued that all these issues were enquired into by the AO. 3.17 Accordingly, action u/s 263, it was submitted, was contrary to law as it is not a case of non examination of the issues by the AO and law does not permit the ld. PCIT to substitute his opinion on same set of facts for the decision of the AO unless the twin requirements are met. The Revisionary power, it was submitted, as per settled legal precedent cannot be exercised on the grounds of possibilities and guess work. It was argued when all the documents were available on record, the evidences and the issues stood enquired into, thus, taking another view without pointing to the error in the order and that too such an error which is simultaneously prejudicial to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31.03.2015, it appears that you have claimed excess loss on account of shrinkage/evaporation of these fuels at Rs. 3,19,918/- (7346*43.55) & Rs 4,02,670/- (8282*48.62) for HSD and MS respectively resulting thereby you have under reported your income by an amount of Rs. 7,22,588/-. This aspect has not been taken into consideration by the AO while framing the assessment under section 143(3) of the Act." 3.19 Inviting attention to the impugned order, it was submitted that ignoring the reply of the assessee, ld. PCIT unilaterally concluded that the assessee is not interested in giving any reply and without referring to the facts of the assessee's case proceeded to rely upon decisions which held that the Revisionary powers are justified where the order is erroneous and prejudicial to the interests of the Revenue. The order, it was submitted, is contrary to law and facts. 3.20 The decisions relied upon, it was submitted, are distinguishable on facts. The Apex Court in the case of Rampyari Devi Sarogi Vs CIT 67 ITR 84 (S.C) it was submitted, was incorrectly relied upon in the facts of the present case to hold that the assessment order has been passed in haste without any enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of hearing could now be afforded to the Appellant. However, Section 263(2) of the Act is a clear bar for any order being passed pursuant to a notice under Section 263 of the Act, after expiry of two years from the end of the financial year in which the order sought to be revised was passed. Thus, there is an outer limited in the statue under Section 263 which, in the present case, is 31s' March, 2013. Since, no useful purpose will be served in giving an opportunity to the Appellant of being heard at this stage, this Court answers question No.1 in the negative i.e. in favor of the Assessee and against the Revenue. " (emphasis supplied) 3.22 Accordingly, relying upon the binding precedent as available in this decision rendered by Apex Court in the case of Sona Building and of the Delhi High Court in TulsiTracom Private Ltd. Vs CIT (supra) it was his prayer that the order may be quashed. It was further submitted that there is no independent application of mind of the ld. PCIT. Accordingly, relying on the following submissions and decisions as cited in the synopsis filed, it was his prayer that the order may be quashed ; 15. First of all, it is submitted that in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shrinkage, it was argued had specifically been addressed. The shrinkage, it was argued is a normal routine loss in this nature of business and the percentages of the IOC are at best estimates for addressing the issues between the parties. These percentages on an estimate basis cannot factor in each and every situation. The shrinkage occurs not only on account of loss suffered on account of evaporation etc. for which there are estimates. The shrinkage loss etc. also occurs on account of spillage etc. and on account of transportation loss etc. When the AO has already looked into this aspect and this fact was in the knowledge of the ld. PCIT as these documents and explanations were forming part of the record, the observations of the ld. PCIT in para 5 merely setting aside the order without referring to the facts and without pointing out at any error in the action of the AO in accepting the assessee's version, it was submitted, is not permissible in law. Accordingly, relying upon following decisions, it was his prayer that the order be quashed : i) Malabar Industries Co.Ltd. Vs CIT (2000) 243 ITR 83 (SC) ii) CIT Vs Deepak Mittal 324 ITR 411 (P&H) iii) Pr. CIT Vs Kesoram In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the powers to call for records and pass appropriate Revisionary Orders u/s 263 when Audit Objections are flagged. It was his submission that in case the ld. PCIT does not choose to invoke powers u/s 263, then the said authority can refer the matter to the AO to pass an order u/s 154 etc. as per para 5.4 of the Instructions. 5.3 Accordingly, it was his submission that in law, there is no reason why the ld. PCIT cannot take recourse to powers u/s 263. Attention was invited to documents available on record on the basis of which it was argued that there was some mis-match in the details and it was his submission that if this aspect is enquired into by the AO, then the assessee has all the rights to argue whatsoever the assessee chooses to and by setting aside the order, no prejudice can be said to be caused to the assessee. 6. The ld. AR reiterated that he is strongly opposing the Department's prayer for remand. Decisions cited in support of the assessee's objections, it was submitted, are not being repeated. However, the proposition of law relied upon in the said decisions of the Courts including the Apex Court was strongly relied upon. 6.1 The assessee, it was submitted, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the PCIT on the basis of the proposal sent by the Assessing Officer, the order passed by the PCIT cannot be sustained for this reliance is being placed on the judgment of the 'Amritsar Bench' of ITAT, in the case of 'Ambey Construction Co.' placed at judgment set 140 to 167 and the relevant discussion on this subject is at page no. 147 to 149, 156, 160 & 167, wherein, by relying upon the various other judgments of the 'Jaipur Bench' and 'Pune Bench', the order passed by the Ld. PCIT has been quashed, though on merits also, the order as passed by the Ld. PCIT have been quashed. The following other judgments are there as under on the similar issue: i. Judgment in the case of 'Manish Chirani' vs PCIT in ITA No. 1161 /Kol/2019 copy of the judgment is placed at pages 187 to 194 ii. John Gait International vs. PCIT in ITA No. 2155/Mum/2017 copy of the judgment is placed at pages 195 to 215. iii) 'Span Overseas Ltd. vs. CIT in ITA No. 1233/PN/2013'copy of the judgment is placed at pages 216 to 228. iv. Judgment in the case of 'Shri Priyank Sharma' vs. CIT in ITA No. 347/JP/2013 vide order dated 28.02.2014 and the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the replies of the assessee which may be available in the course of the hearing. In the facts of the present case, ld. PCIT was conscious of the fact as to why the specific case was selected for scrutiny under CASS. The ld. PCIT also had the benefit of queries raised by the AO and the replies of the assessee. The fact that there was a shrinkage loss higher than the estimate, was also a fact available on record. In the facts of the present case the 263 action was triggered by the higher percentage loss as flagged by the Audit Objection is a fact on record. The fact that the issues were enquired into by the AO in the facts of the present case or that on the audit objections, the AO required the assessee to offer its explanation, the fact remains that the higher percentage or shrinkage loss is based on estimated percentages in regard to evaporation etc. and the occasions for higher spillage or transportation loss were also estimated percentages were facts considered by the AO are arguments which we have considered. We also find that the ld. PCIT did not even care to look into the reply of the assessee before the passing of the order. The prayer of the ld. CIT-DR at this stage that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be set aside by the ld. PCIT must necessarily meet the twin requirements of pointing out the error in the order passed and such an error which is also prejudicial to the interests of the Revenue. By merely citing an Audit Objection and setting out facts that a different view is also possible on the same set of facts has been held to be not a valid exercise of the Revisionary powers u/s 263 of the Act. Thus, we find that the Hon'ble High Court in the aforesaid decision did not lay down the proposition that in any case where there is an Audit Objection, the ld. PCIT is barred to consider exercising powers u/s 263. For the sake of completeness, we reproduce para 7 from the aforesaid decision : "7. A reference to the provisions of s. 263 of the Act shows that jurisdiction thereunder can be exercised if the CIT finds that the order of the AO was erroneous and prejudicial to the interest of Revenue. Mere audit objection and merely because a different view could be taken, were not enough to say that the order of the AO was erroneous or prejudicial to the interest of the Revenue. The jurisdiction could be exercised if the CIT was satisfied that the basis for exercise of jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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