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TMI Blog2023 (9) TMI 1309X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in law and on facts in setting aside the reassessment order dated 29-12-2019 and directing the assessing officer to make the assessment afresh after taking into account the alleged facts mentioned in para 4.1 to 4.7 after due verification and inquiry in this case and after taking input from the CBI wing relating to this case and pass an appropriate order as per the provisions of Income Tax Act and that to by recording incorrect facts and findings and without observing the principles o natural justice and more particularly when all the necessary details/information/evidences were examined at the time of re- proceedings. 3. That having regard to facts & circumstances of the case, Ld. Pr.CIT has erred in law and on facts in observing as under:- * That the assessee company is involved in HRHM Scam. * That there is a difference of Rs. 12,98,24,582/- between the turnover and credits in bank account. * That the issue of section 40A(2)(b) has not been examined. * That the depreciation of Rs. 2,29,125 is not allowable. 4. That in any case and in any view of the matter, action of Ld. Pr.CIT in passing the impugned order u/s 263 is bad in law and against the facts and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen from DDIT(Inv) report that a residential flat B- 514, cosmos executive Apartments, Palam Vihar, Gurgaon was shown to have purchased and depreciation of Rs. 1,17,500/- was wrongly claimed. The AO did not examine this fact during the assessment proceedings. 3. In view of the above, the assessment order passed by the AO, Circle-1. Meerut is erroneous and prejudicial to the interest of revenue and may be cancelled or modified by invoking the provisions of section 263 of the Income Tax Act, 1961." 3. On receipt of the show cause notice dated 04/03/2022 the assessee gave reply on the above issue. The Ld. PCIT on not satisfying with the reply given by the Assessee, observed that Assessee is involved in infamous NRHM scam and were raided by CBI and the key persons of the assessee company namely Shri Surendra Chaudhary and Shri Narendra Chaudhary were made as accused. The said raids were made in the year 2010 and 2012. It was also pointed out that in earlier investigation report dated 18.03.2019, as per the findings of CBI, assessee supplied products at high cost to Government hospitals after debiting bogus expenses and commission, etc, siphoned of the money to pay the bribe to var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir firms fluting all the norms of purchases, by splitting orders to bring them under their financial powers, obtaining bogus quotations, receiving fake supply, accepting spurious/sub standard drugs without proper batch number, expiry dates, creating false/bogus records at Distt level, Primary Health Centers and other Sub Centers. The FIR further says that the PE conducted about the then above mentioned CMOS revealed that they in conspiracy with the supplies ordered and received bogus supply of medicine and other items above 87 lacs (approx) from Shri Surender and Shri Narender Chaudhary, props M/s Daffodills Pharmaceuticals an d M/s Eastern Drug & Sanitary products. The enquiry at the above said Distt disclosed that in the above said Distt medicines, medical and surgical equipments were allegedly purchases at very exorbitant rates which were found to be 4 to 5 times higher than the actual prevailing market rates for the same items from said firms and other companies. Also it was revealed during the enquiry that the said medicine and medical equipments were purchased on the basis of forged quotations of the forged letter heads of reputed companies and payments were received by ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cals Pvt. Ltd. Indore got Licence on 7.1.2011 for manufacturing Folifer M Tablet (Iron 30 mg & Folic Acid 250 mcg) The licence was issued by the Licensing Authority Food & Drugs Administration Madhya Pradesh, Bhopal, it is seen that the amount of Rs. 15.12.000 was received by the CMO, FM Meerut in December, 2010. The investigation also revealed that Sh. Surender Choudhary, Director, Ms. Daffodills Pharmaceuticals Ltd. Meerut informed Sh. Vijay Randhar that IFA tablet will be purchased by the CMO, F/W Meerut Hence, Sh. Vijay Randhar applied and received the licence for supplying the IFA to the CMO, F/W, Meerut. The investigation revealed that M/s Sudharshan Pharmaceuticals Pvt. Ltd has not made any other sale to any other person authority except this sale of the IFA M/s. Sudharshan Pharmaceuticals Pvt. Ltd received Rs. 15.12 lacs, vide Six Demand Drafts (amounting Rs. 3,97,020/ dated 1.3.2011, Rs 4,75,373/- dated 1.3.2011 Rs 1,98,510 dated 3.3.2011, Rs. 99,255/- dated 4.3.2011 Rs. 3,34,281/- dated 11.3.2011, Rs. 7,561/- dated 24.3.2011 issued by the CMO. F/W, Meerut. It is revealed in investigation that the bills on which the payments was sanctioned in the Office of Chief Medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, held that the assessee had claimed depreciation at Rs. 2,29,125/- on account of flat purchased, which is a residential Flat and no depreciation to be allowed on this count. 7. The assessee had claimed cash expenses as a deduction in P&L account for which no supporting evidence has been furnished. According to the ld. PCIT, this expenditure cannot be allowed in view of the judgment of Hon'ble Allahabad High Court cited (supra) as this is hit by explanation to section 37(1) of the Act. In view of the above, the Ld. PCIT, vacated the assessment order made u/s 143(3) r.w.s. 147 of the Act dated 29.12.2019 and directed the AO to frame the assessment afresh after due verification and enquiry in this case after taking into consideration the input from the CBI wing and also after giving fair opportunity of hearing to the assessee. As against the revision order dated 29/03/2022, the assessee is in appeal before us on the grounds mentioned above. 8. We have heard the rival submissions and perused the materials available on record. Under Section 263 of the IT Act, the ld. PCIT may call for and examine the record of any proceeding if he considers that any order passed therein by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 263 of the Act. Every erroneous order cannot be the subject-matter of revision because second requirement must also be fulfilled. There must be prima facie material on record to show that tax which was lawfully eligible was not imposed or by application of relevant statute on an incorrect interpretation a lesser tax than was just has been imposed. Thus under s. 263 the revisionary power can be exercised only if the order of the AO is erroneous and prejudicial to the interests of Revenue. In the absence of any one of the said conditions the revisionary power cannot be exercised by the ld. PCIT. The Supreme Court in the case of Malabar Industrial Co. Ltd. vs. ld. PCIT (supra) has observed as follows : "A bare reading of s. 263 of the IT Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the CIT suomotu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interest of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the ITO is erron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STR information received from DDIT (Inves.) Unit-1, Meerut that difference between the credits in bank statements and turnover was amounting to Rs. 12,90,50,706/-. (b) Verify the commission paid on sale at Rs. 7,73,876/- and Rs. 3,00,000/- during the financial year 2011-12 relevant to the assessment year 2012-13. (c) The ld. AO on examining these issues accepted the returned income at Rs. 40,87,730/- vide assessment order dated 29.12.2019 passed u/s 143(3) r.w.s. 147 of the Act. 12. Now the contention of the ld. D.R. is that: (i) Ld. AO failed to obtain necessary documents from the assessee regarding difference of Rs. 12,98,24,582/- between turnover and credits in the bank account. (ii) Ld. AO did not enquire through Government officers or the officers of the CBI, wherein the assessee was claimed to have sold medicine in lieu of which paid commission of Rs. 1,36,12,647/- to the agents including Shri Prashant Chowdhury and ld. AO also did not enquire whether the agents have included commission income in the income tax return filed for the assessment year. The ld. AO did not verify the implication of section 40A(2)(vi) of the Act. (iii) Further, the ld. AO did not verify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 147 and following the issuance of a notice under s. 148, the AO has the power to assess or reassess the income, which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words "and also" cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word "or". The legislature did not rest content by merely using the word "and". The words "and", as well as "also" have been used together and in conjunction. The words 'such income' refer to the income chargeable to tax which has escaped assessment and in respect of which the AO has formed a reason to believe that it has escaped assessment. Hence, the language which has been use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the AO could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Exp/n. 3 by the Finance Act (No. 2) of 2009. However, Expln. 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of s. 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Sec. 147 has this effect that the AO has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, it after issuing a notice under s. 148, he accepted the contention of the assessee and holds that the income w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to verify with various Government officers including CBI officers. In our opinion, this is also not subject matter of reasons recorded for reopening of assessment. As such, the ld. AO is not required to carry out enquiry on this issue while passing assessment order u/s 143(3) r.w.s. 147 of the Act. 18. Even the allowability of depreciation on Flat is also not subject matter of reason recorded for reopening of assessment. This cannot be verified by ld. AO when the main issue for reopening of the assessment is not sustained. The one more issue raised by the ld. PCIT was that payment of commission was passed to public policy in view of the explanation to section 37(1) of the Act. It has been noted from the reasons recorded that the ld. AO not alleged about applicability of explanation to section 37(1) of the Act while reopening assessment. Once it is not the issue of reopening assessment, the ld. AO cannot be expected to carry out the enquiry as suggested by the ld. PCIT. At the cost of repetition we make it clear that in the case of reopening, the ld. AO raised the following issues:- a. Details of 2 DDs were purchased in favour of Daffodils Pharmaceuticals Ltd. And Eastern Drugs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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