M/s. Naresh Pharmaceutical Agencies, Cuttack V. Principal CIT, Cuttack

ITA 180/CTK/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3848 (ITAT-CUTTACK)
• Duration Of Justice: 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 10-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUNAL SINGH
• Assessee Lawyers: P K MISHRA
• Keywords: Depreciation; Non compliance; Assessment record; Prejudicial to interest; Reason to believe
• Section: 143(3); 142(1); 133(6); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH , CUTTACK BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND KULDIP SINGH JUDICIAL MEMBER ITA NO.180 /CTK/2016 ASSESSMENT YEAR : 2011 - 12 M/S. NARESH PHARMACEUTICAL AGENCIES, AT: NAYA SARAK, PO: CHANDINI CHOWK, CUTTACK VS. PR. CIT, CUTTACK, PAN/GIR NO. AACFA 3162 B (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI P.K.MISHRA, AR REVENUE BY : SHRI KUNAL SINGH, CIT, DR DATE OF HEARING : 24 /04/ 2017 DATE OF PRONOUNCEMENT : /04/ 2017 O R D E R PER N.S.SAINI, AM THIS IS AN APPEAL FILED BY THE ASSES SEE AGAINST THE ORDER U/S.263 OF THE I.T.ACT, 1961 OF THE PR. COMMISSIONER OF INCOME TAX CUTTACK, DATED 15.3.2016 , FOR THE ASSESSMENT YEAR 2011 - 12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDER PASSED BY THE LEARNED PR. COMMISSIONER OF INCOME TAX IS ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION. 2 ITA NO.180/CTK/2016 ASSESSMENT YEAR : 2011 - 12 `2) THAT, HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE LD. PR. COMMISS IONER HAS ERRED IN REVISING ORDER U/S 263 WITHOUT COMPLYING WITH THE MANDATORY STATUTORY CONDITIONS PRESCRIBED U/S 263 OF THE I.TAX ACT, 1961 SINCE NEITHER THE ORDER OF LEARNED ASSESSING OFFICER IS ERRONEOUS EITHER OF THE FACT OR OF LAW NOR PREJUDICIAL TO THE INTEREST OF REVENUE TO THE INCOME TAX ADMINISTRATION AS A WHOLE. 3) THAT, LD. PR. COMMISSIONER ERRED IN LAW AS WELL AS IN FACT IN NOT ACCEPTING THAT WHEN NET PROFIT IS ESTIMATED BY THE ASSESSING OFFICER BY REJECTING THE BOOK RESULT U/S 145(3) OF THE A CT, NO SEPARATE ADDITION CAN BE MADE. 4) THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED PR. COMMISSIONER ERRED IN FACT & IN LAW TO HELD THAT THERE WAS ESCAPED VERIFICATION BY LEARNED ASSESSING OFFICER & ASPECT NEEDS TO BE REEXAMINED. 5) THA T, THE LD. PR. COMMISSIONER ERRED IN LAW IN NOT ACCEPTING THAT SECTION 263 DOES NOT VISUALIZE A CASE OF SUBSTITUTION OF JUDGMENT MERELY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSIONS REACHED BY A SUBORDINATE AUTHORITY WHO PERFORMS QU ASI JUDICIAL FUNCTION, APPLIES HIS MIND JUDICIOUSLY. 6) THAT, LEARNED PR. COMMISSIONER SHOULD HAVE APPLIED HIS MIND AND LOGIC & ACCEPT THE EXPLANATIONS & EVIDENCES SUBMITTED BEFORE MECHANICALLY SET ASIDE THE ORDER TO THE ASSESSING OFFICER FOR FRESH ADJUDI CATION. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM, WHICH DERIVES INCOME FROM DISTRIBUTORSHIP IN MEDICINE PRODUCTS. IT FILED THE RETURN OF INCOME ON 30.9.2011 SHOWING TOTAL INCOME OF RS.1,94,167/ - . THE ASSESSING OFFICER COMPLETED THE AS SESSMENT U/S.143(3) OF THE ACT ON 19.3.2014 DETERMINING THE TOTAL INCOME AT RS.3,87,000/ - . 4. THEREAFTER, THE PR.CIT(A) ISSUED NOTICE U/S.263(1) DATED 10.12.2015 TO THE ASSESSEE BY OBSERVING AS UNDER: ON VERIFICATION OF THE ASSESSMENT RECORD, IT APPEARS THAT ASSESSEE HAS SHOWN SUNDRY CREDITOR IN THE BALANCE SHEET OF RS.26,63,783/ - . IN THE REGULAR ASSESSMENT THE AO HAD CALLED FOR LEDGER COPIES U/S 133(6) OF THE IT ACT 1961 FROM THE DIFFERENT CREDITORS. BUT THE AO WAS ONLY ABLE TO OBTAIN LEDGER COPI ES OF B S AGENCIES AND VIKASH & COMPANY AMOUNTING TO RS. 4, 62,723/ - LEAVING BALANCE UNVERIFIABLE CREDITORS OF RS.22,1,065/ - APPEARS TO BE TREATED AS UNVERIFIED LIABILITY AND TREATED AS INCOME. THIS ASPECT NEEDS TO BE RE - EXAMINED. 3 ITA NO.180/CTK/2016 ASSESSMENT YEAR : 2011 - 12 FROM THE AUDITED BALANCE SHEET, IT APPEARS THAT ASSESSEE HAS A NET ADDITION OF CAPITAL TO THE TUNE OF RS.12,16,290/ - IN THE YEAR UNDER CONSIDERATION. THE AO DID NOT EXAMINE THE SOURCE OF THIS INVESTMENT AND DID NOT OBTAIN COPY OF THE CAPITAL ACCOUNT. FURTHER, IT IS FOUND FROM T HE ASSESSMENT RECORD THAT ASSESSEE HAD MADE AN INVESTMENT OF RS.4,51,033/ - IN A MOTOR CAR WITH BANK FINANCE. THE AO DID NOT EXAMINE AT THE TIME OF REGULAR ASSESSMENT WHETHER THE CAR WAS PUT TO USE IN THE BUSINESS PURPOSES AND ALSO DID NOT OBTAIN THE COPY OF THE RC BOOK OF SUCH MOTOR CAR. THESE ASPECT NEEDS TO BE EXAMINED. IN SHORT THE FAILURE ON THE PART OF THE AO TO PROPERLY EXAMINE THE AFORESAID ISSUES IN THE ASSESSMENT PROCEEDINGS BEFORE PASSING THE ASSESSMENT ORDER U/S.143(3) DATED 19.3.2014 FOR THE A.Y. 2011 - 12 HAS RENDERED THE ASSESSMENT ORDER ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. 5. IN REPLY TO SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED AS UNDER: 'THAT, YOUR HONOUR HAS BEEN PLEASED TO SERVE UPON THE PETITIONER FIRM T HE ABOVE MENTIONED NOTICES AND THEREBY CALLED UPON THE PETITIONER FIRM TO SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER FRAMED U/S. 143(3] OF THE I.T ACT, 196! ON DATED 19/03/2014 FOR THE ASSESSMENT YEAR 20)1 - 12 SHALL NOT BE SUITABLY MODIFIED IN THE PROPOSED O RDER TO B E PASSED U/S.263 OF THE L.T.ACT 1 961 . 2. THAT, FURTHER YOUR HONOUR HAS BEEN PLEASED TO SERVE UPON THE PETITIONER FIRM NOTICE FOR PENDING PROCEEDINGS U/S 263 VIDE NO. PR. CIT/CTC/ 263/2015 - 16/4377 DATED, CUTTACK THE 12TH JANUARY 2016 IN WHICH YO UR HONOUR HAS BEEN PLEASED TO ALLEGE THAT 'NO ADJOURNMENT PETITION WAS FILED ON 28/12/20! 5 & IT SEEMS THAT THERE IS TOTAL NON COMPLIANCE ON YOUR PART.' 3 THAT, IN THIS REGARD THE PETITIONER FIRM HUMBLY BEGS TO SUBMIT BEFORE YOUR HONOUR THAT THE ALLEGATIO N AS MADE BY YOUR HONOUR IS COMPLETELY BASELESS & UNJUSTIFIED AS THERE IS NO SUCH NON - COMPLIANCE ON THE PART OF THE PETITIONER FIRM ON 28/12/2015. IN FACT THE PETITIONER FIRM HAD FILED PETITION PRAYING FOR ADJOURNMENT ON 28/12/2015 SINCE THE CHARTERED ACC OUNTANT OF THE PETITIONER FIRM WAS OUT OF STATION FOR AUDIT. [ COPY OF TIME PETITION FILED ON 28/12/2015 IS ENCLOSED HEREWITH FOR YOUR HONOUR'S KIND REFERENCE & RECORD] THAT, WITH REGARD TO YOUR HONOUR'S SHOW CAUSE NOTICE VIDE NO. CIT/CTC/263/2015 - 16/3933 DATED 10 TH DECEMBER 2015, THE PETITIONER FIRM HUMBLY BEGS TO SUBMIT BEFORE YOUR HONOUR AS FOLLOWS: - (A) THAT, THE LEARNED INCOME TAX OFFICER, WARD - 2(3), CUTTACK HAD BEEN PLEASED TO PASS THE ASSESSMENT O RDER U/S.143(3) OF THE I.T. ACT, 1961 FOR THE ASSESSMENT YEAR 201 1 - 12 ON 19/03/2014 BY INCREASING THE NET TAXABLE INCOME FROM RS. 1,94,167/ - AS DECLARED BY THE PETITIONER FIRM IN ITS RETURN .OF INCOME TO TOTAL ASSESSED INCOME OF RS.3,87,000.00 BY REJECTING THE BOOKS OF ACCOUNT & INVOKING THE PROVISIONS AS LAID DOWN IN SECTIO N 145(3) OF THE I JAX ACT, 1 96 1 . 4 ITA NO.180/CTK/2016 ASSESSMENT YEAR : 2011 - 12 (B) THAT, WHILE PASSIN G ORDER U/S 143(3) OF THE I TAX ACT,1961 THE LEARNED ASSESSING OFFICER HAD BEEN PLEASED TO RAISE THE ADDITIONAL TAX DEMAND AMOUN TING TO RS. 81,870/ - WHICH THE PETITIONER FIRM HAD PAID VIDE CHALLAN SERIAL NO. 2 DATED 10/09/2014 WITHOUT PREFERRING AN APPEAL BEFORE THE HIGHER FORUM AS THE PARTNERS OF THE FIRM WANTED TO BUY PEACE OF MIND WITHOUT GOING FURTHER INTO LITIGATION. (C) THAT , IT IS WORTHWHILE HERE TO MENTION BEFORE YOUR HONOUR THAT THE PETITIONER FIRM MAINTAINS BOOKS OF ACCOUNT ON DAY TO DAY BASIS & THE ACCOUNTS WERE AUDITED BY A CHARTERED ACCOUNTANT ON OR BEFORE THE DUE DATE OF TAX AUDIT RELEVANT FOR THE ASST. YEAR 2011 - 12 A ND THE AUDITOR HAD NOT POINTED OUT ANY SINGLE DEFECTS/SHORT COMINGS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSED FIRM BUT DUE TO CORRUPTION OF COMPUTER SOFTWARE PRINTOUT OF HARD COPIES OF CASH BOOK & LEDGER COULD NOT BE PRODUCED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. (D) THAT, FOR THE AFORESAID REASON, THE LEARNED ASSESSING OFFICER HAD NOT BEEN PLEASED TO CONSIDER THE AUDIT REPORT & OTHER RECORDS AS CALLED FOR DURING THE COURSE OF ASSESSMENT PROCEEDINGS & ESTIMATED THE NET PROFIT BEFORE INTEREST TO PARTNERS @ 1.25% AS AGAINST @ 1.05% DECLARED BY THE PETITIONER FIRM VIDE AUDITED TRADING & PROFIT & LOSS ACCOUNT FOR THE FINANCIAL YEAR 201 0 - 1 I RELEVANT FOR THE ASST. YEAR 2011 - 12. ( E ) THAT, THE ASSESSING OFFICER PERFOR MS QUASI JUDICIAL FUNCTION, APPLIES HIS MIND JUDICIOUSLY BASED ON FACTS AND CIRCUMSTANCES OF THE CASE FOR THE PURPOSE OF PROTECTING THE INTEREST OF REVENUE AND ACCORDINGLY THE LEARNED ASSESSING OFFICER APPLIED HIS MIND JUDICIOUSLY IN FAKING DECISION TO REJ ECT THE BOOKS OF ACCOUNT & ESTIMATE THE NET PROFIT OF THE PETITIONER FIRM WHILE PASSING ORDER U/S 143(3) OF THE 1. TAX ACT, 1961 WITH WELL ACQUAINTANCE TO THE ORDER OF JURISDICTIONAL HON'BLE ITAT, CUTTACK BEN CH, CUTTACK IN THIS REGARD. F) THAT, THE GROUND S ON WHICH YOUR HONOUR ALLEGED THE ORDER U/S 143(3] PASSED BY LEARNED INCOME TAX OFFICER, WARD - 2(3J, CUTTACK FOR THE ASSESSMENT YEAR 2011 - 12 TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE ARE SERIALLY DEALT AS BELOW. I. RE - EXAMINATION OF BALANCE OF CREDITORS ALLEGED TO HAVE ESCAPED VERIFICATION . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LEARNED ASSESSING OFFICER HA D BEEN PLEASED TO SERVE UPON THE PET ITIONER FIRM NOTICE U/S 142( 1) OF THE 1. TAX ACT 1961 DATED 16/08/2013 ALONG WITH ANNEXURE CONTAINING QUESTIONNAIRE FOR THE PURPOSES OF ASSESSMENT OF INCOME OF THE PETITIONER FIRM. AT POINT NO. 5 OF THE SAID QUESTIONNAIRE DATED 1 6/08/2013, THE LEARNED ASSES SING O FFICER HAD BEEN PLEASED TO ASK THE PETITIONER FIRM T O PRODUCE C ERTAIN DETAILS WITH REGARDS TO SUB CREDITORS. THE PETITIONER FIRM VIDE HAZIRA FILED DATED 07/01/2014 SUBMITTED THE LIST OF S.CREDITORS ALONG WITH NAME & ADDRESSES HAVING OUTSTANDING BALANCES EXCEEDING ONE LAKH AS CALLED FOR BY THE LEARNED INCOME TAX OFFICER. .. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE LEARNED ASSESSING OFFICER HAD BEEN PLEASED TO SEND THE DI RECT LETTERS TO THE CREDITORS FOR THEIR CONFIRMATION. SINCE THE PETIT IONER FIRM EXPRESSED INABILITY T O PRODUCE PRINTED HARD COPIES OF THE LEDGER & CASH BOOK DUE TO CORRUPTION OF SOFTWARE, THE LEARNED ASSESSING OFFICER TAKEN JUDICIOUS VIEW T O REJECT THE BOOKS OF ACCOUNT AS PER PROVISION CONT AINED IN SECTION 145(3) OF THE I . TAX ACT, 1 961. 5 ITA NO.180/CTK/2016 ASSESSMENT YEAR : 2011 - 12 THE LEARNED ASSESSING OFFICER AFTER APPLICATION OF MIND JUDICIOUSLY AS PER LAW HAD BEEN PLEASED TO PASS AN ORDER U/S.143(3) OF THE I.T.ACT, 1961 WHICH CAN NEVER IN A STRETCH OF IMAGINATION BE CONSIDERED AS ERRONEOUS AND/OR PREJUDICIAL TO THE INTEREST OF REVENUE. THE HON'BLE ITAT, JAIPUR RELYING ON THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. G.K.CONTRACTOR 19 DTR 305 ( RAJ) HELD THAT WHEN THE NET PROFIT IS ESTIMATED BY THE ASSESSING OFFICER BY REJECTING THE BOOK RESULT U/S 145(3) OF THE ACT, NO SEPARATE ADDITION CAN BE MADE. [ BRAHAMANAND AGARWAL, THEKHEDAR VS DCIT (STAT JAIPUR) ITA NO. 338/JP/2013 DATE OF DECISION 1 1 .08.2015] OTHER CASES RELIED UPON : - [CIT VS. BANWARI LA] BANSIDHAR 229 ITR 229(A]]) [CIT VS. AGGARWAL ENGG. COMPANY 302 ITR 246(P&H)] [DY. CIT VS. M/S RAM PA] SINGH, CONTRACTOR (ITAT AGRA) ITA NO. 65/AGR/2009 DATE OF DECISION 24.06.2010] FURTHER THE HON'BLE JURISDICTIONAL ITAT, CUTTACK BENCH, CUTTACK HAD REITERATE THAT ONCE THE ASSESSING OFFICER HAS RESORTED TO ESTIMATE THE NET PROFIT BY REJECTING BOOKS OF ACCOUNT OTHER DISALLOWANCES HAVE BEEN CONSIDERED HAVING TAKEN CARE OF BY THE ESTIMATION OF INCOME. [AC IT, CIRCLE - 2(1), CUTTACK VS. M/S S.N. KANUNGO & ASSOCIATES, ITA NO. 100/CTK/2012 DATE OF PRONOUNCEMENT 25/05/2012] YOUR HONOUR HAS NOT BEEN PLEASED TO MENTION IN THE SHOW CAUSE NOTICE SERVED ON THE PETITIONER FIRM THAT IN WHAT RESPECT YOUR HONOUR HAS REASON TO BELIEVE THAT THE ORDER PASSED BY THE LEARNED AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST TO REVENUE. MERELY STATING IN THE SHOW CAUSE NOTICE THAT S. CREDITORS REQUIRES RE - EXAMINATION DOES NOT PRESUME JURISDICTION U/S 263. IN THE GRAB OF EXERCISING POWER U/S 263, THE COMMISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIEW TO STARTING FISHING & ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. IT WAS HELD THAT WHERE ESSENTIAL TWIN CONDITIONS FOR INVOKING REVISIONARY JURISD ICTION U/S263, NAMELY, IMPUGNED ASSESSMENT BEING ERRONEOUS AS WELL AS PREJUDICIAL TO INTEREST OF REVENUE, WERE NOT SATISFIED, MERE ALLEGED INSUFFICIENCY OF ENQUIRY BY ASSESSING AUTHORITY COULD NOT BE PERMITTED FOR INVOKING REVISIONARY JURISDICTION. IF WAS ALSO HELD THAT WHERE ASSESSING AUTHORITY REJECTED BOOKS OF ACCOUNT OF THE ASSESSEE ON DEFECTS BEING SAME AS POINTED OUT BY COMMISSIONER AND PASSED BEST JUDGMENT ASSESSMENT MAKING ADDITIONS TO DECLARED TOTAL INCOME, THERE WAS NO OCCASION OF REVISING SAID OR DER ON GROUND THAT NO PROPER VERIFICATION WAS DONE BY ASSESSING AUTHORITY. [COMMISSIONER OF INCOME TAX VS. JAIN CONSTRUCTION CO. (2013) 34 TAXMANN.CORN84(RAJASTHAN HC) II. ALLEGED NON - EXAMINATION OF NET ADDITI ON & NON SUBMISSION OF CAPITAL ACCOUNTS IT IS TRUE THAT THE PARTNERS OF THE PETITIONER FIRM HAD MADE ADDITION OF CAPITAL AMOUNTING TO RS. 8,00,000/ - & NOT RS. 12,16,290/ - AS ALLEGED BY YOUR HONOUR DURING THE FINANCIAL YEAR 201 0 - 1 I RELEVANT FOR THE ASST. YEAR 201 1 - 12. 6 ITA NO.180/CTK/2016 ASSESSMENT YEAR : 2011 - 12 DURING THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE LEARNED INCOME TAX OFFICER, WARD - 2(3], CUTTACK , THE PETITIONER FIRM SUBMITTED THE AUDITED STATEMENT OF ACCOUNTS VIDE HAZIRA FILED DATED 29/1 0/2013 WHICH WERE EXAMINED BY THE ASSESSING OFFICER. FURTHER, THE PARTNER'S CAPITAL ACCOUNT WAS ANNEXED AS SCHEDULE - I OF THE SAID AUDIT REPORT WHICH CAN BE VERIFIABLE IN AUDITED BALANCE SHEET PRODUCED BEFORE THE ASSESSING AUTHORITIES. FURTHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LEARNED ASSESSING OFFICER HAD BEEN PLEASED TO ASK THE PETITIONER JIMI THE SOURCE OF ADDITION TO PARTNER'S CAPITAL A/C IN WHICH THE PETITIONER FIRM HAD SUBMITTED THE BANK'S CC ACCOUNTS WHERE SMT G EET A DIVI GOENKA HAD TRANSFERRED CAPITAL FUND OF RS. 5,00,000/ - ON 03/04/2010 THROUGH PROPER BANKING - CHANNEL. FURTHER SRI NARESH KUMAR GOENKA HAD TRANSFERRED CASH OF RS. 3,00,000/ - AS INTRODUCTION OF CAPITAL DURING THE FINANCIAL YEAR 2010 - 11 RELEVANT FOR THE ASST. YEAR 201 1 - 12. THE ABOVE FACT WAS DISCLOSED BEFORE THE LEARNED ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ACCORDINGLY THE LEARNED ASSESSING OFFICER HAD VERIFIED THE BANK STATEMENT PRODUCED BY THE PETITIONER FIRM ON 18/12/2 013. FURTHER SINCE BOTH THE PARTNERS WERE ALSO ASSESSED TO THE SAME ASSESSING AUTHORITY AS THAT OF THE PETITIONER FIRM, THE LEARNED INCOME TAX OFFICER HAD VERIFIED THE SAME FROM THEIR OWN RECORDS & DID NOT FEEL TO ASK THE PETITIONER FIRM TO PRODUCE 1. TAX RECORDS OF THE PARTNERS. FURTHER BOTH THE PARTNERS HAVING SOURCE OF INCOME FROM HOUSE PROPERTY & INTEREST INCOME APART FROM BEING PARTNER IN THE FIRM. ACER BEING SATISFIED FULLY WITH THE DETAILS AS EXPLAINED BY THE PETITIONER FIRM, THE LEARNED ASSESSING OFFICER HAD BEEN PLEASED TO PASS AN ASSESSMENT ORDER U /S 143(3) OF THE L.TAX ACT,1961. [ THE PARTNER'S CAPITAL ACCOUNT MARKED AS SCHEDUE - 1] IN AUDIT REPORT ALONG WITH STATEMENT OF INCOME & I TAX RECEIPT OF PARTNERS FOR THE ASST. YEAR 201 1 - 12 ARE AGAIN EN CLOSED ALONG WITH THIS PETITION FOR YOUR HONOUR'S KIND REFERENCE AND RECORD.] WHERE THE ENQUIRY HAD BEEN CONDUCTED AND THE A.O HAD REACHED A PARTICULAR CONCLUSION, THOUGH REFERENCE TO SUCH ENQUIRIES HAD NOT BEEN MADE IN THE ORDER OF ASSESSMENT, IT WAS APP ARENT FROM THE RECORD, WITHOUT ANYTHING TO SHOW HOW AND WHY THE ENQUIRY CONDUCTED BY THE A.O WAS NOT IN ACCORDANCE WITH THE LAW, THE INVOCATION OF JURISDICTION BY THE COMMISSIONER WAS UNSUSTAINABLE. CIT VS GANPAT RAM BISHNOI 296 ITR 292 (RA])] THE ORDERS OF THE A.O MAY BE BRIEF AND CRYPTIC, BUT THAT BY ITSELF IS NOT SUFFICIENT REASON TO BRAND THE ASSESSMENT ORDERS AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. WRITING AN ORDER IN DETAIL MAY BE A LEGAL REQUIREMENT, BUT THE ORDER NOT FULFILLING THI S REQUIREMENT CAN NOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ZAMIRUN BIBI VS. CIT, ITA NO. 661/KO 1/2011 DATED 01/09/201 {BISWANATH PARASI VS. ACIT, ITA NO. 1099/K/2009 DATED 27.05.2011} NON EXAMINATION OF INVESTMENT IN MO TOR CAR AND ITS PUT TO USE IN BUSINESS ACTIVITIES. 7 ITA NO.180/CTK/2016 ASSESSMENT YEAR : 2011 - 12 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LEARNED ASSESSING OFFIC ER HAD BEEN PLEASED TO SERVE UPON THE PETITIONER FIRM NOTICE U/S 142(1) OF THE 1. TAX ACT, 1961 DATED 16/08/2013 ALONG WITH ANNEXURE CONTAINING QUESTIONNAIRE FOR THE PURPOSES OF ASSESSMENT OF INCOME OF THE PETITIONER FIRM. AT POINT NO. 4 OF THE SAID QUESTIONNAIRE DATED 16/08/2013, THE LEARNED ASSESSING OFFICER HAD BEEN PLEASED TO ASK THE PETITIONER FIRM TO PRODUCE THE DETAILS O F ADDITIONS TO FIXED ASSETS ALONG WITH COPIES OF BILLS/INVOICES EVIDENCING THE DATE OF PURCHASE & THE COST. THE PETITIONER FIRM VIDE HAZIRA FILED DATED 07/02/2014 SUBMITTED MEMO THAT THERE IS NO SUCH ADDITION IN FIXED ASSET DURING THE FINANCIAL YEAR 2010 - 1 I RELEVANT FOR TH E ASST. YEAR 2011 - 12. IN FACT THE MOTOR CAR WAS PURCHASED FOR THE BUSINESS PURPOSES IN THE NAME OF THE PETITIONER'S FIRM DURING THE FINANCIAL YEAR 2009 - 10 RELEVANT FOR THE ASST. YEAR 2010 - 11 & THUS YOUR MAY VERIFY FROM THE DE PRECIATION SCHEDULE ANNEXED TO THE AUDIT REPORT PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT MOTOR CAR VALUE HAS BEEN BROUGHT FORWARD AS WDV AS ON 01/04/2010 AMOUNTING TO RS. 6,83,920.03 AND CLOSING WDV AS ON 3 1/03/20 11 WAS RS. 5,81,332/ - AF TER ALLOWING DEPRECIATION OF RS. 1,02,588/ - FURTHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LEARNED ASSESSING OFFICER HAD BEEN PLEASED TO ASK THE PETITIONER FIML TO PRODUCE CAR LOAN STATEMENT FOR VERIFICATION OF INTEREST CLAIMED AS EXPENSES. THE PETITIONER FIRM SUBMITTED THE CAR LOAN BANK STATEMENT FOR VERIFICATION, THE CLOSI NG OUTSTANDING AS ON 3 1/03/201 I BEING RS.4,51 ,033/ - REFLECTED IN LIABILITIES SIDE OF THE BALANCE SHEET. THAT, YOUR HONOUR'S OBSERVATION IN SHOW CAUSE NOTICE DATE D 10 /12/2015 THAT THE PETITIONER FIRM HAD MADE INVESTMENT OF RS. 4,51,033/ - IN MOTOR CAR IS COMPLETELY ARBITRARY AND PURELY BASED ON UNFOUNDED SUSPICION. FURTHER, ONCE THE ASSESSING OFFICER APPLIED HIS MIND JUDICIOUSLY IN TAKING VIEW OF REJECTING THE BO OKS OF ACCOUNT & ESTIMATED THE NET PROFIT OF THE PETITIONER'S FIRM, THE OTHER DISALLOWANCES HAVE BEEN CONSIDERED HAVING TAKEN CARE OF BY THE ESTIMATION OF INCOME. [ COPY OF BILLS/INVOICES FOR ADDITION OF CAR DURING THE FINANCIAL YEAR 2009 - 10 RELEVANT FOR T HE ASST. YEAR 2010 - 11 IS ENCLOSED ALONG WITH THIS PETITION FOR YOUR HONOUR'S SATISFACTION & RECORD] G. THAT, THE ASSESSING OFFICER WHILE PASSING AN ORDER OF ASSESSMENT, PERFORMS QUASI JUDICIAL FUNCTION, APPLIES HIS MIND JUDICIOUSLY BASED ON FACTS AND CIRC UMSTANCES OF THE CASE FOR THE PURPOSE OF PROTECTING THE INTEREST OF REVENUE. IN THE PRESENT CASE THE LEARNED ASSESSING OFFICER AFTER VERIFYING AUDITED STATEMENT OF ACCOUNTS AS WELL AS AFTER CALLING FOR DETAILS AS REQUIRED FOR HIS SATISFACTION AND APPLYING HIS MIND JUDICIOUSLY ONLY PASSED AN ORDER U/S,143(3) OF THE I.T.ACT, 1961 , H. THAT, SINCE THE ORDER PASSED BY THE LEANED ASSESSING OFFICER IS AFTER APPLICATION OF MIND, ACTING IN ACCORDANCE WITH LAW, ISSUE OF SHOW CAUSE NOTICE U/S.263 OF THE I.T.ACT, 1 9 61, IS UNWARRANTED AND MAY BE UNCALLED FOR. I . THAT, SECTION 263 OF THE 1. TAX ACT, 1961 DOES NOT VISUALIZE, A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE SUBORDINATE AUTHORITY WHO PASSED THE ORDER WHICH IS SOUGHT TO BE REVISED. THE ORDER PASSED BY A SUBORDINATE AUTHORITY IN EXERCISE OF ITS QUASI JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WITH LAW, CANNOT TERMED ERRONEOUS MERELY BECAUSE THE 8 ITA NO.180/CTK/2016 ASSESSMENT YEAR : 2011 - 12 COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSIONS REACHED. IN THIS REGARD REFERENCE MAY BE MADE TO THE DECISION OF THE BOMBAY HIGH COURT IN CIT VRS GABRIEL INDIA LTD] 1993] 203 ITR 108. J. THAT, FURTHER THE APEX COURT HAS HELD THAT THE PRE - REQUISITE TO EXERCISE OF JURISDICTION BY THE COMMISSIONER SUO MOTO UNDER IT, IS THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS IN SO FA R AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. THE COMMISSIONER HAS TO BE SATISFIED WITH TWIN CONDITIONS, NAMELY (I) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. ; IF ONE OF THEM IS ABSENT - IF THE ORDER OF THE AO IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE - RECOURSE CAN NOT BE HAD TO SECTION 263(1). [MALABAR INDUSTRIAL CO. LTD VRS CIT (2000) 243 ITR 83.] K. THAT, IN THE PRESENT CASE OF THE PETITIONER FIRM, NEITHER THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS EITHER OF FACT OR OF LAW NOR PREJUDICIAL TO THE INTEREST OF REVENUE TO THE INCOME TAX ADMINISTRATION AS A WHOLE AND AS SUCH REVISION PROCEEDI NGS AS INITIATED BY YOUR HONOUR U/S 263 OF THE I.TAX ACT, 196LIS ILLEGAL& WITHOUT JURISDICTION. 5 THAT, UNDER THE ABOVE MENTIONED FACTS AND CIRCUMSTANCES AND FOR THE SAKE OF JUSTICE THE PETITIONER FIRM PRAYS HONOUR TO EXAMINE THE AFORESAID MATTER AND FURT HER BE PLEASED TO DROP THE PROCEEDING INITIATED U/S 263 OF THE ACT. ' 6. THEREAFTER, THE PR. CIT PASSED ORDER UNDER SECTION 263 OF THE ACT, OBSERVING AS UNDER: I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE SUBMISSION MADE BY THE A/R OF THE ASSESSEE . AFTER GOING THROUGH ASSESSMENT ORDER AND THE ASSESSMENT RECORD, I AM OF THE CONSIDERED VIEW THAT THOUGH THE AO HAD CALLED FOR CERTAIN DOCUMENTS AND DETAILS DURING THE COURSE OF THE ASSESSMENT PROCEEDING, THE SAME WERE NOT EXAMINED PROPERLY ESPECIALLY IN RESPECT OF THE ISSUES RELATING TO POINTS RAISED VIDE THIS OFFICE SHOW CAUSE LETTER DATED 10.12.2015 8. SINCE THE ISSUES WERE NOT EXAMINED IN DETAIL BEFORE PASSING THE ASSESSMENT ORDER, THE ORDER PASSED BY THE AO IS CERTAINLY ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. IN THIS REGARD, REFERENCE CAN BE MADE TO THE DECISION OF HON'B LE SUPREME COURT IN THE CASE OF RAMAPYARI DEVI SAROGI (1968) 67 ITR84 AND IN THE CASE OF SMT TARADEVI AGARWAL VS CIT 88 ITR 323 WHEREIN THE HON'BLE APEX COURT HELD THAT LACK OF ENQUIRY OR VERIFICATION AT THE RELEVANT TIME BY THE AO WOULD CONSTITUTE PREJUDICE TO THE INTEREST OF REVENUE AND WOULD INVOLVE ERROR OF FACT AND LAW. SIMILARLY, THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF UMA SHANKAR RICE MILLS VS. CIT ( 187 ITR 638) HAVE OBSERVED THAT WHERE THE COMMISSIONER FELT THAT PROPER ENQUIRY WAS NOT MADE BY 9 ITA NO.180/CTK/2016 ASSESSMENT YEAR : 2011 - 12 THE AO DURING THE ASSESSMENT PROCEEDING, HE WAS JUSTIFIED IN INVOKING THE PROVISION OF SECTION 263 IN RESPECT OF THE ORDER PASSED BY THE AO . EVEN INCOME TAX ACT HAS BEEN AMENDED AND EXPLANATION 2 HAS BEEN INSERTED U/S 263(1) WHEREIN IT IS CLARIFIED THAT AN ORDER PASSED BY THE AO SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO -- E INTEREST OF REVENUE, IF, IN THE OPINION OF T HE PRINCIPA L COMMISSIONER/ COMMISSIONER, TH E ORDER IS PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE. 9. AS STATED EARLIER IN THE ABOVE PARAGRAPH ON THE ISSUES POINTED OUT IN THE SHOW CAUSE NOTICE, PROPER ENQUIRIES AND VERIFICATION WERE NOT MADE BY THE AO. BECAUSE OF SUCH FAILURE ON THE PART OF THE AO THE ORDER PASSED BY HIM IS CONSIDERED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. IN VIEW OF THE ABOVE, THE ASSESSMENT ORDER FRAMED U/S 143( 3) OF IT ACT DATED 19.03.2014 PASSED BY THE AO FOR THE A.Y. 2011 - 12 IS HEREBY SET ASIDE TO THE AO FOR ADJUDICATION OF THE ISSUES AFRESH AND REFRAME THE ASSESSMENT AFTER PROPER APPRECIATION OF FACTS AND APPLICATION OF LAW AND AS PER THE OBSERVATION AND DIRE CTION GIVEN ABOVE. NEEDLESS TO SAY WHILE REFRAMING THE ASSESSMENT ORDER, THE AO SHOULD PROVIDE ADEQUATE OPPORTUNITY TO THE ASSESSEE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE HONBLE KERALA HIGH COURT IN THE CASE OF M. APPUKUTTY VS SALES TAX OFFICER, SPL. CIRCLE I, AIR 1966 KER 55, 1966 17 STC 380 (KER) HAS HELD THAT THE JUDICIAL PROCESS DOES NOT END BY MAKING KNOWN TO A PERSON THE PROPOSAL AGAINST HIM AND GIVING HIM A CHANCE TO EXPLAIN BUT EXTENDS FURTHER TO A JUDICIAL CONSIDERATION OF HIS REPRESENTATIONS AND THE MATERIALS AND A FAIR DETERMINATION OF THE QUESTION INVOLVE D. IN THE INSTANT CASE, WE FIND THAT THE ASSESSEE HAD FILED EX PLANATION ON THE THREE POINTS ON WHICH THE PR. CIT PROPOSED TO REVISE THE ORDER U/S.263 OF TH E ACT, NAMELY; (I) UNVERIFIED SUNDRY CREDITORS OF RS.2,21,065/ - (II) INVESTMENT IN A MOTOR CAR WITH BANK FINANCE OF RS.4,51,033/ - AND (III) ADDITION TO THE CAPITAL OF RS.12,16,290/ - . THE PR. CIT WHILE SETTING ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR RE - ADJUDICATION OF ABOVE 10 ITA NO.180/CTK/2016 ASSESSMENT YEAR : 2011 - 12 THREE ISSUES HAS NOT STATED THE REASONS FOR NOT ACCEPTING THE EXPLANATION SUBMITTED BY THE ASSESSEE. THEREFORE, THE ORDER PASSED U/S.263 OF THE ACT BY THE PR. CIT IS NOT SUSTAINABLE IN LAW. 8. STILL FURTHER, WE FIND THAT THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S.145(3) OF THE ACT A ND ESTIMATED THE INCOME BY APPLYING RATE OF 1.25% ON THE GROSS SALES OF RS.5,90,12,912.03. THUS, WHERE THE ASSESSING OFFICER HAS NOT CONSIDERED THE BOOKS OF ACCOUNT WHILE MAKING THE ASSESSMENT ON THAT GROUND, THE PR CIT CANNOT PASS THE REVISION ORDER U/S. 263 OF THE ACT. THE LD PR CIT HAS NOT POINT OUT HOW THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER AFTER REJECTION OF BOOKS OF ACCOUNT OF THE ASSESSEE AND ESTIMATING TH E INCOME BY APPLYING THE RATE OF 1.25% ON THE GROSS SALES OF RS.5,90,12,912.03 WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. STILL FURTHER, THE FIRST REASON FOR WHICH THE LD PR. CIT CONSIDERED THE ORDER OF ASSESSMENT PASSED BY THE ASSESSING OFFICER AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE W AS THAT THE SUNDRY CREDITORS COULD NOT BE FULLY VERIFIED BY THE ASSESSING OFFICER EVEN AFTER ISSUING NOTICE U/S.133(6) OF THE ACT. WE FIND THAT IN THE INSTANT CASE AS THE DETAILS DESIRED BY THE ASSESSING OFFICER FOR VERIFYING THE BOOKS OF ACCOUNT WERE NOT FORTHCOMING, THEREFORE, THE ASSESSING OFFICER REJECTED THE BOOK RESULTS AND MADE THE ASSESSMENT U/S.144 OF THE ACT BY ESTIMATING THE NET PROFIT OF THE ASSESSEE. IN THESE CIRCUMSTANCES, THE ACTION OF THE ASSESSI NG OFFICER WAS ONE OF THE 11 ITA NO.180/CTK/2016 ASSESSMENT YEAR : 2011 - 12 POSSIBLE VIEW AND, THEREFORE, THE SAID ORDER OF ASSESSMENT CANNOT BE HELD AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHOUT BRINGING ON RECORD ANY POSITIVE MATERIAL TO SHOW THAT THE ASSESSEE ACTUALLY EARNE D INCOME DURING THE YEAR OF AN AMOUNT MORE THAN WHAT WAS ESTIMATED BY THE ASSESSING OFFICER. 9. FURTHER, WITH REGARD TO INTRODUCTION OF CAPITAL BY THE PARTNERS OF RS. 12,16,290/ - , THE ASSESSEE HAS EXPLAINED THAT THE PARTNERS WERE ASSESSED WITH THE SAME A SSESSING OFFICER AND THEIR PAN NOS. AND OTHER DETAILS WERE WITH THE ASSESSING OFFICER. THEREFORE, ALL THE MATERIALS WERE WITH THE ASS ESSING OFFICER AND HE HAD VERIFIED THE SAME FROM THE RETURN OF INCOME OF THE PARTNERS. LD PR. CIT COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ABOVE SUBMISSION OF THE ASSESSEE. THE ASSESSEE CLAIMED BEFORE THE LD PR. CIT THAT THE PARTNERS WHO CONTRIBUTED FURTHER CAPITAL IN THE ASSESSEE FIRM HAD INDEPENDENT AND SEPARATE SOURCE OF INCOME ALSO FROM WHERE THE FRESH ADDITIONAL C APITAL S WERE CONTRIBUTED AND THE PARTNERS WERE ASSESSED TO TAX BY THE SAM E ASSESSING OFFICER , WHO ASSESSED THE ASSESSEE FIRM. IN OUR CONSIDERED VIEW, WITHOUT CONTROVERTING THE EXPLANATION AND SUBMISSION OF THE ASSESSEE, IT WAS NOT OPEN TO THE LD PR. CIT T O STILL CONSIDER THE IMPUGNED ASSESSMENT AS ERRONEOUS ON THIS COUNT. 10. THE LAST REASON FOR WHICH LD PR. CIT CONSIDE RED THE IMPUGNED ORDER OF ASSESSMENT AS ERRONEOUS WAS THAT THE ASSESSING OFFICER HAS NOT EXAMINED WHEN THE CAR WHICH WAS PURCHASED DURING THE YEAR UNDER CONSIDERATION BY THE ASSESSEE WAS PUT TO USE. THE ASSESSEE IN HIS REPLY 12 ITA NO.180/CTK/2016 ASSESSMENT YEAR : 2011 - 12 TO THE LD PR. CIT SUBMITTED THAT THE CAR WAS NOT PURCHASED DURIN G THE YEAR UNDER CONSIDERATION BUT WAS PURCHASED IN THE IMMEDIATELY PRECEDING PREVIOUS Y EAR AND DURING T HE YEAR UNDER CONSIDERATION. W . D . V WAS BROUGHT FORWARD. WE FIND THAT THE LD PR. CIT COULD NOT POINT OUT ANY ERROR IN THE EXPLANATION OF THE ASSESSEE. IN VIEW OF THIS UNCONTROVERTED SUBMISSION OF THE ASSESSEE, WE DO NOT FIND THERE WAS ANY ERROR IN THE OR DER OF ASSESSMENT MUCH LESS AN ERROR WHICH W AS PREJUDICIAL TO THE INTEREST OF REVENUE IN RESPECT OF THIS ISSUE ALSO. IN VIEW OF THE ABOVE DISCUSSION , IN OUR CONSIDERED VIEW, THE IMPUGNED ORDER PASSED U/S.263 BY THE LD PR. CIT IS NOT SUSTAINABLE. WE, THER EFORE, CANCEL THE SAME AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 11 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRO NOUNCED IN THE OPEN COURT ON 28 /04/2017 . SD/ - SD/ - (KULDIP SINGH) ( N.S. SAINI) JUDICIAL MEMBER A CCOUNTANT MEMBER CUTTACK; DATED 28 /04/2017 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, SR.PRIVATE SECRETARY ITAT, CUTTACK 1. THE APPELLANT : M/S. NARESH PHARMACEUTICAL AGENCIES, AT: NAYA SARAK, PO: CHANDINI CHOWK, CUTTACK 2. THE RESPONDENT. PR. CIT, CUTTACK, 3 . DR, ITAT, CUTTACK 4 . GUARD FILE. //TRUE COPY//