ALKEM LABORATORIES LTD, PATNA V. PR. CIT-1, PATNA

ITA 24/PAT/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 0383 (ITAT-PATNA)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 11-04-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Revision of order; Opportunity of being heard; Period of limitation; Assessment record; Revenue expenditure; TDS; Set aside; Bogus
• Section: 263; 143(3); 115JB; 143(2); 113; 48; 101; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “PATNA” BENCH, PATNA ] ] BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 24/PAT/2021 Assessment Year : 2015-16 Alkem Laboratories Limited Exhibition Road Patna - 800001 PAN : AABCA9521E Vs Pr. Commissioner of Income Tax-1, Patna (Appellant) (Respondent) Assessee by : Shri A.K. Rastogi, Sr. Adv. & Shri Rakesh Kumar, Adv. Revenue by : Shri Sanjay Mukherjee, CIT, D/R Date of Hearing : 24/03/2022 Date of Pronouncement : 20/06/2022 O R D E R PER RAJPAL YADAV, VICE PRESIDENT : The present appeal is directed at the instance of the assessee against the order of the ld. Principal Commissioner of Income Tax, Patna - 1, [hereinafter the “ld. Pr. CIT”], dt. 27/03/2021, passed u/s 263 of the Income Tax Act, 1961 (in short “the Act”) for the Assessment Year 2015- 16. 2. The grounds of appeal taken by the assessee are not in consonance with Rule 8 of the Income-tax (Appellate Tribunal) Rules, 1963, (hereinafter the ITAT Rules), rather, they are descriptive and argumentative in nature. The assessee has filed the statement of facts running into nine (9) pages, wherein under specific heads it has demonstrated its grievance against the impugned order. In brief, the grievance of the assessee is that, the ld. CIT(A) has erred in taking action u/s 263 of the Act and setting aside the assessment order for passing de-novo assessment order. 3 3. The brief facts of the case are that the assessee has filed its return of income electronically on 28/11/2015 declaring total income at Rs.5,13,71,110/-. The assessee has also shown income of Rs.381,18,39,146/- u/s 115JB (MAT). The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued and served upon the assessee on 07/04/2016. After going through the details submitted by the assessee, the Assessing Officer passed a scrutiny assessment order on 31/05/2017 u/s 143(3) of the Act. 4. Before adjudicating the specific issue discussed in the impugned order, we would like to make a mention that earlier a notice u/s 263 of the Act was issued on 11/06/2019 by the ld. Pr. CIT-1, Patna. According to the assessee, this notice was later on dropped after the reply of the assessee. We will discuss the relevancy of this aspect in later part of this order. On perusal of the assessment order, the ld. CIT found that the assessment order is erroneous as well as prejudicial to the interest of the revenue. Therefore, he issued the show-cause notice u/s 263 of the Act. Copy of the show-cause notice has been placed on record by the assessee on page no. 1 of the paper book which reads as under:- P.T.O. 4 5 5. In response to this show-cause notice, the assessee appeared before the ld. Pr. CIT and filed written submissions which has been partly reproduced in the impugned order. The specific reply of the assessee vide letter dt. 28/01/2021 has been reproduced on pages 3 to 17 of the impugned order. 6. We have heard the ld. Representative and with their assistance gone through the record carefully. Before we embark upon an enquiry on the facts and issues agitated before us to find out whether the action u/s 263 of the Act, deserves to be taken against the assessee or not, it is pertinent to take note of this section. It reads as under:- “263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Incometax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (b) “record shall include and shall be deemed always to have included all records 6 relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub- section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.” 7. A bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in 7 so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263. (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. 8 (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law. (vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion. (viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 8. Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 and Gee Vee Enterprises Ltd vs. Addl. Commissioner of Income Tax (99 ITR 375). In the case of Sun Beam Auto, the Hon'ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon'ble Delhi High Court are worth to note: “12. We have considered the rival submissions of the counsel on the other side 9 and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open”. 9. In the case of Gee Vee Enterprise vs. Commissioner of Income Tax reported in 99 ITR page 375, the Hon’ble court has expounded the approach of ld. Assessing Officer while passing assessment order. The observation of the Hon’ble court on pages 386 of journal read as under:- “... it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very diffident from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer 10 is not only on adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but called for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry... It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word ‘erroneous’ in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.” 10. In the light of the above, let us examine the facts and circumstances of the case. Before going to the specific reasons given in the show-cause notice issued u/s 263 of the Act, it is pertinent to note that the ld. Counsel for the assessee raised additional submissions during the course of hearing. In his preliminary submission, he submitted that action u/s 263 of the Act is time barred and, therefore, the impugned order is liable to be quashed. For buttressing his contention, he submitted that the assessment year involved is A.Y. 2015-16. The assessment order u/s 143(3) was passed on 31/03/2017 and the time limit for passing order u/s 263 of the Act is two years from the end of the financial year in which the order sought to be revised was passed. Thus, according to the ld. Counsel for the assessee, the time limit to pass the order u/s 263 of the Act expired on 31/03/2020 and the impugned notice u/s 263 of the Act was issued on 15/01/2021. The ld. CIT D/R, on the other hand, contended that an Ordinance, 2020 dt. 31/03/2020 was issued whereby limitation provided under different actions in Income Tax Act, were extracted. He placed on record copy of the Ordinance which has become the Act later on. Our attention was drawn to the following clauses:- 11 CHAPTER-II RELAXATION OF CERTAIN PROVISIONS OF SPECIFIED ACT 3.(1) Where, anytime limit has been specified in, or prescribed or notified under, the specified Act which falls during the period from the 20 th day of March, 2020 to the 29 day of June, 2020 or such other date after the 29 th day of June 2020 as the Central Government may, by notification, specify in this behalf, for the completion of such action as – (a) Completion of any proceeding or passing of any order or issuance of any notice, intimation, notification, sanction or approval or such other action, whatever name called, by any authority, commission or tribunal, by whatever name called, under the provisions of the specified Act; or" 11. The ld. Counsel for the assessee further submitted that completion of any proceeding or passing of any order, pre-supposes initiation of proceedings and/or pendency of any proceedings by issuing of a notice on or before 20/03/2020, is absent in the present case. He pointed out that the proceedings on the first reason is based on the letter of CIT D/R, (ITAT, Mumbai Bench) dt. 14/10/2020 and, therefore, the order has to be construed as passed beyond the period of limitation u/s 263 of the Act. 12. We have duly considered the first fold contention raised by the ld. Counsel for the assessee. However, we do not find any merit in this contentions because the ld. Counsel for the assessee failed to explain the meaning of the expression “issuance of any notice” used in sub-Clause (a) of Clause 3(1). A reading of this sub-Clause makes it clear that it not only extends the time limit for completion of the proceedings or passing of an order but it also contemplates about issuance of any notice. In other words, it enhances the limitation for taking any action which is going to be time barred on 20 th day of March, 2020. The action in the case of the assessee would become time barred on 31/03/2020. Before that Ordinance had come which enhanced the limitation and in this enhanced limitation, notice u/s 263 of the Act was issued. Therefore, 12 the impugned order is not barred by limitation. This preliminary ground raised by the assessee is rejected. 13. The ld. Pr. CIT has shown three reasons for invoking powers u/s 263 of the Act. We would have preferred to deal with these reasons separately but we find that reasons no. 1 & 2 ought to be taken together. These reasons read as under:- “(i) It is learnt that M/s Avenue Venture Real Estate Fund (AVREF) (PAN:AADTA6083E) before the Hon'ble ITAT, Mumbai stated that for A.Y 2015- 16 it has earned/received taxable income of Rs 20,17,86,432/- and same was offered to tax by the beneficiary M/s Alkem Laboratories Limited. As per the original Return of Income filed on 28.112015, you have not included Rs.20,17,86,432/- in disclosed income. (ii) The issue of claim of deduction under section 35(2AB) was not examined and (H) verified by the Assessing Officer resulting fn allowance of excess claim of Rs. 10.47 Crores.” 14. As far as reason no. (ii) is concerned, it is pertinent to observe that on 11 th June, 2019, the ld. Pr. CIT has sought to revise the assessment order on the basis of this reason and a show-cause notice was issued. Copy of the show-cause notice is available at page no. 10 & 11 of the paper book which read as under:- “To, M/s Alkem Laboratories Pvt. Ltd. (PAN- AABCA9521E) Exhibition Road, Patna Sub: Notice u/s 263 of the Income-tax Act, 1961 for A.Y. 2015- 16- Reg. Please refer to the above. On perusal of the assessment record for the A.Y. 2015-16 in your case, it is noticed that the amount of Rs. 145,89,03,359/- was allowed as deduction u/s 35(2AB) of the Income Tax Act, 1961 in the order u/s 143 (3) dated 31.05.2017. In order to claim above deduction u/s 35(2AB) of the Income Tax Act, 1961, it is mandatory for the assessee to enter into an agreement with DSIR by fulfilling the criteria in Form 3CK as prescribed in Income Tax Rule, 1962. Consequent upon the agreement, the DSIR is required to submit a report in Form 3CL under Income Tax Rules, 1962 with regard to annual expenditure incurred by the 13 assessee on Research and Development. As per the letter of DSIR dated- 24.01.2018, it is found that the amount of R & D expenditure incurred by the assessee is only Rs. 6061.72 lac. However the entire claim has been allowed. The overlooking of these facts has made the assessment in this case erroneous in so far as it is prejudicial to the interests of the revenue. 2. On the facts and in the circumstances of the case as discussed above, it is observed that the Assessing Officer (AO) passed the order u/s 143(3) of the Income Tax Act, 1961 dated 31.05.2017 without proper application of law and without making the required investigation/enquiry which he was legally bound to make before completing the assessment under section 143 (3) of the Act making the order passed by him erroneous and prejudicial to the interests of revenue. 3. Therefore, the undersigned proposes to revise the said order by invoking the provisions of Section 263 of the Income Tax Act, 1961. 4. Before passing such order, an opportunity of being heard is granted to you on 03.07.2019 at 11.30 A.M. On that date you may appear either in person or through an authorized representative in the office of the undersigned and show cause, in writing as to why action u/s 263 of the Income Tax Act should not be taken in your case. In case of non-compliance the order would be passed on merit on the basis of material available on record” 15. After an enquiry, this notice was dropped by the ld. Pr. CIT. It is pertinent to observe that in response to this notice, the assessee has filed its reply and those details have been discussed in the interim order sheet which has been placed before us. A perusal of the order sheet dt. 23/09/2019 would reveal that the proceedings initiated on this ground has been dropped. Certified copy of the order sheet has been placed on record by the ld. Counsel for the assessee and we have gone through the same. Since on the same issue the action was initiated against the assessee by the ld. Pr. CIT and he was satisfied with the explanation of the assessee, the issue should not be taken up again. There is no justification for taking the proceedings against the assessee for second time. It is not permissible in law. 14 16. Now, we take into consideration, the first reason. The cause for initiating the proceedings on this issue is a letter dt. 14/10/2020, written by the CIT (Department Representative) before the ITAT Mumbai, ‘A’ Bench. The letter is a very exhaustive one and contains all the basic details. We deem it proper to taken note of this letter. The same is extracted for ready reference :- “ 15 16 17 18 19 17. The ld. Counsel for the assessee at the very outset submitted that as per reason no. 1, enquiry was initiated on the ground that the assessee has not included Rs.20,17,86,432/- in its income. The assessee has explained that it has included this income. This fact has been brought to the notice of the ld. Pr. CIT and all such details have reproduced in the impugned order. He drew our attentions towards page no. 9 to 11 of the impugned order. The ld. Pr. CIT took note of all such details and thereafter changed the scope of enquiry. He brought to our notice findings of the ld. Pr. CIT on page no. 18 to 19 of the impugned order wherein the ld. Pr. CIT has noticed the computation of income of Rs.20,17,86,432/-. But thereafter the ld. Pr. CIT has observed that the Assessing Officer failed to make an enquiry as to why the assessee has offered net income and not the gross income. He put emphasis on the last paragraph of page no. 19 of the impugned order. The finding of the ld. Pr. CIT in this regard, reads as under:- 20 “5. The contention of the assessee has been examined with reference to the material on record. The CIT(DR), ITAT-7, Bench-A, Mumbai Vide letter dated 14.10.2020, addressed to ITO, Ward-23(1) (2), Mumbai and a copy endorsed to PCIT-1, Patna communicated that the AOP namely Avenue Venture Real Estate Fund (for short "AVREF") has filed its return of income for the A.Y 2015-16 on 29.08.2015 declaring total income at Nil. Assessment u/s 143(3) of the IT Act, 1961 was made assessing total income of AVREF at Rs. 201786430/- by ITO, Ward-23(1)(2), Mumbai on 28.12.2017. The AOP claimed a refund of Rs. 63856139/- for the year under consideration and stated before the AO that during the F.Y 2014-15 AVREF has earned taxable income of Rs. 201786432/-, which has been offered to tax by the beneficiary M/s Alkem Laboratories Ltd. (for short "ALKEM") of this income. On perusal of record of M/s Alkem for the A.Y 2015-16, it was observed that the assessment u/s 143(3) of the IT Act, 1961 was completed on 31.05.2017 determining total income of Rs. 381,18,39,146/- under 115JB (MAT) as returned by the assessee. It was found that the Assessing Officer has completed the assessment without making any enquiry and verification on the issue of offering taxable income of Rs. 201786432/- as claimed by the AOP AVREF. Accordingly, proceedings u/s 263 of the IT Act, 1961 was initiated and show cause notice dated 15.01.2021 was issued providing the assessee opportunity of being heard on the issue. During the course of proceedings u/s 263 of the IT Act, 1961 the AR vide written submission dated 28.01.2021 stated that the assessee has offered an income of Rs. 137381 230/- after deduction of various expenses. In support of the contention, computation of head wise bifurcation of the sum of Rs. 201786432/- was filed which is placed on record. The assessee stated that the income has been shown under the head "other sources" at serial no. 02 of Part Credit to P & L Account in the ITR-6 for A.Y 2015-16. The details of income earned by AVREF and claimed to have been offered to tax by ALKEM as per computation filed by the assessee is as under Particulars Amount as per Income & Expenditure of AVREF Amount as per computation of income of Alkem (page 8 & 9) of reply dated 28/01/2021 part of assessment record Share of Profit from investment in Venture Capital Undertaking 13,10,00,000/- Exempt u/s 10(2a) of the Act 13,10,00,000/- Exempt u/s 10(2a) of the Act Interest Income on Debentures of Subsidiary Companies 8,29,60,495/- 8,29,60,495/- Premium on Redemption of Debentures of subsidiary company 9,21,01,097/- 9,21,01,097/- Gain on sale of equity shares of subsidiary company 69,30,480/- 69,30,480/- Dividend from current 84,28,545/- Exempt u/s 84,28,545/- Exempt u/s 21 investment 10(34) of the Act 10(34) of the Act Profit on sale/redemption of current investment 1,97,94,000/- 1,97,94,000/- Total Income – before reducing the exempted income [A] 34,12,14,977/- 20,17,86,432/- As per notice u/s 263- after reducing the exempted income Less : Expense Investment Management Fee 5,61,80,000/- 5,61,80,000/- Trusteeship Fee 2,24,720/- 2,24,720/- Auditors’ Remuneration 5,07,845/- 5,07,845/- Legal & Professional Fee 5,61,800/- 5,61,800/- Total of Expense [B] :: 5,74,74,365/- 5,74,74,365/- Difference [A-B] 28,37,40,612/- 14,43,12,067/- Assessee has been asked to substantiate with accounts, details etc. showing that the payments made by it to AVREF was disallowed or added back to its income. The assessee vide letter dated 26.03.2021 submitted the working of the same and expressed that in the absence of specific head in the ITR it has been shown under the head "other income" and sub head "interest income". Further it has been clarified that the assessee has shown interest income of Rs. 1332214996/- under the Schedule of P &L Account in the ITR. The same is verifiable. The assessee failed to clarify why the net of receipt of Rs. 1332214996/- was offered to tax and not the entire amount of Rs. 201786432/-, being the payment made by it to AVREF, the AOP which is an independent entity chargeable to tax. This claim of assessee before the Hon'ble ITAT is against the basic principles of accounting and provisions of law as AVREF is an AOP already assessed to tax by the AO at Mumbai. Probably assessee made such claims before the Hon'ble ITAT Mumbai to get relief. In case of assessee, its payment to AVREF is clearly disallowable expenditure. Further, if there is any receipt from AVREF to assessee, it would be income in the hands of assessee. In view failure of AO's failure to examine the issue during the course of assessment proceedings regarding offering of taxable income of Rs. 201786432/- and the assessee's failure to explain the issue as to why the entire amount of Rs. 201786432/- was not offered to tax, I consider it fit to set aside the issue to the file of AO to make enquiries and verification regarding taxability of income of Rs. 201786432/- received from AVREF.” 18. The ld. CIT D/R was not able to controvert the contentions of the ld. Counsel for the assessee. He submitted that, the Assessing Officer did not make any enquiry as to whether the gross receipt ought to have been offered or the net receipt i.e. whether Rs.20,17,86,432/- ought to have been offered by the assessee as income or net income of Rs.13,73,81,230/-. Thus, the ld. Pr. CIT has 22 rightly set aside the impugned order and initiated the fresh enquiry. 19. On due consideration of the above facts and circumstances, we are of the view that action at the end of the ld. Pr. CIT is not justifiable. He has exercised the powers without analytically examining the report. The reason for taking the first two reasons together was for appreciating this factual aspect. On reason no. 2, the ld. Pr. CIT did not go through the record that earlier 263 proceedings were initiated against the assessee and those were dropped. What made him to again initiate the proceedings, is not discernable. There was no fresh information about this aspect and the same aspect has already been considered by his predecessor. It suggests that there was no application of mind at the end of the ld. Pr. CIT. 19.1. The second aspect which is to be noted is that enquiry was initiated on the premises that the assessee has not included Rs.20,17,86,432/- in its disclosed income. When the assessee has demonstrated that it has disclosed the income and it is part the computation of income then, the ld. Pr. CIT changed the scope of enquiry and held that it is not discernable as to how the Assessing Officer has accepted this return. He should not have allowed the expenditure relatable to earning of this income. It suggests that he has initiated the action without properly analyzing the record and the computation of income filed by the assessee. In other words, a show-cause notice to the assessee would have been in different terms. 20. In the letter of the CIT D/R, it is discernible that a trust, namely, AVREF was setup under the provisions of the Indian Trust Act, 1882. The trust was required to manage the real estate portfolio for the assessee and the assessee is the sole beneficiary. The assessment order in the case of the Trust was passed on 28 th December, 2017 i.e., much after the assessment of the assessee. The income was offered in the hands of the assessee in the capacity of the beneficiary. The letter makes a reference about two CBDT Circulars which authorize the Income Tax Officer to exercise his option to tax, in the hands of 23 the Trust or the beneficiary and once the choice is made by the Department to tax either the Trustee or the beneficiary, it is no more open to the Department to assess the same income in the hands of the other person (i.e., the beneficiary or the trust). Thus, once the income was offered by the beneficiary and assessed in its hand on 31/05/2017, it should not be explored to be assessed in the hands of the trust in December, 2017. When this issue was agitated by the trust before the ITAT and brought to the notice that income has already been assessed in the hands of the beneficiary, then the representatives of the department wrote a letter to the concerned jurisdictional Income Tax Officer to find out whether the beneficiary has offered the income to tax or not and if not offered, remedial action was required. In this background, the reason no. 1 of the reasons has been assigned. At the cost of repetition, we would like to take cognizance of the first reasons, which reads as under:- “(i) It is learnt that M/s Avenue Venture Real Estate Fund (AVREF) (PAN: AADTA6083E) before the Hon’ble ITAT, Mumbai stated that for A.Y. 2015-16 it has earned/received taxable income of Rs.20,17,86,432/- and the same was offered to tax by the beneficiary M/s. Alkem Laboratories Limited. As per the original Return of Income filed on 28.11.2015, you have not included Rs.20,17,86,432/- in disclosed income.” Thus, it suggests that ld. Pr. CIT wanted to verify the inclusion of the income. The assessee has demonstrated that it has offered tax on net basis and income has to be offered on net basis only. Nothing remains to be explored on the ground that as to how the gross income was not offered. It is not the case of the revenue that the assessee has claimed excessive expenditure or the expenditure were not to be granted to the assessee. Therefore, to our mind the impugned order is not sustainable on these two reasons because the ld Pr. CIT failed to make a complete analysis of the record. Nothing is available on the record which authorizes the ld. Pr. CIT to take action u/s 263 of the Act on these two issues. 24 21. The third objection of the ld. Pr. CIT is that the commission payment f Rs. 1,61,83,762/- was allowed by the Assessing Officer without making any enquiry. The DDIT (Inv.) Mumbai, wrote a letter dt. 11/03/2016 to the DCIT Central Circle- Patna. Copy of this letter is placed on page 93 & 94 of the impugned order. It read as under:- 25 22. This letter is dt. 11/04/2016. Notice u/s 143(2) of the Act was issued on 07/04/2016. The Assessing Officer was conducting the enquiry. In other words, scrutiny assessment was being carried out when the Assessing Officer received 26 this letter. It was brought to the notice of the Assessing Officer according to the ld. Counsel for the assessee and the assessee filed reply on this issue. The reply was brought to the notice of the ld. Pr. CIT and relevant part of the reply is available at page 46 to 48 of the paper book. We deem it proper to take cognizance of this reply which reads as under:- “8. Transaction with Reynolds Petro Chems Ltd. That as required the petitioner is enclosing here with the details of transaction with the aforesaid party along with bills raised during the year under consideration. The petitioner has paid commission to the aforesaid party amounting to Rs. 1.61 crore. Similar query was raised in the immediately preceding year i.e. A.Y. 2014-15 wherein, the department has served the petitioner with copy of Deputy Director (Inv.), Unit-3 (3), Mumbai dated 11.04.2016 along with statements (relevant pages) of one Mr. Suneet Kabra, Chartered Accountant, dated 17.04.2015. Japdish Chandra Somani dated 17.04.2015 and Sanjay Paras Mal Jain dated 16.04.2015. As per report of the Deputy Director (Inv.), Unit-3 (3), Mumbai "the facts indicated that the transaction of commission expenses payment by Alkem Laboratories Ltd. to the assessee M/s Reynolds Petro Chems Ltd. are not genuine. No services have been rendered by assessee company to M/s Alkem Laboratories Ltd. for this claim of commission expenses. The expenses claimed by assessee M/s Alkem Laboratories Ltd. needs to be disallow and added to its income in different years". It seems that on the basis of the above said report, the commission payment to the said party by the petitioner are being treated as bogus and not genuine. The findings in the report is just contrary to the statements (relevant portion) served upon the petitioner along with the alleged report. First of all your honour's kind attention is invited to the statement of Suneet Kabra, a Chartered Accountant and owner/director of the four companies including Reynolds Petro Chems Ltd. as would be evident from question no.2 and question no.7 of the statement. The said person has categorically stated in answer to question no.4 that the company M/s Reynolds Petro Chems Ltd. (RPCL) that is engaged in trading of bulk drug and manufacturing of textile products. A specific question was put to the said owner/director with regard to services rendered to the petitioner company, the relevant question no. 19 & 20 and its answers are being reproduced for kind perusal:- "Q.19 From the financial of M's Reynold Petrochem Ltd it is seen that the commission has been received in various financial years. Please explain for what purpose this commission has been received? Ans. This commission has been received from various suppliers on sale of Parmaceutical material to M/s IPCA Laboratories ltd. Apart from that I have also received exnort commission from M/s Alkem Laboratories. Q.20 What kind of services you have rendered to M/s Alkem laboratories please give the name of parties to whom material is sold. Do you have any human resource or offshore office to cater the needs of offshore clients? Please mention the percentage of commission received for the services rendered. Ans. I introduce overseas agents to local pharma companies to import their product. These agents provide all the infrastructure to local companies and negotiate the price. Since they are introduced by me I get my referral commission.” 27 The other director Sanjay Parasmal Jain in answer to question no.16 has categorically admitted that he is acting as director in the company for namesake only and is not fully aware of business activity or basic functions of all the companies and is signing the document as per instruction of Sri Somani. With regard to the business activity of Reynolds Petro Chems Ltd., he has clearly stated in answer to question no. 18 that he is not exactly aware of the activities carried out by RPCL and has also stated that Sri Kabra and Sri Somani can tell about the activities. Further, he has categorically stated that he left RPCL in the month of July, 2014 and is doing part time accounts work with different client/parties. The Deputy Director (Inv.) in para-3 of the report has placed heavy reliance on the statement of Mr Somani (question no.17 at page 4). The copy of the statement supplied to the petitioner contains first page upto question no.3, there is no second page and the third page starts from question no.11. Thus, the petitioner is not aware of the question and answers at page 2bearing nos. 4 to 10. Thereafter, it continues uptill question no.21 page nos.-4 to 6. The said director in answer to question no.20 (page-6 of the statement) has categorically stated that "sir we accommodated commission expenses to most of our suppliers. I am submitting ledger copy of our commission income received". Thus, the modus operandi explained in answer to question no.17 is with regard to parties who are suppliers of the said company as would be evident from the aforesaid question no.20. The petitioner company has not made any purchases or sales to the said company and hence the inference drawn on the basis of question no.17 against the petitioner by the DDI (Inv.) is wholly misconceived. It is also relevant from the statements (relevant portion served) that there is nothing against the petitioner so as to draw any adverse inference, as has been drawn in the report against the petitioner, by the DDI (Inv.). As state above, the owner and the director namely Mr. Suneet Kabra, a Chartered Accountant by profession, was confronted with regard to the transaction with the petitioner and in answer to question no. 19 & 20, he has categorically stated the services rendered by the said company for which payments were made through proper banking channel after deducting TDS. The findings of the DDI (Inv.) is thus contrary to the statement of the said owner and the director, who is a well qualified person being a Chartered Accountant. It seems that non-payment of tax by the said company on the commission income (kindly refer page-7, question no.-21) has weighed the mind of the DDI (Inv.) to draw adverse inference in the hands of the payer i.e. petitioner, as the recipient (RPCL) has escaped taxation by taking advantage of setting off of business income against business loss. In the circumstances, the conclusion drawn by the DDI (Inv.) against the petitioner is ex facie preposterous and contrary to the evidences/materials on record. The expenditure has been incurred by the petitioner wholly and exclusively for the purposes of business, the transaction is through proper banking channel, the petitioner has also paid service tax on the payments so made and has also deducted TDS while making payment. In the circumstances, it is prayed that your honour would be kind enough to allow the expenditure claimed by the petitioner.” 23. Apart from the above reply, the assessee has filed copies of the invoices issued by Reynolds Petro Chems Ltd., details of TDS etc. After going through these replies, the Assessing Officer has accepted the stand of the assessee. On 28 the strength of these details, it was submitted by the ld. Counsel for the assessee that even though there is no discussion made by the Assessing Officer in the assessment order but, it does not mean that enquiry was not conducted. He submitted that passing of an assessment order is the prerogative of the Assessing Officer and the assessee has no control over the language or the manner in which the assessment order is to be drafted. But on account of non- discussion of an issue, the assessee should not suffer a second round of proceedings. It has to be examined whether the details were filed by the assessee before the Assessing Officer and the Assessing Officer has applied his mind on all these details and after being satisfied with the contention, he had taken a plausible view accepting the stand of the assessee, without making any finding. For buttressing this contention, he relied on the judgment of the Hon’ble Patna High Court in the case of CIT vs. Mukul Kumar reported in (2009) 4 PLJR 417. He placed on record a copy of this decision. He also placed reliance on the following case-laws:-  Banco Products (India) Ltd. v. DCIT (2018) 405 ITR 318/ 258 Taxman 244 (Guj) (HC)  CIT v. Claris Lifesciences Ltd. [2010] 326 ITR 251/[2008] 174 Taxman 113  Commissioner of Income Tax v. Sandan Vikas (India) Ltd., [2011] 335 ITR 117 (Del)  CIT v. TVS Electronics Ltd. (2019) 419 ITR 187/ 263 Taxman 164 (Mad.)(HC)  ACIT v. Eastern Silk Industries Ltd. (2019) 179 ITD 22/ 184 DTR 406 (Kol) (Trib.)  DCIT v. STP Ltd. (2021) 187 ITD 538 / 86 ITR 14 (Kol.)(Trib) 24. On the other hand, the ld. CIT D/R relied on the order of the Ld. Pr. CIT. 25. On due consideration of the above facts and circumstances, we are of the view that the Assessing Officer has made an enquiry during the assessment 29 proceedings. The cognizance of the letter written by the DDIT Mumbai was taken up and it was explained by the assessee in its reply. The reference of this letter in the reply of the assessee would suggest that it must have been brought to the knowledge of the Assessing Officer. In other words, there could not be any occasion of the assessee to make reference of this letter in his reply which suggest that these details were discussed by the Assessing Officer and thereafter he exercised his discretion. The grievance of the ld. Pr. CIT is that the Assessing Officer has accepted this stand of the assessee without any verification or enquiry. This reasoning is factually incorrect as the case on hand does not reflect inadequate/non-enquiry at the behest of the Assessing Officer. The assessment order cannot be set aside on this reasoning by invoking Section 263 of the Act. In view of the above discussion, we are of the view that the impugned order passed u/s 263 of the Act for A.Y. 2015-16 is not sustainable and the same is quashed. 26. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 20 th May, 2022. Sd/- Sd/- (GIRISH AGRAWAL) (RAJPAL YADAV) ACCOUNTANT MEMBER VICE-PRESIDENT Dated 20/06/2022 *SC SrPs 30 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned Pr. CIT 4. The CIT(A)- 5. DR,ITAT, Patna 6. Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar/DDO ITAT, Patna