Shri Rajinder Chauhan, Shimla V. PR.CIT, Shimla

ITA 308/CHANDI/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5081 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 03-08-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Depreciation; Audit objection; Set aside
• Section: 263; 154; 143(3); 142(1); 143(1); 195; 143(2); 48; 13; 119; 22; 20

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण,च瀃डीगढ़ 瀈यायपीठ च瀃डीगढ़ 瀈यायपीठच瀃डीगढ़ 瀈यायपीठ च瀃डीगढ़ 瀈यायपीठ ‘‘बी बीबी बी.’’, च瀃डीगढ़ च瀃डीगढ़च瀃डीगढ़ च瀃डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH ‘B’ CHANDIGARH BEFORE: SMT. DIVA SINGH, JUDICIAL MEMBER & SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकर आयकरआयकर आयकर अपील अपीलअपील अपील सं संसं सं./ ITA No. 308/CHD/2020 Assessment Year : 2015-16 Shri Rajinder Chauhan, Village Dhangvi, PO-Kokunala, Tehsil-Kotkhai, Shimla. बनाम VS The Pr.CIT Shimla. 瀡थायी लेखा सं./PAN /TAN No: AAZPC1684M अपीलाथ牸/Appellant 灹瀄यथ牸/Respondent िनधा榁琇रती क琉 ओर से/Assessee by : Shri Sudhir Sehgal, Advocate राज瀡व क琉 ओर से/ Revenue by : Shri Sarabjeet6 Singh, CIT-DR तारीख/Date of Hearing : 29.04.2022 उदघोषणा क琉 तारीख/Date of Pronouncement : 21.07.2022 आदेश आदेशआदेश आदेश/ORDER PER DIVA SINGH The present appeal has been filed by the assessee wherein the correctness of the order dated 19.03.2020 of Pr.CIT, Shimla pertaining to 2015-16 assessment year is challenged on the following grounds : 1. On the facts and in the circumstances of the case, the learned Principal Commissioner of Income Tax(hereafter, "the Pr. CIT") had no occasion to initiate proceedings under section 263 of the Income Tax Act, 1961 (hereafter, "the Act") as the assessment order sought to be revised is neither erroneous nor prejudicial to the interests of the revenue. 2. The impugned order of the learned Principal Commissioner of Income Tax is bad in law as there is no specific finding in the order that the order of assessment is erroneous insofar as it is prejudicial to the interests 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). ITA 308 /CHD/2020 A.Y. 2015-16 Page 2 of 29 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 “l a r g e a g r i c u l t u r e i n c o m e a n d l o w in c o m e s h o w n a s l a r g e c o n t r a c t o r s ” . 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 is in appeal before the ITAT. 3. The ld. AR inviting attention to the facts on record submitted that the Revisionary powers have been exercised in a mechanical manner. The Specific reasons referred to in the Show Cause Notice taken into consideration for setting aside the validly passed assessment order was assailed on many grounds. ITA 308 /CHD/2020 A.Y. 2015-16 Page 3 of 29 3.1 The challenge was posed on the ground that these issues had fully been examined by the AO in the case of the assessee, hence it was a case of another opinion on same set of facts. 3.2 Referring to the reasons for selection of the issues as per CASS, it was argued that the AO was conscious of the fact that there was a large agriculture income disclosed. The AO has taken into consideration the GP and NP rate of the assessee from its Filling Station in the name and style of M/s Swaroop Service Station, Kokunala, Tehsil Kotkhai, Distt. Shimla. Fluctuation posed on account of shrinkage etc. it was submitted had been looked into by the AO in detail. For the specific submission, attention was invited to Paper Book pages 1 to 15 which contains the computation of income on the basis of which the return was filed alongwith Annual Audited Report, Audited Balance Sheet and supporting annexures including Stock Tally evidenced from page 10. Inviting attention to page 16 of the Paper Book, attention was invited to specific query raised by the AO by issuance of notice u/s 142(1) and 143(2) dated 18.08.2017 requiring the assessee to explain Comparative GP rate chart for the last three years and Inventory of opening and closing stock giving separate detail of items taken at cost price and market price. 3.3 Attention was invited to Paper Book page 17 showing that queries raised at Sr.No.12, 20 and 22 highlighting the query ITA 308 /CHD/2020 A.Y. 2015-16 Page 4 of 29 raised vide item No. 5 at page 16 evidenced that the AO had looked into all the facts before the passing of the order. He had raised all necessary queries with regard to the opening and closing stock details etc. and all of these stood furnished before AO. Attention was also invited to notice u/s 142(1) dated 18.08.2017 at Paper Book page 19. The assessee's reply, it was submitted, is available at Paper Book pages 20-21. The assessee in its reply has shown its comparative GP rate which has been enquired into and the HSD and MS motor oil opening and closing stock, purchase and sale and shortage of 9823 in HSD and 12772 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. ITA 308 /CHD/2020 A.Y. 2015-16 Page 5 of 29 3.4 Attention was invited to another reply appended at page 22- 23 which would show that apart from addressing agriculture income, the assessee had also explained GP fluctuation as under: ITA 308 /CHD/2020 A.Y. 2015-16 Page 6 of 29 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 submitted, have been duly verified as is evident from the signature of the State Inspector. The said Stock Register was shown to the AO. Attention was invited to Paper Book page 26 which is another questionnaire dated 17.11.2017 issued by the AO. It was submitted that since this questionnaire was related to the agriculture produce i.e. sale of apples and claim of depreciation for the new tanker and queries in regard to the sale of old tanker and some other queries in regard to completion of house etc., thus for the purposes of the present proceedings, this questionnaire, it was submitted may not be so relevant. However, referring to the queries raised, it was his submission that more than adequate queries on all issues including the present issue was made by the AO before the passing of the order. This fact, it was submitted, is evident from record. Attention was invited to the replies to the said queries as evidenced from Paper Book page 27. 3.6 It was submitted that after making these detailed enquiries and considering all the supporting documents, the order was passed by the AO. Specific emphasis was laid on the fact that sale and purchase bills were enquired into by the AO and were duly responded to with supporting evidences. This fact, it was ITA 308 /CHD/2020 A.Y. 2015-16 Page 7 of 29 submitted, is evident from the assessment order itself wherein AO records, “ In response to the notices, Shri Dinesh Sood, FCA, Authorized Representative (A.R.) of the assessee attended the assessment proceedings from time to time and furnished requisite details/ documents as called for. Bills/vouchers that were produced were test checked and placed on file. The case was discussed with the A.R. of the assessee.” 3.7 It was also submitted that the AO was conscious of the specific fact on account of which reasons the case had been selected under CASS. This fact is highlighted in the assessment order itself. For the said purposes, the following extract relied upon by the ld. AR from the assessment order is reproduced hereunder : “Return declaring income of Rs.2,74,810/- and agricultural income of Rs.70,19,204/- was filed by the assessee on 06.10.2015 and the same was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter the Act). Later on, the case of the assessee was selected for scrutiny through CASS on the reasons "large agricultural income & low income shown by large contractors". Statutory notice u/s. 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 ITA 308 /CHD/2020 A.Y. 2015-16 Page 8 of 29 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 aside without looking into the record available before him. 3.10 The fact that the Revisionary power was exercised on account of the audit objection, it was submitted, is highlighted from the reference in the following intimation dated 29.01.2019 available at Paper Book page 28 which is given as F.No.ITO/ WARD- 2/SHIMLA/Audit/2018-19/1037 (emphasis supplied). This whole exercise, it was submitted, started on account of audit objection evidenced from the letter : ITA 308 /CHD/2020 A.Y. 2015-16 Page 9 of 29 3.11 The said query raised by the AO, it was submitted, has been replied as is evident from page 29 of the Paper Book on 22.02.2019. The reply relied upon is extracted hereunder : 3.12 The said reply, it was submitted was supported by letter of the IOC appended at Paper Book page 30 alongwith a chart showing revised shrinkage allowance chart for various areas other than the North East. For ready reference, Paper Book page 30 is extracted hereunder: ITA 308 /CHD/2020 A.Y. 2015-16 Page 10 of 29 3.13 Accordingly, it has been argued that the details of shrinkage was part of the record. Thus, the ld. PCIT, it was submitted, is again trying to look at the very same information which had been enquired into by the AO. The same audit objection, it was argued had already been enquired into. 3.14 In the said background attention was invited to the Show Cause Notice issued to the assessee which was received on 04.03.2020 in the late afternoon informing the assessee that his case was fixed for hearing in the morning of 04.03.2020. It was his submission that practically, it was not possible for the assessee to either participate or file a reply in the hearing which already stood concluded. The notice, it was re-iterated was received in the afternoon of 04.03.2022 informing him that it was ITA 308 /CHD/2020 A.Y. 2015-16 Page 11 of 29 fixed on the said morning. Notwithstanding the fact that the time for appearing had already elapsed. The fact also remains that despite this shoddy exercise of power, the assessee still made efforts in good faith and replied to the Show Cause Notice within a reasonable time. The reply within days was filed on 09.03.2020. Copy of the said reply, it was submitted, is available at pages 37 to 40. It was elaborated that the specific reply is at pages 37 to 39 and page 40 is the evidence of the fact that the reply of the assessee stood filed on 09.03.2020 on the ITBA Portal. For ready reference, the same is extracted hereunder : 3.15 Accordingly, it was his submission that in 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 ITA 308 /CHD/2020 A.Y. 2015-16 Page 12 of 29 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 returned income holding as under : “2. Brief facts of the case are that the assessee is running a filling station in the name & style of M/s. Swaroop Service Station, Kokunala, Tehsil Kotkhai, Distt. Shimia (H.P.). During the year under assessment, the assessee has shown gross sales/turnover of Rs.8,54,93,751/-, gross profit (CP.) of 17,62,357/- and net profit of Rs. 4,21,998/- by giving N.P. ratio of 0.49% whereas in the preceding year gross sales/turnover was shown at Rs.9,11,27,513/-, gross profit (CP.) of Rs.24,36,767/- and net profit of Rs.7,41,629/- by giving N.P. ratio of 0.81%. Apart from this, the assessee has shown agricultural income of Rs.70,19,204/-. 3. During the assessment proceedings, the A.R. of the assessee was asked to furnish the proof of agriculture land owned by him and proof of agricultural produce sold sale bills etc.) from which "large agriculture income" has been shown and reasons of 'low income shown by large contractors", main reason(s) for selection of the case for scrutiny. The A.R. of the assessee furnished proof of land holding by the assessee i.e. copy of jamabandi, sale bill(s) of the agricultural produce sold and copy(s) of bank ITA 308 /CHD/2020 A.Y. 2015-16 Page 13 of 29 account which are placed on file. The bills/vouchers with regard to agricultural sale proceeds that were furnished by the assessee have been examined and no adverse inference is drawn. Therefore, agricultural income shown by the assessee is found in order and accepted. 4. Further, the A.R of the assessee was asked to explain the reasons of 'low income shown by large contractors" i.e. one of the main reasons for selection of the case for scrutiny. In this regard., the A.R. of the assessee submitted through its reply inter alia that the assessee is running a Petrol Pump and G.P. fluctuation is mainly because of the fact that the price of the Diesel and Petrol increased during the year whereas the margin on these items is on per liter basis. As such, there is a marginal fall in CP. The G.P. rate declared is comparable to the G.P. rate declared by all Oil dealers in the region and is specifically as per Trading Account. 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.” 3.16 Inviting 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 ITA 308 /CHD/2020 A.Y. 2015-16 Page 14 of 29 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 interests of the Revenue, it was argued is not permissible in law. 3.18 It was his vehement argument that the ld. PCIT did not even care to look into the reply on the ITBA Portal on 09.03.2020 and in haste passed the impugned order on 19.03.2020. The Show Cause Notice issued by the ld. PCIT replied to by the assessee has been extracted in para 2 of the impugned order which reads as under : 2. Accordingly, a show cause notice u/s 263 of the Act was issued vide this office letter No. 6857 dated 28.02.2020 inter-alia asking the assessee to explain the following facts :- "On perusal of case record for the A.Y. 2015-16, it is noted that you are running a filling station in the name & stale of M/s. Swaroop Service Station, Kokunala, Tehsil- Kotkhai, Shimla. During the year under consideration, you have shown gross sales/turnover of Rs.8,54,93,751/- , gross profit (G.P.) of 17,62,357/- and net profit of Rs. 4,21,998/- by giving N.P. ratio of 0.49% whereas in the preceding year gross sales/turnover was shown at Rs. 9,11,27,513/-, gross profit (G.P) of Rs. 24,36,767/- and net profit of Rs. 7,41,629/- by giving N.P. ration of 0.81%. Apart from this, you have shown agricultural income of Rs. 70,19,204/-. Thereafter, your case was selected for scrutiny through CASS for the reasons 'Large agricultural income & low income shown by large contractors" and the A.O. completed assessment u/s. 143(3) of the Act at returned income. On examination of assessment records, it is noted that you have claimed Shrinkage Allowance of 9823 litres on the sale of 1088620 litres of High Speed Diesel (HSD) and 12772 litres on sale of 532055 litres of Motor Spirit (MS). However, the permissible limits for the Shrinkage Allowance for the given categories of fuels as per the ITA 308 /CHD/2020 A.Y. 2015-16 Page 15 of 29 Marketing Discipline guidelines 2012 issued for petrol/diesel dealers regarding stock variation of Motor Spirit and Diesel evaporation/handling loss is @ 0.75% and 0.25% on quantity sold up to an annual sale of 600KLs and beyond 600KLs the permissible limits of evaporation loss are @ 0.60% and 0.20% on petrol and diesel respectively. On calculation of the permissible shrinkage allowance in the category of HSD and MS, it is noted that you have claimed excess 7346 litres on sale of HSD and 8282 litres on sale of MS. By taking the closing valuation rate for HSD and MS at Rs. 48.62/- and Rs. 43.55/- respectively as 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 and hence, it is erroneous and prejudicial to the interests of the Revenue. On the contrary, it was submitted that the principle laid down by the Apex Court fully strikes the ITA 308 /CHD/2020 A.Y. 2015-16 Page 16 of 29 impugned order as the impugned order on facts has been passed in undue haste without looking into the records where the reply of the assessee before the ld. PCIT was allegedly on record. The fact that the AO had already required the assessee to address the shrinkage on account of the audit objections were also facts available on record. The order passed in undue haste without even looking at the record, infact deserves to be dismissed. The ld. PCIT’s action to again re-look into the same without even caring to address the assessee's reply, it was submitted, adequately demonstrates that it was a mechanical exercise of power. It was his specific prayer that the order may not be remanded as the assessee is not seeking opportunity of being heard as the reply of the assessee is already on record. In the circumstances, relying upon decision of the Apex Court in the case of M/s Sona Building 119 taxman 0430 (2001) it was his submission that the statutory limit under which the ld. PCIT is to pass the order may not be allowed to be extended by giving him another opportunity. Referring to the time made available as per the ld. PCIT’s date of issuance of the notice itself, it was submitted, it would show that there was only 5 days given for making a reply. No effort to factor in the communication time likely to occur was considered. The fact that the Show Cause Notice was received in the afternoon of 04.03.2020 wherein the hearing was fixed at 11.00 AM on the said date, it was submitted, ITA 308 /CHD/2020 A.Y. 2015-16 Page 17 of 29 was a malafide and unfair exercise of power. Accordingly, relying upon decision of the Hon'ble Delhi High Court in the case of TulsiTracom Private Ltd. Vs CIT 161 DTR 0148 it was his submission that the order may be quashed. It was submitted that the Hon'ble Court therein held: "Thus, there was an outer limit in the statue u/s 263 which was 31.03.2013- since no useful purpose would be served in giving the opportunity to the appellant of being heard to this stage, question answered in favor of the assessee - the assessee appeal is allowed." 3.21 Attention was invited to para 23 of the said judgement wherein Court held as under : "This Court has also examined the question as to whether an opportunity 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 o f two years from the end o f 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 31 s ' 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 ; ITA 308 /CHD/2020 A.Y. 2015-16 Page 18 of 29 15. First of all, it is submitted that in the case of the assessee, the proceedings u/sec 263 of the Act were initiated on the basis of AUDIT OBJECTION as raised by the audit wing of the department and the evidence of the same is forming part of paper book at Pgs 28 to 31.There is no independent application of mind by the Pr. CIT and proceedings were initiated merely on the basis of information received from the Audit Wing of the department which is clear from the letter dated 29.01.2019, for which the reply was filed on 22.02.2019 and the word 'Audit' is clearly mentioned in the letter of the AO. 16. It has been recently held by the Hon'ble Chandigarh Tribunal in the case of Shri Kirti Anand vs CIT in ITA No. 540/Chd/2013 order dated 14.10.2015, copy placed at pages 11 to 39 of the Judgement Set that the cases wherein CIT has merely acted upon audit objection and AO has thoroughly applied his mind in the 143(3) proceedings, the proceedings initiated u/sec 263 of the Act are bad in law. Further Reliance in this regard is also being placed upon the following Judgments which are on the similar issue: a) CIT vs. Sohana Woolen Mills (296 ITR 238) (P&H HC)-, copy placed at pages 7 to 10 of Judgement Set and it has been held that Mere audit objection and because a different view could be taken, are not enough to say that the order of the Assessing Officer was erroneous or prejudicial to the interests of the Revenue. b) Sh. Paramjit Singh vs. Pr CIT in ITA No. 499/Chd/2016 order dated 09.11.2016 (Chd Bench) c) Shri Vikram Kaswan vs. CIT in ITA No. 519/Chd/2014 order dated 08.03.2016 (CHD Bench) d ) Sh. Jaswinder Singh vs. CIT-II in ITA no. 690/Chd/2010 (Chandigarh Bench) order dated 09.03.2012. e) CIT vs. Sat Pal Agarwal 293 ITR 90 (P&H HC) f) Shri Sartaj Singh vs. Principal CIT in 48 ITR (T) 604 (Asr Bench) g) M/s Dashmesh Motors vs. Pr CIT in ITA No. 187/Asr/2015 order dated 23.05.2016 (Asr bench) h) ShriJagjit Singh vs.Pr CIT in ITA No. 2777/Del/2018 (ITAT Delhi) i) Shri Sunil ChhaganBhaybhangvs.Pr CIT in ITA No. 932/PUN/2016 (Pune Bench) Thus, on the basis of above said binding judgements of the Jurisdictional High Court and Chandigarh Bench of the ITAT and other, the proceedings as initiated by the PCIT are bad in law and deserves to be set aside. 4. On merits, it was argued that the issues already stood enquired into by the AO on account of the audit objection. The shrinkage, it was argued had specifically been addressed. The ITA 308 /CHD/2020 A.Y. 2015-16 Page 19 of 29 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 Industries Ltd. (2020) 423 ITR 180 (Cal) iv) CIT Vs A.R.Builders & Developers P.Ltd. (2020) 425 ITR 272 (Mad) 4.1 Apart from the above decisions, various decisions of different Benches and Courts were relied upon on similar ITA 308 /CHD/2020 A.Y. 2015-16 Page 20 of 29 proposition of law. Relying on the same, it was his prayer that even on merits, the order may be quashed. 5. The ld. CIT-DR referring to the queries raised by the AO before the passing of the assessment order submitted that there were discrepancies as well as mis-match in figures which should have been noticed by the AO were valid reasons for the ld. PCIT to exercise Revisionary powers under the Act in the present proceedings. He agreed that there is certain percentage loss on account of shrinkage etc. in this line of business, however, in assessee's case the assessee has failed to explain it. It was his submission that since lack of opportunity is pleaded for quashing the order, it was his prayer that he would have no objection if the issue is remanded back and opportunity may be granted to the assessee. The ld. AR seeking permission to interject re-iterated that he has made no such prayer and he is strongly opposing the extending of statutory timelines by directing remand. The ld. CIT-DR reverting to the facts submitted in the facts of the present case, the ld. PCIT was fully justified to set aside the order. 5.1 Addressing the arguments to the objections posed to the Revisionary Powers exercised on the basis of Audit Objections, it was his submission that there is a standard SOP which is required to be followed by the tax authorities in regard to Audit ITA 308 /CHD/2020 A.Y. 2015-16 Page 21 of 29 Objections. Attention was invited to CBDT Instruction No. 07/2017 dated 21.07.2017. Specific attention was invited to para 5.3 of the same, which reads as under : 5.3 Where the Revenue Audit objection is accepted, the PCIT shall decide if the relevant order under audit requires revision u/s 263 as remedial action. If yes, he shall call for the relevant records and proceed to initiate action u/s 263. 5.4 In other cases, the PCIT shall communicate his decision not to invoke section 263 to the Assessing Officer who shall examine the facts of each case and take a suitable action as per his independent application of mind on the facts of each case. 5.2 Referring to the same, it was his submission that there is nothing wrong in the PCIT’s assumption of jurisdiction. The PCIT has 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. ITA 308 /CHD/2020 A.Y. 2015-16 Page 22 of 29 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, is praying for quashing the order and also strongly opposing the departmental prayer that it be upheld. 6.2 Inviting attention to his brief synopsis dated 15.03.2022 he further sought to supplement his arguments on the basis of the following submissions : “ We have to submit that we have already filed brief synopsis of the case and in continuation of that, it may be stated as under: A. It is submitted that there was a complete lack of opportunity to the assessee because since in this case show-cause notice was received by post in the late afternoon on 04 th March, 2020 and the case was fixed for hearing at 11.30AM on 4 th of March, 2020 and since it was not possible to reply on the same day, we had sent the reply through Income Tax Portal on 09 th March, 2020 and the order was passed by the PCIT vide order dated 19.03.2020 which was received on 27.06.2020. It is submitted that no reasonable opportunity had been afforded leading to the order in a mechanical manner and this lack of adequate time itself demonstrates that there was no intention to give effective opportunity and then, though the order was passed on 19.03.2020, then the reply could have been considered by the Ld. PCIT, for this we rely on the latest order of the Hon'ble Bench in the case of Fortune Metaliks Limited in ITA No. 82/Chd/2021 vide order dated 09.03.2022 in which, under the similar circumstances, the order u/s 263 had been quashed. B. Though we have already relied upon number of judgments on the application of mind and on the issue of 263 on the basis of audit objection, we hereby relying on the judgment in the case of Shri Surinder Pal Singh vs. PCIT in ITA No. 57/Chd/2021 vide order dated 31.01.2022 (copy enclosed) in which under similar facts & circumstances, the order as passed by the Ld. PCIT have been quashed. ITA 308 /CHD/2020 A.Y. 2015-16 Page 23 of 29 C. Besides the submission, already made, it may be stated that the Ld. DCIT has passed the order on the basis of the proposal sent by the Assessing Officer and this is borne out from the order of the Ld. PCIT u/s 263 at page no. 1 and then, in para no. 5 also. It is submitted that for the purposes of section 263, it is the satisfaction of the PCIT independently, which is required, before it can be held that the assessment as framed by the Ld. PCIT is erroneous and prejudicial to the interest of revenue. It has been held that, where the assessment is cancelled by 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 finding both on the application of mind on the issue of proposal sent by the Assessing Officer, the order as passed by the Ld. PCIT has been quashed copy being filed. v. Judgment in the case of Alfa Laval Lund AB vs. CIT in ITA No. 1287/PUN/2017 copy of the judgment is placed at pages 229 to 235. vi. Judgment in the case of Aakash Ganga Promoters & Developers vs. PCIT in ITA No. 164/CTK/2019 vide order dated 18.12.2019 copy of the judgment is placed at pages 168 to 186 and the relevant page is 181 to 186. D. Thus, to conclude on the basis of the, application of mind by the Ld. AO and on the basis of the fact that the order u/s 263 have been passed only on the basis of proposal sent by the Assessing Officer, the order as passed by the Ld. PCIT deserves to be quashed.” 7. We have heard the rival submissions and perused the material available on record. Having gone through the same, it is our considered opinion that the exercise of Revisionary Powers in the facts of the present case cannot be upheld. The Revisionary Powers in the facts of the present case have been exercised ITA 308 /CHD/2020 A.Y. 2015-16 Page 24 of 29 mechanically and in undue haste without even caring to address the reply made available by the assessee on the IT Portal. The fact that patently on the face of the record it is an order passed in undue haste is further tainted by the fact that no effort was made by the ld. PCIT to give the assessee an effective hearing. The fixing of the hearing in the peculiar facts and circumstances of the present case where the Show Cause Notice dated 23.02.2022 issued thereafter fixing the hearing on 04.03.2020 patently was a rhetoric, meaningless exercise. Admittedly, reasonable time was not made available to the assessee to put in an effective hearing. Onerous responsibility to provide an effective and fair hearing was treated like a meaningless exercise of merely ticking the box. It is unfortunate that no effort was made to even address the written reply of the assessee received on the IT Portal. The exercise of Revisionary powers cannot be allowed to be exercised whimsically or arbitrarily. The Authority is expected to exercise the power after duly considering the record, and ensure a meaningful and effective opportunity of being heard is provided to the assessee after issuing a Show Cause Notice and only thereafter pass an order after active and conscious consideration of the record and 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. ITA 308 /CHD/2020 A.Y. 2015-16 Page 25 of 29 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 the matter may be remanded back, we find in the peculiar facts of the present case cannot be accepted. The fact that the twin conditions of error in the order and said error which can be said to be prejudicial to the interests of the Revenue, we find have not been met. The fact remains that the order has been passed in undue haste without caring to address even the reply of the assessee. Accordingly, in these peculiar facts and circumstances of the case, allowing of the prayer for remand we consider would be an unfair expectation of the ITA 308 /CHD/2020 A.Y. 2015-16 Page 26 of 29 Revenue. The onerous responsibility cast upon the ld. PCIT for exercising the Revisionary powers u/s 263 are expected to be exercised with due care and attention addressing not only to the timelines but also considering the facts on record. Ignoring the replies of the assessee where an impossibly inappropriate time is given to the assessee to reply, we find makes the exercise open to the challenge of being arbitrary and it cannot be given a judicial sanction. 8. Before parting, we deem it appropriate to also address the submissions of the ld. CIT-DR who has carefully in his inimitable style has argued that merely because the exercise was triggered on account of the Audit Objection, this fact by itself may not be a reason to quash the proceedings. For the said purpose, our attention has been invited to Instruction No.7/2017 para 5.3 which has been reproduced in the earlier part of this order. On a consideration thereof and the proposition of law as cited before us, we find that objections of the ld. CIT-DR are valid. On a careful reading of the decision of the jurisdictional High Court in the case of CIT Vs Sohana Woollen Mills 296 ITR 238 (P&H) we find that the proposition of law as laid down by the jurisdictional High Court is that; “M ere Au d it Obje ct ion an d m ere l y bec aus e a d if f ere nt v ie w co uld be ta ken were no t e no ugh to say th a t the o rd er of th e A O wa s erro neo u s or pre j ud ic ial to the in ter e s ts of the Rev enue .” A plain reading of the said decision makes it clear that the two reasons ITA 308 /CHD/2020 A.Y. 2015-16 Page 27 of 29 being considered by the Hon'ble High Court i.e. Audit Objection and the possibility of the Revisionary Authority having a view different from the view taken by the AO were by itself not sufficient to warrant the exercise of Revisionary Powers u/s 263. The decision proceeds on the well accepted legal position of law, namely the order sought to 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 jurisdiction existed. No rigid rule could be laid down about the situation when the jurisdiction can be exercised. Whether satisfaction of the CIT for exercising jurisdiction was called for or not, has to be decided having regard to a given fact situation." 8.1 Thus, we are of the view that the argument canvassed on behalf of the assessee that merely because there is an Audit Objection, the exercise of powers u/s 263 is invalid, we hold ITA 308 /CHD/2020 A.Y. 2015-16 Page 28 of 29 cannot be accepted. What we understand from the aforesaid decision and various other decisions cited on this proposition is that a mechanical exercise of revisionary powers u/s 263 by the Revisionary Authority by merely citing the Audit Objection cannot be said to be a valid exercise of Revisionary Powers. The ld. PCIT is require to give an independent finding considering the record. The error in the order of the AO, that too such an error which is prejudicial to the interests of the Revenue, has to be pointed out by the Revisionary Authority in the order. The onerous power cannot be exercised mechanically and arbitrarily. The sagacious arguments of the ld. CIT-DR to this extent, we find are well founded. 8.2 Accordingly, considering the peculiar facts and circumstances of the case for the reasons given herein above, we find that the impugned order on facts deserves to be quashed. Ordered accordingly. 9. In the result, appeal of the assessee is allowed. Order pronounced on 21 st July,2022. Sd/- Sd/- (VIKRAM SINGH YADAV) (DIVA SINGH) लेखा लेखालेखा लेखा सद瀡य सद瀡यसद瀡य सद瀡य/ Accountant Member 瀈याियक 瀈याियक瀈याियक 瀈याियक सद瀡य सद瀡यसद瀡य सद瀡य/ Judicial Member “Poonam” ITA 308 /CHD/2020 A.Y. 2015-16 Page 29 of 29 आदेश क琉 灹ितिलिप अ灡ेिषत/ Copy of the order forwarded to : 1. अपीलाथ牸/ The Appellant 2. 灹瀄यथ牸/ The Respondent 3. आयकर आयु猴/ CIT 4. आयकर आयु猴 (अपील)/ The CIT(A) 5. िवभागीय 灹ितिनिध, आयकर अपीलीय आिधकरण, च瀃डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड榁 फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar