M/s. Amira Pure Foods Pvt. Ltd., New Delhi V. Pr. CIT (C), Gurgaon

ITA 3205/DEL/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3076 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 22-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Keywords: Revision of order; Transfer pricing; Search and seizure; Principle of natural justice; International transaction; Application of stay; Assessment record
• Section: 143(3); 142(1); 92E; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI A BEN CH, NEW DELHI BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER, AND SHRI SUDHANSHU SRIVASTAVA, JUDIC IAL MEMBER SA NO. 451/DEL/2017 & ITA NO. 3205/DEL/2017 [ASSESSMENT YEAR: 2014-15] M/S AMIRA PURE FOODS PVT. LTD VS. THE PR.C.I.T 54, PRAKRITI MARG, SULTANPUR FARMS CENTRAL MEHRAULI, NEW DELHI GURGAON PAN : AAACA 2200 M [APPELLANT] [RESPONDENT] DATE OF HEARING : 07.11.2017 DATE OF PRONOUNCEMENT : 29.11.2017 ASSESSEE BY : SHRI SALIL KAPOOR, ADV REVENUE BY : SMT. APARNA KARAN, CIT- DR ORDER PER B.P. JAIN, ACCOUNTANT MEMBER, THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 17.02.2017 PASSED BY THE CIT(A) - CENTRAL, GU RGAON, FOR THE 2 ITA NO. 3205/DEL/2017 A.Y. 2014-15 U/S 263 OF THE INCOME TAX ACT, 1961 (H EREINAFTER, REFERRED TO AS THE ACT FOR SHORT). 2. THE ASSESSEE IS IN THE BUSINESS OF TRADING OF RI CE. DURING THE YEAR UNDER CONSIDERATION, I.E. A.Y. 2014-15, THE ASSESSE E FILED RETURN OF INCOME ON 30.03.2015 DECLARING INCOME OF RS. 70,88, 78,060/-. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND A NOT ICE U/S 143(2) OF THE ACT DATED 28.08.2015 WAS ISSUED. THEREAFTER NOT ICE U/S 142(1) ALONGWITH QUESTIONNAIRE WAS ISSUED ON 05.04.2016. T HE APPELLANT APPEARED ON VARIOUS DATES AND FILED THE REQUIRED DE TAILS FROM TIME TO TIME. ASSESSMENT ORDER DATED 29.06.2016 WAS PASS ED U/S 143(3) ACCEPTING THE RETURNED INCOME OF RS. 70,88,78,060/- . THE BOOKS OF ACCOUNT AND VOUCHERS WERE PRODUCED AND EXAMINED BY THE ASSESSING OFFICER. 3. THE PRINCIPAL COMMISSIONER OF INCOME TAX(CENTRAL ), GURGAON, ISSUED NOTICE U/S 263 OF THE ACT DATED 21.10.2016, SEEKING TO REVISE THE ASSESSMENT ORDER PASSED U/S 143(3). THE LD. PC IT HAS HELD THAT THE ASSESSMENT ORDER WAS PASSED WITHOUT MAKING PROP ER INQUIRIES/ VERIFICATION/INVESTIGATIONS WHICH SHOULD HAVE BEEN MADE BEFORE 3 ITA NO. 3205/DEL/2017 ACCEPTING THE TRADING RESULTS/OTHER ISSUES AND THER EFORE, THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. THE LD. PCIT ISSUED SHOW CAUSE NOTICE U/S 263 OF THE ACT IN RESP ECT TO THE FOLLOWING ISSUES: I. TRANSACTION FOR DETERMINING THE ARMS LENGTH PRICE N OT ANALYZED BY THE AO AND THE TRANSACTION WITH ASSOCIA TED ENTERPRISE NOT REFERRED TO TPO. II. TRADING RESULTS ACCEPTED WITHOUT MAKING ANY INQUIRY/INVESTIGATION AND GENUINENESS OF SALES/PURC HASES ACCEPTED WITHOUT THOROUGH EXAMINATION III. NATURE OF FORWARD CONTRACTS AND WHY REVENUE HAS NOT BEEN ACCOUNTED FOR, NOT EXAMINED BY THE AO IV. PURCHASE OF TRADING ITEMS NOT ENQUIRED BY THE AO V. FOREIGN EXCHANGE FLUCTUATION IN RESPECT OF CIF TRAN SACTION HAVE NOT BEEN EXAMINED BY THE AO VI. NATURE AND ALLOWABILITY OF AMOUNT DEBITED UNDER THE COMMISSION NOT EXAMINED 4 ITA NO. 3205/DEL/2017 VII. DETAILS/NATURE OF CAPITAL WORK IN PROGRESS NOT EXAM INED AND RELATED INTEREST NOT DISALLOWED. VIII. IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE F RESH ADDITIONS TO UNSECURED LOANS NOT EXAMINED 4. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESS EE SUBMITTED THAT THE ASSESSMENT ORDER IS NOT ERRONEOUS AND PREJ UDICIAL TO THE INTEREST OF REVENUE AND ALSO THE ASSESSMENT HAS BEE N MADE AFTER MAKING INQUIRIES OR VERIFICATION ON ALL THE FACTS A S HAVE BEEN ALLEGED IN THE SHOW CAUSE NOTICE. THE ASSESSEE FILED DETAIL ED RESPONSE TO THE SHOW CAUSE NOTICE ISSUED U/S 263 OF THE ACT. AS REG ARDS THE MANDATORY REFERENCE TO TPO FOR DETERMINING ARMS LEN GTH PRICES, REFERRING TO CBDT INSTRUCTION NO. 3 OF 2016, THE AS SESSEE SUBMITTED THAT ITS CASE DID NOT FALL UNDER THE TWO CONDITIONS STIPULATED IN THE SAID INSTRUCTION, THEREFORE THE AO WAS NOT BOUND RE FER THE SAME TO THE TPO. AS REGARDS THE FALL IN GROSS PROFIT AND NE T PROFIT, THE ASSESSEE CONTENDED THAT EXPLANATION FOR THE SAME WA S FURNISHED DURING THE ASSESSMENT PROCEEDINGS. 5 ITA NO. 3205/DEL/2017 5. AS REGARDS PURCHASES MADE BY THE COMPANY FROM CE RTAIN PARTIES AND SALES MADE BY THE ASSESSEE COMPANY TO T HESE PARTIES, THE ASSESSEE SUBMITTED THAT BOTH THESE COMPANIES AR E INDEPENDENT AND ALL THE PURCHASES MADE HAVE BEEN DULY ACCOUNTED FOR IN THEIR DAY TO DAY STOCK AND SALES ARE MADE TO INDEPENDENT BUYERS. AS REGARDS SUNDRY DEBTORS AND CREDITORS, COMPLETE DETA ILS WITH NAME, ADDRESSES AND AMOUNT FOR THE PARTIES ALONG WITH CON FIRMED COPIES OF ACCOUNT OF SOME OF THE PARTIES WAS DULY FURNISHED A ND EXAMINED BY THE AO DURING THE ASSESSMENT PROCEEDINGS. FURTHER C OPIES OF ACCOUNT IN THE BOOKS OF THE COMPANY GIVING COMPLETE DETAIL OF OUTSTANDING AMOUNT WERE SUBMITTED BY THE ASSESSEE BEFORE THE LD . PCIT. FURTHER, REGARDING THE AMOUNT PAYABLE AGAINST LC IN FAVOUR OF VARIOUS BANKS AND INVENTORY OF RS. 1,28,785/- LAKHS , THE ASSESSEE RENDERED EXPLANATION ALONGWITH SUPPORTING DOCUMENTS . 6. REGARDING THE EFFECT OF PENDING FORWARD CONTRACT S, THE ASSESSEE CONTENDED THAT IT IS NOT COVERED BY THE PR OVISIONS OF AS-11 AND THUS IT IS EXEMPT FROM DISCLOSURE REQUIREMENTS ON UNSETTLED FORWARD TRANSACTIONS DURING THE F.Y. 2013-14. THE A SSESSEE 6 ITA NO. 3205/DEL/2017 SUBMITTED VARIOUS DETAILS AND EXPLANATION WITH RESP ECT TO THE TRADING ITEMS, FOB VALUE OF EXPORTS, CLAIM AND COMP ENSATION, OPENING AND CLOSING CAPITAL WORK IN PROGRESS AND IN TEREST AND EXPENSES. THE ASSESSEE CONTENDED THAT ALL THE AFORE SAID ISSUED WERE DULY EXAMINED/INVESTIGATED/VERIFIED BY THE AO DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS. 7. THE LD. PCIT HELD THAT THE ASSESSMENT ORDER HAS BEEN PASSED WITHOUT MAKING PROPER INQUIRIES/VERIFICATION/INVEST IGATIONS WHICH SHOULD HAVE BEEN MADE BEFORE ACCEPTING THE TRADING RESULTS AND OTHER ISSUES AND THE SAME IS THEREFORE ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY, THE LD. CIT(A ) VIDE ITS ORDER U/S 263 OF THE ACT DATED 17.02.2017 SET ASIDE THE ASSES SMENT ORDER AND DIRECTED THE AO TO REDO THE ASSESSMENT DE NOVO AFTE R MAKING NECESSARY INQUIRIES/ VERIFICATION/INVESTIGATIONS. 8. AGAINST THE ORDER OF THE LD. PCIT U/S 263 OF THE ACT, THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE ITAT ON T HE FOLLOWING GROUNDS: 7 ITA NO. 3205/DEL/2017 1. THAT THE NOTICE ISSUED U/S 263 AND THE ORDER PASSED BY THE PRINCIPAL COMMISSIONER OF INCOME TAX ('PR. CIT') U/S 263 ARE I LLEGAL, BAD IN LAW AND WITHOUT JURISDICTION. THE ORDER PASSED BY THE ASS ESSING OFFICER ('AO') U/S 143(3) IS NEITHER ERRONEOUS NOR PREJUDICIA L TO THE INTEREST OF REVENUE. 2. THE ORDER U/S 263 PASSED BY THE PR. CIT IS ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION AS DETAILED REPLIES FILED BEFORE THE PR. CIT, IN RESPONSE TO THE NOTICE U/S 263, HAVE NOT BEEN CONSID ERED WHILE PASSING THE FINAL ORDER. HENCE THE ORDER U/S 263 IS LIABLE TO BE QUASHED. 3. THAT THE PR. CIT HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT AS PER INSTRUCTION NO. 3 OF 2016, THE AO SHOULD HAVE REFERRE D THE MATTER TO THE TRANSFER PRICING OFFICER ('TPO') PARTICULARLY WH EN THE CASE OF THE ASSESSEE DOES NOT FALL IN ANY OF THE CONDITIONS AS SET OUT IN THE SAID INSTRUCTION. 4. THAT THE PR. CIT HAS ERRED ON FACTS AND IN LAW IN EXERCISING ITS JURISDICTION U/S 263 TO HOLD THAT THE AO SHOULD HAVE M ANDATORILY REFERRED THE MATTER TO THE TPO. PR. CIT HAS FAILED TO APPRECIATE THAT THE WORDS 'HE MAY' AS USED IN SECTION 92CA ARE PRECE DED BY 'NECESSARY AND EXPEDIENT'. HENCE, BY NOT MAKING REF ERENCE TO THE TPO, NO ERROR HAS BEEN COMMITTED BY THE AO. 5. THAT THE EXERCISE OF JURISDICTION BY PR. CIT U/S 26 3 IS BAD IN LAW AND WITHOUT ANY BASIS AS THE SAME HAS BEEN DONE ON MERE ASSUMPTION AND THEREFORE, AS SUCH THE ASSESSMENT ORDER IS NOT ERRON EOUS AND THERE IS NO PREJUDICE TO THE INTEREST OF REVENUE. 6. THAT THE PR. CIT HAS ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE REPLY IN SPECIFIC REFERENCE TO FALL IN GRO SS PROFIT AND NET PROFIT AS COMPARED TO EARLIER YEAR WAS ENQUIRED DURIN G THE 8 ITA NO. 3205/DEL/2017 ASSESSMENT PROCEEDINGS AND ALSO CONFIRMED BY THE PR . CIT WHILE ISSUING NOTICE U/S 263 OF THE ACT. 7. THAT THE PR. CIT HAS ERRED ON FACTS AND IN LAW IN ASSUMING JURISDICTION U/S 263 WHEN THE ASSESSMENT ORDER U/S 143 (3), ACCEPTING THE TRADING RESULTS, WAS PASSED ONLY AFTER MAKING DE TAILED ENQUIRIES INTO PURCHASES/SALES MADE BY THE ASSESSEE. THE ASSE SSMENT ORDER U/S 143(3) CANNOT BE SET ASIDE MERELY BECAUSE THE CIT FE ELS THAT FURTHER ENQUIRY SHOULD HAVE BEEN MADE. 8. THAT THE PR. CIT HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT THE SALE AND PURCHASE TO COMMON PARTIES BY THE ASSESSEE AND AMIRA ENTERPRISES LTD. ARE APPARENTLY ACCOMMODATION EN TR IES/SHIFTING OF PROFITS. THE OBSERVATION AND FINDING ARE BASED ON A SSUMPTION AND PRESUMPTION AND ARE FAR FROM REALITY. THE CIT CANNOT SET ASIDE THE ASSESSMENT ORDER PASSED U/S 143(3) MERELY ON THE BAS IS OF THE ASSUMPTIONS AND PRESUMPTIONS AND WITHOUT HOLDING ANY I NDEPENDENT ENQUIRY. 9. THAT THE PR. CIT HAS ERRED ON FACTS AND IN LAW IN ASSUMING JURISDICTION U/S 263 REGARDING THE ISSUE OF PENDING FO RWARD CONTRACTS, EVEN WHEN THE ASSESSEE IS EXEMPT FROM DISCLOSURE REQ UIREMENTS ON UNSETTLED FORWARD TRANSACTIONS DURING F.Y. 2013-14 I N VIEW OF THE PROVISIONS OF AS-11. THUS THE ASSESSMENT ORDER U/S 14 3(3) IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. 10. THAT THE PR. CIT HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT THE AO HAS NOT EXAMINED THE RATES OF PURCHASE OF GOODS FROM AMIRA C FOODS INTERNATIONAL DMCC AND THE PORT OF LOADING IS IN IN DIA. THE PR. CIT HAS FAILED TO APPRECIATE THAT IN RESPECT OF GOODS PURCHA SED FROM AMIRA C FOODS INTERNATIONAL DMCC, DELIVERY WAS FROM INDIA A S AMIRA C FOODS INTERNATIONAL DMCC HAD PURCHASED GOODS FROM M/S PEC LTD. AND STC LTD. IN OPEN TENDER SYSTEM AND WHEAT WAS DISPATCHED DIRECTLY FROM KRISHNA PATNAM PORT AND MUNDRA PORT TO BANGLADESH. T HE ASSESSMENT HAS BEEN COMPLETED AFTER EXAMINING THE VARIOUS DETAI LS. HENCE THE 9 ITA NO. 3205/DEL/2017 ASSESSMENT ORDER IS LEGAL AND NOT ERRONEOUS OR PREJUD ICIAL TO THE INTEREST OF REVENUE. 11. THAT THE PR. CIT HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT THE AO HAS NOT EXAMINED THE DETAILS OF COMMISSION EXPENSES WHEREAS DETAILS REGARDING THE SAME WERE CALLED FOR BY THE AO AND WE RE DULY FILED. THE AO IS NOT SUPPOSED TO WRITE EACH AND EVERY EXPE NSE, WHICH IS ALLOWED IN THE ASSESSMENT ORDER. 12. THAT THE PR. CIT HAS ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT INTEREST ARISING OUT OF CAPITAL WORK IN PROGRES S HAS BEEN ALREADY CAPITALIZED AND AS SUCH NO FURTHER ENQUIRY IS REQUIRED IN THIS REGARD. THUS, THE PR. CIT CANNOT SET ASIDE THE ASSESSMENT OR DER U/S 143(3) AND DIRECT THE AO TO MAKE A FRESH ENQUIRY MERELY BEC AUSE HE FEELS THAT THE ISSUE NEEDS 'THOROUGH EXAMINATION. 13. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE PR. CIT HAS ERRED ON FACTS AND IN LAW IN ASSUMING JURISDICTIO N U/S 263 WHEN THE ASSESSMENT ORDER U/S 143(3) WAS PASSED AFTER MAK ING DETAILED ENQUIRIES REGARDING THE UNSECURED LOANS. THE ASSESSME NT ORDER U/S 143(3) CANNOT BE SET ASIDE MERELY BECAUSE THE CIT FE ELS THAT FURTHER ENQUIRY SHOULD HAVE BEEN MADE. 14. THE PR. CIT HAS FAILED IN NOT APPRECIATING THAT TH E INCREASE IN INTEREST AMOUNT AS COMPARED TO LAST YEAR IS ON ACCOU NT OF INTEREST PAID TO CREDITORS AND NOT ON ACCOUNT OF INCREASE IN UNSECURED LOANS. PERTINENTLY, TDS AMOUNT STANDS DEDUCTED AND COMPLETE INFORMATION WERE SUBMITTED DURING THE COURSE OF ASSESSMENT PROCE EDINGS. 15. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE PR. CIT HAS ERRED ON FACTS AND IN LAW IN ASSUMING JURISDICTIO N U/S 263 WHEN THE ASSESSMENT ORDER WAS PASSED AFTER MAKING DETAIL ED ENQUIRIES AND HENCE THE NOTICE ISSUED U/S 263 AND THE ORDER PASSED UNDER SAID 10 ITA NO. 3205/DEL/2017 SECTION ARE ILLEGAL, BAD IN LAW AND WITHOUT JURISDICT ION. 16. THAT THE PR. CIT HAS FAILED TO APPRECIATE THAT DET AILS OF EXPENSES WERE FILED AS REQUIRED BY THE AO AND THE ASSESSMENT ORDER HAS BEEN PASSED AFTER DUE APPLICATION OF MIND. 17. THAT WITHOUT PREJUDICE, THE PR. CIT HAS WRONGLY AND ILLEGALLY HELD THAT THE ORDER PASSED BY AO IS ERRONEOUS AND PREJUDI CIAL TO THE INTEREST WHEN NO INDEPENDENT ENQUIRY HAS BEEN MADE BY PR. CIT. HENCE THE NOTICE ISSUED U/S 263 AND THE ORDER PASSED U/S 263 IS ILLEGAL AND BAD IN LAW. 18. THAT WITHOUT PREJUDICE, THE PR. CIT HAS EXCEEDED HIS JURISDICTION IN SETTING ASIDE THE ASSESSMENT ORDER AND DIRECTING TH E AO TO MAKE DE NOVO ASSESSMENT WHEN HIS NOTICE AND THE ORDER PASSE D IS LIMITED TO CERTAIN ISSUES ONLY. HENCE THE ORDER PASSED U/S 263 I S ILLEGAL AND BAD IN LAW. 19. THAT THE PR. CIT HAS PASSED THE ORDER U/S 263 IGNOR ING THE EVIDENCE, DOCUMENTS FILED BY THE ASSESSEE AND MATERIAL AVAILAB LE ON RECORD. 20. THAT THE EXPLANATIONS GIVEN, EVIDENCE PRODUCED, MAT ERIAL PLACE AND AVAILABLE ON RECORD HAS NOT BEEN PROPERLY CONSIDERE D AND JUDICIALLY INTERPRETED AND THE SAME DO NOT JUSTIFY THE ORDER PA SSED U/S 263. 21. THAT THE ASSESSEE CRAVES LEAVE TO ALTER, AMEND OR WITHDRAW ALL OR ANY OBJECTIONS HEREIN OR ADD ANY FURTHER GROUNDS AS M AY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE HEA RING. 11 ITA NO. 3205/DEL/2017 9. THE COUNSEL FOR THE APPELLANT SUBMITTED THAT THE ORDER PASSED BY THE LD. PCIT IS NOT VALID AND NOT MAINTAINABLE IN LAW AS THE SAME HAS BEEN PASSED WITHOUT CONSIDERING THE SUBMISSIONS OF THE ASSESSEE FILED IN RESPONSE TO THE SHOW CAUSE NOTICE U/S 263 OF THE ACT. IT IS SUBMITTED THAT THE ORDER PASSED IS IN VIOLATION OF PRINCIPLE OF NATURAL JUSTICE BECAUSE THE OBJECTIONS TO PROCEEDINGS U/S 2 63 OF THE ACT AND THE SUBMISSIONS MADE IN RESPONSE TO NOTICE U/S 263 OF THE ACT HAVE NOT BEEN CONSIDERED AT ALL BY THE LD. PCIT. IT IS SUBMITTED THAT THE PURPOSE OF A SHOW CAUSE NOTICE IS TO ENABLE THE PER SON, AGAINST WHOM ACTION IS SOUGHT TO BE TAKEN, TO DEFEND HIS CA SE AND THE SAME RESTS ON THE PRINCIPLES OF NATURAL JUSTICE. SERVING A SHOW CAUSE NOTICE IS NOT AN EMPTY FORMALITY AND THEREFORE, THE PRINCIPLES OF NATURAL JUSTICE ARE NOT MET BY MERELY ISSUING A SHO W CAUSE NOTICE. THE LD. PCIT HAS TO APPLY HIS MIND TO THE SUBMISSI ONS MADE BY THE ASSESSEE IN RESPONSE THEREOF AND HAS TO DISPOSE OFF THE OBJECTIONS RAISED BY THE ASSESSEE BEFORE ARRIVING AT A FINDING THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE JU STICE. THEREFORE, THE LD. PCIT HAS HIMSELF ERRED BY NOT ADHERING TO THE PRINCIPLES OF 12 ITA NO. 3205/DEL/2017 NATURAL JUSTICE AND IT IS TRITE LAW THAT ANY ORDER PASSED IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE IS INVALID AND LIA BLE TO BE QUASHED. 10. THE APPELLANT HAD FILED REPLIES BEFORE LD. PCI T DATED 03.02.2017 AND DATED 17.02.2017 ALONG WITH SUPPORTI NG DOCUMENTS, WHICH ARE PLACED AT PAGE 159 TO PAGE 414 OF THE PAP ERBOOK, IN RESPONSE TO THE SHOW CAUSE NOTICE DATED 21.10.2016 ISSUED BY LD. PCIT U/S 263 OF THE ACT. HOWEVER, A PERUSAL OF THE IMPUGNED ORDER U/S 263 OF THE ACT SHOWS THAT THE LD. PCIT HAS NOW HERE CONSIDERED THE CONTENTIONS OF THE ASSESSEE MADE IN RESPONSE TO THE SHOW CAUSE NOTICE U/S 263 OF THE ACT. THIS ITSELF MAKES THE OR DER PASSED U/S 263 OF THE ACT AS ILLEGAL AND BAD IN LAW. OPPORTUNITY O F BEING HEARD IS LITTLE MORE THAN SERVING A NOTICE ON ASSESSEE. IT I S NOT AN EMPTY FORMALITY. THE LD. PCIT HAS NOWHERE IN ITS ORDER U /S 263 OF THE ACT RECORDED THE EXPLANATIONS GIVEN BY THE ASSESSEE IN RESPONSE TO THE 263 OF THE ACT SHOW CAUSE NOTICE. THE D. PCIT HAS N OT EVEN LOOKED AT THE REPLIES FILED BY THE APPELLANT IN RESPONSE TO N OTICE U/S 263 OF THE ACT AND HAS PASSED THE ORDER U/S 263 OF THE ACT . THEREFORE, THE 13 ITA NO. 3205/DEL/2017 ORDER OF THE LD. PCIT IS PATENTLY ILLEGAL, BAD IN LAW AND THE SAME IS LIABLE TO BE QUASHED. 11. IT IS FURTHER ARGUED THAT THE ORDER IS PASSED A FTER MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MA DE. THE AO, EXERCISING ITS QUASI-JUDICIAL POWER, HAD ISSUED A D ETAILED QUESTIONNAIRE U/S 142(1) WHICH WAS DULY ANSWERED BY WAY VARIOUS DETAILS, EXPLANATIONS AND LETTERS. COMPLETE BOOKS O F ACCOUNT, DETAILS OF SALES/PURCHASES, SUPPORTED WITH DOCUMENTARY EVID ENCES WERE PRODUCED AND EXAMINED BY THE AO DURING THE ASSESSME NT PROCEEDINGS. THE APPELLANT HAD APPEARED BEFORE THE AO AND FILED REPLIES, HOWEVER, THE LD. PCIT HAS COMPLETELY IGNO RED THE DETAILED ENQUIRY CONDUCTED BY THE AO AND HAS, THEREFORE, ERR ED IN EXERCISING JURISDICTION U/S 263 OF THE ACT IN RESPECT OF THE I SSUES WHICH WERE ALREADY EXAMINED BY THE AO. 12. RELYING ON THE DECISION OF APEX COURT IN THE CA SE OF MALABAR INDUSTRIAL CO. LTD. V. CIT [(2000) 243 ITR 83], IT IS SUBMITTED THAT THE POWER OF CIT U/S 263 OF THE ACT CAN ONLY BE EXERCIS ED BY THE LD. PCIT WHEN THE TWIN CONDITIONS OF THE ORDER BEING ER RONEOUS AS WELL 14 ITA NO. 3205/DEL/2017 AS PREJUDICIAL TO THE INTEREST OF REVENUE, ARE SATI SFIED AND THE SAME CANNOT BE EXERCISED TO SUBSTITUTE ITS OWN FINDING I N PLACE OF THE AO AND THEREFORE, THE LD. PCIT CANNOT RE-EXAMINE THE ISSUES ALREADY INQUIRED INTO BY THE AO. RELIANCE IS ALSO PLACED ON THE BOMBAY HIGH COURTS DECISION IN THE CASE OF CIT V. GABRIEL INDI A LTD. [(1993) 203 ITR 108]. THE POWER U/S 263 OF THE ACT IS TO BE EXE RCISED IN THE CASE OF NO INQUIRY AND NOT IN THE CASE OF INADEQUATE INQUIRY OR LACK OF INQUIRY WHEREAS THE CASE OF THE ASSESSEE IS NOT EVEN A CASE OF LACK OF INQUIRY. 13. IT IS SUBMITTED THAT UNDER THE JURISDICTION U/S 263 OF THE ACT, THE LD. PCIT HAS INITIATED REVISION PROCEEDINGS IN ORDER TO CARRY OUT FISHING AND ROVING ENQUIRIES IN THE MATTERS WHICH A RE ALREADY CONCLUDED BY THE AO AND THEREFORE THE EXERCISE OF J URISDICTION U/S 263 OF THE ACT IS BAD IN LAW. THE LD. PCIT HAS ERR ED IN EXERCISING JURISDICTION U/S 263 OF THE ACT WHEN THE ISSUES RAI SED THEREIN WERE ALREADY ENQUIRED INTO BY THE AO DURING THE ASSESSME NT PROCEEDINGS. THE AO HAD PASSED THE ASSESSMENT ORDER ONLY AFTER C ONDUCTING 15 ITA NO. 3205/DEL/2017 DETAILED ENQUIRY ON VARIOUS ISSUES INCLUDING TRADIN G RESULTS, NATURE AND ALLOWABILITY OF EXPENSE, ETC. 14. THE ASSESSMENT ORDER IS PASSED AFTER DUE APPLIC ATION OF MIND, THEREFORE, THE IMPUGNED NOTICE AND ORDER U/S 263 OF THE ACT ALLEGING THAT PROPER AND ADEQUATE ENQUIRY WAS NOT MADE, REND ERING THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE I NTEREST OF REVENUE, IS ARBITRARY BASED ON CONJECTURE AND SURMI SES. 15. THE LD. PCIT HAS NOT GIVEN ANY FINDING AS TO HO W AND IN WHAT MANNER THE ORDER OF THE AO ON THE VARIOUS ISSUES NO TED IN ITS ORDER U/S 263 OF THE ACT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. PCIT HAS NOT MADE ANY ENQUIRY ON HIS OWN BUT SIMPLY DIRECTED THE AO TO MAKE FURTHER VERIFICATION AND EXAMINATION THEREFORE, THE ORDER OF THE LD. CIT U/S 263 OF THE ACT DESERVES TO BE SET ASIDE. RECENTLY, THE DELHI HIGH COURT IN THE CA SE OF LD. PCIT V. DELHI AIRPORT METRO EXPRESS PVT. LTD. [ITA NO. 705/ 2017] HAS CATEGORICALLY HELD THAT FOR THE PURPOSE OF EXERCISI NG JURISDICTION U/S 263 OF THE ACT AND REACHING A CONCLUSION THAT THE O RDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE, THE LD. PCIT HAS TO 16 ITA NO. 3205/DEL/2017 UNDERTAKE SOME MINIMAL INQUIRY AND IN FACT WHERE TH E LD. PCIT IS OF THE VIEW THAT AO HAD NOT UNDERTAKEN ANY INQUIRY, IT BECOMES INCUMBENT ON THE LD. PCIT TO CONDUCT SUCH ENQUIRY. FURTHER IN LD. PCIT V. MODICARE LIMITED [ITA NO. 759/2017] DELHI H IGH COURT HAS FOLLOWED ITS DECISION IN INCOME TAX OFFICER V. DG H OUSING PROJECTS LIMITED [343 ITR 329], DIT V. JYOTI FOUNDATION [357 ITR 388] AND LD. PCIT V. DELHI AIRPORT METRO EXPRESS PVT. LTD. (SUPR A) TO HOLD THAT THE EXERCISE OF JURISDICTION U/S 263 OF THE ACT CANNOT BE OUTSOURCED BY THE CIT TO THE AO AND THEREFORE, THE CIT CANNOT DIR ECT THE AO TO PROVIDE DETAILS OF THE FACTS ON THE BASIS OF WHICH THE PROCEEDINGS U/S 263 OF THE ACT COULD HAVE BEEN INITIATED. 16. IN THE INSTANT CASE, THE LD. PCIT, UNMINDFUL O F THE ENQUIRIES CONDUCTED BY THE AO DURING THE ASSESSMENT PROCEEDIN GS AND SUBMISSIONS MADE BY THE ASSESSEE IN RESPONSE TO NOT ICE U/S 263 OF THE ACT, HAS MERELY OBSERVED THAT THE ASSESSMENT OR DER WAS PASSED WITHOUT MAKING PROPER ENQUIRIES AND IT IS A MATTER OF RECORD THAT LD. PCIT HAS HIMSELF NOT UNDERTAKEN ANY ENQUIRY TO REAC H A CONCLUSION THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF 17 ITA NO. 3205/DEL/2017 REVENUE. THEREFORE, IN THE ABSENCE OF ANY JUSTIFICA TION FOR EXERCISE OF JURISDICTION U/S 263 OF THE ACT, THE ORDER OF LD . PCIT PASSED U/S 263 OF THE ACT IS LIABLE TO BE SET ASIDE. 17. THERE IS DIFFERENCE BETWEEN LACK OF ENQUIRY A ND INADEQUATE ENQUIRY. IT IS FOR THE AO TO DECIDE THE EXTENT OF ENQUIRY TO BE MADE AS IT IS HIS SATISFACTION AS WHAT IS REQUIRED UNDER LAW. RELIANCE IS PLACED ON THE DECISION OF CIT V. SUNBEAM AUTO LTD. [(2010) 332 ITR 167], WHEREIN HONBLE DELHI HIGH COURT HAS HELD THA T IF THERE WAS ANY INQUIRY, EVEN INADEQUATE, THAT WOULD NOT BY ITS ELF, GIVE OCCASION TO THE COMMISSIONER TO PASS ORDER U/S 263 OF THE AC T, MERELY BECAUSE THE COMMISSIONER HAS A DIFFERENT OPINION IN THE MATTER AND THAT ONLY IN CASES WHERE THERE IS NO ENQUIRY, THE P OWER U/S 263 OF THE ACT CAN BE EXERCISED. THE LD. PCIT CANNOT PASS THE ORDER U/S 263 OF THE ACT ON THE GROUND THAT FURTHER/THOROUGH ENQUIRY SHOULD HAVE BEEN MADE BY AO. 18. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T EVEN THOUGH THERE HAS BEEN AN AMENDMENT IN THE PROVISIONS OF SE CTION 263 OF THE ACT BY WHICH EXPLANATION 2 IS INSERTED, W.E.F. 01.0 6.2015 BUT THE 18 ITA NO. 3205/DEL/2017 SAME DOES NOT GIVE UNFETTERED POWERS TO THE COMMISS IONER TO ASSUME JURISDICTION U/S 263 OF THE ACT TO REVISE EV ERY ORDER OF THE AO TO RE-EXAMINE THE ISSUES ALREADY EXAMINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE HONBLE MUMBAI ITAT HAS DEALT WITH EXPLANATION 2 AS INSERTED BY THE FINANCE ACT, 2015 IN THE CASE OF NARAYAN TATU RANE V. INCOME TAX OFFICER [(2016) 70 TAXMANN.COM 227] TO HOLD THAT THE SAID EXPLANATION CANNOT BE SA ID TO HAVE OVERRIDDEN THE LAW AS INTERPRETED BY THE HONBLE DE LHI HIGH COURT, ACCORDING TO WHICH THE COMMISSIONER HAS TO CONDUCT AN ENQUIRY AND VERIFICATION TO ESTABLISH AND SHOW THAT THE ASSESSM ENT ORDER IS UNSUSTAINABLE IN LAW. THE TRIBUNAL HAS FURTHER HE LD THAT THE INTENTION OF THE LEGISLATURE COULD NOT HAVE BEEN TO ENABLE THE LD. PCIT TO FIND FAULT WITH EACH AND EVERY ASSESSMENT O RDER, WITHOUT CONDUCTING ANY ENQUIRY OR VERIFICATION IN ORDER TO ESTABLISH THAT THE ASSESSMENT ORDER IS NOT SUSTAINABLE IN LAW, SINCE S UCH AN INTERPRETATION WILL LEAD TO UNENDING LITIGATION AND THERE WOULD NOT BE ANY POINT OF FINALITY IN THE LEGAL PROCEEDINGS. THE OPINION OF THE 19 ITA NO. 3205/DEL/2017 COMMISSIONER REFERRED TO IN SECTION 263 OF THE ACT HAS TO BE UNDERSTOOD AS LEGAL AND JUDICIOUS OPINION AND NOT A RBITRARY OPINION. 19. IT IS FURTHER ARGUED THAT THE IMPUGNED ORDER U/ S 263 OF THE ACT SEEKS TO REVISE THE ASSESSMENT ORDER IN RESPECT OF THE ISSUES WHICH WERE ALREADY EXAMINED BY THE AO DURING ASSESSMENT P ROCEEDINGS. REGARDING THE NON REFERENCE TO TPO, THE COUNSEL FOR THE APPELLANT SUBMITTED THAT THE LD. PCIT HAS WRONGLY HELD THAT AO WAS BOUND TO REFER THE MATTER TO TPO IN VIEW OF INSTRUCTIONS NO 3 OF 2016 BECAUSE THE REFERENCE TPO WAS NOT MANDATORY IN VIEW OF THE INSTRUCTION NO. 3 OF 2016 AS THE CASE OF THE OF THE ASSESSEE DOES N OT FALL UNDER THE TWO CONDITIONS STIPULATED IN THE INSTRUCTION, MAKIN G IT MANDATORY FOR THE AO TO REFER THE TRANSACTIONS TO THE TPO. THE TW O CONDITIONS ARE: A. CASES SELECTED FOR SCRUTINY UNDER CASS OR UNDER THE COMPULSORY MANUAL SELECTION SYSTEM ON THE BASIS OF TRANSFER PRICING RISK PARAMETERS [IN RESPECT OF INTERNATIONA L TRANSACTION OR SPECIFIED DOMESTIC TRANSACTIONS] B. CASES SELECTED FOR SCRUTINY ON NON-TRANSFER PRICIN G RISK PARAMETERS BUT ALSO HAVING INTERNATIONAL TRANSACTIO N OR 20 ITA NO. 3205/DEL/2017 SPECIFIED DOMESTIC TRANSACTIONS SHALL BE REFERRED T O TPO ONLY IN THE FOLLOWING CIRCUMSTANCES: I. WHERE THE AO COMES TO KNOW THAT THE TAXPAYER HAS ENTERED INTO INTERNATIONAL TRANSACTIONS OR SPECIFIE D DOMESTIC TRANSACTIONS OR BOTH BUT THE TAXPAYER HAS EITHER NOT FILED THE ACCOUNTANTS REPORT U/S 92E AT ALL OR HAS NOT DISCLOSED THE SAID TRANSACTIONS IN THE ACCOUNTANTS REPORT FILED II. WHERE THERE HAS BEEN A TRANSFER PRICING ADJUSTMENT OF RS. 10 CRORE OR MORE IN AN EARLIER ASSESSMENT YEAR AND SUCH ADJUSTMENT HAS BEEN UPHELD BY THE JUDICIAL AUTHORITIES OR IS PENDING IN APPEAL; AND III. WHERE SEARCH AND SEIZURE OR SURVEY OPERATIONS HAVE BEEN CARRIED OUT UNDER THE PROVISIONS OF INCOME TAX ACT AND FINDINGS REGARDING TRANSFER PRICING ISSUES IN RESPECT OF INTERNATIONAL TRANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS OR BOTH HAVE BEEN RECORDED BY THE INVESTIGATION WING OR THE AO. 21 ITA NO. 3205/DEL/2017 20. DURING THE COURSE OF HEARING, THE COUNSEL OF TH E ASSESSEE SUBMITTED A COPY OF THE REASONS FOR SCRUTINY SELECT ION UNDER CASS AND CONTENDED THAT NEITHER THE CASE OF THE ASSESSEE HAS BEEN SELECTED ON THE BASIS OF TRANSFER PRICING RISK PARA METERS NOR THE REASONS FOR SELECTION FALL UNDER THE AFOREMENTIONED SECOND CONDITION STIPULATED UNDER THE SAID INSTRUCTION AND THEREFORE , IT WAS NOT MANDATORY FOR THE AO TO REFER THE TRANSACTIONS TO T HE TPO. 21. AS REGARDS THE ISSUE OF ENQUIRY INTO TRADING RE SULTS, THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT SPECIFIC QUERIES WI TH RESPECT TO TRADING RESULTS WERE ASKED BY THE AO IN THE QUESTIO NNAIRE U/S 142(1) OF THE ACT DURING THE ASSESSMENT PROCEEDINGS. IT WA S CONTENDED THAT ALL THE PURCHASE/SALES ILLS, VOUCHERS WITH STOCK RE CORDS, COMPLETE LIST OF NAMES, ADDRESSES, AMOUNT OUTSTANDING OF 5404 SUN DRY CREDITORS WERE FURNISHED TO THE AO FOR EXAMINATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS. FURTHER, IT IS CONTENDED TH AT COMPLETE DETAILS REGARDING THE AMOUNT PAYABLE AGAINST LC OF VARIOUS BANKS PRODUCED AND CONFIRMED COPIES OF ACCOUNT OF SUNDRY DEBTORS WERE FILED BEFORE AO AND THIS IS ALSO FILED BEFORE LD. PCIT IN RESPONSE TO 22 ITA NO. 3205/DEL/2017 THE NOTICE U/S 263 OF THE ACT, HOWEVER, AS SUBMITTE D EARLIER, THE LD. PCIT HAS BLATANTLY IGNORED THE REPLIES OF THE ASSES SEE. THE COUNSEL FOR THE ASSESSEE ARGUED THAT THE APPELLANT COMPANY AND M/S AMIRA ENTERPRISES ARE INDEPENDENT COMPANIES AND THAT THER E IS NO COMMON TRANSACTION BETWEEN THE TWO. ALL THE PURCHASES AND SALES ARE DULY RECORDED IN THE BOOKS OF ACCOUNT AND SALES HAVE BEE N MADE TO INDEPENDENT PARTIES. THE APPELLANT ALSO FILED CONFI RMED COPIES OF ACCOUNT OF M/S MAA JANKI TRADERS, M/S JAY SHREE ENT ERPRISES, M/S GANDHI ENTERPRISES AND M/S GARG ENTERPRISES TO WHOM SALES WERE MADE AS FILED BEFORE THE AO. THE COUNSEL FOR THE AS SESSEE ALSO CONTENTED THAT ASSESSEE HAS EARNED GP RATE OF 19% O N THESE SALES WHICH IS MUCH MORE THAN THE INDUSTRY NORMS. 22. AS REGARDS THE EFFECT OF PENDING FORWARD CONTRA CTS, REFERRING TO AS-11, THE APPELLANT SUBMITTED THAT THE EFFECT OF T HE SAME IS NOT TAKEN INTO ACCOUNT AS THE CASE OF THE APPELLANT IS NOT COVERED BY THE PROVISIONS OF AS-11 AND THUS THE APPELLANT IS EXEMP T FROM DISCLOSURE REQUIREMENTS ON UNSETTLED FORWARD TRANSACTIONS DURI NG THE RELEVANT PREVIOUS YEAR. 23 ITA NO. 3205/DEL/2017 23. THE COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT LD. PCIT HAS WRONGLY HELD THAT CIF IMPORT IS FROM AMIRA C FO ODS INTERNATIONAL DMCC BUT THE PORT OF LOADING IS MUNDRA PORT (INDIA) AND RATE OF PURCHASE COULD NOT BE VERIFIED FOR BOTH PARTIES AS AO DID NOT MAKE A REFERENCE TO TPO AND FOREIGN EXCHANGE FLUCTUATION H AS NOT BEEN EXAMINED. REGARDING THE ISSUE OF PURCHASES MADE BY THE ASSESSEE FROM AMIRA C FOODS INTERNATIONAL DMCC AND PORT OF L OADING OF THE SAME BEING IN INDIA (MUNDRA PORT), THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT AMIRA C FOODS INTERNATIONAL DMCC HAD PURCHASED THE GOODS FROM M/S PEC LTD. AND STC LTD., WHICH ARE GOV ERNMENT ENTITIES, IN AN OPEN TENDER SYSTEM AND WHEAT WAS DI SPATCHED DIRECTLY FROM KRISHNA PATNAM PORT AND MUNDRA PORT T O BANGLADESH. IT WAS SUBMITTED THAT THE APPELLANT HAD RENDERED EXPLA NATION WITH COMPLETE DETAILS TO THE LD. PCIT BUT THE SAME HAS BEEN IGNORED BY HIM, HE REFERRED TO PG 350 OF THE PAPER BOOK IN THI S REGARD. HE FURTHER SUBMITTED THAT REFERENCE TO TPO WAS NOT MAN DATORY IN VIEW OF THE INSTRUCTIONS NO 3 OF 2016. HE ALSO CONTENDED THAT ALL THE PURCHASE VOUCHERS WERE PRODUCED BEFORE AO ALONG WIT H BOOKS OF 24 ITA NO. 3205/DEL/2017 ACCOUNT DURING THE COURSE OF ASSESSMENT AND WERE CH ECKED ON TEST CHECK BASIS BY THE AO. MOREOVER, THE EFFECT OF FORE IGN EXCHANGE FLUCTUATION IS DULY RECORDED IN THE BOOKS OF ACCOUN T WHICH HAS BEEN EXAMINED BY AO. 24. REGARDING THE ISSUE OF ADDITION TO UNSECURE LOA NS, THE COUNSEL FOR THE APPELLANT SUBMITTED THAT THE APPELLANT COMP ANY HAS NOT OBTAINED ANY FRESH LOAN DURING THE YEAR UNDER CONSI DERATION AND THIS FACT IS CLEAR FROM THE REPLY DATED 10.5.16 TO THE A O DURING THE COURSE OF ASSESSMENT. FURTHER, AS REGARDS THE ISSU ES OF COMMISSION EXPENSES, IT IS CONTENTED BY THE COUNSEL OF THE ASS ESSEE THAT DETAILS WITH PAN AND TDS WAS DULY FILED DURING THE COURSE O F ASSESSMENT. IN RESPECT OF INTEREST ON CAPITAL WORK IN PROGRESS, TH E APPELLANT SUBMITTED THAT THE INTEREST HAS ALREADY BEEN DISALL OWED ITSELF BY THE ASSESSEE. THE SAID ISSUES WERE DULY EXAMINED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THEREFORE LD. PCIT, UNMINDFUL OF THE ASSESSMENT RECORD AND REPLIES FILED BEFORE H IM IN RESPONSE TO NOTICE U/S 263 OF THE ACT, HAS ERRED IN EXERCISING JURISDICTION U/S 263 OF THE ACT. 25 ITA NO. 3205/DEL/2017 25. THE APPELLANT ALSO FILED A DETAILED CHART TO SU PPORT HIS ARGUMENTS WHICH ARE REPRODUCED AS UNDER: I. 'ALLEGED NON-VERIFICATION OF PURCHASE AND SALES AND TRADING RESULTS OF THE ASSESSEE, GENUINENESS OF SALES/PURCHASES MAD E BY THE ASSESSEE IT IS SUBMITTED THAT DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, SPECIFIC QUERY W.R.T. TRADING RESULTS WAS MADE VIDE QUESTIONNAIRE DATED 05.04.2016 ISSUED U/S 142( 1) [RELEVANT QUESTIONS BEING 15, 24, 26, 28, 29] AND T HE ASSESSEE HAD FURNISHED CATEGORICAL REPLY TO THE SAM E ALONG WITH ALL THE REQUIRED DETAILS AS PURCHASE/SALES BIL LS, VOUCHERS, COMPLETE LIST OF SUNDRY CREDITORS, ETC. CONFIRMED COPIES OF ACCOUNTS WITH PAN NUMBERS FROM WHOM SALES AND PURCHASES WERE MADE, WERE FILED BEFORE TH E AO. THE SAID DETAILS ARE PART OF THE ASSESSMENT RECORD AND IT WAS ONLY AFTER EXAMINING THE SAID DETAILS, THE AO HAD P ASSED THE ASSESSMENT ORDER. II. VALUE OF IMPORTS ON CIF BASIS THE AO VIDE QUESTIONNAIRE DATED 05.04.2016 RAISED A SPECIFIC QUERY [RELEVANT QUESTION BEING 26] SEEKING DETAILS OF PURCHASES AND SALES MADE FROM/TO THE SISTER 26 ITA NO. 3205/DEL/2017 CONCERNS/SPECIFIED PERSONS U/S 40A(2)(B), THEIR REASONABLENESS/JUSTIFICATION IN ACCORDANCE WITH QUA LIFICATION AND PREVALENT MARKET RATES ALONG WITH EVIDENCE. THE REAFTER, THE ASSESSEE HAD IN ITS REPLY FURNISHED DETAILS AS SOUGHT BY THE AO IN THIS REGARD. BOOKS OF ACCOUNT AND VOUCHER S WERE PRODUCED AND EXAMINED BY THE AO. III. COMMISSION EXPENSE THE AO VIDE QUESTIONNAIRE U/S 142(1) HAD SOUGHT THE JUSTIFICATION OF ALL THE EXPENSES WHICH WERE DEBITE D IN THE PROFIT & LOSS ACCOUNT [RELEVANT QUESTION BEING 19] AND IN RESPONSE TO THIS, THE ASSESSEE HAD FURNISHED PARTY WISE DETAILS OF VARIOUS EXPENSES ALONG WITH THE OTHER DE TAILS OF TDS DEDUCTED, ETC. BOOKS OF ACCOUNT AND VOUCHERS WERE PRODUCED AND EXA MINED BY THE AO. THE DETAILS HAVE BEEN ASKED BY THE AO AN D AS SUCH IT CANNOT BE SAID THAT NO ENQUIRY WAS MADE. TH E EXPENSES HAVE BEEN ALLOWED AFTER DUE EXAMINATION. R ELIANCE WAS PLACED ON THIS HONBLE TRIBUNALS DECISION IN V ODAFONE ESSAR SOUTH LTD. V. CIT ([2011) 12 TAXMANN.COM 233) , WHICH IS FURTHER AFFIRMED BY THE HONBLE DELHI HIGH COURT IN CIT V. VODAFONE ESSAR SOUTH LTD. ([2012] 28 TAXMANN.COM 27 3) 27 ITA NO. 3205/DEL/2017 IV. CAPITAL WORK IN PROGRESS IT IS SUBMITTED THAT THE AO VIDE QUESTIONNAIRE U/S 142(1) HAD EXAMINED THE SAID ISSUE BY A SPECIFIC AND DETAILED QUERY [RELEVANT QUESTION BEING 4] AND THE ASSESSEE HAD FU RNISHED ITS REPLY THERETO. THEREFORE, IT IS SUBMITTED THAT NECESSARY EXAMINATION WAS ALREADY DONE BY AO. THE RELATED INT EREST IS ALREADY CAPITALIZED. V. UNSECURED LOANS THE AO DURING THE ASSESSMENT PROCEEDINGS HAD RAISED A SPECIFIC QUERY VIDE QUESTION NO. 2 OF THE QUESTIONN AIRE ISSUED U/S 142(1) WHEREIN ALL THE DETAILS FOR UNSECURED/SE CURED LOANS WAS SOUGHT FROM THE ASSESSEE AND THE ASSESSEE HAD IN ITS REPLY FURNISHED ALL THE REQUISITE DETAILS THAT THERE IS NO FRESH LOAN. 26. ON THE OTHER HAND, THE LD. DR STRONGLY RELIED UPON THE ORDER OF LD. PCIT AND SUBMITTED THAT THE LD. PCIT HAS RIGH TLY EXERCISED THE JURISDICTION U/S 263 OF THE ACT SETTING ASIDE THE A SSESSMENT ORDER. THE LD. DR SUBMITTED THAT EVEN THOUGH THE LD. PCI T IN ITS ORDER U/S 263 OF THE ACT HAS NOT EXPRESSLY NOTED THE SUBMISSI ONS OF THE ASSESSEE MADE IN RESPONSE TO THE SHOW CAUSE NOTICE U/S 263 OF THE 28 ITA NO. 3205/DEL/2017 ACT, YET IT CANNOT BE SAID THAT THE SUBMISSIONS OF THE ASSESSEE WERE NOT CONSIDERED BY THE LD. PCIT. THE LD. DR CONTEN DED THAT THE ORDER U/S 263 OF THE ACT HAS BEEN PASSED AFTER DULY CONSIDERING THE SUBMISSIONS MADE BY THE LD. PCIT IN THIS BEHALF. T HE LD. DR SUBMITTED THAT AS PER THE REASONS, THE CASE OF APPE LLANT HAS BEEN SELECTED FOR SCRUTINY ON ACCOUNT OF MISMATCH BETWEE N INCOME DECLARED BY REMITTANCE IN ITR AND AMOUNT OF REMITTA NCE RECEIVED(FORM 15CA) AND THEREFORE, THE CASE OF THE APPELLANT HAS BEEN SELECTED FOR SCRUTINY ON ACCOUNT OF INTERNATIO NAL TRANSACTIONS. IT WAS ARGUED THAT FORM 15CA IS FOR INFORMATION TO BE FURNISHED FOR PAYMENTS TO A NON RESIDENTS NOT BEING A COMPANY, OR TO A FOREIGN COMPANY AND SINCE THE CASE OF THE APPELLANT WAS SEL ECTED FOR SCRUTINY ON ACCOUNT OF INTERNATIONAL TRANSACTION, I T WAS MANDATORY FOR THE AO TO REFER THE SAME TO THE TPO. 27. THE LD. DR ALSO PLACED RELIANCE ON THE EXPLANA TION 2 TO SECTION 263 OF THE ACT. SHE ARGUED THAT THE LD. PCIT HAS P ASSED THE ORDER U/S 263 OF THE ACT BY INVOKING EXPLANATION 2 TO SEC TION 263 OF THE ACT, EVEN THOUGH THE SAME IS NOT EXPRESSLY WRITTEN IN THE ORDER. 29 ITA NO. 3205/DEL/2017 DURING REBUTTAL THE COUNSEL FOR THE APPELLANT ARGUE D THAT ADMITTEDLY THE LD. PCIT, WHILE PASSING THE IMPUGNED ORDER U/S 263 OF THE ACT, HAS NOT INVOKED EXPLANATION 2 TO SECTION 263 OF THE ACT AND, THEREFORE, THE LD. DR CANNOT TAKE SUPPORT OF THE S AME TO JUSTIFY THE EXERCISE OF JURISDICTION BY THE LD. PCIT U/S 263 O F THE ACT. IT IS SUBMITTED THAT IN AN APPEAL AGAINST THE ORDER U/S 2 63 OF THE ACT, THE ITAT CANNOT UPHOLD THE IMPUGNED ORDER U/S 263 OF TH E ACT ON THE GROUNDS OTHER THAN THOSE TAKEN BY THE COMMISSIONER IN HIS ORDER AND THEREFORE, THE ARGUMENT OF THE LD. DR THAT EXPLANA TION 2 HAS BEEN INVOKED BY THE LD. PCIT IS NOT TENABLE AS THE SAME IS NOWHERE NOTED TO HAVE BEEN INVOKED BY THE LD. PCIT IN ITS ORDER. RELIANCE IS PLACED ON THE DECISION OF THE JURISDICTIONAL PUNJAB & HARY ANA HIGH COURT IN THE CASE OF CIT V. JAGADHARI ELECTRIC SUPPLY & INDU STRIAL CO. [[1983] 140 ITR 490] WHEREIN THE HIGH COURT DEALT WITH A SI MILAR SITUATION. HE ALSO SUBMITTED THAT THE CASE OF THE APPELLANT HA S NOT BEEN SELECTED ON TP RISK PARAMETERS OR ON THE BASIS OF T HE SECOND CONDITION OF INSTRUCTION NO. 3 OF 2016 AND THE CONT ENTION OF THE LD. DR THAT THE CASE OF THE APPELLANT WAS SELECTED FOR SCRUTINY ON THE 30 ITA NO. 3205/DEL/2017 BASIS OF INTERNATIONAL TRANSACTIONS IS MISPLACED. T HE COUNSEL FOR THE APPELLANT SUBMITTED THAT THE CASE OF THE WAS SELECT ED FOR SCRUTINY ON ACCOUNT OF MISMATCH IN REMITTANCE IN ITR AND THE AM OUNT RECEIVED AND THIS REASON HAS NOTHING TO DO WITH THE TWO REAS ONS FOR SELECTION LAID DOWN IN THE INSTRUCTION NO. 3 OF 2016 AND THER EFORE, IT WAS NOT MANDATORY FOR THE AO TO REFER THE MATTER TO THE TPO . IT IS CONTENDED THAT FORM NO 15CA IS FOR REPORTING THE FOREIGN REMI TTANCE AND IT MAY BE TO AE OR TO ANYONE ELSE, HENCE IT CANNOT BE LINK ED WITH TRANSFER PRICING RISK PARA METERS. 28. WE HAVE CONSIDERED ARGUMENTS FROM BOTH SIDES A ND PERUSED THE DOCUMENTS AVAILABLE ON RECORD. WE ARE OF THE VI EW THAT THE AO HAD ISSUED A DETAILED QUESTIONNAIRE RAISING VARIOUS QUERIES. THE APPELLANT HAD APPEARED FROM TIME TO TIME AND FILED THE DETAILED REPLIES TO ALL THE QUERIES RAISED. BOOKS OF ACCOUNT WERE PRODUCED ALONG WITH THE SUPPORTING VOUCHERS WHICH WERE EXAMI NED BY THE AO. THE CONFIRMED COPIES OF ACCOUNT WITH PAN NUMBERS OF THE PARTIES TO WHOM SALES AND PURCHASES WERE MADE, WERE FILED BEFO RE THE AO. THE DETAILS OF COMMISSION EXPENSE ALONGWITH PAN NUM BERS AND TDS 31 ITA NO. 3205/DEL/2017 DEDUCTED WERE DULY FILED BEFORE THE AO. THE AO HAD RAISED A SPECIFIC QUERY ABOUT FRESH LOANS RAISED DURING THE YEAR AND REPLY WAS FILED THAT NO FRESH LOANS WERE RAISED. THE SALES MA DE TO FOUR/FIVE PARTIES AS REFERRED IN THE ORDER U/S 263 OF THE ACT HAS BEEN MADE WITH PROFIT MARGIN OF 19% WHICH IS MORE THAN THE IN DUSTRY NORM. A NOTE WAS GIVEN ALONGWITH THE BALANCE SHEET THATS A S 11 IS NOT APPLICABLE TO THE ASSESSEE. THE FOREIGN EXCHANGE FL UCTUATION IS DULY RECORDED IN THE BOOKS OF ACCOUNT. IT IS NOT THE CAS E OF THE LD. PCIT THAT BOOKS OF ACCOUNT HAVE NOT BEEN EXAMINED BY THE AO. THE INTEREST RELATING TO THE CAPITAL WIP IS ALREADY CAP ITALIZED BY THE ASSESSEE. THE ASSESSEE HAD MADE PURCHASES/IMPORTS F ROM TWO PARTIES ON CIF BASIS. THE LD. PCIT HAS OBSERVED TH AT GOODS HAVE BEEN IMPORTED FROM AMIRA C FOODS INTERNATIONAL DMCC BUT THE PORT OF LOADING IS MUNDRA PORT, INDIA, WHEREAS HE HAS FAILE D TO CONSIDER THE REPLY OF THE APPELLANT DATED 17.02.2017 THAT THE DE LIVERY OF WHEAT WAS FROM INDIA AT KRISHNA PORT AND MUNDRA PORT SINC E THE WHEAT WAS PURCHASED BY AMIRA C FOODS INTERNATIONAL DMCC FROM M/S PEC LTD., A GOVERNMENT OF INDIA ENTERPRISE AND M/S STC LTD. I N OPEN TENDER 32 ITA NO. 3205/DEL/2017 SYSTEM AND WHEAT WAS DISPATCHED DIRECTLY FROM INDIA FROM KRISHNA PORT AND MUNDRA PORT TO BANGLADESH. IT IS NOT THE C ASE OF THE LD. PCIT THAT PURCHASE VOUCHERS AND BOOKS OF ACCOUNT WE RE NOT PRODUCED BEFORE THE AO DURING THE COURSE OF ASSESSM ENT PROCEEDINGS. HENCE IT CANNOT BE SAID THAT THIS IS A CASE OF NO ENQUIRY MADE BY THE AO. MERELY BECAUSE THE LD. PCIT FEELS T HAT FURTHER ENQUIRY SHOULD HAVE BEEN MADE DOES NOT MAKE THE ORD ER OF THE AO ERRONEOUS. 29. WE ARE ALSO OF THE VIEW THAT AS PER INSTRUCTION NO. 3 OF 2016, IT WAS NOT MANDATORY FOR THE AO TO MAKE A REFERENCE TO TPO. THE ASSESSEE HAD EXPLAINED BEFORE THE LD. PCIT THAT IT S CASE DOES NOT FALL UNDER THE CONDITIONS REFERRED TO IN THE INSTRU CTION NO. 3 OF 2016 AND AS SUCH IT WASNT OBLIGATORY FOR THE AO TO MAKE A REFERENCE TO TPO. THE LD. PCIT HAS NOT DEALT WITH THIS CONTENTI ON OF THE ASSESSEE AND HAS GIVEN A BALD FINDING THAT AO SHOULD HAVE RE FERRED TO TPO AS PER INSTRUCTION NO. 3 OF 2016. THE LD. PCIT HAS NO T SPECIFIED UNDER WHICH CONDITION OF INSTRUCTION NO. 3 OF 2016, THE A O SHOULD HAVE REFERRED TO TPO. THE ARGUMENT OF THE LD. DR THAT S ELECTION UNDER 33 ITA NO. 3205/DEL/2017 CASS WAS MADE BECAUSE OF MISMATCH IN FOREIGN REMITT ENT AND FORM 15CA, ALSO DOESNT HELP THE CAUSE OF THE REVENUE. A S PER RULE 37BB, THE REPORTING IN FORM 15CA IS IN RESPECT OF PAYMENT MADE TO NON- RESIDENT NOT BEING A COMPANY OR TO A FOREIGN COMPAN Y. THE REPORTING IS NOT LIMITED OR IS NOT PARTICULARLY IN RESPECT OF PAYMENT MADE TO ASSOCIATED ENTERPRISE. WE ARE OF THE VIEW THAT THE CASS SELECTION WAS NOT ON THE BASIS OF TP RISK PARAMETERS AS ENVIS AGED IN INSTRUCTION NO. 3 OF 2016 AND AS SUCH THE AO WAS NO T BOUND TO MAKE A REFERENCE TO THE TPO. 30. THE ASSESSEE HAD FILED VARIOUS REPLIES TO THE L D. PCIT IN RESPONSE TO NOTICE U/S 263 OF THE ACT STATING THAT ALL THE ISSUES RAISED BY THE LD. PCIT HAVE BEEN EXAMINED BY THE A O DURING THE COURSE OF ASSESSMENT. THE LD. PCIT HAS IGNORED THE REPLIES OF THE ASSESSEE. HE MERELY STATES THAT THE REPLY HAS BEEN FILED BY THE ASSESSEE BUT HE NOWHERE DISCUSSES THE CONTENTIONS R AISED BY THE ASSESSEE AND WHY HE DOES NOT AGREE WITH THE CONTENT IONS OF THE ASSESSEE. THE LD. PCIT HAS MERELY REMITTED THE MAT TER BACK TO THE 34 ITA NO. 3205/DEL/2017 AO WITHOUT MAKING ANY ENQUIRY HIMSELF. THE LD. PCI T HAS MENTIONED THAT THE FRESH LOANS HAVE NOT BEEN EXAMINED BY THE AO. THE LD. PCIT HAS NOT CONSIDERED THE CONTENTIONS OF THE ASSE SSEE THAT THERE IS NO FRESH LOAN. SIMILARLY, THE OTHER REPLIES OF THE ASSESSEE FILED DURING THE COURSE OF ASSESSMENT AND IN RESPONSE TO NOTICE U/S 263 OF THE ACT HAVE BEEN TOTALLY IGNORED. NO ENQUIRY HAS BEEN MADE BY THE LD. PCIT. IT WAS INCUMBENT FOR THE LD. PCIT TO MAKE SO ME MINIMUM INDEPENDENT ENQUIRY TO REACH TO THE CONCLUSION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE RELIANCE IS RIGHTLY PLACED ON THE DECISIONS OF DELH I HIGH COURT IN LD. PCIT V. DELHI AIRPORT METRO EXPRESS PVT. LTD. (SUPR A) AND INCOME TAX OFFICER V. DG HOUSING PROJECTS LIMITED (SUPRA). THE HONBLE DELHI HIGH COURT IN DELHI AIRPORT METRO EXPRESS PVT. LTD. (SUPRA) HAS MADE THE FOLLOWING OBSERVATION: 10. FOR THE PURPOSES OF EXERCISING JURISDICTION UN DER SECTION 263 OF THE ACT, THE CONCLUSION THAT THE ORD ER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST S OF REVENUE HAD TO BE PRECEDED BY SOME MINIMAL INQUIRY. IN FACT, IF THE LD. PCIT IS OF THE VIEW THAT THE AO D ID NOT 35 ITA NO. 3205/DEL/2017 UNDERTAKE ANY INQUIRY, IT BECOMES INCUMBENT ON THE LD. PCIT TO CONDUCT SUCH INQUIRY. 31. THE LD PCIT HAS NOT REFERRED TO EXPLANATION 2 OF SECTION 263 OF THE ACT WHICH HAS BEEN INSERTED WITH EFFECT FROM 01 .06.2015 HOWEVER WE AGREE WITH THE FINDING OF THE COORDINATE BENCH IN THE CASE OF NARAYAN TATU RANE (SUPRA), WHEREIN IT HAS B EEN HELD THAT EXPLANATION CANNOT SAID TO HAVE OVERRIDDEN THE LAW AS INTERPRETED BY THE VARIOUS HIGH COURTS, WHERE THE HIGH COURTS HAVE HELD THAT BEFORE REACHING A CONCLUSION THAT THE ORDER OF THE AO IS E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE, THE COMMISS IONER HIMSELF HAS TO UNDERTAKE SOME ENQUIRY TO ESTABLISH THAT THE ASS ESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. IN THE CASE OF NARAYAN RANE A DOUBT IS ALSO EXPRESSED REGARDING T HE APPLICABILITY OF EXPLANATION 2, WHICH WAS INSERTED BY FINANCE ACT 2015 W.E.F. 01.06.2015, THE BENCH ALSO OBSERVED THAT IF THE EXP LANATION IS INTERPRETED TO HAVE OVERRIDDEN THE LAW AS LAID DOWN BY VARIOUS HIGH COURTS, THEN THE SAME WOULD EMPOWER THE PR. CIT TO FIND FAULT WITH EACH AND EVERY ASSESSMENT ORDER AND ALSO TO FORCE T HE AO TO CONDUCT ENQUIRIES IN THE MANNER PREFERRED BY THE PR. CIT, T HUS PREJUDICING 36 ITA NO. 3205/DEL/2017 THE MIND OF THE AO, HOWEVER, THE INTENTION OF THE L EGISLATURE BEHIND THE EXPLANATION COULD NOT HAVE BEEN SO AS THE SAME WOULD LEAD TO UNENDING LITIGATION AND NO FINALITY IN THE LEGAL PR OCEEDINGS. 32. SINCE THE APPEAL HAS BEEN DECIDED HEREINABOVE, THE STAY APPLICATION FILED BY THE ASSESSEE HAS BECOME INFRUC TUOUS AND ACCORDINGLY DISMISSED AS HAVING BECOME INFRUCTUOUS. 33. IN THE RESULT, THE STAY APPLICATION FILED BY TH E ASSESSEE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IN ITA NO. 3205/DEL/2017 IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 29.11. 2017. SD/- SD/- [SUDHANSHU SRIVASTAVA] [B.P. JAI N] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29 TH NOVEMBER, 2017 VL/ 37 ITA NO. 3205/DEL/2017 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) ASST. REGISTRAR 5. DR N EW DELHI