VIKAS OIL MILL, Jaipur V. CIT, Alwar

ITA 514/JPR/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5670 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 09-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR CIT DHK
• Keywords: Revision of order; Opportunity of being heard; Retrospective amendment; Assessment record
• Section: 143(3); 263; 63

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO.514/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12 M/S VIKAS OIL MILL, G-26-27, INDUSTRIAL AREA, KHAIRTAL DISTT, ALWAR C/O KALANI & CO. (CA) 5TH FLOOR, MILE STONE, GANDHI NAGAR MOD, JAIPUR CUKE VS. THE PRINCIPAL CIT, ALWAR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AABFV 2322 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C.PARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI ANIL KUMAR ( CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 05.12.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 02/01/2017 VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. PR. CIT, ALWAR U/S 263 OF THE IT ACT, 1961 DATED 14.03.2016 WHEREIN THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: (1) UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX, U/S 263 IS ILLEGAL & BAD IN LAW AND THE SAME BE QUASHED. (2) THE LD. CIT HAS ERRED ON FACTS AND IN LAW IN HO LDING THAT ASSESSMENT ORDER PASSED BY THE AO IS WITHOUT MAKING ENQUIRIES OR VE RIFICATION WHICH HE ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 2 SHOULD HAVE MADE WITHOUT SPECIFYING THE ENQUIRY OR VERIFICATION WHICH THE AO FAILED TO MAKE OR SHOULD HAVE MADE. (3) THE LD. CIT HAS ERRED ON FACTS AND IN LAW IN FA ILED TO APPRECIATE THAT ON THE THREE ISSUES RAISED U/S 263, AO HAS MADE THE N ECESSARY ENQUIRY AND AFTER HAVING BEEN SATISFIED WITH THE SAME PASSED THE ORDER WHICH CANT BE HELD AS ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF REVENUE ONLY ON SURMISES AND CONJECTURES. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD FILED ITS RETURN ON 19.09.2011 DECLARING INCOME OF RS.10,66,290/- AND T HE ASSESSMENT U/S 143(3) WAS COMPLETED ON 29.01.2014 AT TOTAL INCOME OF RS. 11,42,520/-. THE LD. CIT THEREAFTER ISSUED NOTICE U/S 263 DATED 12.02.2016 O N THE FOLLOWING ISSUES: (A) DURING THE YEAR, THERE WAS INCREASE IN TURNOVER BUT G.P. HAD DECLINED SUBSTANTIALLY WHICH IS ACCEPTED BY THE AO WITHOUT C ARRYING OUT ANY VERIFICATION OF THE EXPLANATION FURNISHED BY THE ASSESSEE AND SI MPLY ACCEPTED THE SAME WITHOUT ANY COGENT REASONS. (B) THE AO AS PER QUERY LETTER DATED 28.02.2013 AND 16.12.2013 REQUIRED ASSESSEE TO FURNISH COPIES OF CAPITAL ACCOUNT OF PA RTNERS AND THE EXPLANATION TOWARDS SOURCE OF ADDITION TO THE CAPITAL ACCOUNT. THE ASSESSEE FILED DETAILED CAPITAL ACCOUNT BUT NO DETAILS REGARDING SOURCE OF ADDITION TO THE CAPITAL ACCOUNT IS FURNISHED AND THEREFORE THE SAME REMAINE D UNVERIFIED AND NOT PROPERLY ENQUIRED BY THE AO. (C) THE AO AS PER QUERY LETTER DATED 16.12.2013 REQ UIRED ASSESSEE TO FURNISH DETAILS OF UNSECURED LOANS (WHETHER SQUARRE D UP OR NOT) ALONG WITH COMPLETE DETAILS AND EXPLANATION TOWARDS THE IDENTI TY, GENUINITY AND CREDIT- WORTHINESS OF THESE PARTIES. IN RESPONSE, THE ASSE SSEE ONLY FURNISHED COPIES OF LEDGER ACCOUNTS AND NO DETAILS AS TO THE GENUINENES S AND CREDIT-WORTHINESS ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 3 WERE FURNISHED. THUS, THE UNSECURED LOAN REMAINS U NVERIFIED AND NOT PROPERLY ENQUIRED BY AO. 3. IN RESPONSE TO THE ABOVE SHOW-CAUSE NOTICE, THE ASSESSEE FILED ITS DETAILED SUBMISSION BEFORE THE LD. CIT WHICH IS REP RODUCED AT PAGE 2 TO 10 OF THE CITS ORDER WHEREBY THE ASSESSEE HAS EXPLAINED AS TO HOW ON ALL THE THREE ISSUES, THE AO HAS CONDUCTED NECESSARY ENQUIRY AND ALSO THE VARIOUS CASE LAWS ON THE POWER OF THE CIT FOR PASSING ORDER U/S 263. THE LD. CIT HOWEVER, AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, HELD THAT O N ALL THE THREE ISSUES RAISED BY HIM IN HIS SHOW-CAUSE NOTICE, THE AO HAS NOT MAD E THE ENQUIRIES BY GIVING FOLLOWING FINDINGS: (1) TRADING RESULTS: A PERUSAL OF ASSESSMENT RECORD REVEALS THAT DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSID ERATION THOUGH THERE WAS AN INCREASE IN THE TURNOVER BUT THE GROSS PROFIT HA D DECLINED SUBSTANTIALLY WHICH WAS ACCEPTED BY THE AO WITHOUT CARRYING ANY V ERIFICATION OF THE EXPLANATION FURNISHED BY YOU DURING THE ASSESSMENT PROCEEDINGS. THE AO HAS THUS FAILED TO INQUIRE/VERIFY THE EXPLANATION FURNI SHED AND HAS SIMPLY ACCEPTED THE SAME WITHOUT ANY COGENT REASONS. REPLY FILED I N THIS REGARD HAS BEEN CONSIDERED AND IT IS FOUND THAT THE CLAIM OF THE AS SESSEE WAS ACCEPTED WITHOUT ANY INQUIRY/VERIFICATION BY THE ASSESSING OFFICER B Y SIMPLY RELYING ON THE REPLY FURNISHED DURING COURSE OF ASSESSMENT PROCEEDINGS W ITHOUT INQUIRING INTO THE FACTORS WHICH COULD HAVE IMPACTED THE DECREASE ON T HE RATE OF GROSS PROFIT AND NET PROFIT AS COMPARED TO EARLIER ASSESSMENT YEARS. ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 4 (2) ACCRETION/ADDITION TO PARTNERS CAPITAL ACCOUNTS : PERUSAL OF ASSESSMENT RECORD REVEALS THAT AS PER QU ERY LETTER DATED 28.02.2013 AND 16.12.2013, THE AO HAD REQUIRED THE ASSESSEE TO FURNISH COPIES OF CAPITAL ACCOUNTS OF THE PARTNERS ALONG WITH EXPLANATION TOW ARDS THE SOURCE OF CASE OF ACCRETION/ADDITION TO SUCH CAPITAL ACCOUNTS IN RESP ECT OF THE CAPITAL BROUGHT IN DURING THE YEAR. IN RESPONSE TO THE SAME, ONLY THE DETAILED CAPITAL ACCOUNTS ARE FOUND TO HAVE BEEN FURNISHED BY THE ASSESSEE, A S AVAILABLE ON RECORD, BUT NO DETAILS REGARDING THE EXPLANATION ON THE SOURCE IN CASE OF ACCRETION/ADDITION TO CAPITAL ARE FOUND TO HAVE BEE N FURNISHED AND THE AO PROCEEDED TO COMPLETE THE ASSESSMENT PROCEEDINGS ON THE BASIS OF SUCH INCOMPLETE DETAILS FILED BEFORE HIM. AS PER RECORD , IT REVEALS THAT OUT OF THE SEVEN PARTNERS THERE WAS ACCRETION/ADDITION TO CAPI TAL IN THE CASE OF SIX PARTNERS, AS PER THEIR CAPITAL ACCOUNTS. UNDER SUC H CIRCUMSTANCES THE SOURCE OF ACCRETION/ADDITION TO PARTNERS CAPITAL ACCOUNT D URING THE YEAR UNDER CONSIDERATION HAS REMAINED UNVERIFIED AND NOT PROPE RLY INQUIRED BY THE AO. (3) UNSECURED LOANS/CASH CREDITS: PERUSAL OF ASSESSMENT RECORD REVEALS THAT AS PER QU ERY LETTER DATED 16.12.2013, THE AO HAD REQUIRED THE ASSESSEE TO FUR NISH DETAILS IN RESPECT OF THE UNSECURED LOANS (WHETHER SQUARED UP OR NOT) ALO NG WITH COMPLETE DETAILS AND EXPLANATION TOWARDS THE IDENTITY, GENUINITY AND CREDIT-WORTHINESS OF THESE PARTIES. IN RESPONSE TO THE SAME, ONLY COPIES OF L EDGER ACCOUNTS ARE FOUND TO HAVE BEEN FURNISHED BY THE ASSESSEE, AS AVAILABLE O N RECORD, BUT NO DETAILS REGARDING THE DETAILED QUERY RAISED BY THE AO ON TH E GENUINITY AND CREDIT- WORTHINESS OF THESE TRANSACTIONS ARE FOUND TO HAVE BEEN FURNISHED AND THE AO PROCEEDED TO COMPLETE THE ASSESSMENT PROCEEDINGS ON THE BASIS OF SUCH ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 5 INCOMPLETE DETAILS FILED BEFORE HIM. UNDER SUCH CI RCUMSTANCES AND AS PER DETAILS/INFORMATION AVAILABLE ON RECORD THE GENUINI TY AND CREDIT-WORTHINESS IN RESPECT OF THE UNSECURED LOANS HAS REMAINED UNVERIF IED AND NOT INQUIRED BY THE AO. (4) IT IS WELL ESTABLISHED THAT CREDITS ALLEGEDLY B ASED ON LOAN FROM PARTIES, WHO ARE NOT POSSESSED OF SUFFICIENT MEANS CANNOT BE ACCEPTED AS GENUINE. THE AO WAS REQUIRED TO MAKE PROPER INVESTIGATION TO DETERMINE WHETHER THE MONEY WAS REALLY LENT BY THE PARTNERS/THIRD PARTY O R IT HAS COME OUT OF THE RESOURCES OF THE ASSESSEE HIMSELF. THE SOURCE OF THE APPARENT SOURCE IS A RELEVANT ENQUIRY. THAT, THE AO HAS FAILED TO APPLY HIS MIND TO ALL ASPECTS OF THE CASE IS THEREFORE SELF-EVIDENT. SUCH NON-APPLICATI ON OF MIND CONSTITUTED PASSING OF AN ERRONEOUS ORDER WHICH IS ALSO PREJUDI CIAL TO THE INTEREST OF REVENUE. (5.1) THAT CREDIT WORTHINESS OF THE ALLEGED LENDERS WAS NOT ENQUIRED INTO. MERE EXAMINATION OF THE ITR AND CONFIRMATION OF THE CREDITORS IS NOT ENOUGH. WHEN THE REQUISITE ENQUIRY WAS NOT MADE, THE ORDER IS BOUND TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IF THE RELEVANT ENQUIRY WAS NOT MADE IT MAY IN APPROPRIATE CASES AMOUNT TO NO ENQUI RY AND MAY ALSO BE A CASE OF NON-APPLICATION OF MIND. (5.2) WHERE THE RELEVANT ENQUIRY WAS NOT UNDERTAKE N, AS IN THIS CASE, THE ORDER IS ERRONEOUS AND PREJUDICIAL TOO AND THEREFOR E REVISABLE. INVESTIGATION SHOULD ALWAYS BE FAITHFUL AND FRUITFUL. UNLESS AL L FRUITFUL AREAS OF ENQUIRY ARE PURSUED THE ENQUIRY CANNOT BE SAID TO HAVE BEEN F AITHFULLY CONDUCTED. ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 6 (5.6) IN THIS REGARD, IT IS RELEVANT TO DISCUSS HER E THAT THE EARLIER PROVISIONS OF SECTION 263 OF THE IT ACT, 1961 HAVE BEEN AMENDED W ITH EFFECT FROM 01.06.2015 SINCE THE SAME HAD BEEN A CONTENTIOUS IS SUE BEFORE THE VARIOUS JUDICIAL PLATFORMS. BASED ON THE AMENDMENT TO SECT ION 263 OF THE ACT, RELIANCE IS PLACED ON THE FOLLOWING EXTRACT OF THE CBDTS CI RCULAR NO. 19 OF 2015 DATED 27.11.2015 I.E. EXPLANATORY NOTES TO THE PROVISIONS OF THE FINANCE ACT, 2015. (53.) REVISION OF ORDER THAT IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. 53.1 THE PROVISIONS CONTAINED IN SUB-SECTION (1) OF SECTION 263 OF THE INCOME TAX ACT, PROVIDED THAT IF THE PR. COMMISSION ER OR COMMISSIONER CONSIDERS THAT ANY ORDER PASSED BY THE ASSESSING OF FICER 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 A ND AFTER MAKING AN ENQUIRY PASS AN ORDER MODIFYING THE ASSESSMENT MADE BY THE AO OR CANCELLING THE ASSESSMENT AND DIRECTING FRESH ASSE SSMENT. 53.2 THE INTERPRETATION OF EXPRESSION RRONEROUS I N SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE HAS BEE N A CONTENTIOUS ONE. IN ORDER TO PROVIDE CLARITY ON THE ISSUE, SECTION 2 63 OF THE INCOME TAX ACT HAS BEEN AMENDED TO PROVIDE THAT AN ORDER PASSE D BY THE AO SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUD ICIAL TO THE INTEREST OF THE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH, SHOULD HAVE BEEN MADE (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQUIRING INTO THE CLAI M (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WITH ANY ORDER DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119; OR (D) THE ORDER H AS NOT BEEN PASSED IN ACCORDANCE WITH ANY JURISDICTIONAL HIGH COURT OR SU PREME COURT IN THE CASE OF THE ASSESSEE OR ANY OTHER PERSON. 53.3 APPLICABILITY: THIS AMENDMENT HAS TAKEN EFFECT FROM 1 ST DAY OF JUNE, 2015. ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 7 IN THE PRESENT CASE, NO ENQUIRY/VERIFICATION HAW BE EN CONDUCTED BY THE AO ON THE ISSUES COVERED BY THE NOTICE ISSUED U/S 263 OF THE ACT. IN VIEW OF THE ABOVE, THE ORDER PASSED BY THE AO FOR THE ASSESSMEN T YEAR 2011-12 DATED 29.01.2014 IS DEEMED TO BE ERRONEOUS IN SO FAR IT I S PREJUDICIAL TO THE INTEREST OF REVENUE, AS I AM OF THE OPINION THAT THE ORDER H AS BEEN PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE. I THEREFORE, CANCEL THE ASSESSMENT ORDER PASSED BY THE AO U/S 14 3(3) ON 29.01.2014 WITH THE DIRECTION TO THE AO TO PASS THE ASSESSMENT ORDE R AFTER CONSIDERING THE ABOVE MENTIONED ISSUES AND ALSO THE ISSUES WHICH MA Y SUBSEQUENTLY COME INTO THE NOTICE OF THE AO DURING THE SET-ASIDE ASSESSMEN T PROCEEDINGS U/S 143(3)/263 OF THE ACT 1961. CONSEQUENTLY, THE ORD ER PASSED U/S 143(3) OF THE ACT IS SET ASIDE U/S 263 OF THE ACT WITH THE DIRECT ION THAT THE AO SHOULD PROPERLY EXAMINE ALL THE ISSUES RAISED IN THE FOREG OING PARAS AND PASS THE ASSESSMENT ORDER AFRESH AFTER MAKING PROPER ENQUIRI ES AND AFTER AFFORDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. 4. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT ON ALL THE ABOVE THREE ISSUES, THE AO HAD MADE DETAILED ENQUIRY AND VERIFICATION IN COURSE OF ASSESSMENT PROCEEDINGS AND AFTER CONSIDERING THE RE PLY AND THE DETAILS SUBMITTED ACCEPTED THE SAME. HENCE THE ORDER OF AO CANNOT BE HELD TO BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REV ENUE. THE DETAILS SUBMITTED IN RESPECT OF EACH OF THE ABOVE THREE ISSUES IS EXP LAINED IN THE FOLLOWING PARAGRAPHS. 4.1 IN RESPECT OF THE TRADING ADDITION, THE ASSESSE E FURNISHED THE COMPARATIVE G.P. AND N.P. RATE CHART FOR A.Y.2009- 10 TO 2011-12. THE REASONS FOR FALL IN GP RATE WAS EXPLAINED TO BE ON ACCOUNT OF PROPORTIONATE MORE ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 8 INCREASE IN THE PRICES OF THE RAW MATERIAL VIS-A-VI S THE SALE PRICE. IT WAS EXPLAINED THAT ALL PURCHASES AND SALES ARE FULLY V OUCHED, DAY TO DAY STOCK REGISTER IS MAINTAINED, THE BASIS OF VALUATION OF C LOSING STOCK IS FURNISHED, NAME AND ADDRESSES OF THE SUPPLIERS AND THE CREDITORS FI LED, QUANTITATIVE AND QUALITATIVE DETAILS OF STOCK IN TRADE WERE GIVEN. THE GP RATE IS MORE THAN A.Y.2009-10 BUT DECLINED AS COMPARED TO AY 2010-11 AND THE REASONS FOR THE SAME WAS FILED VIDE LETTER DATED 12.12.2013. THE A O AFTER EXAMINING ALL THESE DETAILS ACCEPTED THE TRADING RESULTS AND THEREFORE ON THIS ISSUE IT CANNOT BE HELD THAT AO HAS NOT ENQUIRED INTO THE FACTORS WHI CH IMPACTED THE DECLINE IN GP/NP RATE. 4.2 IN RESPECT OF ADDITION TO THE CAPITAL ACCOUNT, ASSESSEE FILED COPY OF THE CAPITAL ACCOUNT OF THE PARTNERS. IN REPLY DATED 12 .12.2013, ASSESSEE FILED DETAILED COPIES OF THE PARTNERS CAPITAL ACCOUNT WIT H THEIR PAN AND POSTAL ADDRESS AND SUBMITTED THAT ALL THE PARTNERS ARE ASS ESSED TO TAX, THE SOURCE OF DEPOSIT MADE BY THEM CAN BE EXAMINED IN THEIR INDIV IDUAL HAND AND NOT IN THE HANDS OF THE FIRM. IN REPLY DATED 20.01.2014 COPIE S OF THE RETURN OF THE PARTNERS WERE ENCLOSED AND IT WAS SUBMITTED THAT IN VIEW OF THE SAME THERE IS NO NEED TO FILE THE COPY OF THE PARTNERS BANK ACCOU NT. IN PROCEEDINGS U/S 263, THE SPECIFIC EXPLANATIONS TO THE SOURCE OF DEPOSIT IS SUBMITTED IN WHICH NO DISCREPANCY IS FOUND BY THE CIT. THUS IT IS EVIDEN T THAT AO MADE THE NECESSARY ENQUIRY IN RESPECT OF ADDITION IN THE PARTNERS CAPI TAL ACCOUNT AND THEREFORE HIS ORDER ON THIS ISSUE CANNOT BE HELD TO BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE. 4.3 IN RESPECT OF UNSECURED LOANS, ASSESSEE FILED C ONFIRMED COPY OF THE ACCOUNT OF THE CASH CREDITORS GIVING ALL THE DETAIL S REQUIRED IN THE QUERY LETTER. ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 9 IT WAS EXPLAINED THAT ALL UNSECURED LOANS ARE EXIST ING ASSESSES, AMOUNT IS ACCEPTED BY ACCOUNT PAYEE CHEQUE, PAN NO. AND POSTA L ADDRESS AS PROVIDED. THEREFORE, IT IS INCORRECT ON PART OF CIT TO HELD T HAT ASSESSEE HAS NOT FOUND DETAILS AS TO THE GENUINENESS AND CREDITWORTHINESS OF THESE TRANSACTIONS. HENCE, ON THIS ISSUE ALSO, ORDER OF THE AO CANNOT B E HELD TO BE PASSED WITHOUT ENQUIRY/VERIFICATION SO AS TO MAKE IT ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. 4.4 FROM THE ABOVE DISCUSSION IT CAN BE NOTED THAT AO MADE NECESSARY ENQUIRY/VERIFICATION IN RESPECT OF ALL THE THREE IS SUES RAISED BY THE CIT IN HIS ORDER. IT IS NOT A CASE THAT AO HAS NOT MAKE ANY E NQUIRY. THERE IS A DISTINCTION BETWEEN INADEQUACY OF ENQUIRY AND LACK OF ENQUIRY. POWERS U/S 263 CANNOT BE EXERCISED BY CIT FOR INADEQUACY OF ENQUIRY FOR W HICH RELIANCE IS PLACED IN CASE OF CIT VS. SUNBEAM AUTO LTD., 332 ITR 167 (DEL .), MALABAR INDUSTRIES CO. LTD. V. CIT 243 ITR 83 (SC), GABRIL INDIA LTD. 203 ITR 108 (BOM.) AND OTHER DECISIONS AS MENTIONED AT PAGE 7 TO 9 OF THE CIT O RDER. IN VIEW OF THE ABOVE, THE ORDER PASSED BY THE CIT U/S 263 BE QUASHED. 4.5 IN THE CONTEXT OF EXPLANATION 2 TO SECTION 263 OF THE ACT INSERTED BY THE FINANCE ACT, 2015 AND THE DECISION OF ITAT MUMBAI B ENCH IN CASE OF ANUJ JAYENDRA SHAH VS. PCIT 67 TAXMANN.COM 38, THE LD. A R FURTHER SUBMITTED AS UNDER:- 1. CLAUSE (A) TO EXPLANATION 2 TO SECTION 263 INSER TED BY FA, 2015 W.E.F. 01.06.2015 PROVIDES THAT ORDER PASSED BY AO SHALL B E DEEMED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE WHER E THE ORDER IS PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH SHOU LD HAVE BEEN MADE. ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 10 2. ON THE BASIS OF THIS EXPLANATION, AN ISSUE IS RA ISED AS TO WHETHER THIS EXPLANATION HAS RETROSPECTIVE EFFECT OR NOT AND WHE THER THE CIT COULD PASS ORDER U/S 263 IN EACH AND EVERY CASE WHERE ACCORDIN G TO HIM THE AO HAS PASSED THE ORDER WITHOUT MAKING ENQUIRIES OR VERIFI CATION WHICH, ACCORDING TO HIM, HE SHOULD HAVE MADE. IN THIS CONNECTION A REFE RENCE IS ALSO MADE TO THE DECISION OF ITAT MUMBAI BENCH, SUPRA. 3. IT IS SUBMITTED THAT THE LAW IS WELL SETTLED THA T LEGISLATIONS WHICH MODIFY ACCRUED RIGHTS OR WHICH IMPOSE OBLIGATIONS OR IMPOS E NEW DUTIES OR ATTACH A NEW DISABILITY HAVE TO BE TREATED AS PROSPECTIVE UN LESS THE LEGISLATIVE INTENT IS CLEARLY TO GIVE THE ENACTMENT A RETROSPECTIVE EFFEC T. THE SUPREME COURT IN CASE OF CIT VS. VATIKA TOWNSHIP PVT LTD (2014) 367 ITR 4 66 IN PARA NOS. 31 & 32 OF ITS ORDER HAS LAID DOWN THE LAW RELATING TO RETROSPECTI VE LEGISLATION WHICH IS REPRODUCED AS UNDER: 31. OF THE VARIOUS RULES GUIDING HOW LEGISLATION H AS TO BE INTERPRETED, ONE ESTABLISHED RULE IS THAT UNLESS A CONTRARY INTE NTION APPEARS, LEGISLATION IS PRESUMED NOT TO BE INTENDED TO HAVE A RETROSPECTIVE OPERATION. THE IDEA BEHIND THE RULE IS THAT A CURRE NT LAW SHOULD GOVERN CURRENT ACTIVITIES. LAW PASSED TODAY CANNOT APPLY T O THE EVENTS OF THE PAST. IF WE DO SOMETHING TODAY, WE DO IT KEEPING IN VIEW THE LAW OF TODAY AND IN FORCE AND NOT TOMORROWS BACKWARD ADJUSTMENT OF IT. OUR BELIEF IN THE NATURE OF THE LAW IS FOUNDED ON THE BED ROCK TH AT EVERY HUMAN BEING IS ENTITLED TO ARRANGE HIS AFFAIRS BY RELYING ON TH E EXISTING LAW AND SHOULD NOT FIND THAT HIS PLANS HAVE BEEN RETROSPECTIVELY U PSET. THIS PRINCIPLE OF LAW IS KNOWN AS LEX PROSPICIT NON RESPICIT: LAW LOO KS FORWARD NOT ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 11 BACKWARD. AS WAS OBSERVED IN PHILLIPS VS. EYRE, A R ETROSPECTIVE LEGISLATION IS CONTRARY TO THE GENERAL PRINCIPLE THAT LEGISLATI ON BY WHICH THE CONDUCT OF MANKIND IS TO BE REGULATED WHEN INTRODUCED FOR T HE FIRST TIME TO DEAL WITH FUTURE ACTS OUGHT NOT TO CHANGE THE CHARACTER OF PAST TRANSACTIONS CARRIED ON UPON THE FAITH OF THE THEN EXISTING LAW. 32. THE OBVIOUS BASIS OF THE PRINCIPLE AGAINST RETR OSPECTIVITY IS THE PRINCIPLE OF FAIRNESS, WHICH MUST BE THE BASIS OF EVERY LEGAL RULE AS WAS OBSERVED IN THE DECISION REPORTED IN LOFFICE CHERI FIEN DES PHOSPHATES V. YAMASHITA-SHINNIHON STEAMSHIP CO.LTD. THUS, LEGISLATIONS WHICH MODIFIED ACCRUED RIGHTS OR WHICH IMPOSE OBLIG ATIONS OR IMPOSE NEW DUTIES OR ATTACH A NEW DISABILITY HAVE TO BE TR EATED AS PROSPECTIVE UNLESS THE LEGISLATIVE INTENT IS CLEARLY TO GIVE TH E ENACTMENT A RETROSPECTIVE EFFECT; UNLESS THE LEGISLATION IS FOR PURPOSE OF SUPPLYING AN OBVIOUS OMISSION IN A FORMER LEGISLATION OR TO EXPL AIN A FORMER LEGISLATION. WE NEED NOT NOTE THE CORNUCOPIA OF CAS E LAW AVAILABLE ON THE SUBJECT BECAUSE AFORESAID LEGAL POSITION CLEARLY EM ERGES FROM THE VARIOUS DECISIONS AND THIS LEGAL POSITION WAS CONCEDED BY T HE COUNSEL FOR THE PARTIES. IN ANY CASE, WE SHALL REFER TO FEW JUDGMEN TS CONTAINING THESE DICTA, A LITTLE LATER. 4. THE ITAT, MUMBAI BENCH (REFERRED SUPRA) AFTER R EPRODUCING AT PARA 9 OF THE ORDER, THE NEWLY INSERTED EXPLANATION 2 TO SECT ION 263, MEMORANDUM TO FINANCE BILL, 2015 AND NOTES ON CLAUSES TO FINANCE BILL, 2015 HELD THAT THE EXPLANATION 2 TO SECTION 263 BEING DECLARATIVE IN N ATURE AND IS INSERTED TO PROVIDE CLARITY ON THE ISSUE AS TO WHICH ORDERS PAS SED BY THE AO SHALL CONSTITUTE ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE CONCLUDED THAT ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 12 IT WOULD BE APPLICABLE EVEN IN CASES WHERE ORDER U/ S 263 IS PASSED BEFORE 01.06.2015. AT THE SAME TIME IT ALSO HELD THAT EXPL ANATION 2 TO SECTION 263 IS NOT FOR MAKING FISHING OR ROVING ENQUIRIES IN THE M ATTER WHICH ARE CONCLUDED BUT WOULD APPLY WHERE AO HAS MERELY ACCEPTED THE SU BMISSION MADE BY THE ASSESSEE WITHOUT ANY ENQUIRY OR VERIFICATION. THERE FORE, THE RATIO LAID DOWN IN THIS CASE HAS TO BE APPLIED ON CASE TO CASE BASIS T O ASCERTAIN WHETHER OR NOT THE ORDER PASSED BY AO IS WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE. 5. IT IS SUBMITTED THAT THE STATUE DOES NOT PROVIDE AS TO WHAT ENQUIRIES OR VERIFICATION THE AO SHOULD MADE BEFORE PASSING AN A SSESSMENT ORDER. THEREFORE, IT IS LEFT TO THE WISDOM OF AO TO MAKE N ECESSARY ENQUIRY OR VERIFICATION BEFORE HE PASSES AN ASSESSMENT ORDER. ONLY BECAUSE ACCORDING TO THE CIT, THE ENQUIRY OR VERIFICATION MADE IS NOT AD EQUATE, CANNOT AUTHORISE HIM U/S 263 TO LEVEL THE ORDER PASSED BY AO AS ERRONEOU S AND PREJUDICIAL TO THE INTEREST OF REVENUE. IN THIS CONNECTION, REFERENCE IS MADE TO THE DECISION OF ITAT MUMBAI BENCH IN CASE OF NARAYAN TATU RANE VS. ITO DT. 06.05.2016 47 CCH 309 WHICH IS SUBSEQUENT TO THE DECISION IN CASE OF ANUJ JAYENDRA SHAH WHERE IN PARA 19 & 20 OF THE ORDER, THE INSERTION O F EXPLANATION 2 TO SECTION 263 BY FA, 2015 IS EXPLAINED AS UNDER:- 19. THE LAW INTERPRETED BY THE HIGH COURTS MAKES I T CLEAR THAT THE LD PR. CIT, BEFORE HOLDING AN ORDER TO BE ERRONEOUS, SHOUL D HAVE CONDUCTED NECESSARY ENQUIRIES OR VERIFICATION IN ORDER TO SHO W THAT THE FINDING GIVEN BY THE ASSESSING OFFICER IS ERRONEOUS, THE LD PR. C IT SHOULD HAVE SHOWN THAT THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE IN L AW. IN THE INSTANT CASE, THE LD PR. CIT HAS FAILED TO DO SO AND HAS SIMPLY E XPRESSED THE VIEW THAT ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 13 THE ASSESSING OFFICER SHOULD HAVE CONDUCTED ENQUIRY IN A PARTICULAR MANNER AS DESIRED BY HIM. SUCH A COURSE OF ACTION O F THE LD PR. CIT IS NOT IN ACCORDANCE WITH THE MANDATE OF THE PROVISIONS OF SEC. 263 OF THE ACT. THE LD PR. CIT HAS TAKEN SUPPORT OF THE NEWLY INSER TED EXPLANATION 2(A) TO SEC. 263 OF THE ACT. EVEN THOUGH THERE IS A DOUBT A S TO WHETHER THE SAID EXPLANATION, WHICH WAS INSERTED BY FINANCE ACT 2015 W.E.F. 1.4.2015, WOULD BE APPLICABLE TO THE YEAR UNDER CONSIDERATION , YET WE ARE OF THE VIEW THAT THE SAID EXPLANATION CANNOT BE SAID TO HA VE OVER RIDDEN THE LAW INTERPRETED BY HONBLE DELHI HIGH COURT, REFERR ED ABOVE. IF THAT BE THE CASE, THEN THE LD PR. CIT CAN FIND FAULT WITH E ACH AND EVERY ASSESSMENT ORDER, WITHOUT CONDUCTING ANY ENQUIRY OR VERIFICATION IN ORDER TO ESTABLISH THAT THE ASSESSMENT ORDER IS NOT SUSTA INABLE IN LAW AND ORDER FOR REVISION. HE CAN ALSO FORCE THE AO TO CONDUCT T HE ENQUIRIES IN THE MANNER PREFERRED BY LD PR. CIT, THUS PREJUDICING TH E INDEPENDENT APPLICATION OF MIND OF THE AO. DEFINITELY, THAT COU LD NOT BE THE INTENTION OF THE LEGISLATURE IN INSERTING EXPLANATION 2 TO SE C. 263 OF THE ACT, SINCE IT WOULD LEAD TO UNENDING LITIGATIONS AND THERE WOULD NOT BE ANY POINT OF FINALITY IN THE LEGAL PROCEEDINGS. THE HONBLE SUPR EME COURT HAS HELD IN THE CASE OF PARASHURAM POTTERY WORKS CO. LTD VS. IT O (1977)(106 ITR 1) THAT THERE MUST BE A POINT OF FINALITY IN ALL LEGAL PROCEEDINGS AND THE STALE ISSUES SHOULD NOT BE REACTIVITATED BEYOND A P ARTICULAR STAGE AND THE LAPSE OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI- JUDICIAL CONTROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY. 20. FURTHER CLAUSE (A) OF EXPLANATION STATES THAT A N ORDER SHALL BE DEEMED TO BE ERRONEOUS, IF IT HAS BEEN PASSED WITHO UT MAKING ENQUIRIES OR VERIFICATION, WHICH SHOULD HAVE BEEN MADE. IN OU R CONSIDERED VIEW, ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 14 THIS PROVISION SHALL APPLY, IF THE ORDER HAS BEEN P ASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH A REASONABLE AND PR UDENT OFFICER SHALL HAVE CARRIED OUT IN SUCH CASES, WHICH MEANS THAT TH E OPINION FORMED BY LD PR. CIT CANNOT BE TAKEN AS FINAL ONE, WITHOUT SC RUTINISING THE NATURE OF ENQUIRY OR VERIFICATION CARRIED OUT BY THE AO VIS- -VIS ITS REASONABLENESS IN THE FACTS AND CIRCUMSTANCES OF THE CASE. HENCE, IN OUR CONSIDERED VIEW, WHAT IS RELEVANT FOR CLAUSE (A) OF EXPLANATION 2 TO SEC. 263 IS WHETHER THE AO HAS PASSED THE ORDER AFTER CARRYING OUR ENQUIRIE S OR VERIFICATION, WHICH A REASONABLE AND PRUDENT OFFICER WOULD HAVE C ARRIED OUT OR NOT. IT DOES NOT AUTHORISE OR GIVE UNFETTERED POWERS TO THE LD PR. CIT TO REVISE EACH AND EVERY ORDER, IF IN HIS OPINION, THE SAME H AS BEEN PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE. IN OUR VIEW, IT IS THE RESPONSIBILITY OF THE LD PR. CIT TO SHOW THAT THE ENQUIRIES OR VERIFICATION CONDUCTED BY THE AO WAS NOT IN ACCORDA NCE WITH THE ENQUIRES OR VERIFICATION THAT WOULD HAVE BEEN CARRI ED OUT BY A PRUDENT OFFICER. HENCE, IN OUR VIEW, THE QUESTION AS TO WHE THER THE AMENDMENT BROUGHT IN BY WAY OF EXPLANATION 2(A) SHALL HAVE RE TROSPECTIVE OR PROSPECTIVE APPLICATION SHALL NOT BE RELEVANT. 6. IF THE PRINCIPAL LAID DOWN IN CASE OF NARAYAN T ATU RANI IS APPLIED TO THE FACTS OF THE CASE OF THE ASSESSEE IT CAN BE NOTED T HAT ON THE ISSUE OF TRADING ADDITION, AO RAISED SPECIFIC QUERY REQUIRING THE AS SESSEE TO EXPLAIN THE REASONS IN THE VARIATION OF G.P./N.P. RATE. THIS IS REPLIED BY THE ASSESSEE WHICH IS VERIFIED BY THE AO WITH REFERENCE TO THE BOOKS OF ACCOUNTS A ND THE QUANTITATIVE AND QUALITATIVE DETAILS FURNISHED BY THE ASSESSEE. ON T HE ISSUE OF ADDITION TO THE PARTNERS CAPITAL ACCOUNT, AO RAISED QUERY VIDE LET TER DT. 28.02.2013 AND 16.12.2013 IN RESPONSE TO WHICH THE ASSESSEE FURNIS HED COPY OF PARTNERS ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 15 CAPITAL ACCOUNT, COPY OF THEIR RETURN AND ITS OWN B ANK ACCOUNT IN SUPPORT OF THE AMOUNT RECEIVED FROM THE PARTNER AND THEREAFTER AO AFTER VERIFICATION ACCEPTED THE CREDIT IN THE PARTNERS CAPITAL ACCOUN T. ON THE ISSUE OF UNSECURED LOANS, AO RAISED THE QUERY AND IN RESPONSE THERETO, THE ASSESSEE FILED THE CONFIRMED LEDGER ACCOUNT OF THE CREDITORS ALONG WIT H THEIR PAN NO. & THE POSTAL ADDRESS AND THE AO ACCEPTED THE SAME AFTER N ECESSARY VERIFICATION. THEREFORE, IN CASE OF THE ASSESSEE, IT CANNOT BE SA ID THAT AO HAS NOT MADE THE ENQUIRY OR THE VERIFICATION WHICH HE SHOULD HAVE MA DE. HENCE, THE CASE OF THE ASSESSEE IS EVEN NOT COVERED BY EXPLANATION 2 TO SE CTION 263 INSERTED BY FA, 2015 W.E.F. 01.06.2015. 7. IT IS ALSO SUBMITTED THAT IN THE ABOVE DECISION , THE MUMBAI ITAT BENCH HAS HELD THAT THERE IS A DOUBT AS TO WHETHER THE EX PLANATION 2 TO SECTION 263 WOULD BE APPLICABLE TO THE YEARS UNDER CONSIDERATIO N WHICH IN THAT CASE ARE AY 2007-08 & 2008-09 WHEN THIS EXPLANATION WAS NOT IN THE STATUE. THUS, WHETHER THIS EXPLANATION WOULD APPLY TO EARLIER AYS OR NOT INVOLVES A DEBATE. IT IS A SETTLED LAW THAT WHERE TWO VIEWS ARE POSSIBLE, THE VIEW IN FAVOUR OF THE ASSESSEE SHOULD BE ADOPTED. THE HONBLE SUPREME COU RT IN CASE OF CIT VS. VATIKA TOWNSHIP PVT. LTD. 367 ITR 466 AT PARA 39(C) HAS HELD THAT THERE CANNOT BE IMPOSITION OF ANY TAX WITHOUT THE AUTHORITY OF L AW. SUCH A LAW HAS TO BE UNAMBIGUOUS AND SHOULD PRESCRIBE THE LIABILITY TO P AY TAXES IN CLEAR TERMS. IF THE CONCERNED PROVISION OF THE TAXING STATUTE IS AM BIGUOUS AND VAGUE AND IS SUSCEPTIBLE TO TWO INTERPRETATIONS, THE INTERPRETAT ION WHICH FAVOURS THE SUBJECTS, AS AGAINST THERE THE REVENUE, HAS TO BE P REFERRED. THE MEMORANDUM OF FINANCE BILL, 2015 AND NOTES ON CLAUSES SPECIFIC ALLY PROVIDES THAT EXPLANATION 2 TO SECTION 263 WILL TAKE EFFECT FROM 01.06.2015. THEREFORE, THERE IS A CLEAVAGE OF OPINION WHETHER THIS AMENDMENT IS PROSPECTIVE OR ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 16 RETROSPECTIVE AND IN THAT VIEW OF MATTER, THE VIEW FAVOURABLE TO THE ASSESSEE NEEDS TO BE ADOPTED. IN VIEW OF ABOVE, THE ORDER PASSED BY CIT U/S 263, ON THE FACTS OF THE PRESENT CASE, IS ILLEGAL AND BAD IN LAW BOTH ON MERIT AND O N THE LEGAL PROPOSITION AND THEREFORE THE SAME IS LIABLE TO BE QUASHED. 5. THE LD CIT DR IS HEARD WHO HAS VEHEMENTLY ARGUED THE MATTER AND SUPPORTED THE ORDER PASSED BY THE LD CIT U/S 263 OF THE ACT. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. CIT HAS HELD THAT THE ORDER U/S 143(3) HAS BEEN PASSED BY THE AO WITHOUT MAKING ENQUIRIES OR VERIFICATION WH ICH SHOULD HAVE BEEN MADE AND HE HAS ACCORDINGLY SET-ASIDE THE ASSESSMENT ORD ER PASSED BY THE AO WITH THE DIRECTION TO PASS ORDER AFRESH AFTER EXAMINING ALL THE ISSUES AND MAKING PROPER ENQUIRIES. THERE ARE THREE ISSUES ON WHICH THE LD. CIT HAS HELD THAT THE ORDER PASSED BY THE AO U/S 143(3) IS ERRONEOUS IN S O FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. IT WOULD BE RELEVANT TO EX AMINE EACH OF THE THREE ISSUES RAISED BY THE LD. CIT TO SEE WHETHER THE MAT TER FALLS WITHIN THE REVISIONARY JURISDICTION OF LD CIT. 6.1 THE FIRST ISSUE IS REGARDING DECLINE IN GP RATE FROM 5.19% IN AY 2010-11 TO 3.17% IN THE IMPUGNED ASSESSMENT YEAR. IN THIS REGARD, THE AO HAS MADE THE NECESSARY ENQUIRY VIDE HIS LETTER DATED 28.02. 2013 ASKING THE ASSESSEE TO FILE HEAD WISE CHART SHOWING AMOUNT OF TOTAL SALE S, GP RATE, NP RATE FOR THE RELEVANT AND PRECEDING TWO YEARS ALONG WITH REASONS FOR THE VARIATION AND THE CONTEMPORARY VERIFIABLE EVIDENCES. IN REPLY, THE A SSESEE VIDE ITS LETTER DATED 12.12.2013 HAS SUBMITTED A COMPARATIVE CHART SHOWIN G THE SALES, GP RATE AND ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 17 THE NP RATE FOR THE RELEVANT AND PRECEDING 2 YEARS FOR THE REASONS OF FALL IN THE GP RATE. THE ASSESSEE SUBMITTED THAT DURING THE YE AR UNDER CONSIDERATION, THE PRICES OF RAW MATERIAL HAVE INCREASED IN MORE PROPO RTION THAN THE SALE PRICES WITH A RESULT THAT THE GROSS PROFIT HAS FALLEN DOWN . IT WAS FURTHER SUBMITTED THAT THE RATIO OF COST OF RAW MATERIAL TO THE COST OF PRODUCTION WAS 90.4% IN THE EARLIER YEAR WHICH HAVE GONE UP TO 93.4% DURING THE YEAR UNDER CONSIDERATION WHICH HAS RESULT IN FALL IN THE GP RA TE. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE FIRM MAINTAINS ALL THE BOOKS OF A CCOUNTS, ALL THE PURCHASES AND SALES ARE FULLY VOUCHED, DAY TO DAY STOCK REGIS TER AND PRODUCTION REGISTER IS BEING MAINTAINED AND THEREFORE THE TRADING RESULTS OF THE ASSESSEE FIRM DESERVES TO BE ACCEPTED. FURTHER, DETAILS OF SUPPL IERS AND PURCHASERS ALONG WITH THEIR COPY OF ACCOUNTS, QUANTITATIVE AND QUALI TATIVE DETAILS OF STOCK IN TRADES WERE ALSO SUBMITTED DURING THE COURSE OF ASS ESSMENT PROCEEDINGS. TAKING INTO CONSIDERATION THE SUBMISSIONS AND EXPLA NATION OFFERED BY THE ASSESSEE, THE AO ACCEPTED THE TRADING RESULTS OF TH E ASSESSEE. AS PER LD. CIT, THE CLAIM OF THE ASSESSEE WAS ACCEPTED WITHOUT ANY ENQUIRY/VERIFICATION BY THE AO BY SIMPLY RELYING ON THE REPLY FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS WITHOUT ENQUIRING INTO THE FACTORS WHIC H COULD HAVE IMPACTED THE DECREASE IN THE GP RATE AS COMPARED TO EARLIER ASSE SSMENT YEARS. IN OUR VIEW, THE AO HAS MADE RELEVANT ENQUIRIES AND AFTER BEING SATISFIED HAS ACCEPTED THE THE FALL IN THE GP RATE AND TRADING RESULTS. THE R EASONS FOR THE FALL IN GP RATE HAS BEEN EXPLAINED BY THE ASSESSEE AND DULY CONSIDE RED BY THE AO IN TERMS OF INCREASE OF PRICES OF THE RAW MATERIAL. ONCE THE N ECESSARY ENQUIRIES HAVE BEEN MADE AND THE EXPLANATION FURNISHED BY THE ASSESSEE EXPLAINING ITS POSITION, IT IS THE DISCRETION OF THE AO TO ACCEPT THE EXPLANATI ON OF THE ASSESSEE OR WHERE HE IS NOT SATISFIED WITH THE ASSESSEES EXPLANATION , TO CARRY OUT FURTHER ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 18 ENQUIRIES IN THE MATTER. IN THE INSTANT CASE, THE NECESSARY ENQUIRIES HAVE BEEN MADE BY THE AO AND ACCORDINGLY WE DO NOT SEE A REAS ON FOR THE LD. CIT TO EXERCISE HIS REVISIONARY POWERS U/S 263 OF THE IT A CT. 6.2 NOW COMING TO THE SECOND ISSUE REGARDING ACCRET ION/ADDITION TO PARTNERS CAPITAL ACCOUNT, THE AO AS PER QUERY LETTE R DATED 28.02.2013 HAS ASKED THE ASSESSEE TO FURNISH DETAILS/ COPIES OF CA PITAL ACCOUNT OF THE PARTNERS ALONGWITH EXPLANATION TOWARDS THE DEPOSITS AS WELL AS WITHDRAWALS. IN RESPONSE, THE DETAILS OF CAPITAL ACCOUNT OF THE PAR TNERS AND COPIES OF THEIR RETURN OF INCOME WERE FURNISHED BY THE ASSESSEE DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER, COPIES OF THE PAR TNERS INDIVIDUAL BANK ACCOUNTS WERE NOT FURNISHED BY THE ASESSEE. FURTHE R, IT IS NOTED THAT DURING THE REVISION PROCEEDINGS BEFORE THE LD CIT, THE ASS ESSEE SUBMITTED ITS EXPLANATION AS TO THE SOURCE OF DEPOSIT IN THE IND IVIDUALS CAPITAL ACCOUNT. IT WAS SUBMITTED BY THE ASSESSEE THAT THE PARTNERS HAV E INTRODUCED THE CAPITAL OUT OF THE WITHDRAWALS MADE BY THEM FROM THEIR CAPI TAL ACCOUNT ON THE EARLIER OCCASIONS AND IT IS NOT THE CASE WHERE THE PARTNERS HAVE INTRODUCED FRESH CAPITAL FROM OTHER SOURCE OF INCOME. IT WAS THERE FORE SUBMITTED THAT THE CAPITAL ACCOUNT OF THE PARTNERS MAINTAINED WITH THE ASESSEE IS ITSELF THE SOURCES OF THE AMOUNT CREDITED IN THE CAPITAL ACCOU NT. AS PER LD. CIT, NO DETAILS REGARDING THE EXPLANATION ON THE SOURCES IN THE CAP ITAL ACCOUNTS WERE FURNISHED BY THE ASSESSEE AND THE AO PROCEEDED TO C OMPLETE THE ASSESSMENT PROCEEDINGS ON THE BASIS OF SUCH INCOMPLETE DETAILS FILED BEFORE HIM. THE LD. CIT FURTHER STATED THAT AS PER RECORDS, IT REVEALED THAT OUT OF THE SEVEN PARTNERS, THERE WERE ACCRETION/ADDITION TO CAPITAL IN THE CASE OF 6 PARTNERS AS PER THEIR CAPITAL ACCOUNT AND UNDER SUCH CIRCUMSTAN CES, THE SAME REMAINS UNVERIFIED AND NOT PROPERLY ENQUIRED BY THE AO. TH E LD. CIT FURTHER STATED THAT ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 19 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE CHOOSE NOT TO FURNISH THE COMPLETE DETAILS AS REQUISITIONED BY TH E AO AND AO PROCEEDED TO COMPLETE THE ASSESSMENT IN THE ABSENCE OF THE NECE SSARY DETAILS HAVING BEEN FILED WHICH HAS RESULTED IN INCORRECT ASSUMPTION OF FACTS WHILE COMPLETING THE ASSESSMENT PROCEEDINGS. WE HAVE GIVEN A CAREFUL CO NSIDERATION TO THE WHOLE FACTUAL MATRIX. IN OUR VIEW, THE AO HAS RAISED A S PECIFIC ENQUIRY ASKING FOR THE ASSESSEES EXPLANATION TOWARDS THE SOURCES OF ACCRE TION/ADDITION TO THE INDIVIDUAL PARTNERS CAPITAL ACCOUNT, THE ASSESSEE F URNISHED THE CAPITAL ACCOUNTS HOWEVER, FAILED TO EXPLAIN THE SOURCE OF ACCRETION IN EACH OF THE INDIVIDUAL CAPITAL ACCOUNT AND IT IS ONLY DURING THE COURSE OF REVISION PROCEEDINGS U/S 263 OF THE ACT, THE ASSESSEE OFFERED NECESSARY EXPLANA TION REGARDING SOURCE OF THE DEPOSIT WHICH IS CLAIMED TO BE MADE OUT OF THE EARL IER WITHDRAWALS FROM CAPITAL ACCOUNT AND NOT IN TERMS OF FRESH INFUSION FROM OTHER SOURCE OF INCOME. MERELY FILING THE COPIES OF THE CAPITAL ACCOUNT OF THE PARTNERS AND NOT FURNISHING THE NECESSARY EXPLANATION REGARDING SOUR CE OF DEPOSIT (INSPITE OF THE SPECIFIC QUERY RAISED BY THE AO) AND BLINDLY ACCEP TING THE PART SUBMISSION OF THE ASSESSEE IS CLEARLY A CASE OF INCORRECT ASSUMP TION OF FACTS AND THEREFORE, A CLEAR CASE OF NON-APPLICATION OF MIND BY THE AO AN D ERRONEOUS IN NATURE. IT IS A CASE WHERE INITIALLY THE AO RAISED SPECIFIC ENQUI RY, HOWEVER, THE ASSESSEE FURNISHED ONLY PART REPLY AND AO BLINDLY ACCEPTING THE SAME. IN OUR VIEW, THE LD. CIT IS CORRECT WHERE HE IS OF THE OPINION THAT THE AO HAS FAILED TO EXAMINE BASIC REQUIREMENTS TO EXAMINE THE SOURCE OF ACCRETI ON/ ADDITION TO THE CAPITAL ACCOUNT. MERELY RAISING A QUERY IS NOT SUFFICIENT ENOUGH TO DISLODGE THE REVISIONARY JURISDICTION UNDER SECTION 263 OF THE A CT. WHAT IS ESSENTIAL IS THAT RELEVANT QUESTIONS ARE ASKED AND ENQUIRIES ARE MADE TO EXAMINE ABOUT A PARTICULAR TRANSACTION, EXPLANATION OF THE ASSESSEE IS SOUGHT AND THEN A FINAL ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 20 VIEW IS FORMED BY THE AO TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE. NOW GIVEN THAT THE ASSE SSEE HAS FURNISHED ITS EXPLANATION REGARDING THE SOURCE OF DEPOSITS IN THE PARTNERS CAPITAL ACCOUNT AND HAVING CONSIDERED THE SAID EXPLANATION, THE LD. CIT IS CORRECT IN REMANDING THE MATTER BACK TO THE AO TO EXAMINE THE SAID EXPLA NATION OF THE ASESSEE. HAD THE ASSESSEE FURNISHED THE SAID EXPLANATION BEFORE THE AO, THE LD. CIT MAY NOT HAVE THE OCCASION TO EXERCISE HIS REVISIONARY POWER S U/S 263 OF THE ACT. IN OUR VIEW, THESE ARE THE BASIC AND THE RELEVANT ENQUIRIE S IN TERMS OF EXAMINING THE SOURCE OF ACCRETION TO THE CAPITAL ACCOUNT WHICH TH E AO SHOULD HAVE BEEN MADE AT THE FIRST PLACE AND THE AO HAVING BEEN FAIL ED TO DO, THE LD. CIT WAS CORRECT IN EXERCISING HIS REVISIONARY POWERS U/S 26 3 OF THE ACT. 6.3 NOW COMING TO THE THIRD ISSUE IN RESPECT OF UNS ECURED LOANS, THE AO AS PER HIS QUERY LETTER DATED 16.12.2013 HAS ASKED THE ASSESSEE TO FURNISH DETAILS IN RESPECT OF UNSECURED LOANS ALONGWITH COMPLETE DE TAILS AND EXPLANATION TOWARDS THE IDENTITY, CREDITWORTHINESS OF THESE PAR TIES AND GENUINENESS OF THE LOAN TRANSACTIONS. IN RESPONSE TO THAT, THE ASSESS EE HAD FILED COPY OF ACCOUNT OF THE CASH CREDITORS DULY CONFIRMED BY THEM. DURIN G THE COURSE OF REVISION PROCEEDINGS, IT WAS SUBMITTED THAT ALL THE CASH CRE DITORS ARE EXISTING ASSESSEE AND THEIR PAN AND POSTAL ADDRESSES HAVE BEEN MENTI ONED IN THEIR CONFIRMATIONS. IT WAS FURTHER SUBMITTED THAT THE L OANS HAVE BEEN ACCEPTED THROUGH THE ACCOUNT PAYEE CHEQUES. AS PER LD. CIT, ONLY COPIES OF THE LEDGER ACCOUNT ARE FOUND TO HAVE BEEN FURNISHED BY THE ASS ESSEE BUT NO DETAILS REGARDING THE QUERY RAISED BY THE AO ON THE GENUINE NESS AND CREDITWORTHINESS OF THESE TRANSACTIONS ARE FOUND TO HAVE BEEN FURNI SHED AND THE AO PROCEEDED TO COMPLETE THE ASSESSMENT PROCEEDINGS ON THE BASIS OF SUCH INCOMPLETE DETAILS FILED BEFORE HIM. UNDER SUCH CIRCUMSTANCES , THE GENUINENESS AND ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 21 CREDITWORTHINESS IN RESPECT OF UNSECURED LOANS REMA INED UNVERIFIED AND NOT ENQUIRED BY THE AO WHICH HAS RESULTED IN PASSING OF AN ERRONEOUS ORDER WHICH IS ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. IN OUR VIEW, THE TEST OF EXAMINING THE IDENTITY, CREDITWORTHINESS OF THE PARTIES AND G ENUINENESS OF THE TRANSACTION ARE BASIC AND AT THE SAME TIME ESSENTIAL AND CRITIC AL TEST WHICH SHOULD HAVE BEEN CARRIED OUT BY THE AO. IN THE INSTANT CASE, T HOUGH THE AO HAS RAISED THE INITIAL ENQUIRY ABOUT THIS TEST BUT WHILE CONCLUDIN G THE ASSESSMENT, THERE IS NOTHING ON RECORD TO SUGGEST THAT HE HAS CARRIED OU T THE NECESSARY INVESTIGATION TO TEST THESE BASIC REQUIREMENTS. T HIS CLEARLY SHOWS NON- APPLICATION OF MIND BY AO, BLINDLY ACCEPTING WHAT I S BEING PART- SUBMITTED BY THE ASSESSEE, WITHOUT CONDUCTING THE NECESSARY ENQU IRY AND INVESTIGATION WHICH ARE BARE MINIMUM TO EXAMINE THE TRANSACTIONS IN RESPECT OF UNSECURED LOANS. AS WE HAVE STATED EARLIER, MERELY RAISING A QUERY IS NOT SUFFICIENT ENOUGH TO DISLODGE THE REVISIONARY JURISDICTION UNDER SECT ION 263 OF THE ACT. WHAT IS ESSENTIAL IS THAT RELEVANT QUESTIONS ARE ASKED AND ENQUIRIES ARE MADE TO EXAMINE ABOUT A PARTICULAR TRANSACTION, EXPLANATION OF THE ASSESSEE IS SOUGHT AND THEN A FINAL VIEW IS FORMED BY THE AO TAKING IN TO CONSIDERATION ALL THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE. WE THEREFORE DO NOT SEE ANY JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF L D CIT IN THIS REGARD. WE ACCORDINGLY CONFIRM THE EXERCISE OF THE REVISIONARY POWERS U/S 263 BY THE LD. CIT IN RESPECT OF ACCRETION TO THE PARTNERS CAPITA L ACCOUNT. 6.4 IN LIGHT OF ABOVE DISCUSSIONS, OUT OF THREE ISS UES RAISED BY THE LD CIT, WE ARE OF THE VIEW THAT ONLY IN RESPECT OF THE FIRST I SSUE REGARDING THE FALL IN GP RATE, THE NECESSARY ENQUIRIES HAVE BEEN MADE BY THE AO AND THE LD CIT WAS NOT CORRECT WHILE EXERCISING HIS POWERS UNDER SECTION 2 63 AND ORDER OF LD CIT STAND MODIFIED TO THAT LIMITED EXTENT. IN RESPECT OF OTH ER TWO ISSUES REGARDING ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 22 ACCRETION TO PARTNER CAPITAL ACCOUNT AND UNSECURED LOAN, WE CONFIRM THE ORDER OF THE LD CIT WHEREBY HE HAS RIGHTLY EXERCISED HIS REVISIONARY POWERS UNDER SECTION 263 OF THE ACT. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02/0 1/2017. SD/- SD/- (KUL BHARAT ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 02/01/2017 PILLAI VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S VIKAS OIL MILL, ALWAR 2. IZR;FKHZ@ THE RESPONDENT- THE PR. COMMISSIONER OF INCOME TAX , ALWAR 3. VK;DJ VK;QDR@ CIT ALWAR 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.514/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR. ITA NO. 514/JP/16 M/S VIKAS OIL MILL, ALWAR VS. PR. CIT, ALWAR 23