M/s Loil Continental Foods Ltd., Chandigarh V. Pr. CIT (C), Ludhiana

ITA 577/CHANDI/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3203 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-11-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 29-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Income from undisclosed sources; Loose papers; Opportunity of being heard; Period of limitation; Assessment record; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 143(3); 142(1); 133A; 14A; 250; 201; 143(2); 131; 263

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH - BENCH A BEFORE S/SHRI N.K. SAINI, VICE-PRESIDENT AND RAJPAL YADAV, JUDICIAL MEMBER ITA NO.577/CHD/2019 / ASSTT.YEAR : 2014-15 M/S.LOIL CONTINENTAL FOODS LTD. SCO 18-19, SECTOR 9-D CHANDIGARH: NEW ADD: SCO 38, 1 ST FLOOR SECTOR 26, CHANDIGARH. VS. PR.CIT (CENTRAL) LUDIANA. ITA NO.578/CHD/2019 / ASSTT.YEAR : 2014-15 M/S.LOIL HEALTH FOODS LTD. SCO 18-19, SECTOR 9-D CHANDIGARH: NEW ADD: SCO 38, 1 ST FLOOR SECTOR 26, CHANDIGARH. VS. PR.CIT (CENTRAL) LUDIANA. ITA NO.579/CHD/2019 / ASSTT.YEAR : 2014-15 M/S.LOIL OVERSEAS FOODS LTD. SCO 18-19, SECTOR 9-D CHANDIGARH: NEW ADD: SCO 38, 1 ST FLOOR SECTOR 26, CHANDIGARH. VS. PR.CIT (CENTRAL) LUDIANA. ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI SUDHIR SEHGAL, ADVOCATE REVENUE BY : SHRI CHANDRAJIT SINGH, CIT(DR) / DATE OF HEARING : 07/11/2019 / DATE OF PRONOUNCEMENT: 04/12/2019 $%&'/ O R D E R ITA NO.577, 578 AND 579/CHD/2019 2 PRESENT THREE APPEALS ARE DIRECTED AT THE INSTANCE OF THE ASSESSEES AGAINST SEPARATE ORDERS OF THE LD.COMMISSIONER DATE D 30.3.2019 IN EACH CASE OF THE APPELLANTS. 2. EACH APPELLANT HAS TAKEN SEVEN GROUNDS OF APPEAL WHICH ARE NOT IN CONSONANCE WITH THE RULE 8 OF THE INCOME TAX (APPEL LATE TRIBUNAL), 1962; THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NAT URE. IN BRIEF GRIEVANCE OF THE APPELLANT IS THAT THE LD.COMMISSIO NER HAS ERRED IN TAKING COGNIZANCE UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 AND THEREBY ERRED IN SET SETTING ASIDE ASSESSMENT ORDERS PASSED IN THE CASE OF EACH APPELLANT ON 30.12.2016 UNDER SECTION 143(3) OF THE ACT. 3. IT IS PERTINENT TO NOTE THAT FACTS ON ALL VITAL POINTS ARE COMMON EXCEPT VARIATION IN THE QUANTUM, AND EVEN AT THE TI ME OF HEARING, THE MAIN ARGUMENTS HAVE BEEN ADDRESSED IN THE CASE OF L OIL CONTINENTAL FOODS LTD. (LCFL FOR SHORT), THEREFORE FOR THE F ACILITY OF REFERENCE, WE TAKE UP THE FACTS MAINLY FROM LCFL. 4. BRIEF FACTS OF THE CASE ARE THAT APPELLANTS WERE ENGAGED IN TRADING OF FOODGRAINS VIZ. PADDY AND RICE. THE NATIONAL SP OT EXCHANGE LTD. (NSEL FOR SHORT) WAS CONSTITUTED FOR TAKING UP TH E ACTIVITIES OF SPOT EXCHANGE FOR TRADING IN COMMODITIES, AND IT IS A PL ATFORM PROVIDED TO ENABLE BUYERS AND SELLERS TO TRANSACT ON THE SPOT A GAINST ACTUAL DELIVERY OF THE GOODS THROUGH LICENCED MEMBERS APPOINTED BY THE NSEL. ALL THE APPELLANTS WERE APPOINTED AS LICENCED MEMBERS TO DE AL IN PADDY. FOR THIS PURPOSE, A SETTLEMENT ACCOUNT OF LICENSED MEMB ER IS MAINTAINED BY NSEL WITH A DESIGNATED BANK IN WHICH AMOUNT OF NET PROCEEDS ARE CREDITED TO SETTLEMENT ACCOUNT. IN THE CASE OF L CFL SETTLEMENT ITA NO.577, 578 AND 579/CHD/2019 3 ACCOUNT WAS OPENED WITH HDFC BANK, FEROZE GANDHI MA RKET, LUDHIANA. THE APPELLANTS HAVE FILED THEIR RETURNS OF INCOME ELECTRONICALLY AND NOTICES FOR SCRUTINIZING RETURNS WERE ISSUED UNDER SECTION 143(2) ON 4.8.2015. THE LD.AO AFTER ISSUAN CE OF QUESTIONNAIRE UNDER SECTION 142(1) AS WELL AS SHOW CAUSE NOTICE U NDER SECTION 143(2) PASSED SCRUTINY ASSESSMENT ORDERS IN THE CASE OF EA CH APPELLANT UNDER SECTION 143(3) ON 30.12.2016. THE LD.COMMISSIONER ON PERUSAL OF THE RECORD FORMED AN OPINION THAT THE ASSESSMENT ORDERS PASSED BY THE AO FOR THE ASSTT.YEAR 2014-15 IN THE CASES OF THE APPE LLANTS WERE ERRONEOUS IN SO FAR AS IT CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE, AND THEREFORE, ACTION UNDER SECTION 263 DESERVES TO BE TAKEN AGAINST THESE ORDERS. ACCORDINGLY, HE RECORDED REASON FOR TAKING ACTION UNDER SECTION 263 IN THE CASE OF EACH ASSESSEE, AND ISSUED A SHOW CAUSE NOTICE UNDER SECTION 263 OF THE ACT. A PERUSAL OF THESE SHOW CA USE NOTICES REPRODUCED IN EACH IMPUGNED ORDER PASSED IN THE CAS E OF APPELLANT WOULD REVEAL THAT ALMOST VERBATIM OBSERVATIONS ARE BEING MADE BY THE LD.COMMISSIONER EXCEPT SOME VARIATION OF THE QUANTU M AMOUNT. THEREFORE, WE TAKE NOTE OF SHOW-CAUSE NOTICE ISSUED IN THE CASE OF LCFL WHICH READS AS UNDER: IN THIS CASE, ASSESSMENT WAS COMPLETED U/S 143(3) OF THE IT ACT, VIDE ORDER DATED 30.12.2016. THE RECORD OF THE ASSE SSMENT PROCEEDINGS HAVE BEEN EXAMINED. IT IS NOTED THAT AS SESSMENT IN THIS CASE WAS COMPLETED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE AND THEREFORE, THE ORDE R PASSED BY THE ASSESSING OFFICER IS CONSIDERED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE FOR THE F OLLOWING REASONS: (I) IT IS NOTED THAT DEPARTMENT HAD INFORMATION THA T CERTAIN CONCERNS INCLUDING M/S LOIL CONTINENTAL FOODS LIMIT ED, ENGAGED ITA NO.577, 578 AND 579/CHD/2019 4 IN COMMODITY TRADING AT NSEL( NATIONAL SPOT EXCHANG E LIMITED) PLATFORM WERE INVOLVED IN ISSUING BOGUS WAREHOUSE R ECEIPTS WHICH WERE NOT SUPPORTED BY ACTUAL STOCK AND THE CONTRACT S FOR SALE/PURCHASE WERE ENTERED INTO WITH A VIEW TO RAIS E FINANCE AND NOT WITH THE INTENTION TO PROVIDE DELIVERY OF COMMO DITIES. ON THE BASIS OF THIS INFORMATION A SURVEY U/S 133A(1) OF T HE INCOME TAX ACT, 1961 WAS CONDUCTED AT THE COMPANY'S BUSINESS P REMISES ON 22.08.2013 AT CHANDIGARH, KHAMANON AND DELHI. DURIN G THE SURVEY NO BOOKS OF ACCOUNTS WERE FOUND AT KHAMANON. FURTHER, AS PER THE INFORMATION FROM THE NSEL DATA BASE THERE W AS A AGGREGATE STOCK OF PADDY VALUED AT RS. 775.29 CRORE S AS ON 06.08.2013 WITH M/S LOIL CONTINENTAL LTD., AND ASSO CIATES CONCERNS M/S LOIL OVERSEAS FOOD LTD, AND M/S LOIL H EALTH LTD: HOWEVER, DURING THE SURVEY NO STOCK WAS FOUND AT BU SINESS PREMISES AT KHAMANON. FURTHER, THERE WAS NO REPRESE NTATIVE OF NSEL AT THE PREMISES AT KHAMANON. NEITHER ANY RECOR D OF ANY WAREHOUSE RECEIPTS, TRANSPORTATION DOCUMENTS RELATA BLE TO THE STOCKS WERE FOUND AT KHAMANON. THESE FINDINGS OF TH E SURVEY REPORT WERE NOT CONSIDERED BY THE A.O DURING ASSESS MENT PROCEEDINGS. (II) IT IS FURTHER OBSERVED THAT DURING THE COURSE OF SURVEY AT KHAMANON LOOSE PAPER AS PER ANNEXURE A-L, 1 TO 250 AND A-2, 1 TO 206 WERE IMPOUNDED. THESE DOCUMENTS WERE NEVER EXAM INED AND CONSIDERED DURING THE COURSE OF ASSESSMENT PROCEEDI NGS. DURING THE COURSE OF SURVEY AT KHAMANON STATEMENT OF SH. J ANAK RAJ SINGH S/O SH, BALBIR SINGH UPPAL WAS RECORDED WHO C ATEGORICALLY STATED THAT NO STOCK RELATED TO NSEL WAS LYING AT T HE PREMISES AT KHAMANON. THIS, FINDING REGARDING STOCKS AND OTHER DOCUMENTS WERE NOT CONSIDERED IN ASSESSMENT PROCEEDINGS. (III) ACTION U/S 1.33A WAS ALSO CARRIED OUT AT SCO-18-19, SECTOR-9D, CHANDIGARH BEING THE OFFICE OF THE ASSES SEE COMPANY. DURING THE COURSE OF SURVEY DOCUMENTS IN FORM OF AN NEXURE-A-L TO A-6, 13 CDS AS PER A-7, 5 CDS AS PER A-8 AND ONE HA RD DISK WERE IMPOUNDED. HOWEVER, THESE DOCUMENTS AND DATA CONTAI NED IN CDS AND IN HARD DISKS WERE NEVER EXAMINED OR VERIFIED T O DETERMINE ITS REVENUE IMPLICATION IF ANY. ITA NO.577, 578 AND 579/CHD/2019 5 (IV) SIMILAR ACTION U/S 133A WAS CARRIED OUT AT 807 , KAILASH BUILDING, 26, K.G. MARG, NEW DELHI AND 4048, NAY A BAZAAR, NEW DELHI BEING THE OFFICES OF THE ASSESSEE COMPANY. DU RING THE SURVEY FOUR HARD DISKS WERE IMPOUNDED FROM 807, KAILASH BU ILDING, 26, K.G. MARG, NEW DELHI. HOWEVER, THE DATA CONTAINED I N HARD DISKS WAS NEVER EXAMINED OR VERIFIED TO DETERMINE ITS REV ENUE IMPLICATION IF ANY DURING PROCEEDINGS. (V) IT IS ALSO NOTED FROM THE ASSESSMENT RECORDS FO R THE A.Y.. 2013- 14 THAT THERE WAS A REPORT BY SHARP AND TANNAN ASSO CIATES DATED 02.04.2014 REFERRED TO BY THE AO IN THE ASSESSMENT ORDER, STATING THAT AN AMOUNT OF RS.338.40 CRORE WAS RECOVERABLE F ROM THE ASSESSEE BY NSEL WHEN THE TRADING ON NSEL PLATFORM WAS SUSPENDED BY THE MINISTRY OF CONSUMER AFFAIRS, NEW DELHI ON 31.07.2013. HOWEVER, THE AO FAILED TO CONSIDER THE FINDING OF THE REFERRED REPORT AS TO WHETHER IT HAD ANY IMPLICATIO NS FOR THIS ASSESSMENT YEAR ALSO. NO INQUIRIES WHATSOEVER OR VE RIFICATION FROM NSEL OR ANY OTHER AGENCY WERE MADE DESPITE OF THE FACT THAT THE NEFARIOUS SCAM ARISING OUT OF TRADING ON ONLINE EXCHANGE PLATFORM OF NSEL HAD BEEN WIDELY REPORTED. (VI) APART FROM THE SURVEY FINDINGS, EXAMINATION OF THE BALANCE SHEET FOR F.Y. 2013-14 SHOWS THAT THE FOLLOWINGS IS SUES WERE ALSO NOT EXAMINED, LESS INQUIRED INTO OR VERIFIED INTO B Y THE A.O BEFORE COMPLETING THE ASSESSMENT OFA.Y. 2014-15. A. THERE WERE OUTSTANDING ADVANCES FROM BUYERS OF R S.25.38 CRORES, WHICH WERE RECEIVED DURING THE YEAR ITSELF. THE A.O., HOWEVER FAILED TO VERIFY THE NATURE AND GENUINENESS OF THESE ADVANCES WHEN NO SALES HAS BEEN SHOWN BY THE COMPAN Y DURING THE YEAR. DURING ASSESSMENT PROCEEDINGS IT WAS SUBM ITTED BY THE ASSESSES THAT THESE TRANSACTIONS WERE MADE THROUGH BANKING CHANNEL. HOWEVER, THE A.O FAILED TO VERIFY THE GENU INENESS OF THESE ADVANCES. B. COMPANY HAS SHOWN OPENING STOCK OF FINISHED GOOD S OF RS. 2.36 CRORES AND DURING THE YEAR NO SALES HAS BEEN SHOWN YET NO STOCK WAS FOUND DURING THE SURVEY ON 22.08.2013. THE A.O FAILED TO CONSIDER THE FINDINGS OF SURVEY ON THIS ISSUE IN TH E ASSESSMENT PROCEEDINGS. ITA NO.577, 578 AND 579/CHD/2019 6 C. . THERE, ARE HUGE TRADE PAYABLES I.E. RS. 64.31 CRORES, DESPITE THE FACT THAT COMPANY HAS NOT MADE ANY SALE/ PURCHA SE DURING THE YEAR. THE A.O FAILED TO MAKE NECESSARY INQUIRIES RE GARDING THESE TRADE CREDITS. EVEN THE DETAILS OF SUCH CREDITORS W ERE NOT CALLED FOR. D. THERE IS AN INCREASE OF RS. 15.44 CRORES UNDER T HE HEAD 'SHORT TERM LOANS AND ADVANCES, DESPITE THE FACT THAT THE COMPANY HAS NOT MADE ANY SALE/PURCHASE DURING THE YEAR. THE A. O FA ILED TO EXAMINE THE GENUINENESS AND PURPOSE OF THESE LOANS ADVANCED DURING THE YEAR. EVEN THE DETAILS OF SUCH ADVANCES WERE NOT CALLED FOR. E. COMPANY HAS SHOWN DIVIDEND INCOME OF RS.12,50,00 0/- DURING THE YEAR WHICH HAS BEEN CLAIMED AS EXEMPT BUT AO HA S NOT EXAMINED AS TO WHETHER ANY DISALLOWANCES U/S 14A WA S REQUIRED TO BE MADE. NO INQUIRY/VERIFICATION IN THIS REGARD HAS BEEN MADE. (VII) APART FROM THE ABOVE, THE IMPOUNDED DOCUMENTS /HARD DISKS/CDS WERE REQUIRED TO BE EXAMINED IN THE LIGHT OF ALLEGATIONS ABOUT THE GENUINENESS OF PURCHASES, SOURCE OF PAYME NTS AGAINST EQUAL PURCHASES AND USER OF FUNDS RECEIVED IN VIEW OF REPORTED SUBSTANTIAL OUTSTANDING TO THE NATIONAL SPOT EXCHAN GE LIMITED (NSEL), AFTER THE PAYMENT CRISIS OF NSEL SURFACED I N JULY, 2013. (VIII) THE CRITICALITY OF THESE ISSUES, THEIR EXAMI NATION/VERIFICATION, TO DETERMINE THEIR IMPLICATION ON THE ASSESSMENT OF THE COMPANY CANNOT BE OVER EMPHASIZED. THIS, VIEWED, IN THE PER SPECTIVE OF ALLEGATION(S) ABOUT DUBIOUS NATURE OF TRANSACTION B EING CARRIED ON THE PLATFORM OF NSEL RESULTING IN THE SUSPENSION OF TRADING ON NSEL PLATFORM ON 31.07.2013 ONLY HIGHLIGHTS THAT IT WAS IMPERATIVE UPON THE ASSESSING OFFICER TO HAVE MADE NECESSARY VERIFICATIONS AND INQUIRIES BEFORE DETERMINING THE INCOME OF THE ASSESSEE FOR THE A.Y. 2014-15. FROM THE PERUSAL OF THE CASE RECORDS, IT IS FOUND THAT THERE IS NOTHING IN RECOR D TO SHOW THAT THE A.O HAS EXAMINED THE ISSUES ARISING OUT THE FINDING S OF THE SURVEY AND THE OTHER ISSUES HIGHLIGHTED ABOVE. NO PROPER I NQUIRIES AND VERIFICATION HAVE BEEN MADE BEFORE COMPLETING THE A SSESSMENT FOR THE RELEVANT YEAR. ITA NO.577, 578 AND 579/CHD/2019 7 02. IN LIGHT OF THE ABOVE, IT IS EVIDENT THAT THE A SSESSMENT ORDER PASSED ON 30.12.2016 IS ERRONEOUS IN SO FAR AS IT I S PREJUDICIAL TO THE INTEREST OF REVENUE WITHIN THE MEANING OF SUB C LAUSE (A) OF EXPLANATION 2 OF SECTION 263(1) OF THE FT ACT, 1961 . 03. IN VIEW OF THE ABOVE, AN OPPORTUNITY OF BEING H EARD IN THE MATTER WAS GIVEN TO YOU VIDE THIS OFFICE LETTER NO. 812 DATED 30.01.2019 AT THE ADDRESS SCO 18-19, SECTOR 9-D, CH ANDIGARH. HOWEVER, THE SAID LETTER WAS RECEIVED BACK UN-SERVE D WITH THE COMMENT OF THE POSTAL AUTHORITIES 'LEFT'. 04. YOU ARE BEING GIVEN AN FINAL OPPORTUNITY OF BEI NG HEARD IN THE MATTER. IF YOU WISH TO FURNISH ANY WRITTEN SUBMISSI ONS OR BE HEARD IN THE MATTER PERSONALLY/THROUGH AUTHORIZED, REPRES ENTATIVE (AR), YOU MAY DO SO ON 19.02.2019 AT 12:00 PM. IN CASE NO THING IS HEARD FROM YOU BY THE APPOINTED DATE, IT WILL BE AS SUMED THAT YOU HAVE NOTHING TO SAY IN THE MATTER AND THE PROCEEDIN GS WILL BE CONCLUDED ON MERITS AND AS PER LAW. 5. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE APPELL ANTS HAVE FILED DETAILED REPLIES. THE REPLIES HAVE ALSO BEEN REPR ODUCED BY THE LD.COMMISSIONER. HOWEVER, WHILE MAKING AN ANALYSIS OF THE FINDING OF THE LD.COMMISSIONER, WE WOULD REFER THE STAND TAKEN BY THE ASSESSEE AGAINST THE SHOW CAUSE NOTICE. AFTER HEARING THE ASSESSEES, THE LD.COMMISSIONER HAS SET ASIDE THE ASSESSMENT ORDERS AND DIRECTED THE AO TO REFRAME THE ASSESSMENT ORDERS AFTER CONDUCTIN G INQUIRIES. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE TH ROUGH THE RECORD CAREFULLY. SECTION 263 HAS A DIRECT BEARING ON THE CONTROVERSY, THEREFORE, IT IS PERTINENT TO TAKE NOTE OF THIS SECTION. IT R EADS AS UNDER:- 263(1) THE COMMISSIONER MAY CALL FOR AND EXAMINE T HE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOU S IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE M AY, AFTER GIVING ITA NO.577, 578 AND 579/CHD/2019 8 THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTE R MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSA RY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUST IFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CAN CELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. [EXPLANATION.- FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB-SECTION ,- (A) AN ORDER PASSED ON OR BEFORE OR AFTER THE 1ST DAY O F JUNE, 1988 BY THE ASSESSING OFFICER SHALL INCLUDE- (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMISSIONER OR DEPUTY COMMISSIONER OR THE INCOME- TAX OFFICER ON THE BASIS OF THE DIRECTIONS ISSUED B Y THE JOINT COMMISSIONER UNDER SECTION 144A; (II) AN ORDER MADE BY THE JOINT COMMISSIONER IN EXE RCISE OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTION S OF AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BOARD OR BY THE CHIEF COMMISSIONER OR DIRECTOR GENERAL OR COMMISSIONER AUTHORIZED BY THE BOARD IN THIS BEHALF UNDER SECTION 120; (B) RECORD SHALL INCLUDE AND SHALL BE DEEMED ALWAYS TO HAVE INCLUDED ALL RECORDS RELATING TO ANY PROCEEDIN G UNDER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE COMMISSIONER; (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJEC T MATTER OF ANY APPEAL FILED ON OR BEFORE OR AFTER TH E 1ST DAY OF JUNE, 1988, THE POWERS OF THE COMMISSIONER U NDER THIS SUB-SECTION SHALL EXTEND AND SHALL BE DEEMED A LWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL. (2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) AF TER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL Y EAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED. ITA NO.577, 578 AND 579/CHD/2019 9 (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASS ED AT ANY TIME IN THE CASE OF AN ORDER WHICH HAS BEEN PASSED IN CONSEQUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING O R DIRECTION CONTAINED IN AN ORDER OF THE APPELLATE TRIBUNAL, NA TIONAL TAX TRIBUNAL, THE HIGH COURT OR THE SUPREME COURT. EXPLANATION.- IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB-SECTION (2), THE TIME TAKEN IN GIVI NG AN OPPORTUNITY TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROC EEDING UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCT ION OF ANY COURT SHALL BE EXCLUDED. 7. ON A BARE PERUSAL OF THE SUB SECTION-1 WOULD REV EAL THAT POWERS OF REVISION GRANTED BY SECTION 263 TO THE LEARNED COMM ISSIONER HAVE FOUR COMPARTMENTS. IN THE FIRST PLACE, THE LEARNED COMMI SSIONER MAY CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDINGS UNDER TH IS ACT. FOR CALLING OF THE RECORD AND EXAMINATION, THE LEARNED COMMISSI ONER WAS NOT REQUIRED TO SHOW ANY REASON. IT IS A PART OF HIS AD MINISTRATIVE CONTROL TO CALL FOR THE RECORDS AND EXAMINE THEM. THE SECOND F EATURE WOULD COME WHEN HE WILL JUDGE AN ORDER PASSED BY AN ASSESSING OFFICER ON CULMINATION OF ANY PROCEEDINGS OR DURING THE PENDEN CY OF THOSE PROCEEDINGS. ON AN ANALYSIS OF THE RECORD AND OF TH E ORDER PASSED BY THE ASSESSING OFFICER, HE FORMED AN OPINION THAT SUCH A N ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BY THIS STAGE THE LEARNED COMMISSIONER WAS NOT REQUIRED THE ASSIS TANCE OF THE ASSESSEE. THEREAFTER THE THIRD STAGE WOULD COME. TH E LEARNED COMMISSIONER WOULD ISSUE A SHOW CAUSE NOTICE POINTI NG OUT THE REASONS FOR THE FORMATION OF HIS BELIEF THAT ACTION U/S 263 IS REQUIRED ON A PARTICULAR ORDER OF THE ASSESSING OFFICER. AT THIS STAGE THE OPPORTUNITY TO ITA NO.577, 578 AND 579/CHD/2019 10 THE ASSESSEE WOULD BE GIVEN. THE LEARNED COMMISSION ER HAS TO CONDUCT AN INQUIRY AS HE MAY DEEM FIT. AFTER HEARING THE AS SESSEE, HE WILL PASS THE ORDER. THIS IS THE 4TH COMPARTMENT OF THIS SECT ION. THE LEARNED COMMISSIONER MAY ANNUL THE ORDER OF THE ASSESSING O FFICER. HE MAY ENHANCE THE ASSESSED INCOME BY MODIFYING THE ORDER. 8. AT THIS STAGE, BEFORE CONSIDERING THE MULTI-FOLD CONTENTIONS OF THE LD. REPRESENTATIVES, WE DEEM IT PERTINENT TO TAKE N OTE OF THE FUNDAMENTAL TESTS PROPOUNDED IN VARIOUS JUDGMENTS RELEVANT FOR JUDGING THE ACTION OF THE CIT TAKEN U/S 263. THE ITAT IN THE CASE OF MRS. KHATIZA S. OOMERBHOY VS. ITO, MUMBAI, 101 TTJ 1095, ANALYZED I N DETAIL VARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES 243 ITR 83 AND HAS PROPOUNDED THE FOLLOWING BROADER PRINCIPLE TO JUDGE THE ACTION OF CIT TAKEN UNDER SECTION 263. (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVER Y TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTIO N WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOU S ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDIC IAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ITA NO.577, 578 AND 579/CHD/2019 11 ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE. IF CANN OT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER LAW (VI) IF WHILE MAKING THE ASSESSMENT, THE AO EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE T HE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER S 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH L AW AND ARRIVE AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEE STRATIFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S . 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND T HE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO ALLOWS THE CLAIM ON BEING SATISF IED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUS E IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSI ON IN THAT REGARD. 9. APART FROM THE ABOVE PRINCIPLES, WE DEEM IT APPR OPRIATE TO MAKE REFERENCE TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUN BEAM AUTO REPORTED IN 227 CTR 113 AND G EE VEE ENTERPRISES LTD VS. ADDL. COMMISSIONER OF INCOME TA X (99 ITR 375). IN THE CASE OF SUN BEAM AUTO, THE HON'BLE HIGH COUR T HAS POINTED OUT A DISTINCTION BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IF THERE IS A LACK OF ENQUIRY, THEN THE ASSESSMENT ORDER CAN BE B RANDED AS ERRONEOUS. ITA NO.577, 578 AND 579/CHD/2019 12 THE FOLLOWING OBSERVATIONS OF THE HON'BLE DELHI HIG H COURT ARE WORTH TO NOTE: 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF TH E COUNSEL ON THE OTHER SIDE AND HAVE GONE THROUGH THE RECORDS. THE FIRST ISSUE THAT ARISES FOR OUR CONSID ERATION IS ABOUT THE EXERCISE OF POWER BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263 OF THE INCOME-TAX ACT. AS NOTED ABOVE, THE SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE WAS THAT WHILE PASSING THE ASSESSMENT ORDER , THE ASSESSING OFFICER DID NOT CONSIDER THIS ASPECT SPECIFICALLY WHETHER THE EXPENDITURE IN QUESTION WA S REVENUE OR CAPITAL EXPENDITURE. THIS ARGUMENT PREDICATES ON THE ASSESSMENT ORDER WHICH APPARENTLY DOES NOT GIVE ANY REASONS WHILE ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXPENDITURE. HOWEVER, THAT B Y ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND ON THE I SSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPL E THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS NOT REQUIRED TO GIVE DETAILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. THEREFORE, ONE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLICATION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. LEARNED COUNSEL FOR THE ASSESS EE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINCTION BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IF THERE WAS ANY INQUIRY, EVE N INADEQUATE, THAT WOULD NOT BY ITSELF, GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 O F THE ACT, MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF LACK OF INQUIRY, T HAT SUCH A COURSE OF ACTION WOULD BE OPEN. 10. IN THE CASE OF GEE VEE ENTERPRISE VS. COMMISSIO NER OF INCOME TAX REPORTED IN 99 ITR PAGE 375, THE HONBLE COURT HAS EXPOUNDED THE APPROACH OF LD. ASSESSING OFFICER WHILE PASSING ASS ESSMENT ORDER. THE OBSERVATION OF THE HONBLE COURT ON PAGES 386 OF JO URNAL READ AS UNDER:- ITA NO.577, 578 AND 579/CHD/2019 13 IT IS NOT NECESSARY FOR THE COMMISSIONER TO MAKE FURTHER INQUIRIES BEFORE CANCELLING THE ASSESSMENT ORDER OF THE INCOME-TAX OFFICER. THE COMMISSIONER CAN REGARD THE ORDER AS ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE TH E INCOME-TAX OFFICER SHOULD HAVE MADE FURTHER INQUIRIES BEFORE A CCEPTING THE STATEMENTS MADE BY THE ASSESSEE IN HIS RETURN. THE REASON IS OBVIOUS. THE POSITION AND FUNCTION O F THE INCOME- TAX OFFICER IS VERY DIFFIDENT FROM THAT OF A CIVIL COURT. THE STATEMENT MADE IN A PLEADING PROVED BY THE MINIMUM AMOUNT OF EVIDENCE MAY BE ADOPTED BY A CIVIL COURT IN THE ABS ENCE OF ANY REBUTTAL. THE CIVIL COURT IS NEUTRAL. IT SIMPLY G IVES DECISION ON THE BASIS OF THE PLEADING AND EVIDENCE WHICH COMES BEFO RE IT. THE INCOME-TAX OFFICER IS NOT ONLY ON ADJUDICATOR BUT A LSO AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF THE RETURN WHICH IS APPARENTLY IN ORDER BUT CALLED FOR FURTHER INQUIRY. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED IN THE RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE AN INQUIRY IT IS BECAUSE IT IS INCUMBENT ON THE INCOME-TAX OFFICER T O FURTHER INVESTIGATE THE FACTS STATED IN THE RETURN WHEN CIR CUMSTANCES WOULD MADE SUCH AN INQUIRY PRUDENT THAT THE WORD ERRONEO US IN SECTION 263 INCLUDES THE FAILURE TO MAKE SUCH AN ENQUIRY. THE ORDER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT B EEN MADE AND NOT BECAUSE THERE IS ANYTHING WRONG WITH THE OR DER IF ALL THE FACTS STATED THEREIN ARE ASSUMED TO BE CORRECT. 5. IN THE LIGHT OF THE ABOVE, LET US EVALUATE THE I MPUGNED ORDERS AS WELL AS RECORD BEFORE US. A PERUSAL OF THE SHOW CA USE NOTICE ISSUED UNDER SECTION 263 OF THE ACT WOULD REVEAL THAT THIS SHOW CAUSE NOTICE CAN BE DIVIDED INTO TWO COMPARTMENTS; FIRST ISSUE C ONTAINED IN THE REASONS ASSIGNED BY THE LD.COMMISSIONER AT SERIAL NO.1 TO 4, AND SECOND FOLD IS CONTAINED IN REASONS NOS.6 TO 8 EXTRACTED ( SUPRA). AS FAR AS FIRST FOLD OF REASONING OF TAKING COGNIZANCE UNDER SECTIO N 263 OF THE ACT IS CONCERNED, IT SHOWS THAT THE LD.COMMISSIONER WAS OF THE VIEW THAT NSEL WAS A PLATFORM WHERE COMMODITY TRADING HAD TAK EN PLACE. THIS ITA NO.577, 578 AND 579/CHD/2019 14 EXCHANGE FOUND TO BE INVOLVED IN NEFARIOUS ACTIVITI ES, WHICH GAVE RISE TO VARIOUS SCAMS, AND THEREFORE, ITS OPERATION HAS BEE N SUSPENDED BY THE MINISTRY OF CONSUMER AFFAIRS, NEW DELHI ON 31.7.20 13. THE LD.CIT- FURTHER NOTED THAT ALL THE APPELLANTS WERE MEMBERS OF THIS EXCHANGE AND THE DEPARTMENT HAD INFORMATION THAT CERTAIN CONCERN S INCLUDING THE APPELLANTS ENGAGED IN COMMODITY TRADING AT THIS EXC HANGE, WERE INVOLVED IN ISSUING BOGUS WAREHOUSE RECEIPTS WHICH WERE NOT SUPPORTED BY ACTUAL DELIVERY, AND CONTRACTS FOR SALE AND PURC HASES WERE ENTERED INTO WITH A VIEW TO RAISE FINANCE, AND NOT WITH INTENTIO N TO PROVIDE DELIVERY OF COMMODITY. THEREAFTER, THE LD.COMMISSIONER TOOK CO GNIZANCE OF THE FACT THAT A SURVEY WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEES ON 22.8.2013. THE LD.COMMISSIONER MADE REFERENCE WITH REGARD TO THE DATA BASE OF NSEL WHEREBY IT HAS BEEN SHOWN THAT AGGREGA TE STOCK OF PADDY VALUED AT RS.775.29 CRORES OUGHT TO BE AVAILABLE WI TH M/S.LOIL CONTINENTAL LTD. THE LD.COMMISSIONER HAS MADE REFE RENCE TO A REPORT BY SHARP AND TANNAN ASSOCIATES (S&TA FOR SHORT) D ATED 2.4.2014 EXHIBITING THE FACT THAT THE AMOUNT OF RS.338.40 CR ORES WAS RECOVERABLE FROM M/S.LOIL CONTINENTAL FOODS LTD. SIMILARLY, AN AMOUNT OF RS.287.48 CRORES AND RS.85.19 CRORES WAS RECOVERABL E FROM M/S.LOIL HEALTH FOODS LTD., AND M/S.LOIL OVERSEAS FOODS LTD. ON THE BASIS OF THIS INFORMATION AS WELL AS DISCOVERY OF LOOSE PAPE RS DURING THE COURSE OF SURVEY AT KHAMANON , HE HARBOURED A BELIEF THAT, HAD THESE MATERIALS BEEN CONSIDERED BY THE AO PROBABLY A HIGHER INCOME OUGHT TO HAVE BEEN ASSESSED. IN RESPONSE TO THE ABOVE SHOW CAUSE NOTI CE, THE ASSESSEE HAS FILED A DETAILED REPLY WHICH HAS BEEN REPRODUCED BY THE LD.COMMISSIONER IN THE IMPUGNED ORDER. WE HAVE GONE THROUGH THIS REPLY AS WELL AS OTHER REPLIES GIVEN BY THE ASSESSEES. THE STAND OF THE ASSESSEE WAS THAT ITA NO.577, 578 AND 579/CHD/2019 15 AS FAR AS THE NSEL DATA EXHIBITING AVAILABILITY OF STOCK OF PADDY OF RS.775.29 CRORES AS ON 6.8.2013 AND REVEALED DURING THE COURSE OF SURVEY IS CONCERNED, THIS ASPECT WAS EXAMINED ELABO RATELY BY THE AO IN THE ASSTT.YEAR 2013-14. THE AO HAS CONSIDERED OUT COME OF THE SURVEY, BUT DID NOT MAKE ANY ADDITION. THE ADDITION WHICH HAS BEEN MADE IN THE CASE OF LOIL CONTINENTAL FOODS LTD. BY THE AO IN TH E ASSTT.YEAR 2013-14 OF RS.338.40 CORES WAS BASED ON THE REPORT OF S&TA . THE AO HARBOURED A BELIEF THAT SINCE S&TA INDICATED THE OUTSTANDING DUES OF NSEL TOWARDS THESE APPELLANTS, AND THE APPELLANTS A RE NOT SHOWING ANY AMOUNT PAYABLE, AND THEREFORE ALL THESE EXPENDITURE TO BE CONSTRUED AS INCOME OF THESE APPELLANTS UNDER THE HEAD UNACCOUN TED INCOME. ASSESSMENT ORDERS FOR THE ASSTT.YEAR 2013-14 IN THE CASE OF ALL THE APPELLANTS ARE PLACED ON THE PAPER BOOKS, AND FOR T HE PURPOSE OF REFERENCE, WE TAKE NOTE OF THE OBSERVATION OF THE A O IN THE CASE OF LOIL CONTINENTAL FOOD LTD., WHICH READS AS UNDER: 9. IN VIEW OF THE DETAILED FACTS STATED AFORESAID THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT RELIABLE AND REJEC TED. IT MAY BE FURTHER POINTED OUT THAT AS PER THE REPORTS SUBMITT ED BY SHARP & TANNAN ASSOCIATES SUBMITTED TO BOARD OF DIRECTORS O F NSEL., RECOVERIES HAVE BEEN WORKED OUT FROM VARIOUS MEMBER S OF NSEL. THE FOLLOWING AMOUNTS HAVE BEEN SHOWN AS RECEIVABLE FROM ASSESSEE AS ON 31.08.2013: M/S.LOIL CONTINENTAL FOODS LTD = RS.338.40 CR. ASSESSEE FAILED TO EVEN FILE CONFIRMATION OF ACCOUN TS FROM NSEL AS ON DATE. 10. THEREFORE AMOUNT OF RS.338.40 CRORE SHOWN AS RE COVERABLE BY NSEL FROM M/S.LOIL CONTINENTAL FOOD LTD. IS TAKE N AS UNACCOUNTED INCOME OF THE ASSESSEE. ITA NO.577, 578 AND 579/CHD/2019 16 6. THE LD.COMMISSIONER HAS MADE AN ANALYSIS OF THE STAND TAKEN BY THE APPELLANTS. IN PARA-8 OF THE IMPUGNED ORDER WH ILE DEALING REPLIES OF THE ASSESSEES, THE LD.COMMISSIONER HAS OBSERVED THA T FROM THE OPENING PARAGRAPHS OF REPLIES SUBMITTED BY ALL THE APPELLAN TS EXHIBIT THE DETAILS OF SEQUENCE OF THE ASSESSMENT PROCEEDINGS FOR THE A SSTT.YEAR 2014-15. IT IS GENERAL STATEMENT MADE BY HIM THAT THE AO HAD ISSUED QUESTIONNAIRE, AND THEY HAVE FURNISHED THE REPLIED. QUA THAT PROPOSITION, THE LD.COMMISSIONER HAS NO DISPUTE; BUT HE WAS OF T HE OPINION THAT WHETHER THE AO HAD MADE INVESTIGATION HAD HE APPLIE D HIS MIND ? HE COULD NOT CLOSE HIS EYES ON THE MATERIAL AVAILABLE BEFORE HIM. HE ALSO MADE REFERENCE TO REPLIES GIVEN BY SHRI JANAKRAJ SI NGH DURING THE COURSE OF SURVEY. HE THEREAFTER OBSERVED THAT AS FAR AS T HE INQUIRY CONDUCTED IN THE ASSTT.YEAR 2013-14 IS CONCERNED, IT IS NOT UNDE RSTANDABLE, HOW THOSE INQUIRES ARE RELEVANT FOR ASSTT.YEAR 2014-15 ALSO. ON THE BASIS OF THIS INQUIRY, HOW ONE CAN CONCLUDE THAT NO ACTION UNDER SECTION 263 IS REQUIRED TO BE TAKEN. HE ALSO OBSERVED THAT ON ONE HAND, THE ASSESSEE IS ASKING THE MATERIAL COLLECTED DURING THE COURSE OF SURVEY, AND ON THE OTHER HAND, THE ASSESSEE IS SUBMITTING THAT SUCH MA TERIAL WAS CONSIDERED BY THE AO IN THE ASSTT.YEAR 2013-14, AND THEREFORE THE STAND OF THE ASSESSEE IS NOT SUSTAINABLE. 7. BEFORE ADVERTING TO RECORD A FINDING ON THESE IS SUES, WE WOULD LIKE TO REMIND OURSELVES WITH JUDGMENT OF THE HONBLE DE LHI HIGH COURT RENDERED IN THE CASE OF ITO VS. DG HOUSING PROJECTS LTD., 343 ITR 329 (DEL). WE HAVE BROUGHT THIS JUDGMENT TO THE NOTIC E OF THE LD.CIT-DR DURING THE COURSE OF HEARING ALSO. HONBLE DELHI H IGH COURT HAS LAID DOWN THAT THE LD.COMMISSIONER IS DUTY BOUND TO RECO RD A CATEGORICAL ITA NO.577, 578 AND 579/CHD/2019 17 FINDING OR CONDUCT INQUIRY, AND THEREAFTER, RECORD A CATEGORICAL FINDING AS TO HOW THE ORDER WHICH IS SOUGHT TO BE REVISED UNDE R SECTION 263 IS ERRONEOUS. THE LD.COMMISSIONER CANNOT REMIT THE IS SUE TO FIND OUT WHAT WAS THE ERROR COMMITTED BY THE AO TO THE AO HIMSELF . WE DEEM IT APPROPRIATE TO TAKE NOTE OF THE FINDING BY THE HON BLE DELHI HIGH COURT, WHICH READS AS UNDER: 17. THUS, IN CASES OF WRONG OPINION OR FINDING ON MERITS, THE CIT HAS TO COME TO THE CONCLUSION AND HIMSELF DECIDE TH AT THE ORDER IS ERRONEOUS, BY CONDUCTING NECESSARY ENQUIRY, IF REQU IRED AND NECESSARY, BEFORE THE ORDER UNDER SECTION 263 IS PA SSED. IN SUCH CASES, THE ORDER OF THE ASSESSING OFFICER WILL BE E RRONEOUS BECAUSE THE ORDER PASSED IS NOT SUSTAINABLE IN LAW AND THE SAID FINDING MUST BE RECORDED. CIT CANNOT REMAND THE MATTER TO T HE ASSESSING OFFICER TO DECIDE WHETHER THE FINDINGS RECORDED ARE ERRONEOUS. IN CASES WHERE THERE IS INADEQUATE ENQUIRY BUT NOT LAC K OF ENQUIRY, AGAIN THE CIT MUST GIVE AND RECORD A FINDING THAT T HE ORDER/INQUIRY MADE IS ERRONEOUS. THIS CAN HAPPEN IF AN ENQUIRY AND VERIFICATION IS CONDUCTED BY THE CIT AND HE IS ABLE TO ESTABLISH AND SHOW THE ERROR OR MISTAKE MADE BY THE ASSESSING OFFICER, MAKING THE ORDER UNSUSTAINABLE IN LAW. IN SOME CASE S POSSIBLY THOUGH RARELY, THE CIT CAN ALSO SHOW AND ESTABLISH THAT THE FACTS ON RECORD OR INFERENCES DRAWN FROM FACTS ON RECORD PER SE JUSTIFIED AND MANDATED FURTHER ENQUIRY OR INVESTIGATION BUT T HE ASSESSING OFFICER HAD ERRONEOUSLY NOT UNDERTAKEN THE SAME. HO WEVER, THE SAID FINDING MUST BE CLEAR, UNAMBIGUOUS AND NOT DEB ATABLE. THE MATTER CANNOT BE REMITTED FOR A FRESH DECISION TO T HE ASSESSING OFFICER TO CONDUCT FURTHER ENQUIRIES WITHOUT A FIND ING THAT THE ORDER IS ERRONEOUS. FINDING THAT THE ORDER IS ERRON EOUS IS A CONDITION OR REQUIREMENT WHICH MUST BE SATISFIED FO R EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE ACT. IN SUCH MATTERS, TO REMAND THE MATTER/ISSUE TO THE ASSESSING OFFICER WO ULD IMPLY AND MEAN THE CIT HAS NOT EXAMINED AND DECIDED WHETHER O R NOT THE ORDER IS ERRONEOUS BUT HAS DIRECTED THE ASSESSING O FFICER TO DECIDE THE ASPECT/QUESTION. ITA NO.577, 578 AND 579/CHD/2019 18 18. THIS DISTINCTION MUST BE KEPT IN MIND BY THE CI T WHILE EXERCISING JURISDICTION UNDER SECTION 263 OF THE AC T AND IN THE ABSENCE OF THE FINDING THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE, EXERCISE OF JURISDICTIO N UNDER THE SAID SECTION IS NOT SUSTAINABLE. IN MOST CASES OF ALLEGE D 'INADEQUATE INVESTIGATION', IT WILL BE DIFFICULT TO HOLD THAT T HE ORDER OF THE ASSESSING OFFICER, WHO HAD CONDUCTED ENQUIRIES AND HAD ACTED AS AN INVESTIGATOR, IS ERRONEOUS, WITHOUT CIT CONDUCTI NG VERIFICATION/INQUIRY. THE ORDER OF THE ASSESSING OF FICER MAY BE OR MAY NOT BE WRONG. CIT CANNOT DIRECT RECONSIDERATION ON THIS GROUND BUT ONLY WHEN THE ORDER IS ERRONEOUS. AN ORD ER OF REMIT CANNOT BE PASSED BY THE CIT TO ASK THE ASSESSING OF FICER TO DECIDE WHETHER THE ORDER WAS ERRONEOUS. THIS IS NOT PERMIS SIBLE. AN ORDER IS NOT ERRONEOUS, UNLESS THE CIT HOLD AND RECORDS R EASONS WHY IT IS ERRONEOUS. AN ORDER WILL NOT BECOME ERRONEOUS BECAU SE ON REMIT, THE ASSESSING OFFICER MAY DECIDE THAT THE ORDER IS ERRONEOUS. THEREFORE CIT MUST AFTER RECORDING REASONS HOLD THA T THE ORDER IS ERRONEOUS. THE JURISDICTIONAL PRECONDITION STIPULAT ED IS THAT THE CIT MUST COME TO THE CONCLUSION THAT THE ORDER IS E RRONEOUS AND IS UNSUSTAINABLE IN LAW. WE MAY NOTICE THAT THE MATERI AL WHICH THE CIT CAN RELY INCLUDES NOT ONLY THE RECORD AS IT STA NDS AT THE TIME WHEN THE ORDER IN QUESTION WAS PASSED BY THE ASSESS ING OFFICER BUT ALSO THE RECORD AS IT STANDS AT THE TIME OF EXA MINATION BY THE CIT [SEE CIT V. SHREE MANJUNATHESWARE PACKING & PRO DUCTS CAMPHOR WORKS [1998] 231 ITR 53 / 98 TAXMAN 1 (SC)] . NOTHING BARS/PROHIBITS THE CIT FROM COLLECTING AND RELYING UPON NEW/ADDITIONAL MATERIAL/EVIDENCE TO SHOW AND STATE THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS. 8. THE CHARGE OF THE LD.COMMISSIONER IS THAT THE AS SESSMENT ORDER IS ERRONEOUS BECAUSE THE AO FAILED TO EXAMINE CERTAIN MATERIAL VIZ. OUTCOME OF THE SURVEY; DETAILS REFLECTED IN NSEL DA TA BASE; REPORT OF S&TA AND THUS, SUCH ASSESSMENT ORDER HAS CAUSED P REJUDICE TO THE INTEREST OF THE REVENUE, AND THEREFORE, IT DESERVES TO BE SET ASIDE. THE QUESTION BEFORE US IS, WHETHER THE MATERIAL REFERRE D BY THE LD.COMMISISONER IS OF SUCH AN IMPORTANCE, WHICH CAN IMPACT ITA NO.577, 578 AND 579/CHD/2019 19 ASSESSABILTY OF THE INCOME OF THE ASSESSEE, AND IF THAT BE SO, THEN ONLY IT BE CONSTRUED THAT THE PREJUDICE WILL BE CAUSED TO T HE REVENUE. LET US CONSIDER ALL THESE THREE ASPECTS. AS OBSERVED EARL IER, FIRST OBSERVATION MADE BY THE LD.COMMSISIONER IS WITH RESPECT TO THE INFORMATION REVEALED IN THE DATA BASE OF THE NSEL. THE SECOND OBSERVATI ON REFERRED BY HIM IS THE REPORT OF S&TA, AND THE THIRD DISCOVERY OF TH E PAPERS IN ANNEXURE-A-1 1 TO 250 AND ANNEXURE-A/2, 1 TO 206 DU RING THE COURSE OF SURVEY. NO DOUBT NO DISCUSSION IS AVAILABLE IN THE ASSESSMENT ORDER QUA THESE MATERIALS. IT IS PERTINENT TO NOTE THAT THE LD.AO HAS ISSUED A QUESTIONNAIRE UNDER SECTION 142(1), AND THIS QUESTI ONNAIRE IS AVAILABLE ON PAGE NO.1 TO 6. HE CALLED FOR INFORMATION FROM ALL APPELLANTS ON 37 COUNTS. THEY HAVE FILED THEIR DETAILED SUBMISSIONS ALONG WITH AUDITED ACCOUNTS. THE LD.AO MADE DISCUSSION, AND THEN PASS ED IMPUGNED ASSESSMENT ORDERS. IT IS FURTHER OBSERVED THAT NO- DOUBT THE ASSESSMENT YEAR 2013-14 IS ALTOGETHER AN INDEPENDENT YEAR. TH E INQUIRY CONDUCTED IN THAT YEAR MIGHT NOT HAVE ANY BEARING ON THE ASSE SSMENT OF INCOME FOR THE ASSTT.YEAR 2014-15, BUT WHILE EVALUATING AND BR ANDING AN ASSESSMENT ORDER AS AN ERRONEOUS, WHETHER THAT INFO RMATION WHICH HAS BEEN DISCUSSED IN THE IMMEDIATELY PRECEDING ASSESSM ENT YEAR, COULD BE RELEVANT INFORMATION FOR FORMATION OF BELIEF AT THE END OF THE LD.COMMISSIONER THAT THE ASSESSMENT ORDER IN THE AS STT.YEAR 2014-15 IS TO BE REVISED. TO OUR MIND, A DISCUSSION MADE IN T HE ASSTT.YEAR 2013-14 ON THESE MATERIALS, AND THEREAFTER NO ACTION WAS TA KEN BY THE AO ON THE BASIS OF THE MATERIAL, IS AN IMPORTANT FACTOR WHICH DESERVES TO BE TAKEN INTO CONSIDERATION. DURING THE COURSE OF HEARING, OUR ATTENTION WAS DRAWN WITH REGARD TO THE QUESTIONNAIRE ISSUED BY TH E AO IN THE ITA NO.577, 578 AND 579/CHD/2019 20 PRECEDING ASSTT.YEAR 2013-14. WE TAKE NOTE OF THIS QUESTIONNAIRE IN THE CASE OF M/S.LOIL CONTINENTAL FOODS LTD. THAT READS AS UNDER: NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIR.III, SCO 1-6, 3 RD FLOOR OPP: BVM SCHOOL, KUTCHLU NAGAR LUDHIANA DATED: 18.03.2016 TO M/S.LOIL CONTINENTAL FOODS LTD. SCO 18-19, 1ST FLOOR, SECTOR 9-D CHANDIGARH. SIR, THERE ARE CERTAIN POINTS IN CONNECTION WITH THE RE TURN OF INCOME SUBMITTED BY YOU FOR THE ASSTT.YEAR 2013-14 WHICH I WOULD LIKE SOME FURTHER INFORMATION. 2. YOU ARE HEREBY REQUIRED TO ATTEND MY OFFICE AT S CO 1-6, 3 RD FLOOR, OPP: BV SCHOOL, KITCHLU NAGAR, LUDHIANA ON O R BEFORE 21.03.2016 AT 12.30 PM EITHER IN PERSON OR BY A REP RESENTATIVE DULY AUTHORIZED IN WRITING IN THIS BEHALF OR PRODUCE OR CAUSE TO BE PRODUCED AT THE SAID TIME ANY DOCUMENTS, ACCOUNTS AND ANY OT HER EVIDENCE ON WHICH YOU MAY RELY IN SUPPORT OF THE RETURN FILED B Y YOU. YOURS FAITHFULLY, SD/- (INDU BALA SAINI) DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-III, LUDHIANA. GOVERNMENT. OF INDIA MINISTRY OF FINANCE OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-III,LUDHIANA. SCO 1-6, 3RD FLOOR, OPP. BVM SCHOOL, KITCHLU NAGAR, LUDHIANA-141001 ITA NO.577, 578 AND 579/CHD/2019 21 TELEPHONE: [phone], /FAX: [phone]/EMAIL ID: LUDHIANA.DCIT.CEN3 F.NO. DCIT/CC-III/LDH./15-16/ DATED: 18.03.2016 TO THE PRINCIPAL OFFICER, M/S LOIL CONTINENTAL FOODS LTD., SCO 18-19, 1ST FLOOR, SECTOR 9-D, CHANDIGARH. SIR, SUB:- ASSESSMENT PENDING FOR THE JA..Y.2013-14 - R EGARDING - REFERENCE TO THE AFORESAID MATTER. 2. IN CONNECTION WITH THE ASSESSMENT PROCEEDINGS, Y OU ARE REQUIRED TO FURNISH THE FOLLOWING DETAILS :- I) A) COPY OF ACCOUNT OF NSEL IN YOUR BOOKS SINCE B EGINNING. B) NSEL SETTLEMENT/ACCOUNT (SETTLEMENT BANK ACCOUNT COPY) C) DETAILS OF DEBIT AND CREDIT ENTRIES MORE THAN ON E CRORE WITH COMPLETE NAME & ADDRESSES OF THE PARTIES; III) COMMODITY WISE POSITION OF STOCK AS PER YOUR B OOKS OF ACCOUNTS AND THE STOCK DISCLOSED TO NSEL. RELEVANT STOCK REGISTERS I N THIS REGARD BE PRODUCED. DETAILS OF RENT PAID GODOWN WISE (AMOUNT PER MONTH I MODE OF PAYMENT I.E. CHEQUE / CASH, ORIGINAL RENT AGREEMENT , TDS DETAILS ETC. BE ALSO FURNISHED.) III) INWARD OUTWARD REGISTERS OF THE WARE HOUSE BE PRODUCED ALONGWITH RELEVANT RECEIPT FURNISHED TO THE NSEL. INSPECTION REPORTS O F THE OFFICERS OF NSEL BE ALSO PRODUCED. IV) A) NAMES, ADDRESSES, CONTACT PERSONS, CONTACTS NUMBERS AND COPIES OF ACCOUNTS OF ALL SUPPLIERS IN RESPECT OF STOCK MENTI ONED IN WARE HOUSE RECEIPTS(WRS). B) PARTY WISE GOODS (QUANTITY) AND AMOUNT OF GOODS SUPPLIED. C) PHOTOCOPY OF BILLS FROM WHOM PURCHASES/SALES MOR E THAN RS. ONE CRORE. V) BILLS AND RECORDS RELATING TO TRANSPORT AND DELI VERY OF COMMODITIES INCLUDING TRANSPORTABILTY FROM SUPPLIER TO THE GODO WN OF THE ASSESSEE AND TO THE DESIGNATED WARE HOUSE OF THE NSEL. VI.) NAMES OF THE DIRECTORS WITH PAN NUMBERS AND SISTER CONCERNS WITH PAN NUMBERS. VII) COPIES OF ALL BANKS ACCOUNTS MENTIONING DEBIT AND CREDITS ALONGWITH COPIES OF BANK STATEMENTS. VIII.) DETAILS OF STOCK OF COMMODITIES WHICH; H AVE BEEN., DELIVERED, TO NSEL ACCREDITED GODOWN FROM 01 .04.2012 TILL DATE IN THE FOLLOWING FORMAT:- SR. NO. NAME OF THE COMMODITY QUANT ITY DATE OF DELIVERY AT NSEL ACCREDITED GODOWN AMOUNT (IN RS.) RECEIVED AGAINST THE PARTICUL ARS OF THE WAREHOU SING ADDRESS OF THE GODOWN WHERE DELIVERE WHETHER THE COMMODI TY WAS FINALLY DATE INSPECTI ON BY NSEL ITA NO.577, 578 AND 579/CHD/2019 22 DELIVERY DOWN RECEIPT D SOLD OR PURCHASE D BACK ON THE DAY OF SETTLEMEN T 1 2 3 4 5 6 7 8 9 IX.) TO PRODUCE THE COMPLETE BOOKS OF ACCOUNT S WITH VOUCHERS AND SOFT COPIES. THE SAID INFORMATION BE FURNISHED ON / BEFORE 21.03 .2016. NOTE:- (INDU BALA SAINI) COMMISSIONER OF INCOME TAX, CENTRAL,CIRCLE-III, LUDHIANA. A.) PHOTOCOPIES OF THE IMPOUNDED DOCUMENTS A-1 (PAG ES I TO 250) AND A-2 (PAGES I TO 206) IMPOUNDED FROM M/S LOIL HEALTH FOO DS LTD., LOIL OVERSEAS LTD., LOIL CONTINENTAL FOODS LTD., KHAMANO, DISTT. FATEHGARH SAHIB (PUNJAB). B.) PHOTOCOPIES OF THE IMPOUNDED DOCUMENTS ANNEXURE A-1 (PAGES I TO 241), A-2 (PAGES I TO 180), A-3 (PAGES L TO 254), A -4 (PAGES 1 TO 371), A-5 (PAGES 1 TO 148), A-6 (PAGES I TO 65), A-7 (CONTAIN ING CDS), A-8 (CONTAINING CDS), A-9 (HARD DISK) IMPOUNDED FROM M/ S LOIL HEALTH FOODS LTD., LOIL CONTINENTAL FOODS LTD., SCO 18-19,1ST FL OOR, SECTOR 9-D, CHANDIGARH. C.) PHOTOCOPIES OF THE IMPOUNDED DOCUMENTS ANNEXURE A-1 TO A-4 (CONTAINING COMPUTER HARD DISK) IMPOUNDED FROM M/S LOIL OVERSEAS FOODS LTD., 807, KAILASH BUILDING, 26, K.G. MARG, NEW DEL HI. MAY BE TAKEN FROM THIS OFFICE AT ANY TIME (IF NOT A LREADY TAKEN). 2. STATEMENTS OF SH. JANAK RAJ SINGH DATED 22.08.20 13 U/S 131 IS ENCLOSED. 9. SIMILARLY, QUESTIONNAIRES HAVE BEEN ISSUED TO OT HER TWO CONCERNS, AND THEY HAVE SUBMITTED A DETAILED REPLY. THE LD.A O THEREAFTER AGAIN ISSUED QUESTIONNAIRE ON 24.3.2016, AND THE DETAILS ASKED FOR WERE REPLIED BY THE ASSESSEE. THE QUESTIONNAIRE ISSUED BY THE L D.AO IS NOTED HERE AS UNDER: ITA NO.577, 578 AND 579/CHD/2019 23 PRESENT SH. BALBIR SINGH UPPAL, SH. JANAK RAJ SING H UPPAL, SH. SUDHIR SEHGAL, CA, AND SH. P.C. JAIN ATTENDED THE A SSESSMENT PROCEEDINGS AND ASKED TO FURNISH THE FOLLOWING DETA ILS :- 1. SETTLEMENT A/C OF NSEL WITH HDFC BANK LUDHIANA . 2. ALL BANK ACCOUNTS OF M/S LOIL HEALTH FOODS LTD. M/S LO/L CONTINENTAL FOODS LTD. & M/S LOIL OVERSEAS FOODS LTD. 3. ALL BANK LEDGER A/C COPIES IN THE BOOKS WITH NARRATIONS. 4. PURCHASE BOOK/ REGISTER AND DELIVERY BOOK/ REG ISTER 5. SALES BOOK/REGISTER 5 A. DELIVERY BOOKS/ REGIS TER 5.B. DELIVERY RECEIPTS BOOK AT WAREHOUSE/ REGISTER WITH ACKNOWLEDGEMENT PROOF. 6. COPY OF AGREEMENT WITH NSEL 7. MANDI WISE COMMITTEE PURCHASE ACCOUNT WITH MANDI TAX PAID. DOCUMENTARY PROOF OF MANDI TAX EXEMPTION CERTIFICAT E. 8. PROCEDURE OF OPERATION AT NSEL PLATFORM 9. DETAILS OF PURCHASE AT NSEL PLATFORM 10. DETAILS OF TOP 5 BUYERS/BROKERS WITH THEIR COP IES OF ACCOUNTS 11. PARTY LEDGERS. 12. STOCK REGISTERS 13. TRIAL BALANCE 14. ANY COURT PROCEEDINGS BY YOU/ NSEL WITH DOCUMEN TARY EVIDENCES. 15. CONFIRMATION OF ACCOUNT FROM NSEL CASE FIXED FOR HEARING ON 26.03.2016 AT 9.00 AM. 10. WE ALSO INCLINE TO TAKE NOTE OF QUESTIONNAIRE I SSUED ON 26.3.2016 WHICH READS AS UNDER: PRESENT SH. JANAK RAJ SINGH UPPAL, SH. SUDHIR SEHG AL, CA, AND SH. P.C. JAIN, CA, ATTENDEE! THE ASSESSMENT PROCEED INGS AND ASKED TO FURNISH THE FOLLOWING DETAILS:- 1. AS PER ORDER SHEET ENTRY DATED 2.03.2016 YOU WERE A SKED TO EXPLAIN THE PROCEDURE OF OPERATION AT NSFL PLATFORM (ALONGWITH DOCUMENTARY EVIDENCE). HOWEVER THE SYSTEM OF OPERATION WITH N'SEL HA S NOT BEEN EXPLAINED VIZ. HOW THE GOODS ARE RECEIVED/ VERIFIED. ITA NO.577, 578 AND 579/CHD/2019 24 IN HOW MANY DAYS IN NSEL IS--REQUIRED TO M AKE THE PAYMENT/ ANY ROLL OVER ALLOWED IF YES, TERM AND CONDITIONS/WHETHER THE BUYER AND SELLER COMPULSORY REQUIRED TO TAKE THE DELIVERY ? 2. KINDLY EXPLAIN THE DEBIT & CREDIT ENTRIES IN THE SETTLEMENT ACCOUNT WITH HDFC BANK. 3. COPY OF LEDGER ACCOUNT OF LAKSHMI ENERGY & FOODS LTD./(LAKSHMI OVERSEAS INDUSTRIES LTD.) NOT PRODUCE D. TO PRODUCE THE SAME. 4. ANNEXURE D PRODUCED IS DETAILS OF THE ALLEGED PU RCHASES MADE BY M/S LAKSHMI ENERGY & FOODS LTD. FROM THE COMMISS ION AGENTS. THE SAME BE GIVEN ASCENDING & DESCENDING ORDER ON T HE BASIS OF QUANTITY PURCHASED. 5. TO PRODUCE COPIES OF ACCOUNTS OF TOP 100 COMMI SSION AGENTS IN THE BOOKS OF LAKSHMI ENERGY & FOOD LTD.(LAKSHMI OVERSEAS INDUSTRIES LTD.). 6. TO PRODUCE ONE SAMPLE COPY OF T FORM ISSUED BY T HE COMMISSION AGENTS IN RESPECT OF THE TOP 100 COMMISSION AGENTS & TO M/S LAKSHMI ENERGY & FOOD LTD. 7. ORIGINAL BANK ACCOUNT OF M/S LAKSHMI ENERGY & F OODS LTD. AND COPY OF BANK ACCOUNT IN THE BOOKS WITH EXPLANAT ION/NARRATION OF DEBIT & CREDIT ENTRIES. 8. ORIGINAL BANK ACCOUNT OF SH. BALBIR SINGH UPPAL AND COPY OF BANK ACCOUNT IN THE BOOKS WITH EXPLANATION/NARRATIO N OF DEBIT & CREDIT ENTRIES. 9. COPY OF ACCOUNT WITH NARRATIONS OF M/S GANESHAY OVERSEAS INDUSTRIES LTD. WITH ASSESSMENT PARTICULARS /PAN / P & L A/C / BALANCE SHEET WITH ANNEXURE WITH NARRATION OF BANK ACCOUNT (DEBIT / CREDITS). LOIL HEALTH FOODS LTD. LOIL CONTINENTAL FOODS LTD. REMARKS 1. SALES TO NSEL PURCHASE FROM KINDLY EXPLAIN ITA NO.577, 578 AND 579/CHD/2019 25 (MEMBER LCFL) = 4,18,824.82 (M.T.) NSEL (MEMBER LHFL)=2,21,721.21 THE DISCREPANCY LOIL CONTINENTAL FOODS LTD. LOIL OVERSEAS FOODS LTD. 1 PURCHASE FROM NSEL (MEMBER LOIL OVERSEAS)=2,01,600 (M.T.) SALES TO NSEL (MEMBER LOIL CONTINENTAL)=NIL KINDLY EXPLAIN THE DISCREPANCY LOIL HEALTH FOOD LTD. LOIL OVERSEAS FOODS LTD. 1 SALES TO NSEL (MEMBER LOIL OVERSEAS)=2,38,406 (M.T.) PURCHASE FROM NSEL (MEMBER LOIL OVERSEAS)=NIL KINDLY EXPLAIN THE DISCREPANCY. 11. ALL THESE QUESTIONNAIRES WERE DULY REPLIED; THE Y WERE DISCUSSED BY THE AO. BUT SHE DID NOT MAKE ANY ADDITION ON THE B ASIS OF INFORMATION IN THE DATA OF NSEL. SHE DID NOT MAKE ANY ADDITION QUA LOOSE PAPERS FOUND DURING THE COURSE OF SURVEY, BECAUSE SURVEY W AS CONDUCTED MUCH BEFORE THE ASSESSMENT YEAR 2013-14. SHE HAD MADE S PECIFIC REFERENCE ABOUT THE LOOSE PAPER IN THE QUESTIONNAIRE DATED 13 .3.2016 EXTRACTED (SUPRA). ONLY ADDITION MADE BY THE AO IS BASED UPO N S&TA REPORT. THE ADDITION MADE ON THE BASIS OF S&TA REPORT TRA VELLED TO THE TRIBUNAL, AND THE TRIBUNAL HAS DELETED THE ADDITION EVEN SUMMONED THE AO TO THE TRIBUNAL FOR POINTING OUT AS TO HOW HE HA S MADE ADDITION. THE FINDING RECORDED BY THE TRIBUNAL IN THE CASE OF LOI L CONTINENTAL FOODS LTD. IN ITA NO.98/CHD/2017 AND ITA NO.99/CHD/2017, WHICH READS AS UNDER: 16.1. WE MAY ALSO NOTE HERE THAT AFTER HEARING TH E ARGUMENTS OF BOTH PARTIES, THE AO WAS DIRECTED TO APPEAR IN PERS ON FOR ITA NO.577, 578 AND 579/CHD/2019 26 CLARIFICATION ON CERTAIN POINTS ON THIS MATTER. THE AO, SH. AMIT PRATAP SINGH , DCIT, CENTRAL CIRCLE-3, LUDHIANA APP EARED BEFORE THE BENCH ON FINAL DATE OF HEARING OF APPEAL ON 16. 03.2017. THE AO AFTER GOING THROUGH THE RECORD SUBMITTED THAT NO STATEMENTS OF ANY RESPONSIBLE PERSONS FROM NSEL OR M/S SHARP AND TANNAN ASSOCIATES HAVE BEEN RECORDED IN SUPPORT OF SHOWING RECOVERIES AGAINST THE ASSESSEE AT THE ASSESSMENT STAGE. THE A O SUBMITTED THAT THE RECORD WOULD NOT REVEAL THE ALLEGED NATURE OF TRANSACTION BETWEEN ASSESSEE COMPANY AND NSEL, WHETHER IT WAS P URCHASE OR LOAN? THE AO ALSO STATED THAT THE ADDITION IS MADE ON ACCOUNT OF INFERENCE OF UNACCOUNTED PURCHASES. THE AO WAS NOT ABLE TO EXPLAIN AS TO HOW THE ADDITION IS MADE IN ASSESSMEN T YEAR 2013-14 UNDER APPEAL WHEN THE REPORT OF M/S SHARP AND TANNA N ASSOCIATES CLEARLY PRESCRIBE THE PERIOD OF I.T.A .NO.-98 & 99/CHD/2017 RECOVERY FROM 01.08.2013 TO 31.08.2013 IN WHICH ASSESSEE WAS NOT MEMBER OF NSEL. LD.DR IN VIEW OF T HE ABOVE SUBMITTED THAT THE MATTER MAY BE REMANDED TO THE AO FOR FRESH INVESTIGATION INTO THE MATTER. 17. THE COUNSEL OF THE ASSESSEE HOWEVER, SUBMITTED THAT THERE IS NO REASON TO REMAND THE MATTER BACK TO THE FILE OF THE AO FOR FURTHER INVESTIGATION BECAUSE DURING THE INVESTIGAT ION AT THE ASSESSMENT STAGE, THE AO WAS NOT ABLE TO BRING ANY EVIDENCE IN ASSESSEE'S CASE SO AS TO REJECT THE BOOKS OF THE AC COUNTS OR TO MAKE ADDITIONS ON ACCOUNT OF ALLEGED RECOVERIES TO BE MA DE BY NSEL. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMIT TED THAT THE ADDITION MAY BE DELETED. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT THE ASSESSEE REMAINED MEMBER OF NSEL TILL 31.03.201 3 ONLY. IT IS ALSO NOT IN DISPUTE THAT ONLY MEMBERS REGISTERED WI TH NSEL COULD TRANSACT THE ACTIVITIES AT THE PLATFORM OF NSEL. TH EREFORE, AFTER 31.03.2013 THERE IS NO QUESTION FOR THE ASSESSEE TO HAVE TRANSACTED ANY BUSINESS ACTIVITY THROUGH THE PLATFORM OF NSEL. THE LD. COUNSEL FOR THE ASSESSEE ALSO FILED RECEIPT OF MEMB ERSHIP OF THE ASSESSEE, CERTIFYING THE ASSESSEE COMPANY WAS MEMBE R OF NSEL TILL 31.03.2013. THE COPY OF THE ASSESSMENT ORDER I N THE CASE OF GROUP CONCERN M/S. LAKSHMI ENERGY & FOODS LTD. U/S 143(3) FOR ASSESSMENT YEAR 2013-14 IS FILED IN WHICH NO ADDITI ONS HAVE BEEN MADE FOR PURCHASES FROM WHOM THE SUBSTANTIAL PURCHA SES HAVE ITA NO.577, 578 AND 579/CHD/2019 27 BEEN MADE BY THE ASSESSEE. THE ASSESSEE ALSO FILED COPY OF THE PROCEDURE OF OPERATION FROM NSEL PLATFORM. THE ASSE SSEE ALSO FILED COPY OF THE CIVIL SUIT FILED AGAINST NSEL IN WHICH NSEL IS RESTRAINED FROM PRINTING OR PUBLISHING OR CIRCULATI NG ANY NOTICE OR ADVERTISEMENT IN NEWSPAPERS OR OTHERS AGAINST THE A SSESSEE. I.T.A .NO.-98 & 99/CHD/2017 19. THE AO IN THE ASSESSMENT ORDER SPECIFICALLY MEN TIONED THE FACT THAT NSEL WAS A PLATFORM PROVIDED TO ENABLE THE BUY ERS AND SELLERS TO TRANSACT ON SPOT AGAINST ACTUAL DELIVERY OF THE GOODS THROUGH LICENSED MEMBERS APPOINTED BY NSEL. LD. CIT (A) IN HIS FINDING ALSO AFFIRMED SAME FACTS. IT IS, THEREFORE, PROVED ON RECORD THAT NSEL PROVIDES PLATFORM TO ITS MEMBERS TO ENABL E BUYERS AND SELLERS TO TRANSACT ON SPOT AGAINST ACTUAL DELIVERY OF THE GOODS. THE NSEL, THEREFORE, DO NOT INDULGE DIRECTLY IN SALE AN D PURCHASE OF ANY GOODS. THE SETTLEMENT ACCOUNT IS MAINTAINED BY THE NSEL FOR THE ASSESSEE WITH HDFC BANK, LUDHIANA IN RESPECT OF ALL THE TRANSACTIONS CONDUCTED THROUGH NSEL. AS PER SETTLEM ENT OF ACCOUNT, NIL AMOUNT WAS DUE AGAINST THE ASSESSEE AS IS MENTIONED BY THE AO IN THE ASSESSMENT ORDER. THE AO ALSO SPEC IFICALLY MENTIONED IN THE ASSESSMENT ORDER THAT THOUGH THE R ECOVERY SUIT IS PENDING BEFORE THE BOMBAY HIGH COURT BUT IT WAS BET WEEN OTHER PARTIES. THE ASSESSEE FILED AFFIDAVIT TO PROVE THAT NO RECOVERY SUIT IS PENDING AGAINST THE ASSESSEE IN ANY COURT OF LAW ON BEHALF OF THE NSEL. IT IS, THEREFORE, HIGHLY UNBELIEVABLE THA T AS PER REPORT OF M/S SHARP AND TANNAN ASSOCIATES IF HUGE AMOUNT IS D UE AGAINST THE ASSESSEE, NSEL WOULD NOT FILE ANY RECOVERY SUIT AGAINST THE ASSESSEE. THE AUTHORITIES BELOW HAVE HEAVILY RELIED UPON THE REPORT OF M/S SHARP AND TANNAN ASSOCIATES SHOWING R ECOVERIES OF NSEL AGAINST THE ASSESSEE. THE REPORT OF M/S SHARP AND TANNAN ASSOCIATES DATED 02.04.2014 SHOWED THAT THERE MAY B E ALLEGED RECOVERY AGAINST THE ASSESSEE FOR THE PERIOD FROM 0 1.08.2013 TO 31.08.2013 OF THE IMPUGNED AMOUNT. IT IS NOT CLARIF IED AS TO HOW THESE RECOVERIES HAVE BEEN SHOWN AGAINST THE ASSESS EE WHEN THE ASSESSEE COMPANY WAS NOT MEMBER OF NSEL DURING THIS PERIOD AFTER I.T.A .NO.-98 & 99/CHD/2017 31.03.2013. SINCE IT IS NOT IN DISPUTE THAT UNLICENSED MEMBER CANNOT TRANSACT THRO UGH NSEL THEN HOW THE ASSESSEE CONDUCTED TRANSACTIONS DURING THIS PERIOD WHEN IT CEASED TO BECOME MEMBER OF NSEL IS HIGHLY D OUBTABLE ITA NO.577, 578 AND 579/CHD/2019 28 AND UNBELIEVABLE. NO BASIS HAS BEEN SHOWN IN THE RE PORT OF M/S SHARP AND TANNAN ASSOCIATES AS TO HOW THE RECOVERIE S HAVE ARISED AGAINST THE ASSESSEE OF THE IMPUGNED AMOUNT. IT IS ALSO NOT EXPLAINED AS TO WHAT WAS THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE WITH NSEL FOR SHOWING ALLEGED RECOVERY AGAINST IT. IT IS ALSO NOT EXPLAINED AS TO WHAT MATERIAL WAS COLLE CTED BY M/S SHARP AND TANNAN ASSOCIATES FOR RECOVERY OF THE IMP UGNED AMOUNT AGAINST THE ASSESSEE. THE AO APPEARED IN PER SON AT THE TIME OF HEARING OF THE APPEALS AND HAS CATEGORICALL Y STATED THAT NO STATEMENT OF ANY RESPONSIBLE PERSON OF NSEL OR M/S SHARP AND TANNAN ASSOCIATES HAVE BEEN RECORDED DURING THE COU RSE OF THE ASSESSMENT PROCEEDINGS SO AS TO PROVE THE CASE OF T HE REVENUE. THE AO WAS NOT ABLE TO EXPLAIN THE NATURE OF THE TR ANSACTION CONDUCTED BY THE ASSESSEE, WHETHER IT WAS PURCHASE OR LOAN? IT WAS AN INFERENCE OF THE AO THAT THE ASSESSEE MIGHT HAVE MADE SOME UNACCOUNTED PURCHASE FROM NSEL FOR WHICH NO EV IDENCE OR MATERIAL HAVE BEEN COLLECTED OR BROUGHT ON RECORD. NO RIGHT TO CROSS-EXAMINE THE REPORT OF M/S SHARP AND TANNAN AS SOCIATES HAVE BEEN PROVIDED TO THE ASSESSEE AT THE ASSESSMEN T STAGE. HON'BLE SUPREME COURT IN THE CASE OF KISHANCHAND CH ELARAM VS CIT (1980) 125 ITR 713 HELD THAT 'ANY MATERIAL COLL ECTED AT THE BACK OF THE ASSESSEE UNLESS CONFRONTED TO THE ASSES SEE AND ALLOWED CROSS-EXAMINATION CANNOT BE READ ANY EVIDENCE AGAIN ST THE ASSESSEE.' IN THIS CASE ONLY COPY OF EXHIBIT (A) PA PER BOOK PAGE 181 WAS SUPPLIED TO THE ASSESSEE AFTER COMPLETION O F THE ASSESSMENT PROCEEDINGS I.T.A .NO.-98 & 99/CHD/2017 ACCORDING TO THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSES SEE. THE COMPLETE REPORT OF M/S SHARP AND TANNAN ASSOCIATES DATED 02.04.2014 HAVE BEEN PLACED ON RECORD BY THE LD. DR DURING THE COURSE OF HEARING OF THE APPEAL, THEREFORE, SUCH RE PORT CANNOT BE READ IN EVIDENCE AGAINST THE ASSESSEE SO AS TO MAKE THE ADDITION. FURTHER, THIS REPORT SHOWING RECOVERY AGAINST THE A SSESSEE PERTAINED TO THE PERIOD FROM 01.08.2013 TO 31.08.20 13 WHEN THE ASSESSEE WAS NOT MEMBER OF THE NSEL AND SAME WOULD NOT FALL IN AY 2013-14 UNDER APPEAL. THEREFORE, SUCH REPORT CAN NOT BE A BASIS FOR MAKING ADDITION AGAINST THE ASSESSEE. SIN CE NSEL DO NOT INDULGE IN ACTUAL SALE AND PURCHASE, THEREFORE, THE RE CANNOT BE PURCHASES MADE BY THE ASSESSEE FROM NSEL. NO EVIDEN CE OF ANY LOAN OBTAINED BY THE ASSESSEE FROM NSEL HAVE BEEN B ROUGHT ON RECORD TO PROVE ANY RECOVERIES TO BE MADE BY NSEL F ROM THE ITA NO.577, 578 AND 579/CHD/2019 29 ASSESSEE. THE AO DID NOT MAKE ANY ADDITION FOR ANY ALLEGED DISCREPANCIES IN THE ACCOUNTS OF THE ASSESSEE WITH ITS GROUP CONCERNS AS REGARDS TRANSACTIONS CONDUCTED THROUGH NSEL. THE CHARGES PAID TO NSEL FOR USING THEIR PLATFORM HAVE NOT BEEN DOUBTED BY THE AO. ALL THE STOCKS PURCHASED WERE TR ANSFERRED TO GODOWN TO NSEL ON BEHALF OF THE ASSESSEE HAVE BEEN SUPPORTED BY ALL RELEVANT EVIDENCES. THE TRANSACTIONS WERE MADE THROUGH BANKING CHANNELS. ALL THE EVIDENCES ARE FILED IN TH E PAPER BOOK VOLUME 4 & 5. NO AMOUNT IS DUE TO NSEL ON ACCOUNT O F SALE, PURCHASE OR LOAN. NO DIFFERENCE WAS FOUND IN THE AC COUNTS OF MMTC LTD. AND OTHERS. THE BAIL ORDER IN THE CASE OF SH. JIGNESH SHAH WOULD NOT LAY DOWN ANY RATIO TO BE APPLIED AGA INST THE ASSESSEE. NO CONCERN OF THE ASSESSEE WITH BAIL ORDE R OF SH. JIGNESH SHAH HAS BEEN ESTABLISHED. IT IS OBSERVED IN THE BA IL ORDER ITSELF THAT IT DEALS WITH BAIL MATTER ONLY. NO SPECIFIC DE FECTS IN THE MAINTENANCE OF BOOKS OF I.T.A .NO.-98 & 99/CHD/2017 ACCOUNTS BY THE ASSESSEE HAVE BEEN POINTED OUT. THE ASSESSEE FILED COPY OF THE LEDGER ACCOUNT OF THE ASSESSEE IN THE BOOKS OF ACCOUNTS OF NSEL SHOWING ASSESSEE HAS TO RECOVER MARGIN MONEY O F RS.44.56 CRORES FROM NSEL AND SOME AMOUNT IS MENTIONED IN TH E TRAIL BALANCE AS DUE TO THE ASSESSEE, SO THERE IS NO QUES TION OF MAKING ANY RECOVERY AGAINST THE ASSESSEE. THE AUTHORITIES BELOW HAVE MADE AND CONFIRMED THE ADDITION AGAINST THE ASSESSE E BECAUSE THE ASSESSEE COULD NOT FILE CONFIRMATION ACCOUNTS FROM NSEL AS ON THE DATE. WHEN THE ASSESSEE WAS NOT MEMBER OF NSEL DURI NG THE PERIOD FROM 01.08.2013 TO 31.08.2013, THE PERIOD TH E RECOVERY, WHERE IS A QUESTION OF FILING CONFIRMATION FROM NSE L IN THIS REGARD. IF THE AO WANTED TO MAKE THE ADDITION OF IM PUGNED AMOUNT AGAINST THE ASSESSEE, THE AO SHOULD HAVE EXA MINED NSEL AND M/S SHARP AND TANNAN ASSOCIATES. HOWEVER, THE A O DID NOT MAKE ANY INVESTIGATION FROM THEM SO AS TO MAKE ANY ADDITION OF THE IMPUGNED AMOUNT AGAINST THE ASSESSEE. SINCE THE AO FAILED TO MAKE PROPER INVESTIGATION INTO THE MATTER AND NO BA SIS HAVE BEEN SHOWN FOR MAKING THE ADDITION ON ACCOUNT OF THE REC OVERIES TO BE MADE BY NSEL, THE AO FAILED TO DISCHARGE THE ONUS U PON HIM TO MAKE THE ADDITION OF THE AFORESAID NATURE. THERE CA NNOT BE NEGATIVE ONUS ON ASSESSEE TO PROVE IT HAS NOT MADE PURCHASES FROM NSEL IN DISPUTE. NO EVIDENCE OF ANY SHAM PURCHASES/ TRANSACTIONS HAVE BEEN BROUGHT ON RECORD. NO EVIDENCE OF ANY PUR CHASE MADE BY ASSESSEE FROM NSEL HAVE BEEN BROUGHT ON RECORD. ITA NO.577, 578 AND 579/CHD/2019 30 20. THE ABOVE DISCUSSION CLEARLY PROVE THAT THE AO WITHOUT ANY BASIS REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSE E AND WITHOUT BRINGING ANY EVIDENCE OR MATERIAL ON RECORD, MADE T HE ADDITION OF THE IMPUGNED AMOUNT. EVEN DURING THE COURSE OF HEAR ING OF THE APPEAL, THE AO WAS PRESENT IN THE COURT BUT COULD N OT I.T.A .NO.- 98 & 99/CHD/2017 PROVIDE ANY EVIDENCE OR MATERIAL S O AS TO SUSTAIN THE ORDERS OF THE AUTHORITIES BELOW. IN SUC H CIRCUMSTANCES, WE DO NOT FIND IT APPROPRIATE TO REMAND THE MATTER TO THE AO FOR FRESH INVESTIGATION AS IS ARGUED BY THE LD. DR. 21. IN VIEW OF THE ABOVE DISCUSSION AND IN THE ABSE NCE OF ANY COGENT AND RELEVANT EVIDENCE, WE DO NOT FIND ANY JU STIFICATION FOR THE AUTHORITIES TO HAVE REJECTED THE BOOKS OF ACCOU NTS OF THE ASSESSEE U/S 145(3) OF THE ACT OR TO MAKE AN ADDITI ON OF RS.338.40 CRORES. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.338.40 CRORES. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ITA NO.99/CHANDI/2017 (M/S LOIL HEALTH FOODS LTD.) 23. THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED A GAINST THE ORDER OF LD. CIT(A)-V, LUDHIANA DATED 28.12.2016 FO R AY 2013-14 CHALLENGING THE REJECTION OF THE BOOKS OF ACCOUNTS AND ADDITION OF RS.287.48 CRORES AS ALLEGEDLY PAYABLE BY THE ASSESS EE TO NSEL WITHOUT ANY MATERIAL AND EVIDENCE ON RECORD. 24. LD. REPRESENTATIVES OF BOTH THE PARTIES SUBMITT ED THAT THE ISSUES ARE SAME AS HAVE BEEN CONSIDERED IN ITA NO.98/CHANDI/2017 IN THE CASE OF M/S LOIL CONTINENT AL FOOD LTD. VS DCIT (SUPRA) AND ORDER IN THAT CASE MAY BE FOLLO WED. WE, THEREFORE, FOLLOWING THE SAME REASONS FOR DECISION, SET ASIDE THE ORDERS AUTHORITIES BELOW AND DELETE THE ADDITION. A CCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. 12. ANALYSIS OF THESE MATERIALS WOULD INDICATE THAT WHEN THE LD. COMMISSIONER WAS TAKING ACTION UNDER SECTION 263 IN THE MONTH OF MARCH, 2019, ORDER OF THE TRIBUNAL WAS BEFORE HIM. THE ASSESSEE HAS DEMONSTRATED THAT SPECIFIC INQUIRIES QUA THE INFORMATION REVEALED IN ITA NO.577, 578 AND 579/CHD/2019 31 NSEL DATA BASE AS WELL AS IN THE SURVEY HAVE BEEN E XAMINED IN THE ASSESSMENT PROCEEDINGS IN THE ASSTT.YEAR 2013-14 EL ABORATELY. THE LD.COMMISSIONER DID NOT TRY TO ANALYSIS ANY OF THE DETAILS. HE JUST NOTICED THE INFORMATION HALF-HEARTEDLY AND OBSERVED THAT THE ASSESSMENT ORDERS ARE ERRONEOUS. IF THESE FINDINGS OF THE LD. COMMISSIONER ARE BEING EXAMINED IN THE LIGHT OF LAW LAID DOWN BY THE HONB LE DELHI HIGH COURT IN THE CASE OF ITO VS. DG HOUSING PROJECTS LTD. (SU PRA), THEN IT WOULD REVEAL THAT THE LD.COMMISSIONER HAS MERELY RAISED S USPICION ON THE BASIS OF CERTAIN INFORMATION WHICH WERE ALREADY IN THE KN OWLEDGE OF THE AO, NOT ONLY IN THIS ASSESSMENT YEAR, BUT IN EARLIER AS SESSMENT YEARS. THE LD.COMMISSIONER HAS NOT CONCLUSIVELY RECORDED ANY F INDING AS TO WHAT IS THE ULTIMATE IMPACT OF THIS INFORMATION ON THE ASSE SSABILITY OF THESE APPELLANTS, AND HOW NON-CONSIDERATION OF THIS MADE THE ASSESSMENT ORDER AS ERRONEOUS. THE AO HAS TAKEN NOTE OF ALL THESE T HINGS, BECAUSE THESE VERY MATERIALS WERE AVAILABLE IN THE IMMEDIATELY PR ECEDING YEAR. THE ONLY ADDITION MADE AND CONFIRMED BY THE LD.CIT(A) I N THE ASSTT.YEAR 2013-14 HAS BEEN STRUCK DOWN. THUS, THE LD.COMMISS IONER OUGHT TO HAVE LOOKED INTO ORDER OF THE ITAT, AND THEREAFTER, ANALYSED THE DETAILS, WHETHER ANY INCOME HAS ESCAPED ON ACCOUNT OF FAILUR E OF THE AO TO CONDUCT ADEQUATE INQUIRY (IN THE OPINION OF CIT). THE LD.COMMISSIONER NOWHERE MADE OUT THAT CASE. 13. IN PARA-15 OF THE IMPUGNED ORDER, THE LD.COMMIS SIONER RECORDED A FINDING THAT THE AO OUGHT TO HAVE CALLED FOR REPORT OF S&TA, AND THEN SHOULD HAVE EXAMINED. THE DISCUSSION MADE BY THE LD.COMMISSIONER WITH REGARD TO THIS ISSUE IS WORTH TO NOTE, WHICH R EADS AS UNDER: ITA NO.577, 578 AND 579/CHD/2019 32 15. THE AR IN PARA B, (V), (C) AND PARA C IN HIS R EPLY HAS REFERRED TO THE REPORT OF SHARP AND TANNAN, AND STATED THAT THE SAID COMPLETE REPORT WAS NOT MADE AVAILABLE AND ONLY ONE PAGE OF THE REPORT WAS CONFRONTED DURING THE ASSESSMENT PROCEEDINGS FOR TH E A.Y. 2013-14. THIS ONLY BUTTRESSES THE PREMISE THAT THE AO DID NO T CALL FOR THE REPORT OF SHARP AND TANNAN DESPITE REFERENCE TO THE SAME I N ASSESSMENT PROCEEDINGS FOR A.Y. 2013-14 AND FOR THE A.Y. 2014- 15. THE AR HAS FURTHER STATED THAT ADDITION WAS MADE W.R.T CERTAIN DOCUMENTS OF SHARP AND TANNAN IN THE A.Y. 2013-14 WHICH AGAIN CANNOT B E A BASIS FOR ADDITION IN A.Y. 2014-15. THIS WARPED ARGUMENT OF S UGGESTED REPLICATION OF PROCEEDINGS OF A.Y. 2013-14 TO A.Y. 2014-15 HAS BEEN SUFFICIENTLY DEALT WITH IN THIS ORDER. SUFFICE, IT IS TO SAY THAT THE AO SHOULD HAVE CALLED FOR THE REPORT OF SHARP AND TANN AN, EXAMINE THE TRANSACTIONS OF THE ASSESSEE COMPANY WITH REFERENCE THERETO AND DRAW CONCLUSIONS BEFORE COMPLETING THE ASSESSMENT FOR A. Y. 2014-15. 14. THE ABOVE REASONING SUGGESTS IN ITSELF THAT HOW THE LD.COMMSSIONER HAS LOST SIGHT OF ALL THE RELEVANT M ATERIALS. IN THE ASSTT.YEAR 2013-14 ON THE BASIS OF S&TA REPORT, A N ADDITION OF RS.338 CRORE WAS MADE IN THE CASE OF LOIL CONTINENT AL FOODS LTD, RS.287, AND RS.85 CRORES IN THE HANDS OF OTHER TWO APPELLANTS. WE HAVE EXTRACTED RELEVANT PART OF THE ASSESSMENT ORDER IN PARA-5 OF THIS ORDER. FROM THE QUESTIONNAIRE ISSUED IN THE ASSTT.YEAR 201 3-14 AND THE ULTIMATE ADDITION MADE BY THE AO DO SUGGEST THAT TH E REPORT OF S&TA WAS VERY WELL WITH THE AO DURING THE ASSESSMENT PRO CEEDINGS FOR 2013- 14. ACCORDING TO THE ASSESSEE THIS REPORT IS NEITH ER HERE NOR THERE FOR FIXING A LIABILITY UPON THE ASSESSEE, MUCH LESS GIV ING RISE TO ANY TAXABLE INCOME IN THE HANDS OF THE ASSESSEE. IT IS JUST ON E PAGE OF THE REPORT FROM SOME PROFESSIONALS PUTTING LIABILITY ON CERTAI N ENTITIES. WHEN THE ISSUE FALLEN FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSTT.YEAR 2013-14 THEN IT WAS FOUND THAT SUCH PAPER IS NOT SUFFICIENT FOR PUTTING THE ASSESSEE UNDER SUCH HUGE LIABILITY, AND AGAIN, THE LD.COMMIS SIONER INSTEAD OF ITA NO.577, 578 AND 579/CHD/2019 33 CONDUCTING ANY INQUIRY OR COLLECTING ANY MATERIAL J UST REPEATED THOSE ASSERTION BASED ON SURMISES. WE ALSO FIND THAT THE LD.COMMISSIONER HAS MADE REFERENCE TO A LETTER WRITTEN BY NSEL TO THE P RESIDENT, ITAT WHEN THE APPEAL AGAINST THE ASSESSEE FOR THE A.Y.2013-14 WAS ALLOWED. HE REPRODUCED COPY OF THAT LETTER IN THE IMPUGNED ORDE R. IT IS PERTINENT TO OBSERVE THAT THE LD.COMMISSIONER BEING A QUASI-JUDI CIAL AUTHORITY WAS REQUIRED TO SHOW CONCERN ABOUT THE ESCAPEMENT OF TA XABLE INCOME IN THE HANDS OF THE ASSESSEE. THE INCOME-TAX PROCEEDINGS ARE NOT THE PROCEEDINGS WHERE CRIMINAL LIABILITIES OR TITLE PER TAINED TO CIVIL DISPUTE COULD BE RESOLVED. IT IS NOT ASCERTAINABLE, WHAT I S THE DISPUTE BETWEEN THE NSEL AND THE APPELLANTS. DURING THE COURSE OF HEARING, WE HAVE PUT A QUESTION TO BOTH THE REPRESENTATIVES, WHETHER ANY CIVIL SUIT AT THE END OF THE NSEL AGAINST THE APPELLANTS FOR RECOVERY OF ANY DUE IS PENDING. THE LD.COUNSEL FOR THE ASSESSEE GAVE REPLY IN NEGATIVE. SIMILARLY, THE LD.CIT-DR HAS EXPRESSED HIS IGNORANCE ABOUT THE ABO VE FACTS. HE ONLY POINTED OUT THAT FROM THE MATERIAL, IT IS DISCERNIB LE THAT CIVIL SUITS WERE FILED AGAINST OTHER PARTIES. BUT HE COULD NOT SPEC IFY, WHETHER ANY CIVIL SUIT IS BEING FILED AGAINST THE ASSESSEE. WE FAIL TO UNDERSTAND HOW THE COGNIZANCE OF SUCH REPORT OR REPORT OF S&TA CAN H AVE EFFECT ON THE TAXABILITY OF THE PRESENT ASSESSEES; MORE SO, WHEN NO INVESTIGATION OR INQUIRY HAS BEEN CONDUCTED BY THE LD.COMMISSIONER B EFORE BRANDING THE ASSESSMENT ORDERS AS ERRONEOUS. THEREFORE, AS FAR AS FIRST COMPARTMENT OF SHOW CAUSE NOTICE IS CONCERNED, WE ARE OF THE VI EW THAT THE LD.COMMISSION FAILED TO POINT OUT ANY REASONS WHICH CAN SUGGEST THAT THE ASSESSMENT ORDERS ARE ERRONEOUS. THE MATERIALS RE FERRED BY HIM ARE SUPERFICIAL, WHICH AT THE MOST CAN RISE A SUSPICION ONLY. NO FIRM ITA NO.577, 578 AND 579/CHD/2019 34 CONCLUSION CAN BE DRAWN NOR SUPPORT THE STAND TAKEN BY THE LD.COMMISSIONER. 15. AS FAR AS THE SECOND COMPARTMENT OF THE SHOW CA USE NOTICE IS CONCERNED, A PERUSAL OF SERIAL NO.VI TO VII OF THE REASONS ASSIGNED BY THE LD.COMMISSIONER WOULD INDICATE THAT HE HAS MADE REF ERENCE TO THE OUTSTANDING ADVANCES IN THE ACCOUNT, OPENING STOCK OF FINISHED GOODS, TRADE PAYABLES, AND INCREASE UNDER THE HEAD SHORT T ERM LOANS AND ADVANCES. A PERUSAL OF THE REPLY GIVEN BY THE ASSE SSEE WOULD INDICATE THAT ALL THESE ASPECTS HAVE BEEN GONE THROUGH BY TH E AO BEFORE FINALIZING ASSESSMENT ORDER. IN THE CASE OF LOIL C ONTINENTAL FOODS LTD. FIRST ISSUE RAKED UP BY THE LD.COMMISSIONER IS THAT THERE WERE OUTSTANDING ADVANCES FROM BUYERS OF RS.25.38 CRORES . IN HIS OPINION, THIS ISSUE WAS NOT CONSIDERED BY THE AO. THE LD.C OUNSEL FOR THE ASSESSEE TOOK US THROUGH THE RECORD AND SUBMITTED T HAT COPY OF THE QUESTIONNAIRE DATED 27.6.2016 IS AVAILABLE ON PAGE NOS.1 TO 6 OF THE PAPER BOOK. AT SR.NO.28, THE LD.AO HAS CALLED FOR FOLLOWING INFORMATION: NAME AND ADDRESS OF THE PERSON FROM WHOM ADVANCES/ DEPOSITS WERE TAKEN DURING THE YEAR UNDER CONSIDERATION 16. THIS QUESTIONNAIRE WAS REPLIED AND THE ASSESSEE HAS SUBMITTED ALL DETAILS IN ANNEXURE-15 ALONG WITH ITS REPLY. ON PA GE NO.21 OF THE PAPER BOOK, THE ASSESSEE HAS ANNEXED LIST OF ADVANCES FRO M THE BUYERS. IT IS FROM LAKSHMI ENERGY FOODS LTD., ADDRESS : SCO-18-19 , SECTOR-9D, CHANDIGARH. THE BALANCE SHOWN AT RS.25,38,99,211/- . THEREAFTER, THE ASSESSEE HAS ANNEXED LEDGER ACCOUNT SHOWING THE SAL ES TO THIS PARTY. THESE DETAILS WERE BEFORE THE AO WHEN THE ASSESSMEN T ORDER WAS ITA NO.577, 578 AND 579/CHD/2019 35 PASSED. HE HAS CALLED FOR THESE DETAILS, AND WAS S ATISFIED. IT IS A DIFFERENT MATTER THAT HIS SATISFACTION MAY NOT MATC H WITH THE EXPECTED SATISFACTION OF THE LD.COMMISSIONER. IN THAT CASE, NO ACTION UNDER SECTION 263 CAN BE TAKEN. SIMILARLY, NEXT MAJOR IT EM IS HUGE TRADE PAYABLE I.E. RS.64.31 CRORES. AT THE TIME OF HEARI NG, THE LD.COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TOWARDS SERIAL NO.2 1 OF THE QUESTIONNAIRE ISSUED BY THE AO. THE QUESTIONNAIRE READS ALL DET AILS OF SUNDRY CREDITORS AT THE END OF THE YEAR UNDER CONSIDERATIO N ALONG WITH COMPLETE ADDRESS. THIS QUESTION WAS REPLIED BY THE ASSESSE E AND IT WAS SUBMITTED THAT COMPLETE LIST OF CREDITORS AS ON 31.3.2014 IS BEING ENCLOSED IN ANNEXURE-12. THUS, DETAILS OF ALL THE TRADE PAYABL ES HAVE BEEN SUBMITTED TO THE AO ALONG WITH COMPLETE ADDRESS. S UCH DETAILS ARE AVAILABLE ON PAGE NO.25 AND THESE AMOUNTS PAYABLE T O LOIL OVERSEAS FOODS LTD., AND LAXMI ENERGY FOODS. THUS, DETAILS WITH REGARD TO THESE CONCERNS WERE ALSO WITH THE AO. HE WAS ALSO IN SEI SIN OF ASSESSING THE INCOME OF ONE OF THE TRADE CREDITORS VIZ. LOIL OVER SEAS FOODS LTD. HE MIGHT HAVE BEEN SATISFIED WITH THE ACCOUNTS SUBMITT ED BEFORE HIM. WHAT VERIFICATION WOULD REQUIRE I.E. GENUINENESS OF THE TRANSACTION OR IDENTITY OF THE PARTIES? THESE WERE BEFORE HIM. WE HAVE MI NUTELY EXAMINED EACH AND EVERY REASON ASSIGNED BY THE LD.COMMISSION ER UNDER SERIAL NO.VI OF THE REASONS GIVEN BY HIM IN THE SHOW CAUSE NOTICE. IT IS DISCERNIBLE THAT ALL THESE DETAILS WERE SUBMITTED B EFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSMENT P ROCEEDINGS CONTINUED FOR ALMOST MORE THAN EIGHT TO NINE MONTHS , AND THE ACCOUNTS WERE PROVIDED BEFORE THE AO. THE LD.COMMISSIONER JU ST MADE NARRATIONS IN THE SHOW CAUSE NOTICE, BUT HAS NOT CONDUCTED ANY INQUIRY, AND HAS NOT HELD HOW ASSESSMENT ORDER IS ERRONEOUS BY POINTING OUT SHORT-COMINGS OF ITA NO.577, 578 AND 579/CHD/2019 36 THESE ACCOUNTING ENTRIES. HE SHOULD HAVE VERIFIED FROM LAXMI ENERGY FOOD OR LOIL OVERSEAS FOODS LTD., AND THEREAFTER RE CORDED A FINDING THAT BY ACCEPTANCE OF ACCOUNTING ENTRIES, THE AO HAS COM MITTED THIS ERROR. ONLY THEN, HE CAN RELEGATE TO THE AO FOR RE-ADJUDIC ATION, BUT NO SUCH STEPS HAVE BEEN TAKEN. HE JUST TOUCHED THIS ISSUE PERIPHERALLY WITHOUT CONDUCTING ANY INVESTIGATION. 17. THE LD.CIT MADE REFERENCE TO THE EXPLANATION -2 TO SECTION 263 AND ALSO DECISION OF HONBLE SUPREME COURT IN THE C ASE OF CIT VS. AMITABHACHAN, 384 ITR 200. IT IS PERTINENT TO NOTE THAT EXPLANATION -2 OF SECTION 263(1) WOULD HELP THE LD.COMMISSIONER TO TAKE COGNIZANCE UNDER SECTION 263 OF THE ACT, IF NO INQUIRY WAS CON DUCTED BY THE AO BEFORE FINALIZING THE ASSESSMENT ORDER. NO DOUBT T HE ASSESSMENT ORDERS ARE VERY BRIEF, AND DID NOT HAVE ELABORATE DISCUSSI ON ON THESE ISSUES, BUT IT IS PERTINENT TO BEAR IN MIND THAT ASSESSEES HAVE NO CONTROL OVER THE AO AND CANNOT PERSUADE HIM TO DRAFT THE ASSESSMENT ORD ER IN A PARTICULAR MANNER. IT IS THE DISCRETION OF THE AO, HOW TO PAS S AN ASSESSMENT ORDER. HAD AN ELABORATE DISCUSSION AVAILABLE, THEN THAT WO ULD BE AN IDEAL SITUATION FOR THE HIGHER APPELLATE AUTHORITIES TO A PPRECIATE, WHAT HAS OPERATED IN THE MIND OF THE AO WHILE PASSING THE AS SESSMENT. BUT IN THE ABSENCE OF SUCH DISCUSSION, IT HAS TO BE ASCERTAINE D FROM THE QUESTIONNAIRE AND THE REPLIES SUBMITTED BY THE ASSE SSEE. EXPLANATION -2 CAN BE INVOKED WHEN NO INQUIRY WAS CONDUCTED BY THE AO. IN THE PRESENT CASE, HE HAS ISSUED A QUESTIONNAIRE CALLING FOR DETAILS ON 37 COUNTS. THOSE DETAILS WERE SUBMITTED. SOME OF THE ISSUES RAKED UP BY THE LD.COMMISSIONER IN THE IMPUGNED ORDER WERE BETW EEN THE GROUP CONCERNS, AND THEIR ACCOUNTS WERE OPEN BEFORE THE A O IN SIMULTANEOUS ITA NO.577, 578 AND 579/CHD/2019 37 PROCEEDINGS. HE WAS SATISFIED WITH THESE ACCOUNTS. THUS, IT IS A CASE OF INQUIRY AND EXPLANATION -2 CANNOT BE INVOKED IN THE PRESENT CASE. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW TH AT THE LD.COMMISSIONER IS NOT JUSTIFIED IN EXERCISING POWE RS UNDER SECTION 263, AND SETTING ASIDE THE ASSESSMENT ORDERS. WE ALLOW ALL THESE APPEALS AND QUASH THE IMPUGNED ORDERS PASSED UNDER SECTION 263 OF THE INCOME TAX ACT IN EACH CASE OF THE APPELLANTS. 18. IN THE RESULT, ALL THREE APPEALS OF THE AS SESSEES ARE ALLOWED. ORDER PRONOUNCED IN THE COURT ON 4 TH DECEMBER, 2019 AT CHANDIGARH. SD/- SD/- N.K. SAINI (VICE-PRESIDENT) (RAJPAL YADAV) JUDICIAL MEMBER