Pushpak Steel Industries Pvt. Ltd., Pune V. Commissioner of Income-tax - v,

ITA 763/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0962 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 16-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R G NAHAR
• Keywords: Unexplained investment; Unexplained expenditure; Deemed to accrue or arise in india; Assessment record; Prejudicial to interest; Revenue expenditure; Capital expenditure
• Section: 143(3); 263; 63

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO.763/PN/2014 % % / ASSESSMENT YEAR : 2009-10 PUSHPAK STEEL INDUSTRIES PVT. LTD., MZSK & ASSOCIATES, LEVEL 3, RIVERSIDE BUSINESS BAY, NEAR RTO,PUNE 411001 PAN : AABCP0081C . / APPELLANT V/S CIT-V, PUNE . / RESPONDENT / APPELLANT BY : SHRI R.G. NAHAR / RESPONDENT BY : SHRI RAJEEV KUMAR / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 26-03-2014 PASSED U/S.263 OF THE I.T. ACT, 1961 BY THE CIT-V, PUNE RELATING TO THE ASSESSMENT YEAR 2009-10. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF RE-ROLLERS OF STRUCTURAL STEEL AND TMT BARS AND DEALING IN STEEL PRODUCTS. IT FILE D ITS RETURN OF INCOME ON 29-09-2009 DECLARING TOTAL INCOME OF RS.12,18,67,730/-. THE AO COMPLETED THE ASSESSMENT U/S.14 3(3) ON 18-11-2011 ACCEPTING THE RETURNED INCOME. SUBSEQU ENTLY, THE LD.CIT ON EXAMINATION OF THE ASSESSMENT RECORDS WAS OF T HE / DATE OF HEARING :23.08.2016 / DATE OF PRONOUNCEMENT:16.09.2016 2 ITA NO.763/PN/2014 OPINION THAT THE ORDER PASSED BY THE AO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE ME ANING OF SECTION 263 OF THE ACT FOR THE FOLLOWING REASONS : THE ADDITIONAL INCOME DISCLOSED OF RS.2,86,46,600/- I N THE FORM OF STOCK DURING THE COURSE OF SURVEY, BEING UNACCOUNTED SH OULD HAVE BEEN ASSESSED AS DEEMED INCOME U/S.69/69C OF THE ACT, INSTEAD O F CREDITING TO P&L ACCOUNT. BY DOING SO THE ASSESSEE IS ELIGIBLE FOR CLAIMING THE ADDITIONAL UNEXPLAINED EXPENDITURE ADDED TO THE CLO SING STOCK AS OPENING STOCK IN A.Y. 2010-11 AND TAKE BACK THE TAX PAID ALONG WITH INTEREST ON ACCOUNT OF REDUCTION IN PROFIT. AN AMOUNT OF RS.26,80,591/- IS DEDUCTED FROM THE SALES OF FINISHED GOODS ON THE GROUND THE SAME IS SALE OF RAW MATERIAL, W HICH SHOULD HAVE BEEN OFFERED IN P&L ACCOUNT AS SALE OF RAW MATER IAL SEPARATELY. THE AO HAS WITHOUT VERIFICATION ACCEPTED THE RECONCI LIATION STATEMENTS EVEN THOUGH IN BANK BALANCES SHOWN IN SCHEDULE 9 OF TH E BALANCE SHEET DIFFERS FROM THE BALANCES AS PER RECONCILIATIONS SUBMITT ED BY THE ASSESSEE AS UNDER : S.NO. NAME OF THE BANK BANK BALANCE AS PER BALANCE SHEET BANK BALANCE AS PER RECONCILIATION STATEMENT 1 COSMOS MUMBAI BRANCH RS.8,50,00,000/ - 5,65,63,336.26 2 HDFC ACCOUNT NO.9 RS.44,24,579.62 RS.1,46,49,385.82 2. AS THE ABOVE ISSUES HAVE NOT BEEN VERIFIED BY THE ASS ESSING OFFICER WHILE COMPLETING ASSESSMENT PROCEEDINGS FOR THE A.Y. 2009-10, THE ACTION OF THE ASSESSING OFFICER APPEARS TO BE ERRON EOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 3. IN VIEW OF THE ABOVE, YOU ARE HEREBY GIVEN AN OP PORTUNITY OF BEING HEARD EITHER IN PERSON OR THROUGH YOUR AUTHORI SED REPRESENTATIVE. FOR THIS PURPOSE YOU CASE IS FIXED FOR H EARING IN INCOME-TAX OFFICE AT AKURDI, PUNE ON 14-03-2014 AT 3.30 PM. IF YOU DO NOT WISH TO BE HEARD IN PERSON, A WRITTEN SUBMISSION SHOU LD BE MADE ON OR BEFORE THE AFORESAID DATE, WHICH WILL BE DULY CONSIDERED BEFORE TAKING THE DECISION IN THE MATTER. 3. HE THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WH Y THE ORDER PASSED BY THE AO SHOULD NOT BE SET ASIDE. 4. THE ASSESSEE IN HIS SUBMISSION STATED THAT THE THE S URVEY TOOK PLACE ON 7 TH & 8 TH AUGUST 2009 AND NOT ON 31 ST MARCH 2009. THERE WAS NO DIFFERENCE FOUND IN PHYSICAL STOCK AS COMPARE D TO 3 ITA NO.763/PN/2014 BOOK STOCK, AS ON THE DATE OF SURVEY, CONSIDERING THE T OLERANCE LIMITS PRESCRIBED BY ISI STANDARDS. IT WAS BROUGHT TO T HE NOTICE OF THE CIT THE LETTER DATED 02-09-2009 ADDRESSED TO THE AO WHEREIN THE ASSESSEE HAD REITERATED THAT THERE WAS NO DIFFEREN CE IN PHYSICAL STOCKS AND THE ADDITIONAL INCOME OFFERED WAS ONLY ON ACCO UNT OF CHANGE IN THE VALUATION OF STOCK. THE ATTENTION OF LD.CIT (A) WAS BROUGHT TO THE NOTE M-SCHEDULE-18 APPENDED TO THE ANNUAL ACCOUNTS. 5. IT WAS SUBMITTED THAT THERE WAS NOTHING UNACCOUNTE D FOUND IN RESPECT OF STOCKS OF THE COMPANY. THE STOCKS INCORPOR ATED AS ON 31 ST MARCH 2009 WERE ON THE BASIS OF REGULAR EXCISE RECORDS MAINTAINED BY THE ASSESSEE COMPANY. NOT EVEN SINGLE GRAM OF STEEL STOCK WAS UNACCOUNTED AS IS ALLEGED IN THE NOTICE ISSUED TO THE ASSESSEE UNDER SECTION 263. 6. IT WAS SUBMITTED THAT THE ASSESSEE HAS NOT MADE A NY INVESTMENT WHICH ARE NOT RECORDED IN THE BOOKS OF ACCO UNTS MAINTAINED BY HIM FOR ANY SOURCE OF INCOME. THE ASSESSEE CLARIFIED THAT IT HAS NOT INCURRED ANY EXPENDITURE FOR WHICH HE IS REQUIRED TO OFFER ANY EXPLANATION. THE ASSESSEE STA TED THAT THE VERY BASIS OF DECLARATION WAS THE ADDITIONAL PAYMEN T OF ADVANCE TAX RATHER THAN ANY EXCESS STOCK FOUND, UNACCOUNTED INVESTMENT MADE OR ANY EXPENDITURE INCURRED FOR WHI CH THERE IS NO EXPLANATION. IT WAS SUBMITTED THAT QUESTION NO 2 6 AND THE ANSWER TO SUCH QUESTION, RECORDED AT THE TIME OF SU RVEY OF SHRI. ARUN KUMAR PODDAR WOULD MAKE THIS POINT CLEAR. 4 ITA NO.763/PN/2014 7. SO FAR AS THE SECOND ISSUE IS CONCERNED, I.E., A BOUT DEDUCTION OF RS. 26,80,591/- FROM THE RAW MATERIAL ACCOUNT IT WAS SUBMITTED THAT THIS ISSUE IS SELF EXPLANATORY A S PER 'SCHEDULE NO 15' OF THE BALANCE SHEET GROUPING. IT WAS ARGUED THAT THE ASSESSEE IS MANUFACTURER/RE-ROLLER OF STEE L PRODUCTS SUCH AS ANGLES, CHANNELS, BARS ETC. THE ASSESSEE I S REQUIRED TO WORK OUT THE CONSUMPTION OF RAW MATERIAL FOR THE PU RPOSE OF STATING THE SAME IN ANNUAL ACCOUNTS. IF ANY RAW MAT ERIAL IS SOLD THEN THE SAME IS DEDUCTED FROM THE PURCHASE ACCOUNT SO AS TO REDUCE THE CONSUMPTION SO AS TO REVEAL THE CORRECT FIGURE OF CONSUMPTION IN THE ANNUAL ACCOUNTS. THIS METHOD IS REGULARLY BEING FOLLOWED BY THE ASSESSEE YEAR AFTER YEAR. EVE N IN EARLIER YEAR THERE WAS SALE OF RAW MATERIAL OF RS.4,31,633/ - WHICH WAS TREATED IN SIMILAR MANNER. THIS IS THE ONLY MANNER OF PRESENTATION OF THE ACCOUNTS AND IT WILL NOT HAVE A NY IMPACT ON THE PROFITS OF THE COMPANY. 8. SO FAR AS THE THIRD ISSUE IS CONCERNED, I.E. RECONCILIATION OF CERTAIN BANK ACCOUNTS, IT WAS ARGUED THAT IN BOOKS OF A CCOUNTS THE BALANCE OF THE BANK ACCOUNT IS TAKEN AS PER BOOKS ONLY . IN ORDER TO ESTABLISH THE CORRECTNESS OF THE SAME THE RECONCILIATION O F THE SAME WAS DONE WITH THE BANK STATEMENT. IT WAS STATED THA T THE ASSESSEE IS HAVING BALANCE OF RS.8.50 CRORES WITH MUMBAI BRANCH AND STATED THE SAME IN SCHEDULE NO 9 OF THE BALANCE SHEET UNDER THE HEADING CASH AND BANK BALANCES. THIS IS NOTHING TO DO WITH RECONCILIATION. THE OVERDRAWN BALANCE (CASH CREDIT A/C) WITH COSMOS BANK CHINCHWAD BRANCH IS APPEARING IN SCHEDULE NO 3 OF THE BALANCE SHEET. THE CASH CREDIT ACCOUNT AS PER BOO KS AS ON 31 ST MARCH 2009 IS RS.6,90,33,428/ - WHEREAS AFTER CONSIDERING THE 5 ITA NO.763/PN/2014 CHEQUES DEPOSITED BUT NOT CREDITED AND CHEQUES ISSUED BUT NOT CREDITED THE SAME COMES TO RS. 5,65,63,336/-. THE BALANC E OF HDFC BANK AS PER BOOKS IS RS.44,24,579/- WHICH IS CORRECT LY STATED IN SCHEDULE NO 9 OF THE BALANCE SHEET. THERE WERE CERTAIN CHEQUES ISSUED BUT NOT CLEARED IN THE MONTH OF MARCH 20 09 TOTALLING TO RS.1,02,24,806/-. AFTER TAKING THESE CHEQUES WH ICH ARE APPEARING IN RECONCILIATION STATEMENTS THE BANK BALANCE AS PER BANK STATEMENTS CORRECTLY WORKS OUT TO RS.1,46,49,385/- . THIS IS SELF EXPLANATORY RECONCILIATION STATEMENT. IT WAS ACCORDINGL Y SUBMITTED THAT THE PROPOSED ACTION UNDER SECTION 263 N OT BEING IN ACCORDANCE WITH THE PROVISIONS MAY PLEASED BE DROPPED. 9. HOWEVER, THE CIT WAS NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND HELD THAT THE ORDER PAS SED BY THE AO U/S.143(3) IS ERRONEOUS IN SO FAR IT WAS PREJUDICIAL TO THE IN TEREST OF THE REVENUE. HE, THEREFORE, SET ASIDE THE ORDER PASSED BY THE AO WITH A DIRECTION TO REDO THE SAME AFTER EXAMINING ALL ASPE CTS INCLUDING THE ERRORS POINTED OUT BY HIM. WHILE DOING SO, HE OBSERVED THAT DETAILED SUBMISSIONS BY THE ASSESSEE DURIN G THIS PROCEEDING WAS EXAMINED AND DISCUSSED WHEREIN THE AR HA S JUSTIFIED THE TREATMENT SHOWN IN THE RETURN IN RESPECT O F THE ADDITIONAL INCOME DECLARED DURING THE SURVEY. HE NOTED TH AT IN RESPECT OF THE DECLARATION OF RS.2,86,46,600/- MADE DURING S URVEY FOR A.Y. 2009-10 THE SAME WAS BASED ON A PROFIT AND LOSS ACCOUNT AND COMPUTATION OF INCOME FOUND DURING SURVEY FOR THIS ASSESSMENT YEAR WHEREIN THE TAXABLE INCOME WAS DETERMIN ED AT RS.12,28,32,258/-. SHRI ARUN RAMKUMAR POTDAR DECLARED A SUM OF RS.2 , 86 , 46 , 600/- FOR THIS ASSESSMENT YEAR AS ADDITIONAL INCOME I N ANSWER TO Q . NO . 26. 6 ITA NO.763/PN/2014 10. HE OBSERVED THAT THE AO WHILE COMPLETING THE ASSESSM ENT HAS NOT CARR I ED OUT THE NECESSARY VERIFICAT I ON WHICH WAS IMPORTANT FOR THE REVENUE . FROM TH E C OPY OF THE PR OFIT A ND LOSS ACCOUNT SUBM I TTED BY THE ASSESSEE , WHICH WERE ADMITTED TO HAVE BEEN FOUND DUR I NG SURVEY AND FORMED THE BASIS OF DECLARATION, IT IS CLEARLY NOTED THAT I T I S A COMPUTE R PRINTOUT HAVING ALL THE PARTICULARS OF OPENING STOCK , PURCHASES , SALES, DIRECT EXPENSES , I NDIRECT EXPENSES , ETC . AND THEREFORE IT WAS I NCUMBENT ON THE AO TO HAVE ACCEPTED THE INCLUSION OF THE DECLARATION AS PART OF THE CLOS I NG STOCK ONLY AFTER P R OPER VERIF I CATION AND EXAMINATION , MORE SO WHEN THE SAME WAS AT VAR I ANCE FROM T HE DECLARAT I ON MADE DUR I NG SURVEY . IT WAS ALSO NECESSARY FOR HIM T O HAVE EXAMINED EACH I TEM OF THE DEBIT AND CREDIT SIDE OF THE MANUFACTUR I NG AND PROFIT AND LOSS ACCOUNT APPEARING I N THE DOCUMENT FOUND DURING SURVEY AND FINALLY ENCLOSED IN THE R ETURN SUBSEQUENTLY FILED. IN VIEW OF THE ABOVE HE HELD THAT THE AO HAS COMMITTED THE ERROR OF ATLEAST NOT EXAM I NING THE MATER I ALS PROPERLY AND THEREFORE SUCH AN ASSESSMENT HAS TO BE DECLARED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 11. IN RESPECT OF THE OTHER ISSUES RAISED IN THE SHOW CA USE NOTICE, I.E. SALE OF FINISHED GOODS AND RECONCILIATION OF VARIOUS BANK STATEMENTS, HE NOTED THAT THE ASSESSEE HAS TRIED TO EXPLAIN THE SAME WITH VARIOUS EVIDENCES AND DETAILS. HOWEVER THE SAM E CAN ONLY BE ACCEPTED AFTER PROPER VERIFICATION. SINCE ON THE P RIMARY AND THE FIRST ISSUE THE ASSESSMENT HAS ALREADY BEEN HELD AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE, HE HELD THAT T HE END OF THE JUSTICE CAN STILL BE MADE IF THE AO IS DIRECTED TO VE RIFY THESE ASPECTS ALSO WHILE EXAMINING THE FIRST ISSUE. HE REFERRED TO THE 7 ITA NO.763/PN/2014 DECISION IN THE CASE OF CIT VS. HIMACHAL PRADESH FINANC IAL CORPORATION REPORTED IN (2010) 186 TAXMAN 105 (HP) WHERE IN IT IS HELD THAT AN INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF LAW WOULD SATISFY THE REQUIREMENT OF THE ORDER BEING E RRONEOUS U/S 263. I T HAS ALSO BEEN HELD THAT THE EXPRESSION 'PREJUDICIAL TO INTEREST OF REVENUE' IS OF WIDE IMPORT AND CANNOT BE CON FINED TO LOSS OF TAX ALONE . HE ALSO RELIED ON THE DECISION IN THE CASE OF THALIBAI S . JAIN VS . ITO REPORTED IN (1975) 105 ITR 1 KARNATAKA WHEREIN IT W AS HELD THAT ASSESSMENTS MADE IN UNDUE HASTE OR WITHOUT IN QUIRY ARE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. SIMIL ARLY, IN THE CASE OF GEE VEE ENTERPRISES VS. ADDL . CIT (1975) 99 ITR 375 (DEL) IT WAS HELD THAT THE OMISSION TO MAKE FURTHER INQUIRY IS AN ERROR WHICH IS PREJUDICIAL TO THE REVENUE. SIMILARLY, IN THE C ASE OF CIT VS EMERY STONE MANUFACTURING COMPANY (1995) 213 ITR 843 (RAJASTHAN) IT WAS HELD THAT ALLOWING UNPROVED DEDUCTION IS ERRONEOUS AND PREJUDICIAL TO THE REVENUE. IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS AND THE FACTS AND CIRCUMSTANCES AVAILABLE ON RECORD, HE HELD THAT THE ASSESSMENT COMPLETED BY T HE AO U/S 143(3) WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST O F THE REVENUE. HE ACCORDINGLY SET ASIDE THE ORDER PASS ED U/S.143(3) WITH THE DIRECTION TO REDO THE SAME AFTER EXAMINING ALL AS PECTS INCLUDING THE ERRORS POINTED OUT ABOVE. 12. AGGRIEVED WITH SUCH ORDER OF THE CIT, THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE A ND AS PER PROVISIONS & SCHEME OF THE ACT, IT BE HELD THAT, THE O RDER PASSED BY LD.CIT U/S.263 IS WITHOUT SATISFYING THE REQUIREMENTS OF THE SAID SECTION AND WITHOUT PROPERLY RESUMING THE JURISDICTION OF THE SAID SECTION. THE ORDER PASSED U/S.263 BE HELD TO BE UNWARRA NTED, UNJUSTIFIED, AND CONTRARY TO THE PROVISIONS OF THE ACT . THE ORDER SO PASSED BE CANCELLED. 8 ITA NO.763/PN/2014 2. THE APPELLANT PRAYS TO BE ALLOWED TO ADD, AMEND, MODIFY, RECTIFY, DELETE, RAISE ANY GROUNDS OF APPEAL AT THE T IME OF HEARING. 13. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OBJECTED TO THE ORDER OF THE CIT ASSUMING JURISDICTION U/S.263 OF THE I.T. ACT. REFERRING TO THE REPLY GIVEN TO THE AO VIDE LETTER DATE D 31-08-2009 WHICH WAS FILED BEFORE THE AO ON 02-09-2009 AND A COPY OF WHICH IS PLACED AT PAGES 55 AND 56 OF THE PAPER BOOK, THE LD. CO UNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO PAGE 2 OF THE SAID LETTER WHEREIN IT WAS CLARIFIED BEFORE THE AO THAT THE DISCLO SURE GIVEN BY THE ASSESSEE FIRM OF RS.2,86,46,600/- IS ATTRIBUTAB LE TO ONLY CHANGE IN THE VALUATION OF STOCK. IT HAS BEEN MENT IONED THEREIN THAT THE VALUE ADOPTED FOR THE PURPOSE OF DECLA RATION IS ATTRIBUTABLE TO CHANGE IN METHOD OF VALUATION FROM COST OF PRODUCTION TO THE MARKET PRICE OF THE FINISHED GOODS. 14. SO FAR AS THE OBSERVATION OF THE LD.CIT THAT THE ADD ITIONAL INCOME DISCLOSED AT RS.2,86,46,600/- IN THE FORM OF STOCK DU RING THE COURSE OF SURVEY SHOULD HAVE BEEN ASSESSED AS DEE MED INCOME U/S.69/69C OF THE ACT AND THAT THE ASSESSEE HAS ENHAN CED ITS CLOSING STOCK IN A.Y. 2010-11 IS CONCERNED HE SUBMITTED TH AT THE ASSESSEE HAS NOT ENHANCED HIS OPENING STOCK IN THE SUB SEQUENT YEAR. HE SUBMITTED THAT THE QUANTITY OF STOCK FOUND TALLIES AND ONL Y DUE TO CHANGE IN METHOD OF VALUATION DECLARATION WAS MADE . THERE IS ABSOLUTELY NO EXPENDITURE INCURRED BY THE ASSESSEE F OR THE VALUATION OF THE CLOSING STOCK. FURTHER, THE TAXABLE INCOME OF THE ASSESSEE DOES NOT CHANGE. HE SUBMITTED THAT THERE IS NO LOSS OF REVENUE TO THE DEPARTMENT FOR THE A.Y. 2009-10. HE SUB MITTED THAT ALTHOUGH THE ASSESSEE HAS GIVEN DETAILED SUBMISSION BEFO RE THE 9 ITA NO.763/PN/2014 LD.CIT, HOWEVER, HE HAS NOT CONSIDERED THE SUBMISSIONS FILED BEFORE HIM. HE SUBMITTED THAT THE DEPARTMENT HAS NOT REOPENE D THE ASSESSMENT FOR A.Y, 2010-11 NOR ANY PROCEEDINGS U/S.263 HAS BEEN INITIATED. HE SUBMITTED THAT THE ASSESSEE HAS GIVEN DETA ILED SUBMISSIONS BEFORE THE LD.CIT AS TO WHY THE PROVISIONS OF SECTION 69/69C ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THERE IS NO LOSS OF REVENUE TO THE DEPARTMENT, THEREFORE NO PREJ UDICE IS CAUSED TO THE REVENUE. 15. SO FAR AS THE SECOND ISSUE IS CONCERNED, I.E. DEDUCTION OF RS.26,80,591/- FROM RAW MATERIAL ACCOUNT THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO CLAUSE 2 O F THE REPLY GIVEN TO THE LD.CIT WHEREIN THE FOLLOWING DETAILS AS PER SCH EDULE 15 WAS FILED : 31 - 03 - 2009 (RS.) 31 - 03 - 2008 (RS.) OPENING STOCK 2,95,08,584.95 1,93,13,286.30 ADD : PURCHASES 1,63,31,44,683.44 1,21,09,43,289.83 1,66,26,53,268.39 1,23,02,56,576.13 LESS : SALE OF RAW MATERIAL 26,80,590.00 4,31,633.36 LESS : CLOSING STOCK 1,60,80,810.10 2,95,08,584.95 CONSUMED 1,64,39,63,868.29 1,20,03,16,357.82 HE SUBMITTED THAT INSTEAD OF SHOWING THE SALE OF RAW MATERIAL IN THE CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE H AS REDUCED THE SAME FROM THE CONSUMPTION OF MATERIAL. IT IS ONLY A M ETHOD OF PRESENTATION AND IT DOES NOT ALTER THE NET RESULTS. THE REFORE, THE CIT WAS NOT JUSTIFIED IN INVOKING JURISDICTION U/S.263 ON THIS ISSUE. 16. SO FAR AS THE 3 RD ISSUE IS CONCERNED, I.E. RECONCILIATION OF BANK ACCOUNTS, THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO P AGE 23 OF THE PAPER BOOK DREW THE ATTENTION OF THE BENCH TO THE SCHEDULE 3 WHEREIN THE CC ACCOUNT WITH COSMOS COOPERATIVE BANK LT D. HAS BEEN SHOWN AT RS.6,90,33,428.26 AGAINST HYPOTHECATION OF RA W 10 ITA NO.763/PN/2014 MATERIAL, WORK IN PROGRESS, AND RECEIVABLES AND PERSONAL GU ARANTEE BY DIRECTORS. REFERRING TO PAGE 31 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENC H TO THE SCHEDULE 9 WHICH SHOWS BALANCE WITH COSMOS COOPERATIVE B ANK LTD. MUMBAI BRANCH AT RS.8,50,00,000/-. 17. REFERRING TO PAGE 11 OF THE SUPPLEMENTARY PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENC H TO THE SPECIFIC QUERY RAISED BY THE AO. REFERRING TO THE NOTICE IS SUED BY THE AO VIDE QUESTIONNAIRE DATED 11-07-2010 THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE QUERY NO.9 WHEREIN THE AO HAS ASKED THE ASSESSEE GO GIVE DETAILS OF BANK A CCOUNTS INCLUDING FIXED DEPOSITS IN THE SPECIFIED FORMAT. REFERRING TO THE REPLY GIVEN BY THE ASSESSEE VIDE LETTER DATED 12-08-20 11, COPY OF WHICH IS PLACED AT PAGES 10 TO 15 OF THE SUPPLEMENTARY P APER BOOK THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF T HE BENCH TO THE REPLY AS PER CLAUSE 8 WHEREIN THE ASSESSEE HAS GIV EN FULL DETAILS INCLUDING RECONCILIATION OF THE BANK STATEMENTS. HE SUBMITTE D THAT MERE SAYING THAT THE ORDER IS ERRONEOUS IS NOT SUFFICIENT. REFERRING TO THE ORDER PASSED BY THE AO SUBSEQUENT TO THE 263 PROCEEDINGS HE SUBMITTED THAT THE AO HAS NOT MADE ANY ADDITION ON THIS ISSUE. 18. REFERRING TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX VS. JYOTI FOUNDATION R EPORTED IN 357 ITR 388 (DELHI) HE SUBMITTED THAT THE HONBLE HIGH CO URT IN THE SAID DECISION HAS HELD THAT WHERE REVISIONARY AUTHORIT Y OPINED THAT FURTHER ENQUIRY WAS REQUIRED SUCH ENQUIRY SHOULD HA VE BEEN CONDUCTED BY REVISIONARY AUTHORITY HIMSELF TO RECORD FINDING THAT ASSESSMENT ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL 11 ITA NO.763/PN/2014 TO THE INTEREST OF THE REVENUE. REFERRING TO THE DECISIO N OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. KRISHNA CAPBOX PVT. LTD. REPORTED IN 60 TAXMANN.COM 243 HE SUB MITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HEL D THAT WHERE THE AO HAS PASSED ASSESSMENT ORDER AFTER CERTA IN QUERIES FROM ASSESSEE, MERE NON-DISCUSSION OR NON-MENTION THEREO F IN ASSESSMENT ORDER COULD NOT LEAD TO ASSUMPTION THAT AO DID NOT APPLY HIS MIND. ACCORDINGLY, IT WAS HELD THAT INVOKING OF R EVISION PROCEEDINGS U/S. 263 ON SAID GROUND WAS UNJUSTIFIED. REFER RING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. FINE JEWELLERY INDIA LTD. VIDE ITA NO.296/2013 ORDER DA TED 03- 02-2015 HE SUBMITTED THAT THE HONBLE HIGH COURT IN TH E SAID DECISION HAS HELD THAT WHERE THE AO DURING THE COURSE O F ASSESSMENT PROCEEDINGS HAD RAISED SPECIFIC QUERIES WITH RE GARD TO DETAILS OF EXPENDITURE CLAIMED UNDER THE HEAD MISCELLANEOUS EXPENSES AGGREGATING TO RS.2.94 CRORES AND AFTER CONSIDE RING THE SUBMISSION OF THE ASSESSEE THE AO HELD THAT AN AMOUNT O F RS.17.98 LAKHS INCURRED ON ACCOUNT OF REPAIRS AND MAINTENANCE OUT OF RS.2.94 CRORES IS CAPITAL EXPENDITURE, THIS ITSELF WOULD BE AN INDICATION OF APPLICATION OF MIND BY THE AO WHILE PASSING THE ASSESSMENT ORDER. THE FACT THAT THE ASSESSMENT ORDER ITSELF DOES NOT CONTAIN ANY DISCUSSION WITH REGARD TO THE BALANCE AM OUNT OF EXPENDITURE OF RS.1.76 CRORES AS REVENUE EXPENDITURE WO ULD NOT BY ITSELF INDICATE NON APPLICATION OF MIND TO THIS ISSUE BY THE AO IN VIEW OF SPECIFIC QUERIES MADE DURING THE ASSESSMENT PROCEE DINGS. IN THE SAID DECISION THE HONBLE HIGH COURT HAS RELIED ON ITS EARLIER DECISION IN THE CASE OF IDEA CELLULAR LTD. VS. DCIT REPORTED IN 301 ITR 407 WHERE IT HAS BEEN HELD THAT IF A QUERY IS RAISE D DURING 12 ITA NO.763/PN/2014 ASSESSMENT PROCEEDINGS AND RESPONDED BY THE ASSESSEE THE MERE FACT THAT IT IS NOT DEALT WITH IN THE ASSESSMENT ORDER WO ULD NOT LEAD TO A CONCLUSION THAT NO MIND HAD BEEN APPLIED TO IT. HE A LSO RELIED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NARAYAN TATU RANE VS. ITO VIDE ITA NO.2690/MUM/2016 AN D 2691/MUM/2016 ORDER DATED 06-05-2016 WHEREIN UNDER SOMEWHAT SIMILAR FACTS THE REVISIONARY ORDER PASSED U/S.26 3 BY THE PRINCIPAL CIT HAS BEEN QUASHED BY THE TRIBUNAL. HE ACCOR DINGLY SUBMITTED THAT SINCE THE ASSESSEE HAS GIVEN FULL DETAILS BE FORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THEREFOR E, MERELY BECAUSE THE LD.CIT DOES NOT AGREE WITH THE MANNER IN W HICH THE AO HAS CONDUCTED THE ENQUIRY AND PASSED THE ORDER TH E SAME CANNOT BE HELD AS ERRONEOUS AND PREJUDICIAL TO THE INTER EST OF THE REVENUE MERELY BECAUSE THE LD.CIT DOES NOT AGREE WIT H THE CONCLUSION ARRIVED AT BY THE AO. 19. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE CIT. HE SUBMITTED THA T THE LD.CIT HAS GIVEN JUSTIFIABLE REASONS AS TO HOW THE ORDER PASSED BY THE AO HAS BECOME ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERE ST OF THE REVENUE. REFERRING TO THE DECISION OF THE HONBLE RAJASTH AN HIGH COURT IN THE CASE OF SMT. RENU GUPTA VS. CIT REPORTED IN 301 ITR 45 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT WHERE THE AO HAD ACCEPTED THE SUBMISSION OF THE ASSESSEE WITHOUT OBTAINING THE DETAILS REQUIRED AND WITHOU T MAKING ENQUIRY AS SUGGESTED BY HIM WHILE SELECTING THE CASE FOR S CRUTINY COMPLETED THE ASSESSMENT IN HASTY MANNER WITHOUT APPLY ING HIS MIND AND WITHOUT CONDUCTING PROPER ENQUIRY THE ORDER WA S IMPROPER AND HAS BECOME ERRONEOUS AS WELL AS PREJUDICIAL TO THE 13 ITA NO.763/PN/2014 INTEREST OF THE REVENUE. REFERRING TO THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF GEOSOFT TECHNOLOGIES ( TRIVENDRUM) LTD. VS. CIT REPORTED IN 221 TAXMANN 178 HE SUBMITTED T HAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT WHE RE THE AO ALLOWED ASSESSEES CLAIM OF DEDUCTION IN RESPECT OF DEFERRED REVENUE EXPENDITURE WITHOUT RECORDING REASONS FOR SAME, ORDER SO PASSED WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REV ENUE AND THUS THE CIT WAS JUSTIFIED IN REVISING THE SAID ORDER U/S.2 63 OF THE I.T. ACT. REFERRING TO THE DECISION OF HONBLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. JAWAHAR BHATTACHARJEE REPORTED IN 3 42 ITR 74 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DEC ISION HAS HELD THAT WHERE THERE WAS NON-APPLICATION OF MIND BY THE AO ON ISSUE OF ALLOWING EXEMPTION U/S.54F INFERENCE BY CIT U/S.263 WAS VALID. REFERRING TO THE DECISION OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF BASSERA REALTORS PVT. LTD. VS. CIT REPORTED IN 163 TTJ 736 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT WHERE THE AO ACCEPTED SURRENDERED INCO ME WITHOUT MAKING PROPER ENQUIRY, ORDER PASSED BY HIM WOULD BE TRE ATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE . REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF GOPISONS DEVELOPERS PVT. LTD. VS. ACIT VIDE ITA NO.356/PN/ 2013 ORDER DATED 03-07-2013 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT LACK OF ENQUIRY OR NO ENQUIRY BY THE AO WHILE FRAMING THE ASSESSMENT ORDER MAKES THE ORDER BOTH ERR ONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND UND ER SUCH CIRCUMSTANCES THE CIT IS FULLY JUSTIFIED IN INVOKING THE JURI SDICTION U/S.263 OF THE I.T. ACT. HE ALSO RELIED ON THE DECISION OF T HE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. JAGDAMBA SAHAKAR I 14 ITA NO.763/PN/2014 SAKHAR KARKHANA LTD. VS. CIT VIDE ITA NO.991/PN/2013 OR DER DATED 06-012015 WHERE UNDER SOMEWHAT SIMILAR CIRCUMSTA NCES THE TRIBUNAL HAS UPHELD THE ORDER PASSED U/S.263 BY THE LD.CIT HOLDING THAT THERE WAS COMPLETE LACK OF ENQUIRY AND TOTAL LACK OF APPLICATION OF MIND. HE ACCORDINGLY SUBMITTED THAT THE ORD ER OF THE CIT BE UPHELD AND THE GROUND RAISED BY THE ASSESSEE S HOULD BE DISMISSED. 20. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH TH E SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSMENT IN THE INSTANT CASE WAS COMPLETED U/S.143(3) ON 18-11-2011 ACCEPTING THE RETURNED INCOME OF RS.12,18,67,730/-. WE FIND THE LD.CIT INVO KED JURISDICTION U/S.263 ON THREE ISSUES (A) THE ADDITIONAL INCOM E DISCLOSED AMOUNTING TO RS.2,86,46,600/- IN THE FORM OF STOCK DURING THE COURSE OF SURVEY BEING UNACCOUNTED SHOULD HA VE BEEN ASSESSED AS DEEMED INCOME U/S.69/69C OF THE ACT INSTEAD OF CREDITING THE SAME TO THE PROFIT AND LOSS ACCOUNT (B) AN A MOUNT OF RS.26,80,591/- HAS BEEN DEDUCTED FROM THE SALE OF FINISHED G OODS INSTEAD OF OFFERING THE SAME IN THE CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT AS SALE OF RAW MATERIAL SEPARATELY AND (C) THE AO WITHOUT VERIFICATION HAS ACCEPTED THE RECONCILIATION STATEMENT OF CO SMOS BANK AND HDFC BANK. WE FIND THE ASSESSEE BEFORE THE CI T HAS GIVEN ELABORATE SUBMISSIONS JUSTIFYING THAT THERE IS NO ER ROR IN THE ORDER PASSED U/S.143(3) BY THE AO SINCE THE ASSESSEE HA S REPLIED TO ALL THE QUERIES RAISED BY THE AO AND THE AO AFTER DUE AP PLICATION OF MIND HAS PASSED THE ORDER AND THEREFORE THE ORDER IS N EITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE . HOWEVER, 15 ITA NO.763/PN/2014 WE FIND THE LD.CIT WITHOUT APPRECIATING THE SUBMISSIONS MADE BEFORE HIM SET ASIDE THE ORDER PASSED U/S.143(3) TO THE FILE OF THE AO WITH A DIRECTION TO REDO THE SAME AFTER EXAMINING ALL AS PECTS INCLUDING THE ERRORS POINTED OUT BY HIM. 21. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSE E THAT THE ORDER PASSED U/S.263 BY THE LD.CIT IS IN GROSS VIOLATIO N OF THE POWERS CONFERRED ON HIM SINCE THE ASSESSEE HAS SUBMITTE D ALL DETAILS BEFORE THE AO. THE AO AFTER DUE APPLICATION OF MIND HAS ACCEPTED SUCH SUBMISSIONS AND COMPLETED THE ASSESSMENT BY ACCEPTING THE RETURNED INCOME. 22. WE FIND MERIT IN THE ABOVE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. SO FAR AS THE FIRST ISSUE IS CONCERNED, I.E. THE ADDITIONAL INCOME DISCLOSED OF RS.2,86,46,600/- IN THE FORM OF STOCK IT IS AN ADMITTED FACT THAT THE ASSESSEE IN ITS SCH EDULE M-18 VALUATION OF FINISHED GOODS HAS GIVEN A NOTE IN THE AUDITE D ACCOUNTS WHICH READ AS UNDER : ON 08-08-2009 INCOME TAX DEPARTMENT CARRIED OUT SU RVEY U/S.133A OF THE INCOME TAX ACT AT THE COMPANYS FACTORY PREMI SES. THE COMPANY HAS AGREED TO DISCLOSE SO MUCH OF ADDITIONAL IN COME, SO AS TO DECLARE THE TOTAL TAXABLE PROFIT (BEFORE PROVISION O F TAX) AT RS.12.28 CRORES. THE ADDITIONAL INCOME SO OFFERED HAS BEEN ADD ED TO THE VALUATION OF CLOSING STOCK OF FINISHED GOODS IN PROFIT & LOSS A/C AS WELL AS BALANCE SHEET AS ON 31.03.2009. THIS ADDITIONAL INC OME SO OFFERED REPRESENTS THE DIFFERENCE BETWEEN THE VALUATION OF CL OSING STOCK OF FINISHED GOODS WHICH IS VALUED AT 'COST OR MARKET PRICE WHICHEVER IS LESS'. (IN ACCORDANCE WITH THE PROVISIONS OF THE COMPAN Y'S ACT AS WELL AS THE REQUIREMENTS OF AS-2 PUBLISHED BY ICAI.) & THE VA LUATION CONSIDERED FOR THE PURPOSE OF INCORPORATING THE VALUA TION OF CLOSING STOCK IN PROFIT & LOSS A/C & BALANCE SHEET AS ON 31.03 .2009. THE VALUATION OF THE CLOSING STOCK ON THE BASIS OF METHOD REGULARLY FOLLOWED WHICH IS 'COST OR MARKET VALUE WHICHEVER IS LESS' BY THE COMPANY IS RS.6,30,72,884.80/- THE DIFFERENCE OF RS.1,46,72,951. 80/- IS OFFERED AS ADDITIONAL VALUE OF CLOSING STOCK OF FINISHED GOODS & SA ME IS ADDED TO THE VALUE OF THE CLOSING STOCK OF FINISHED GOODS SO AS TO MAKE THE TOTAL VALUE OF THE CLOSING STOCK OF FINISHED GOODS AS ON 31.03 .2009 RS.7,77,45,836.60/-. 16 ITA NO.763/PN/2014 THE DIFFERENCE SO OFFERED DUE TO ADDITIONAL VALUATIO N OF THE STOCK OF THE FINISHED GOODS IS NOT ARISING DUE TO ANY DIFFERENCE I N QUANTITY OF THE STOCK OF FINISHED GOODS. THERE IS ALSO NO CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK OF FINISHED GOODS AS COMPARED TO THE EARLIER YEAR.' 23. FURTHER WE FIND DURING THE COURSE OF SURVEY THE ASS ESSEE IN HIS REPLY TO THE QUESTION NO.26 HAS SUBMITTED AS UNDER : 'Q: YOU HAVE PAID ADVANCE TAX FOR THE ASSESSMENT YEAR 2009-10 (FY 2008-09) AT RS.3,20,00,000/- AND THERE ARE PREPAID T AXES AT RS.80,140/-, ESTIMATING YOUR TAXABLE INCOME AT RS. 9,4 3,53,352/- (APPROX), BUT IN THE SURVEY ACTION WE FOUND A COPY O F P & L ACCOUNT, ACCORDING TO WHICH YOUR NET TAXABLE INCOME IS WORKED OUT AT A RS.12,30,51,737.52/- AND HENCE YOU HAVE PAID ADVANCE TAX LESS BY RS.96,67,543/- APPROX. WHAT DO YOU WANT TO SAY? ANS: I OFFER A SUM OF RS.2,86,46,600/- FOR THE ASSESSMENT YEAR 2009-10 (FY 2008-09) AND WE ARE READY TO PAY TAX LI ABILITY OF RS.96,67,543/- PLUS INTEREST THEREON BEFORE FILING RETURN OF INCOME. 24. WE FIND THE ASSESSEE VIDE LETTER DATED 31-08-2009 R ECEIVED BY THE AO ON 02-09-2009 HAS GIVEN THE FOLLOWING REPLY TO T HE AO ON THE ISSUE OF DISCLOSURE OF RS.2,8,46,600/- ON ACCOUNT OF INC OME DURING THE COURSE OF SURVEY : ENCLOSED PLEASE FIND ALL THE INFORMATION PERTAINING TO QUESTION 33, 32,29,28,15,34,31 OF THE STATEMENT RECORDED WHICH WE HOPE YOU WILL FIND IN ORDER. VIDE QUESTION NO.37 THE DIFFERENCE IN PHYSICAL INVENT ORY & INVENTORY AS PER BOOKS WAS REQUIRED TO BE EXPLAINED. THE POSITION OF PHYSICAL INVENTORY & INVENTORY AS PER BOOKS IS SUMMARIZED HEREIN BELOW : PHYSICAL (MT) AS PER BOOKS (MT) DIFFERENCE (MT) % RAW MATERIAL 1073.033 1030.025 43.080 4.17 FINISHED GOODS 2567.978 2513.240 54.738 2.17 AS EXPLAINED BY THE DIRECTOR THE STOCKS AT THE TIME OF SURVEY WERE TAKEN ON THEORETICAL BASIS, I.E. BY APPLYING CONVERSIO N TABLE WHICH CONVERTS THE LENGTH INTO WEIGHT AS PER ISI STANDARDS. WHEREAS THE BOOKS ARE MAINTAINED ON BASIS OF ACTUAL QUANTITY SUCH A S RAW MATERIAL INWARDS ARE TAKEN ON THE BASIS OF ACTUAL WEIGHT, THE D ISPATCHES (SALES) ARE RECORDED ON ACTUAL WEIGHT BASIS & NOT THEORETICAL ONE. THERE IS 17 ITA NO.763/PN/2014 BOUND TO BE DIFFERENCE BETWEEN THE STOCKS ARRIVED AT BY APPLYING TWO DIFFERENT METHODS & THIS CONCEPT IS RECOGNIZED BY ISI STANDARDS AS WELL. THE ASSESSEE IS REGISTERED WITH ISI. IT MAY ALSO PLEASE BE NOTED THAT AT THE TIME OF SURVEY NO ACTUAL WEIGHT WAS TAKEN OF THE GOODS POSSESSED BY THE ASSESSEE. WE INVITE YOUR ATTENTION TO THE PORTI ON HIGHLIGHTED WHICH RECOGNIZES THAT AS PER THE ISI STANDARD ITSELF TH ERE COULD BE DIFFERENCE MEASURING FROM +/- 2.5% TO +/-5% DEPENDIN G UPON THE NATURE OF THE PRODUCT & ITS THICKNESS. THE DIFFERENCE OBSERVED DURING THE COURSE OF SURVEY IS WELL WITHIN ISI TOLERANCE LIMI TS. IT IS THEREFORE RESPECTFULLY SUBMITTED THAT THERE IS NO DIFFERENCE WH ATSOEVER CONSIDERING THE ISI STANDARDS BETWEEN THE STOCKS PHYSICAL LY TAKEN & STOCKS AS PER BOOKS IN WEIGHT. THE DISCLOSURES GIVEN BY THE ASSESSEE FIRM OF RS.2,86,46,60 0/- THEREFORE IS ATTRIBUTABLE ONLY CHANGE IN THE VALUAT ION OF STOCK. THE VALUE ADOPTED FOR THE PURPOSE OF DECLARATION THEREFO RE IS ATTRIBUTABLE PARTLY TO CHANGE IN METHOD OF VALUATION FROM COST OF PRODUCTION TO THE MARKET PRICE OF THE FINISHED GOODS WHICH MAY KINDLY B E NOTED. 25. WE FIND THE ASSESSEE HAS CLARIFIED BEFORE THE LD.CIT ON THIS ISSUE AS UNDER : FROM THE POSITION REVEALED IN QUESTION NO 26 THE F OLLOWING FACTS BECOMES CLEAR. 1. ON THE BASIS OF ADVANCE TAX PAID TILL THE TIME O F SURVEY THE INCOME OF RS.9,43,53,352/- GOT COVERED. THE TENTAT IVE PROFIT & LOSS ACCOUNT FOUND AT THE TIME OF SURVEY REVEALED THE PR OFIT OF RS.12.30 CRORES. THE DIFFERENCE BETWEEN THE INCOME REVEALED BY TENTATIVE PROFIT & LOSS ACCOUNT AND THE HYPOTHETICAL INCOME C OMPUTED WITH REFERENCE TO THE ADVANCE TAX PAID WORKED OUT TO RS. 2,86,46,600/-. ASSESSEE AGREED TO PAY THE ADVANCE TAX OF RS.96,67, 543/- SO AS TO COVER THIS GAP. THERE WAS NO UN-EXPLAINED/EXCESS S TOCK FOUND. THERE WAS NO UNACCOUNTED INVESTMENT AND THERE WAS N O UNEXPLAINED EXPENDITURE. THE ORDER PASSED UNDER SECTION 143(3) THEREFORE IS NOT ERRONEOUS AND NOT PREJUDICIAL TO THE INTEREST OF REVENUE AS F AR AS THIS ISSUE IS CONCERNED. 26. WE THEREFORE FIND MERIT IN THE SUBMISSION OF THE LD. C OUNSEL FOR THE ASSESSEE THAT ON THE BASIS OF ADVANCE TAX PAID TILL TIME OF SURVEY THE INCOME OF RS.9,43,53,352/- GOT COVERED. THE TE NTATIVE PROFIT AND LOSS ACCOUNT FOUND AT THE TIME OF SURVEY REVE ALED THE PROFIT OF RS.12.30 CRORES. THE ASSESSEE HAD AGREED TO PA Y THE ADVANCE TAX ON THE DIFFERENCE OF RS.2,86,46,600/- SO AS TO COVER THIS GAP AND THEREFORE THERE WAS NO UNEXPLAINED/EXCESS STOCK 18 ITA NO.763/PN/2014 FOUND AND THEREFORE THERE WAS NO UNACCOUNTED INVESTMEN T AND UNEXPLAINED EXPENDITURE. FURTHER, THE AO AFTER DUE APPLIC ATION OF MIND HAS ACCEPTED THE REPLY OF THE ASSESSEE ON THIS ISS UE. THEREFORE, IT CANNOT BE SAID THAT THE AO HAS NOT APPLIED HIS MIND ON THE FIRST ISSUE OR THAT HIS DECISION IS ERRONEOUS. 27. SO FAR AS THE SECOND ISSUE IS CONCERNED, IT IS THE GR IEVANCE OF THE LD.CIT THAT THE AMOUNT OF RS.26,80,591/- DEDUCTED FRO M THE SALES OF FINISHED GOODS SHOULD HAVE BEEN OFFERED IN THE PROFIT AND LOSS ACCOUNT AS SALE OF RAW MATERIAL SEPARATELY. IN OUR OPINION, THIS IS ONLY ONE FORM OF PRESENTATION IN THE ACCOUNTS AND INS TEAD OF SHOWING IT IN CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT AS SALE OF RAW MATERIAL THE ASSESSEE HAS REDUCED THE SAME FROM THE CO NSUMPTION OF RAW MATERIAL. THEREFORE, THE NET RESULT REMAINS SAME AN D THERE IS NO PREJUDICE TO THE INTEREST OF THE REVENUE. THEREFOR E, MERELY BECAUSE THE CIT DOES NOT AGREE WITH THE ORDER OF THE AO IN ACCEPTING THE SAME, IT CANNOT BE SAID TO BE ERRONEOUS A ND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 28. SO FAR AS THE THIRD ISSUE IS CONCERNED, I.E. RECONCILIATION OF THE BANK ACCOUNTS WE FIND THE AO IN HIS QUESTIONNAIRE DATED 1 1-07- 2010 VIDE QUESTION NO.8 HAS ASKED THE ASSESSEE TO GIVE THE DETAILS OF THE BANK ACCOUNTS INCLUDING FDS AND FURNISH THE BANK STATEMENTS ALONG WITH RECONCILIATION OF THE SAME. WE FIND THE ASSESSEE VIDE REPLY DATED 12-08-2011 HAD GIVEN THE DE TAILS OF ALL BANK ACCOUNTS ALONG WITH RECONCILIATION. THE AO AFTER VERIF YING THE SUBMISSIONS MADE BY THE ASSESSEE FROM TIME TO TIME INCLUDIN G THE RECONCILIATION HAS ACCEPTED THE SAME. FURTHER, THE SUBMIS SION OF THE ASSESSEE BEFORE THE LD.CIT THAT THE VERY FOUNDATION OF 19 ITA NO.763/PN/2014 COMPARISON BY THE LD.CIT IS MISPLACED BECAUSE ALL THE FIGURE S ARE GIVEN CORRECTLY HAS NOT BEEN COMMENTED UPON BY THE L D.CIT. THE ASSESSEE HAS CATEGORICALLY STATED BEFORE HIM THAT IT IS H AVING BALANCE OF RS.8.50 CRORES WITH MUMBAI BRANCH. 29. A PERUSAL OF THE AUDITED ACCOUNTS REVEAL THAT ASSESS EE HAS SHOWN CASH CREDIT LOAN OF COSMOS COOPERATIVE BANK LTD., CHINCHWAD BRANCH AT RS.6,90,33,428.26 AS PER SCHEDULE NO.3, FD WITH COSMOS COOPERATIVE BANK LTD. UNDER THE HEAD CASH AND BANK BALANCE IN SCHEDULE NO.9 HAS BEEN SHOWN AT RS.89,67,524/-. SIMILARLY, THE ASSESSEE HAS DISCLOSED BALANCE WITH COSMOS COOPERATIVE BANK LTD., MUMBAI BRANCH AT RS.8,50,00,000/- IN SCHEDULE NO.9. THE ASSESSEE HAS ALSO DECLARED BANK BALA NCE OF RS.44,24,579.62 WITH HDFC BANK, ACCOUNT NO.19. AFTER CONSIDERING THE CHEQUES DEPOSITED AND CHEQUES ISSUED TH E ASSESSEE HAS RECONCILED THE ACCOUNT BEFORE THE AO WHO HAS ACCEP TED THE SAME. FURTHER, THE AO IN THE ORDER PASSED U/S.143 R.W.S . 263 HAS ALSO NOT MADE ANY ADDITION ON THIS ISSUE. THUS, ALL THE 3 IS SUES RAISED BY THE LD.CIT HAS ADEQUATELY BEEN REPLIED BY THE ASSESSEE BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. MERELY BECAUSE THE LD.CIT DOES NOT AGREE WITH THE CONCLUSION D RAWN BY THE AO AS THE AO HAS NOT FOLLOWED THE PARTICULAR PROCEDU RE AS PER THE LIKING OF THE CIT CANNOT BE A GROUND FOR INVOKING JURI SDICTION U/S.263. 30. IT IS THE SETTLED PROPOSITION OF LAW THAT FOR ASSUMING JURISDICTION U/S.263 THE TWIN CONDITIONS, I.E. (A) THE ORDER MUS T BE ERRONEOUS AND (B) THE ORDER MUST BE PREJUDICIAL TO THE IN TEREST OF THE REVENUE MUST BE FULFILLED. ABSENCE OF EITHER OF THE ONE 20 ITA NO.763/PN/2014 PRECLUDES THE CIT FROM ASSUMING JURISDICTION U/S.263 OF THE I.T. ACT. IN THE INSTANT CASE THE ASSESSEE HAS CLARIFIED ALL TH E ISSUES RAISED BY THE AO DURING THE COURSE OF ASSESSMENT PROCE EDINGS INCLUDING THE 3 ISSUES RAISED BY THE CIT IN THE 263 PROCE EDINGS. THE AO AFTER VERIFICATION OF THE SAME AND DUE APPLICATION OF MIND HAS ACCEPTED THE REPLY GIVEN BY THE ASSESSEE AND COM PLETED THE ASSESSMENT BY ACCEPTING THE RETURNED INCOME. UNDER TH ESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE CIT WAS NOT JUSTIFIED IN INVOKING JURISDICTION U/S.263 OF THE I.T. ACT. 31. WE FIND THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. MAX INDIA LTD. REPORTED IN 295 ITR 282 HAS HELD AS UNDE R (SHORT NOTES): THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVE NUE IN SECTION 263 OF THE INCOME-TAX ACT, 1961, HAS TO BE READ IN CONJU NCTION WITH THE EXPRESSION ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER . EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSI NG OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF T HE REVENUE. FOR EXAMPLE, WHEN THE ASSESSING OFFICER ADOPTS ONE OF TWO CO URSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE , OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TR EATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE REVENUE, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. 32. WE FIND FOLLOWING THE ABOVE DECISION THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. FINE JEWELLERY INDIA LT D. (SUPRA) HAS OBSERVED AS UNDER : 8. WE FIND THAT THE IMPUGNED ORDER OF THE TRIBUNAL DOES RECORD THE FACT THAT SPECIFIC QUERIES MADE DURING THE ASSESSMENT PROCEEDINGS WITH REGARD TO DETAILS OF EXPENDITURE CLAIMED UNDER THE HEAD MISCELLANEOUS EXPENSES AGGREGATING TO RS.2.94 CRORES. THE RESPONDENT ASSESSEE HAD RESPONDED TO THE SAME AND ON CONSID ERATION OF RESPONSE OF THE RESPONDENT ASSESSEE, THE ASSESSING OFFICER HELD THAT OF AN AMOUNT OF RS.17.98 LAKHS INCURRED ON ACCOUNT O F REPAIRS AND MAINTENANCE OUT OF RS.2.94 CRORES IS CAPITAL EXPENDITU RE. THIS ITSELF WOULD BE INDICATION OF APPLICATION OF KIND BY THE A SSESSING OFFICER WHILE PASSING THE IMPUGNED ORDER. THE FACT THAT THE ASSESSMENT ORDER ITSELF DOES NOT CONTAIN ANY DISCUSSION WITH REGARD TO TH E BALANCE 21 ITA NO.763/PN/2014 AMOUNT OF EXPENDITURE OF RS.1.76 CRORES, I.E. RS.2.94 CRORES LESS RS.17.98 LAKHS CLAIMED AS REVENUE EXPENDITURE WOULD NO T BY ITSELF INDICATE NON APPLICATION OF KIND TO THIS ISSUE BY THE ASSESSING OFFICER IN VIEW OF SPECIFIC QUERIES MADE DURING THE ASSESSMENT PRO CEEDINGS AND THE RESPONDENT ASSESSEES RESPONSE TO IT. IN FACT THIS COUR T IN THE CASE OF IDEA CELLULAR LTD. VS. DEPUTY COMMISSIONER OF INCO ME TAX & ORS. [(2008) 301 ITR 407 (BOM.)] HAS HELD THAT IF A QUER Y IS RAISED DURING ASSESSMENT PROCEEDINGS AND RESPONDED TO BY THE ASSESSEE, THE MERE FACT THAT IT IS NOT DEALT WITH IN THE ASSESSMENT ORDER W OULD NOT LEAD TO A CONCLUSION THAT NO MIND HAD BEEN APPLIED TO IT. 9. MOREOVER, FROM THE NATURE OF EXPENDITURE AS EXPLA INED BY THE PETITIONER TO THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS ITSELF INDICATES THAT THE VIEW THAT THE SAME WERE IN T HE REALM OF REVENUE EXPENDITURE, IS A POSSIBLE VIEW. THEREFORE, WE FIND NO FAULT IN THE IMPUGNED ORDER HAVING FOLLOWED THE BINDING DECI SION OF THE SUPREME COURT IN THE CASE OF MAX INDIA LTD. (SUPRA), WHILE ALLOWING THE APPEAL BEFORE IT. 33. WE FIND THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. KRISHNA CAPBOX PVT. LTD. (SUPRA) FOLLOWING THE DECISION O F HONBLE BOMBAY HIGH COURT IN THE CASE OF FINE JEWELLERY IND IA LTD. (SUPRA) HAS HELD THAT WHERE AO PASSED ASSESSMENT ORDER AFTER CERTAIN QUERIES FROM ASSESSEE, MERE NON DISCUSSION OR NON MENTION THEREOF IN ASSESSMENT ORDER COULD NOT LEAD TO ASSUMPTIO N THAT AO DID NOT APPLY HIS MIND. INVOKING OF REVISION PROCEEDINGS U /S.263 ON SAID GROUND WAS HELD TO BE UNJUSTIFIED. 34. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD. COUNS EL FOR THE ASSESSEE SUPPORTS HIS CASE. SO FAR AS THE VARIOUS DECISIONS RELIED ON BY THE LD. DEPARTMENTAL REPRESENTATIVE ARE CON CERNED WE FIND THOSE DECISIONS ARE OF NON-JURISDICTIONAL HIGH COURT AND FURTHER THEY ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. AS MENTIONED EARLIER, THE AO IN THE IN STANT CASE HAS RAISED SPECIFIC QUERIES AND THE ASSESSEE HAS REPLIED T O SUCH QUERIES. SO FAR AS THE FIRST ISSUE IS CONCERNED, THE ASSES SEE HAS MADE ADEQUATE DISCLOSURE IN THE AUDITED ACCOUNTS AND GIV EN DETAILED EXPLANATION DURING ASSESSMENT PROCEEDINGS. THE A SSESSEE 22 ITA NO.763/PN/2014 HAS ALSO GIVEN DETAILS OF THE 2 ND AND THE 3 RD ISSUE. SO FAR AS THE 2 ND ISSUE IS CONCERNED, IT IS ONLY A MATTER OF PRESENTATION AND DOES NOT AFFECT THE PROFITABILITY IN ANY MANNER. THE RECONCILIATION OF BA NK ACCOUNTS HAS BEEN ACCEPTED BY THE AO IN THE SUBSEQUE NT ORDER PASSED U/S.143(3)/263. THEREFORE, IT IS NEITHER A CASE OF LA CK OF ENQUIRY OR NO ENQUIRY AND THE AO AFTER DUE APPLICATION OF MIND HAS ACCEPTED THE SUBMISSIONS MADE BY THE ASSESSEE DURING T HE COURSE OF ASSESSMENT PROCEEDINGS. IN VIEW OF THE ABOVE DISCUSSIO N, WE ARE OF THE CONSIDERED OPINION THAT THE LD.CIT WAS NOT AT ALL J USTIFIED IN INVOKING JURISDICTION U/S.263 OF THE I.T. ACT. WE THEREFORE SET ASIDE THE SAME AND THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 35. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16-09-2016. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; DATED :16 TH SEPTEMBER, 2016. LRH'K ' (*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) - THE CIT-V, PUNE 4. % S / THE JCIT, RANGE-10, PUNE 5. ( ++, , , , IQ.KS / DR, ITAT, A PUNE; 6. 0 / GUARD FILE. / BY ORDER , ( + //TRUE COPY// 23 + , / SR. PRIVATE SECRETARY ,, IQ.KS / ITAT, PUNE