Asian Roller Bearings, New Delhi V. ACIT, New Delhi

ITA 890/DEL/2022

AI Insights

The case revolves around the revisional powers exercised by the Pr.CIT under Section 263 of the Income Tax Act, 1961, concerning the assessment order for the Assessment Year 2017-18. The original assessment was completed under limited scrutiny, accepting the income returned by Asian Roller Bearings. However, the Pr.CIT later issued a show cause notice alleging that the assessment was erroneous and prejudicial to the interests of the revenue, primarily focusing on unsecured loans and discrepancies in purchase records related to export-import data. The Tribunal examined whether the Pr.CIT was justified in expanding the scope of inquiry beyond the limited scrutiny parameters initially set for the assessment.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 121476 (ITAT-DELHI)
• Duration Of Justice: 12 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-11-2022
• Assessment Year: misc
• Appeal Filed On: 03-02-2010
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 263; 143(3); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A” DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A. No.890/DEL/2022 Assessment Year 2017-18 Asian Roller Bearings, 22/14, East Punjabi Bagh, New Delhi. Vs. ACIT, New Delhi. TAN/PAN: AAMFA7968F (Appellant) (Respondent) Appellant by: Shri Gautam Jain Adv. Shri Ajit Jha Adv Respondent by: Shri P. Praveen Sidharth CIT-DR Date of hearing: 02 11 2022 Date of pronouncement: 23 11 2022 O R D E R PER PRADIP KUMAR KEDIA, A.M.: The captioned appeal has been filed at the ins tance of the assesse e agains t th e revisional order of the ld. Pr. Co mmi ssioner of Income Tax , Delhi-XV [‘Pr.CIT’ in short] da ted 29.03.2022 passed under Secti on 263 of the Income Tax Act, 1961 [‘the Act’] whereby the assessment order passed by the Assessing Officer [AO] dated 04.12.2019 under Section 143(3) of the Act concerning Assessment Year 2017-18 was set aside for reframing the ass ess ment order in ter ms o f supe rvisory directions. 2. As per the grounds of appeal, the assesse e has sought to chall enge the juri sdict ion assumed by the Pr.CIT under Section 263 of the Act and as a corollary, so ught to i mpugn the revisional order passed by the Pr.CIT under Section 263 of the Act . I.T.A. No.890/Del/2022 2 3. Brie fly sta ted, an assess ment order under Section 143(3) of the Act for Assessment Year 2017-18 in question was comple ted by the Assessing Officer ac cept ing the income re turned as assessed inco me vide order dated 04.12.2019. The case was sele cted for asses sment under the category ‘limi ted scrutiny’. Thereafter, the Pr. CIT in exercise of i ts revi sional powers, issued show cause notice dated 01.03.2021 under Section 263 of the Act requiring the asses see to show cause as to why the asse ssmen t so framed under Sect i on 143(3) of the Act should not be modified /se t aside on the ground that such order is erroneous insofar as it s prejudicia l to the interest of the Rev enue. The show cause notice issued by Pr.CIT in this r egard is e xtracted hereunder for ready reference : “A s s e s s m e n t , w a s c o m p l e t e d u / s 1 4 3 ( 3 ) o f t h e I . T . A c t , 1 9 6 1 f o r t h e A . Y . 2 0 1 7- 1 8 b y e r s t w h i l e A C I T , C i r c l e 4 4 ( 1 ) , N e w D e l h i o n 0 4 . 1 2 . 2 0 1 9 . S u b s e q u e n t , t o t h e a s s e s s m e n t , i t w a s n o t i c e d t h a t t h e a s s e s s m e n t o r d e r w a s e r r o n e o u s a n d p r e j u d i c i a l to t h e i n t e r e s t o f r e v e n u e f o r t h e f o l l o w i n g r e a s o n . “On p eru sal of th e r ec ord it i s foun d that the as se ss ee h a s r e c e i v e d u n s e c u r e d- l o a n o f R s . 5 , 1 0 , 4 7 , 5 1 2 /- f r o m t h e p e r s o n s p e c i f i e d i n s e c t i o n 4 0 A ( 2 ) ( b ) . H o w e v e r , d u rin g t h e c o u r s e o f a s s e s s m e n t i t w a s not e x a m i n e d t h a t w h e t h e r i n t e r e s t p a i d t o t h e s e p e r s o n a t m a r k e t r a t e & i t i s n o t e x c e s s i v e o r u n r e a s o n a b l e . I n t e r e s t a m o u n t p a i d o n u n s e c u r e d l o a n s w a s R s . 6 7 , 7 3 , 7 8 3 /-. Si n c e , c a s e w a s u n d e r l i m i t e d s c r u t i n y , t h i s i s s u e o f u n s e c u r e d l o a n f r o m- t h e p e r s o n sp e c i f i e d i n s e c t i o n 4 0 A ( 2 ) ( b ) a n d i n t e r e s t p a i d t h e r e o n r e q u i r e s p r o p e r e x a m i n a t i o n . T h e a s s e s s e e h a s s h o w n p u r c h a s e o f R s . 2 1 , 6 6 , 0 1 , 8 5 0 /- d u r i n g t h e y e a r w h i c h i s l e s s t h a n i n v o i c e v a l u e o f e x p o r t s h o w n i n e x p o r t i m p o r t d a t a . T h e c a s e w a s s e l e c t e d u n d e r l im i t e d s c r u t i n y o n t h i s I.T.A. No.890/Del/2022 3 i s s u e t h a t p u r c h a s e s h o w n i n t h e I T R i s l e s s t h a n t h e i n v o i c e v a l u e o f i m p o r t s h o w n i n t h e E x p o r t I m p o r t D a t a . A s s e s s e e h a s e x p l a i n e d t h a t p u r c h a s e i n c l u d e s t o im p o r t t r a n s a c t i o n i n p r e v i o u s y e a r 2015-1 6 a s g o o d s i n t r a n s i t , t h e s e t ra n s a c t i o n s a r e s h o w n i n F . Y . 2016-1 7 a s p e r c u s t o m r e c o r d s . I t h a s f i l e d c o p y o f l e d g e r a c c o u n t o f F . Y . 2 0 1 5-1 6 w h i c h w a s a c c e p t e d d u r i n g t h e c o u r s e o f a s s e s s m e n t p r o c e e d i n g s . H o w e v e r , n o i n d e p e n d e n t v e r i f i c a t i o n w a s m a d e t o r e c o n c i l e o f p u r c h a s e a s p e r e xp o r t i m p o r t d a t a”. I n v i e w o f t h e a b o v e o b s e r v a t i o n , y o u a r e r e q u i r e d t o f i l e r e p l y w i t h s u p p o r t i n g e v i d e n c e e x p l a i n i n g a s t o w h y t h e a s s e s s m e n t f r a m e d b y e r s t w h i l e A C I T , C i r c l e-4 4 ( 1 ) , N e w D e l h i m a y n o t b e m o d i f i e d o r e n h a n c e d o r c a n c e l l e d .” 3.1 It wa s es se nti al l y a lle ge d in th e sh ow cau se n ot ice t ha t; (i) the As se ss in g Of f icer ha s n ot e xa min ed wh et he r the exp en di tu re inc ur re d b y w a y of int er es t on lo an s a va ile d f ro m su bst an ti ab l y i nt ere st ed c on ce rn s is ex ce ss iv e or unr ea so na bl e h av in g r eg ar d t o th e cor r esp on di ng mar ke t r ate . (ii ) th e a ss es see ha s sh ow n p urc ha se s i n th e b oo ks wh ic h are see n t o be le ss th a n i nv oic e val ue of Ex por ts. T he A ss es sin g Of f icer ha s f a ile d to mak e in dep en den t ve rif ic at io n o f the rec on ci lia ti on mad e b y t he a sse ss ee i n thi s re gar d. 3.2 The revisional co mmis sioner thus a lleged that there was no applica tion of mind by the Assessing Officer on the i ssues noted above and no inquiry whatsoever was carried out. The Pr.CIT accordingly passed a revisional or der under Section 263 and directed the Assessing Officer to fra me the as sess ment in the light of direc t ions given in the revis ional o rder. 4. Aggrieved by the revisiona l a ct ions of the Pr .CIT, the assesse e preferred appeal befor e the Tr ibunal agit at ing I.T.A. No.890/Del/2022 4 supervisory jurisdiction usurped by the Pr.CIT under Sect ion 263 of the Act . 5. We have heard the rival submiss ions on the issue . 5.1 To begin with, we take note of the r easons for se le ct ing the case in ‘li mit ed scrutiny’ as per notice issued under Sect ion 143(2) dated 28.09.2018. The followi ng issues were ide nti fied for examinat ion in the l imi ted scrut iny: “i. u ns ec ur ed lo a ns ii. s qu ar ed u p l oa n s iii . Cu st om d ut y p ai d iv. S al es tu rn ov er /r ece ip ts” 5.2 In this backdrop, with refer ence to t he firs t objec tion name ly correctness o f transact ions on the touchstone of Se ct ion 40A(2)(b) of the Act, the a ssessee contends that the a foresaid issue was clear ly not subjec t ma t ter of ident ificat ion under limit e d scrutiny. Notwithstanding, t he loans rece ived from persons covered under Sect ion 40A(2)(b) being relat ives of the partner of th e assesse e- fir m aggregat ing to Rs.1,21,00,000/- were duly providing substantia ted by PAN and comple te address along with confirmat ion. Ther efore the ass essee contends that in the absence of any mandate under limi ted scrutin y, the Assessing Offic er was not entit led to enquire into fa ir val ue of interes t char geable and hence no error can be visualiz ed in the act ion of the Assessing Officer for not expanding the scope of enquiry beyond the mandate given to him. We are inc li ned to agree with the plea of the ass essee. The assess ment was made under li mi ted scrutiny on speci fi c points. The aforesaid issue of verific at ion qua Section 40A(2)(b) raised by the Pr.CIT does not form part of the scope of I.T.A. No.890/Del/2022 5 enquiry under Section 143(2) of the Act. Thus, the Assessing Officer does not appear to having commi tt ed any error to stop himse l f on the points noted for li mi t ed scrutiny. The action of the Assessing Officer for not making all eged inquiry on the fa ir value of int eres t ra te c harged to assesse e thus cannot be leve led as erroneous. Secondly, the Pr.CIT in the show cause notice has proceeded on the premise tha t intere st ra te should be c omparable with the market ra te whereas Sec tion 40A(2)(b) only talks of fair market va lue. T he Pr.CIT has not pin-pointed any glaring abnormali ty in th e in teres t ra te charged to the asse ssee by the sist er concern/re la tives . The issue o f de ter mina tion fa ir market value under Section 40A(2)(b) is highly subjective and debatable. There is nothing on record to observe that interes t paid to the connected enti tie s patently de fi es the prevalent customa ry market rate. Ra ther, the d eter mina tion of fa ir rate o f in teres t payable is highly subjective a nd dependent on host of fac tors. A generic and non-descript direc tion of such type, i f permi tted, would render every assess ment year susceptibl e to revisonal proceedings. Thus, looking from any perspective, the ac tion of the Pr.CIT cannot be countenanced on this score in the present revis ional proceedings. 6. Adverting to the allega tion towards independent verific ation of reconci lia t ion of purchases appear ing as per i mport export data vis-à-vis purchases recorded in the books, i t is admit t ed position that some inquiry was made by the Assessing Offic er in this regard and reply/reconcil ia tion of t he assessee was c onsidered. The assess ee contends that the rep lie s were furnishe d towards variat ion in the purchases both before the Assessing Officer as well a s before t he Pr.CIT. It w as pointed out t hat cer tain transac tions were shown as ‘goods in transit’ by the a ssessee in I.T.A. No.890/Del/2022 6 the previous F.Y. 2015-16 [AY 2016-17] but the bil l o f entry for such goods in transit were generated in subsequent F.Y. 2016-17, i.e ., Asses sment Year 2017-18 and hence these transac tions were included in import export data in the current year, i.e. , Assessmen t Year 2017-18 whereas the transac t ions were reported by the Assessee in Assessmen t Year 2016-17. Reconcili at i on in this regard was admit te dly provided to explain the di fferenc e and there is no esc apement o f income by i tself. 7. The Pr.CIT has not commented o n the verac ity of such reconcil iat ion but has only alleged that independent verific at ion should have been made by the Assessing Offi cer. Ther e is nothing on record which may give rise to a cause for extended inquiry. The approach adopted by the Pr.C IT, in our view, is highly untenable. The ass essee has expla ined the difference in purchases at the firs t ins tan ce and the explanation offered is in tune with accounting practi c es and is thus pla usible. The Pr.CIT himsel f is not made any min imal inquiry towards such accounting differences be fore embarking upon giving such sweeping direct ions. The direct ions of the Pr. CIT appear to be a mere ipsi dixi t. Needl ess to say, the direc ti ons to disturb a comple ted assess ment, requires to be exercised with greater circumspec tion. In the absence o f any defini tive reas on for the need to make such extended inquiry, t he wisdom o f the Assessing Offi cer functioning as quasi judicia l offic er should not be ordinarily disturbed. While coming to such conclusion, we also are al ive to the co ntention on behalf of the asse ssee that the acco unts are audi ted a nd where such facts exa min ed and found sati sfac tory should be ordinarily accept ed which the Assessing Offic e r done in the instant case in the absence of any trigger to think di fferent ly. I.T.A. No.890/Del/2022 7 8. In totali ty, we fin d traction in such plea. The ac tion of the Pr.CIT in this i ssue a lso fai ls . 9. The revisional order of the Pr. CIT is thus quashed. 10. In the resul t, the a ppeal of the asses s ee is a l lowed. Order pronounced in the open Court on 23/11/2022. Sd/- Sd/- [CHANDRA MOHAN GARG] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /11/2022 prabhat