TMI Blog2015 (4) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... . Unless all fruitful areas of enquiry are pursued the enquiry cannot be said to have been faithfully conducted. In a different context the Apex Court observed "contra veritatem lex nunquam aliquid permittit: implies a duty on the Court to accept and accord its approval only to a report which is the result of faithful and fruitful investigation". - Decided in favour of appellant. - ITA No. 53 of 2012 - - - Dated:- 21-1-2015 - Girish Chandra Gupta And Arindam Sinha,JJ. For the Appellant : Mr R Sinha, Adv. For the Respondents : Mr J P Khaitan, Sr. Adv., Mr Sourabh Bagaria, Adv., Mr G S Gupta, Adv. JUDGMENT Girish Chandra Gupta,J. The subject matter of challenge in this appeal is a judgment and order dated 24th June, 2011 by which the Income Tax Appellate Tribunal has set aside an order passed by the Commissioner in exercise of power under section 263 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') on the ground, inter alia, that the powers envisaged under section 263 of the Act in setting aside an assessment are large and wide, but these cannot be exercised to allow the Assessing Officer to make up the deficiency of his case. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch huge loan. It is well established that loan credits from parties, who are of no means can not be accepted as genuine. The Assessing Officer was required to make proper investigation to determine whether the loan was really made by the third party or it has come out of the resources of the assessee himself. Thus, he has failed to apply his mind to all aspects of the case. Such non application of mind constitutes passing of an erroneous order which as discussed above is also prejudicial to the interest of revenue . The learned Tribunal has set aside the order of the CIT for the following reasons:- The only other issue is regarding unsecured loan obtained by the assessee from six private limited companies. The Ld. CIT on perusal of the assessment records observed that the A.O. did not make proper enquiries about the creditworthiness of the lenders before accepting the loans to the assessee. He also found in the bank statement of the lenders that identical amounts of loan were deposited in the respective accounts of some of the lenders before they gave loan to the assessee. It thus appears that the Ld. CIT was not satisfied about the enquiry conducted by the A.O. to find out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, in our considered opinion, is not correct on the face of the enquiry conducted by the A.O. The A.O. verified/examined the return of income, balance sheet, P/L Account, statement, confirmation etc of the lenders and also perused the Inspector's report, it goes without saying that the A.O. considered the creditworthiness of the loan creditors also. Therefore, it is not the case that the Ld. A.O. did not make any enquiry at all. In our opinion, the entire exercise u/s 263 of the Act was made by the Ld. CIT merely with a view to give a second inning to the A.O. to re-examine and re-adjudicating the concluded issues. The powers envisaged u/s 263 of the Act in setting aside an assessment are large and wide, but these cannot be exercised to allow the A.O. to make up the deficiency of his case. Hon'ble ITAT, Kolkata Bench in the case of Plastic Concern vs. ACIT [61 TTJ 87 (Cal)] has held that mere possibility of gathering more material to prove the claim of the assessee wrong would not make the concluded assessment erroneous so long as the Ld. AO had acted judiciously and conducted enquiries in the course of assessment proceedings. There is a distinction between lack of enqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 23 of the paper book placed before us to which the assessee sent a reply, which is at page 21. Having regard to the facts of the case, we are of the opinion that even on merits the provisions of Section 263 cannot be invoked on the facts of the present case before us.' 14. This finding has not been challenged by the Commissioner as perverse in this case. There is no allegation of any misdirection of law. In other words, the finding of the Tribunal was that the ITO had actually made an enquiry into the sale of silver utensils. Therefore, the Commissioner was not right in his conclusion that the case of the assessee had been accepted by the ITO without any enquiry. Since this finding of fact of the Tribunal has not been challenged, it will be academic to give any answer to the question of law posed by the revenue. The Tribunal might have wrongly decided the question of the Commissioner's jurisdiction under section 263 and the nature of the assessment order made by the ITO pursuant to a direction given by the IAC. But the Tribunal has come to a conclusion that the ITO had made enquiries about the sale of the silver utensils. Therefore, the Commissioner was not right in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport, which reads as follows:- (e) The Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the Department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted. (f) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 merely because he has a different opinion in the matter; that it is only in the cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income-tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in CIT vs. M. Ganapathi Mudaliar [1964] 53 ITR 623 (SC), inter alia holding that it was not necessary for the Revenue to locate the exact source. This principle was reiterated in CIT vs. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194 (SC), wherein the contention that the Assessing Officer should indicate the source of income before it was taxable, was described as an incorrect legal position. Thus when there is an unexplained cash credit, it is open to the Assessing Officer to hold that it was income of the assessee and no further burden lies on him to show the source. In Yadu Hari Dalmia vs. CIT [1980] 126 ITR 48, a Division Bench of Delhi High Court has observed:- It is well known that the whole catena of sections starting from s.68 have been introduced into the taxing enactments step by step in order to plug loopholes and in order to place certain situations beyond doubt even though there were judicial decisions covering some of the aspects. For example, even long prior to the introduction of s.68 in the statue book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and no interference was called for. Lovely Exports (supra) was a case of public limited company where shares were subscribed by public and it was accordingly observed:- This reasoning must apply a fortiori to large scale subscriptions to the shares of a public Company where the latter may have no material other than the application forms and bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the Company/assessee or to creditors of the assessee. This is why this Court has adopted a very strict approach to the burden being laid almost entirely on an assessee which receives a gift. 26. Thereafter reference was made to Full Bench decision in the case of Sophia Finance Ltd.'s case (supra) wherein it has been observed that if the shareholders exists then, possibly , no further enquiry needs to be made and that the Full Bench had not reflected upon the question of whether the burden of proof rested entirely on the assessee and at which point this burden justifiably shifted to the assessing officer. The Full Bench has observed that they were not deciding as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 ITR 626 (Cal.) are the other three. In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc., it would constitute acceptable proof or acceptable explanation by the assessed. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; and (7) The Assessing Officer is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. 28. In Nova Promoters Finlease (supra), it was held that in view of the link between the entry providers and incriminating evidence, mere filing of PAN number, acknowledgement of income tax returns of the entry provider, bank account statements etc. was not sufficient to discharge the onus. 29. In CIT v. Nipun Builders and Developers [2013] 350 ITR 407 (Del), this principle has been reiterated holding that the assessee and the Assessing Officer have to adopt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not establish the creditworthiness of the lender, mere examination of the pass-book or the bank statement or the letter of confirmation or the balance sheet of the lender is also not enough. The inspector appointed by the Assessing Officer did not go beyond the aforesaid documents. Therefore, it cannot be disputed that the view formed by the CIT that in none of the reports, he has commented upon the issue of creditworthiness i.e. whether these parties had sufficient means to advance such huge loans is not without basis. It is well established that credits allegedly based on loan from parties, who are not possessed of sufficient means cannot be accepted as genuine. The Assessing Officer was required to make proper investigation to determine whether the money was really lent by the third party or it has come out of the resources of the assessee himself. The source of the apparent source is a relevant enquiry. That, the Assessing Officer has failed to apply his mind to all aspects of the case is therefore self- evident. Such non-application of mind constituted passing of an erroneous order which is also prejudicial to the interest of revenue. If any further authority is required refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en circumstances would make such an inquiry prudent that the word erroneous in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. (b) In the case of Additional Commissioner of Income Tax Vs. Mukur Corporation reported in (1978) 111 ITR 312 (Guj) the Assessing Officer had allowed two deductions of a sum of ₹ 2,00,000/- and a sum of ₹ 1,45,000/- without proper enquiry. The question arose whether exercise of power by the Commissioner under Section 263 in the circumstances was proper which was answered in the affirmative. The Division Bench held as follows:- that the words prejudicial to the interests of the revenue in section 263 have not been defined but they must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. In the present case, it was obvious that the Income-tax Officer had committed an error in not making enquiry into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in the assessment order regarding the application or non-application of Explanation 3 to section 43(1). The Inspecting Assistant Commissioner having not applied his mind at all and having allowed the depreciation at the enhanced value without considering Explanation 3, the order was prejudicial to the interest of the Revenue. Not only this, the commissioner of Income-tax found that the depreciation has been allowed on land, which is complete non-application of mind and in such a situation the power under Section 263 could be exercised by the Commissioner of Income-tax. On the point as to whether the main purpose of transfer of the assets was to reduce the tax liability or not, the matter could have been decided by the assessing authority after taking into consideration the oral and written evidence. The Commissioner of Income-tax also in such a situation should have set aside the assessment on this point and should have left it to the assessing authority to come to the conclusion whether the main purpose of transfer of the assets was to reduce the tax liability or not. He could have called for the copy of the partnership deed and dissolution deed and could have taken other evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Explanation. Simply because the facts have been disclosed by the assessee, it does not give immunity from revisional jurisdiction which the Commissioner can exercise under section 263 and as such even in a case where the facts have been disclosed by the assessee to the assessing authority and the correct provisions of law have not been examined by the assessing authority, the power under section 263 can be invoked. (f) In the case of Duggal and Co. Vs. CIT reported in (1996) 220 ITR 456 (Del) the Delhi High Court upheld the order of exercise of power under Section 263 holding that:- The commissioner was perfectly competent to exercise his powers under Section 263 whenever he found, prima facie, that there was need to enquire if the interest of the Revenue had suffered by an order of assessment. He has given certain reasons. The basis for the order of the Commissioner is a question of fact and whether it is correct or not shall have to be found out after enquiry by the Income-tax Officer. The Commissioner has found that the Income-tax Officer has omitted to enquire into this question found by the Commissioner implicit in the manner in which the amounts were borrowed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by him. Moreover, in view of the clear words used in clause (b) of the Explanation to section 263 (1), it has to be held that while calling for and examining the record of any proceeding under section 263 (1), it is and it was open to the Commissioner not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination. (h) Reference may also be made to the judgement in the case of Consolidated Photo Finvest Ltd. -Vs- ACIT reported in (2006) 281 ITR 394 (Del.) wherein the following views were expressed:- The principle that a mere change of opinion could not be a basis for reopening completed assessments would be applicable only to situations where the Assessing Officer had applied his mind and taken a conscious decision on a particular matter in issue. It would have no application where the order of assessment did not address itself to the aspect which was the basis for reopening of the assessment. Therefore, it was inconsequential whether or not the material necessary for taking a decision was available to the Assessing officer either generally or in the form of a reply to the questionnaire serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Bhattacharjee, wherein the following views were taken:- Non-application of mind is a ground for interference under Section 263 in the case of CIT Vs. Shri Bhagwan Das, (2005) 272 ITR 367 (All) the Division Bench opined that exercise of power under Section 263 was proper when there was no discussion regarding the question as to whether the amount of income shown by the assessee which was claimed to be exempted had actually been earned by him and whether the entire amount of income from agriculture and Poultry Farming was exempted from tax. The judgments cited by Mr. Khaitan are all distinguishable because in none of the cases, the creditworthiness of the alleged lender was in issue. In the case of CIT -Vs- Mulchand Bagri (supra) the issue was whether the profit to the tune of ₹ 16,237/- on the sale of some silver utensils can be treated as exempt income because the sale was of the utensils which constituted personal effects of the assessee. CIT exercised power holding that no enquiry was made. It transpired that an enquiry had, in fact, been made and in earlier years also identical claim of the assessee was allowed. Their Lordships of Division Bench in that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. Mr. Khaitan, as aforesaid, has not disputed that creditworthiness of the alleged creditors, insisted upon by the CIT, is a relevant enquiry. The judgments cited by Mr. Khaitan in the case of Spectra Shares and Scrips (supra) is an authority for the proposition that change of opinion cannot be a ground for exercise of power u/s. 263. The question of change of opinion cannot arise when all relevant facts have not been ascertained as is the case before us. The judgment in the case of J. L. Morrison does not assist the assessee because in that case the question was whether the receipt was a revenue receipt or a capital receipt. The assessing Officer treated the receipt as a capital receipt which the Division Bench found was a possible view. Unlike in the present case no factual enquiry was necessary in that case. The learned Tribunal entertained an incorrect impression of law which was responsible for the impugned judgment which is also evident from the following sentence: The powers envisaged under section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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