2016 (6) TMI 1272 - AT - Income Tax

Revision u/s 263 - cash transactions found recorded in the seized material - Held that - As during course of assessment proceedings u/s.153A of the Act, Assessing Officer has asked for explanation in respect of various notings made in loose papers/note book/ pad found during the search carried out in various premises of assessee. The assessee contended that in the alternative the expenditure should be telescoped against the income. This was examined in detail by the Assessing Officer and also discussed in his order. This is certainly one of the possible view taken by the Assessing Officer. In view of this, the review of same u/s.263 of the Act is not justified as discussed above. Similar issue arose in A.Y.2007-08, 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13. Facts being similar so following same reasoning, this issue in all these years is decided in favour of assessee. It is pertinent to mention here that all case laws relied by parties have been taken into consideration, though same may not be specifically mentioned. Allowability of deduction u/s. l0B - Held that - Assessee had already submitted that various permissions obtained from Kandla Economic Zone of Ministry of Commerce & Industries. The copies of invoices of new machineries obtained and installed in EOU Unit of Masar Plant for manufacturing Co-enzyme Q 10 have been placed on page nos. 51 to 173, certified to be before Assessing Officer at relevant point of time. Assessing Officer has made relevant enquiries in this regard, same were replied on behalf of assessee. Even with regard to export, enquiries were made which were replied by assessee. Even rate difference of domestic sale and export was stated before Assessing Officer inter alia submitting that there was a big quality difference in both sales i.e. domestic and foreign with regard to one consignment to France at lower rate it was not sale but sample sale in which amount is not material. It was done on minimum price just for the sake of custom clearance. Assessee can not show zero amount of sale of these sample, so nominal cost was taken for custom purpose. In such a situation, provisions of Section 263 of the Act is not justified and same is set aside. Similar issue arose in A.Y. 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13. Facts being similar so following same reasoning, we set aside the order of CIT on this issue in all these years. Huge purchases from certain concerns stationed at Dubai - held that - , Assessing Officer called for information and same were responded at relevant point of time with regards to the transactions carried out at Dubai. For the example, our attention was drawn to page no.36 of paper book I, letter dated 15th February, 2014 addressed to assessee by concerned party i.e. Trading Inc. Similarly attention drawn to the letter of one Blue Mark Mercantile Ltd. dated 26th February, 2014 addressed to assessee regarding confirmation of accounts of Sterling Biotech Limited. This shows that Assessing Officer has examined the transactions of assessee at Dubai. In this situation, it cannot be said that no details were verified by the assessee regarding off shore transactions. Moreover, Assessing Officer has called for audited accounts of offshore branch of assessee company for verification of assessee s claim in this regard. In such situation, CIT was not justified in invoking provisions of Section 263 List of 151 entities with their letter head and stamps and other documentary evidences found and seized during search operation from two different premises - Held that - Assessee in certain situation has given its premises to M/s. H. S. Hathi & Co., Chartered Accountants, to use this premise to run its office because of renovation in its office 18 out of 151 details belongs to assessee group and rest belongs to M/s. H. S. Hathi & Co s. clients as mentioned above. Thus, this clear cut factual finding arrived by Assessing Officer at relevant point of time. The assessee had submitted name, address, PAN number, details of Jurisdictional Officers in respect of 151 parties. In such a situation, CIT was not justified in giving direction to verify the details of all 151 companies assuming the same to be belonging to the assessee group. Regarding remaining other than 18 out of 151, same did not belong to assessee as discussed above because same belong to client of M/s. H. S. Hathi & Co. who was using the premises in question on temporary basis as discussed above. In any case the share applications money of ₹ 45 crore had been received from 18 companies in A.Y. 2003-04 which is beyond the assessment years under consideration. This take care of issue raised in ground nos. 6 & 9. So, order of Assessing Officer cannot be said to be erroneous as to be prejudicial to the interest of Revenue to make it fall in provisions of Section 263 of the Act. Same is set aside. Documentary evidence found during the course of search in respect of investment in offshore entities like USA and Dubai etc. - Held that - All records found as discussed above in preceding para and records were not belonged to assessee company. The said contention of assessee was accepted by Assessing Officer after due consideration of the facts because in assessment proceedings, explanation for all documents were seized and submitted. In response to the queries, submissions were made to the Assessing Officer on 24.12.2013 with regard to capital advances made by Sterling Port Limited as placed on Page 37-38 of paper book part II. Assessment of said Sterling Port Limited was also completed by same Assessing Officer and all related documents and explanations were filed in said assessment. The said transaction is nothing to do with the assessee Sterling Biotech Limited. Even projection/estimation of project at Nigeria has nothing to do with assessee. Assessee has already given page-wise explanation before the Investigating Wing as well as the Assessing Officer as detailed on page nos. 28, 29 of paper book No.II. In view of our legal and factual discussion, CIT was not justified to invoke the provisions of Section 263 of the Act in regard to this allegation, so, same is set aside. Estimation of the by-products and wastes from the data of bone consumption sourced from assessee - basis of information available on website and Assessing Officer s presumption that since the sale of gelatin is mostly to MNCs, there is no scope of suppression in respect of Gelatine - Held that - Assessee has claimed wastage of 30% which was reduced to 5% by Assessing Officer after taking into consideration all details in this regard. Though, assessee was not satisfied with the reduction of wastage, but, facts remain that enquiry was done by the Assessing Officer at relevant point of time in assessment proceedings. So, CIT cannot be said that order of Assessing Officer is erroneous so as to prejudice to the interest of Revenue in absence of any enquiry. Under the circumstances, the order of Assessing Officer on this issue cannot be said to be erroneous, so as to prejudicial to the interest of Revenue so as to invoke provisions of Section 263 of the Act, and same is set aside. Inflation of the capital assets by assessee - Held that - The allegation of CIT is that there is inflation of the capital assets by assessee. Assessing Officer ought to have duly verified the addition towards fixed assets. As stated above, questionnaire was issued by Assessing Officer with regards to fixed assets as mentioned above and in response to the same, relevant details have been filed by assessee at relevant point of time as discussed above. In this background, it cannot be said that Assessing Officer has not done verification of the addition to the fixed assets. All these explanations with regard to questionnaire by Assessing Officer had been submitted before CIT in response to show cause notice and with regards to addition to the block of assets. But, same has not been taken into consideration by CIT, which is not justified. Under facts and circumstances, CIT was not justified in invoking provisions of Section 263 - Assessee appeal allowed.

Summary

Issues Involved:
1. Legality and jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act.
2. Applicability of Section 69 of the Income Tax Act regarding unexplained cash transactions.
3. Verification of the claim for deduction under Section 10B of the Income Tax Act.
4. Verification of trading activities in Dubai.
5. Verification of records of 151 entities found during the search.
6. Verification of overseas investments.
7. Examination of seized data and manufacturing reports regarding by-products.
8. Verification of share application money from 18 entities.
9. Setting aside the assessment order for de novo assessment.

Detailed Analysis:

1. Legality and Jurisdiction of Pr. CIT under Section 263:
The assessee argued that the Pr. CIT's order was illegal, ultra vires, and contrary to the provisions of the law. The Pr. CIT initiated proceedings under Section 263, asserting that the assessment order was erroneous and prejudicial to the interests of revenue. The Tribunal noted that the Pr. CIT's jurisdiction under Section 263 is valid if the assessment order is both erroneous and prejudicial to the interests of revenue. The Tribunal found that the Pr. CIT failed to establish that the assessment order met these criteria, and thus, the invocation of Section 263 was not justified.

2. Applicability of Section 69:
The Pr. CIT contended that the Assessing Officer (AO) failed to examine the applicability of Section 69 regarding unexplained cash transactions. The assessee argued that detailed explanations were provided for each transaction, which were examined by the AO. The Tribunal agreed with the assessee, noting that the AO had made sufficient inquiries and that the Pr. CIT's direction for further examination was unwarranted.

3. Verification of Claim for Deduction under Section 10B:
The Pr. CIT claimed that the AO allowed the deduction under Section 10B without proper verification. The assessee contended that the deduction was claimed from the financial year 2007-08 onwards, and relevant details were provided during the assessment proceedings. The Tribunal found that the AO had made necessary inquiries and that the Pr. CIT's direction for further verification was not justified.

4. Verification of Trading Activities in Dubai:
The Pr. CIT argued that the AO accepted the assessee's claim regarding trading activities in Dubai without verifying the audit report of the offshore branch. The assessee provided confirmations from customers and suppliers, and the AO verified these transactions. The Tribunal concluded that the AO had conducted sufficient verification, and the Pr. CIT's direction for further examination was unwarranted.

5. Verification of Records of 151 Entities:
The Pr. CIT contended that the AO failed to verify the records of 151 entities found during the search. The assessee clarified that these entities were clients of their Chartered Accountant, with no direct connection to the assessee. The Tribunal found that the AO had verified the relevant details and that the Pr. CIT's direction for further verification was not justified.

6. Verification of Overseas Investments:
The Pr. CIT argued that the AO did not verify the assessee's overseas investments. The assessee provided details of small investments made, which were verified by the AO. The Tribunal found that the AO had conducted sufficient verification and that the Pr. CIT's direction for further examination was unwarranted.

7. Examination of Seized Data and Manufacturing Reports:
The Pr. CIT claimed that the AO did not properly examine the seized data and manufacturing reports regarding by-products. The assessee provided detailed explanations and quantitative details, which were examined by the AO. The Tribunal concluded that the AO had made necessary inquiries and that the Pr. CIT's direction for further verification was not justified.

8. Verification of Share Application Money:
The Pr. CIT argued that the AO failed to verify the share application money from 18 entities. The assessee provided detailed explanations and documentary evidence, which were examined by the AO. The Tribunal found that the AO had conducted sufficient verification and that the Pr. CIT's direction for further examination was unwarranted.

9. Setting Aside the Assessment Order for De Novo Assessment:
The Pr. CIT set aside the assessment order for de novo assessment. The Tribunal noted that the Pr. CIT should not set aside the entire assessment but only those issues where the order was erroneous and prejudicial to the interests of revenue. The Tribunal concluded that the Pr. CIT's direction for a de novo assessment was not justified.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, setting aside the Pr. CIT's order under Section 263 of the Income Tax Act. The Tribunal found that the AO had conducted sufficient inquiries and that the Pr. CIT's direction for further examination on various issues was unwarranted.