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TMI Blog2014 (3) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... The show cause notice was to verify whether interest income was included in the books or not – Assessee had demonstrated this aspect to the satisfaction of audit party, CIT(Audit) and predecessor CIT - the set aside for a new issue i.e. eligibility of FDR interest u/s 10AA cannot be sustained. The issue has been examined by CIT and sec. 10AA eligibility has not been disturbed in 263 order - Thus the direction to re-examine eligibility of 10AA qua the FDR interest has to fail on both counts i.e. it is not raised in show cause notice and sec. 10AA has been not disturbed - as long as the audit correspondence, letter of CIT(Audit) and predecessor CIT correspondence and order are available on record, they become part of record - Successor CIT cannot gloss over the same as it implies non perusal of record and non-application of mind - These omissions violate the 263 provisions – Decided in favour of Assessee. - ITA No. 2730/Del/2013 - - - Dated:- 7-3-2014 - Shri R. P. Tolani And Shri T. S. Kapoor,JJ. For the Appellant : Shri Gautam Jain Adv. For the Respondent : Shri Ramesh Chander CIT (DR) ORDER Per R. P. Tolani, J. M: This is the assessee s appeal aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brief facts are: assessee is into business of consultancy in security papers and bank note papers by two proprietorship concerns: i. Sterling Security Systems (SSS for short) ii. Sterling Exports (SE for short) 2.1. Both units are carrying business from SDF No. 1, Trading block, Noida SEZ, Noida. The first unit i.e. SSS is claimed to be exempt u/s 10AA. Assessee filed its return of income for the impugned year AY 2008-09 along with necessary audited statements and certificates for this claim u/s 10AA. By order u/s 143(3) dated 16-7-2010 AO- ward 20(1), accepted the income returned by the assesse. 2.2. Thereafter, based on audit objection raised by income tax audit party, ld. CIT-VII, Delhi issued first notice u/s 263 dated 12-12-2011 (PB 76-81) raising following errors made by AO: 14. It thus appears that the assessee is not entitled to deduction u/s 10AA and the same was wrongly allowed to the assessee and the same resulted in under assessment of income by Rs. 23,42,20,336/-. 15. The assessee had invested Rs. 27,57,91,533/- in FDRs as on 31-03-2008. However, he had declared interest income of Rs. 11,852/- only. It appears the assessee had not declared interest a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to the assesse ld. CIT concluded the 263 proceedings on these issues and the revision proceedings were closed and record was returned to assessing officer accordingly. 2.5. Assessee was surprised to receive a notice dated 31-1-2013 again issued by successor CIT, contending that these 263 proceedings were pending and calling for explanation on the same issues, which according to assessee were already explained and dropped. 2.6. Assessee in reply raised various objections on jurisdiction and merits contending that 263 proceedings were already closed and filed its explanation. Ld. CIT by the impugned order accepted the assessee s explanation on the first issue i.e. eligibility of SSS to claim benefits u/s 10 AA. However, two issues were set aside to AO for re-verification, out of them only one was mentioned in the show cause notice. A new issue which was not raised in the original 263 notice i.e. the loss incurred by assesse from Sterling Exports. Assessee objected to it. However, ignoring the objections, same was also set aside by ld CIT to assessing officer. 2.7. Aggrieved assessee is before us challenging the impugned second 263 order. 3. Ld. Counsel for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only audit party objections dated 31-3-2011.The impugned notices and order passed u/s 263 being based on third party opinion are bad in law and unsustainable. 3.5. Further the proceedings are bad in law and untenable on following counts: (i) The errors in assessment order as alleged in first 263 notice were limited to: (a) eligibility of claim u/s 10AA; (b) whether assessee has included the FDR income in his P L A/c. (ii) There was no mention in the show cause notice about the loss of sterling exports, thus absence of notice on the issue of loss cannot be revised by ld. CIT. The AO during the course of assessment had made all necessary enquiries in behalf of errors mentioned in first notice which is demonstrated by the proceeding sheets of assessment order. Based thereon the 263 proceedings were dropped by predecessor CIT, therefore, neither there is any basis nor reason for impugned revision proceedings. (iii) The alleged errors of AO and consequent prejudice to revenue are not found by a satisfaction based on independent application of mind by ld. CIT, as required by the I T Act. The audit objections are raised after the assessment is over. Audit objections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) at page 216 para 7 iv) ITA No. 690/Chd/2010 A.Y. 2005-06 dated 9.3.2012 Sh. Jaswinder Singh vs. CIT v) ITA No. 367/Chd/2012 A.Y. 2007-08 dated 7.3.2013 Aarti International vs. CIT 3.7. In these cases, it is held by courts that, while exercising power, the Commissioner must have an unbiased mind and decide the dispute according to the procedure which is consistent with the principles of natural justice and cannot permit his mind to be influenced by the dictate of another authority. 3.8. It is pleaded that sec. 263 contemplates calling for the record and due verification thereof. Ld. CIT failed to consider the facts and material on record that earlier CIT had already called for and perused the case record and closed the proceedings. Besides she overlooked the crucial letters on record between AO, predecessor CIT and CIT (Audit). Vide letter dated 21.7.2011, ld. AO (pages 58-61 of Paper Book), communicated to the ld CIT that this issue was duly examined by him in the course of assessment proceedings and queries were duly replied by assessee. The relevant para 2 of the letter placed at pages 59-61 of Paper Book reads as under: 2 As far as the objection regarding bring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i through Addl. CIT-Range-20, New Delhi vide this office letter no. ITO/Ward 20(1)/2011-12/495 dated 21.7.2011, and the same is lying with them. [Emphasis supplied] 3.10. Thus the 263 notice issued by successor CIT extending the closed 263 proceedings is not only bad in law but also amounts to review of predecessor CIT s order and is also contrary to facts on record, hence untenable. It demonstrates non application of mind to the relevant facts and material present on case record, which clearly violates the mandate of sec. 263. Therefore, the impugned order u/s sec 263 being grossly in violation of statutory provisions is vitiated by incurable lapses, untenable and unsustainable. The observation and finding of the learned Commissioner of Income Tax that the issue of FDR interest has not been examined at the assessment stage is thus contrary to entire record available before ld. CIT. 3.11. Vide assessee s reply dated 2.2.2012 which is part of assessment record and is placed at PB 82-139, it was obvious that FDR interest income is included in the declared receipts and qualifies for deduction u/s 10AA of the Act. Thus not only the issue of interest but also the issue about asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is heard on that issue. Therefore the 263 order setting aside this loss for reexamination by AO is void ab initio. 3.17. Assessee has amply demonstrated that interest was duly credited in books and what was reflected in P L A/c was net effect of interest etc. Audit department and predecessor CIT have accepted this fact after due verification. The new twist to findings of CIT that issue of interest on FDR was not properly inquired from 10AA angle and consequent set aside is contrary to the record and violates the settled position of law in this behalf for the following reasons: i) That replies dated 21.7.2011 and 16.8.2011 by learned Assessing Officer to predecessor CIT-VII endorse the fact that the issue was duly examined by him; ii) That the predecessor CIT on consideration of the record and replies in this behalf dated 2.2.2012 was satisfied with assessee s reply consequently by an order dated 4.3.2012 his satisfaction is reduced in writing; (iii) The impugned CIT has given no basis whatsoever as to why the contents of A.O s letters dated 21.7.2011 and 16.8.2011 and the predecessor CIT s order dated 4.3.2012 are questionable or incorrect. It is pleaded that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of inadequate enquiry is distinct from the case of lack of inquiry. Reliance is placed on: i) 357 ITR 388 (Del) DIT vs. Jyoti Foundation ii) 332 ITR 167 (Del) CIT vs. Sunbeam Auto Ltd. at pages 180- 181. iii) 343 ITR 329 (Del) ITO vs. D.G. Housing Projects Ltd. at pages 339. iv) 341 ITR 166 (Del) CIT vs. Leisure Wear Exports Ltd. v) 212 Taxman 184 (Del) CIT vs. Vodafone Essar South Ltd. vi) 341 ITR 180 (Del) CIT vs. Hindustan Marketing and Advertising Co. Ltd. vii) 262 CTR 604 (Del) CIT vs. New Delhi Television Ltd. viii) 236 CTR 476 (Del), CIT vs. Vikas Polymers 3.21. Ld. Counsel further contends that it is trite law that where more than one views are possible on an issue and if AO has adopted one of the possible view action u/s 263 cannot be invoked by CIT. i) 243 ITR 83 (SC) Malabar Industrial Co. Ltd. vs. CIT ii) 259 ITR 502 (Guj) CIT vs. Arvind Jewellers iii) 332 ITR 167 (Del) CIT vs. Sunbeam Auto Ltd. (pages 200-208 of PB) iv) 329 ITR 289 (Del) CIT vs. DLF Power Ltd. v) 295 ITR 282 (SC) CIT vs. Max India Ltd. vi) 323 ITR 632 (Bom) CIT vs. Design and Automation Engineers (Bombay) Pvt. Ltd. vii) 294 ITR 121 (Chennai) CIT vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiate proceedings u/s 263. Thereafter new CIT applied her independent mind and after conducting inquiries found the order to be erroneous and prejudicial to the interests of Revenue on these issues. (ii) The change in accounting system (from cash to mercantile) was not noticed by AO, who failed to probe further which shows that he was in undue haste in framing the assessment order. Assessee filed reply before the AO only on 16-07-2010 (a reply running into more than 100 pages/documents) and strangely the very same day showing his callous attitude, undue haste utter failure to conduct probe of the expected issues AO finalized the assessment. (iii) Ld. CIT observed that the appellant had huge FDR of 27.57 Cr. but just a nominal interest of Rs.11852/- was offered for tax. The AO did not make necessary/expected enquiry from the Bank and CIT also noticed the AO to have failed to draw necessary inferences from the difference between the figure as appearing in the FDRs with Bank at 27.51 crores and the figure as appearing in Books ( of Sterling Security Systems) qua the Bank at 26.97 crores which difference apparently was held to be due to interest accrued. (iv) There is no di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w because revision has inter alia been done on issues i.e. Loss of Sterling Exports and also for F.D.R. which did not form part of the Show Cause Notice dated 12-12-2011. In this connection, it is submitted that as far as the issue of loss (Sterling Exports) is concerned it is not the only issue on which order has been sought to be revised or was revised. When the appellant clearly admits failure of the AO to consider this issue in assessment which he (AO) ought to have done. Then assessee can not be allowed to agitate the revision on other issues. Regarding the FDR also the argument is not maintainable when the CIT has revised the assessment on the ground of interest attributable to FDR only which encompassed within it naturally the aspect of FDR also. In view of these facts it is clear that the judgments relied by the appellant do not help its cause. Further, the contention of the appellant that proceedings u/s 263 initiated on 12-12-2011 stood dropped is factually incorrect is unsubstantiated. There is no evidence at all that proceedings initiated on that date were ever dropped later. 4.8. AO s letter dated 21-07-2011/16-08-2011 addressed to CIT (Audit) reiterating the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied mind analytically and logically before taking one of the possible views, the order can be treated as erroneous. (c) On the Delhi High Court judgment in Vee Gee Enterprises { 99 ITR 373} where it is held that it is AO s duty to ascertain the truth of the facts stated in the return when circumstances such as to provoke an inquiry and that if he does not make such inquiry the order so passed becomes erroneous. (d) On the Delhi ITAT decision in Lampa Trading Company { 39 ITD 534 Del.} where, involving similar facts, it was held that assessment made in undue haste would justify action u/s 263. (e) On the Tribunal decision {110 ITD 59 Jodh} that accepting claim without peeping in conditions of section 10B ( quite similar to appellant s case of 10AA) will justify action u/s 263. (f) On the ITAT decision {301 ITR 45 Raj.}that where AO accepts submission of assessee without necessary enquiries action 263 will lie. 5. We have heard the rival contentions and perused the material available on record. As mentioned above the issue of eligibility of sec 10AA for the unit SSS has been accepted by the CIT and is not before us. Apropos the issue of loss incurred by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decessor) and CIT (Audit). The proceedings were closed after such verifications. 5.4. Assessee has challenged the 263 action on various legal issues and merits: (i) 263 proceedings were dropped by predecessors CIT after verification of record, audit record and assesses explanation. The successor CIT cannot review his order on the same issues and consider the concluded proceedings as pending and then review the earlier proceeding u/s 263. (ii) The notice was for verifying whether the FDR interest of Rs. 7,57,91,533/- from export receipt for meeting export contractual obligations in SSS was included in income or not; there is no show cause to examine about its eligibility u/s 10AA. The inclusion of income in profits has been accepted, however, now a direction is given in 263 order by setting it aside to A.O. to examine its eligibility u/s 10AA. Thus an issue which is not raised in the 263 show cause notice cannot be set aside by CIT. Besides eligibility u/s 10AA of the SSS unit as a whole has already been dropped not only by predecessor but also by the successor CIT. So this directions of successor CIT and verification is untenable. (iii) The successor CIT without verify ..... X X X X Extracts X X X X X X X X Extracts X X X X
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