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TMI Blog2017 (4) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... factory premises and goddown is ancestral property of assessee’s family. Moreover, when no rent has been claimed in the balance sheet qua the property in question it would not affect the tax liability of the assessee in any manner. The assessee argued that the assessee could not furnish PAN of only those parties in whose case there was no further transactions at the time of assessment proceedings and that the account of the 13 parties out of 17 parties stood squared off in subsequent years and details thereof was filed before ld. CIT. This fact goes to prove that a discreet enquiry has been conducted by the AO qua all the sundry creditors and the findings of the ld. CIT that the AO did not make any enquiry even on sample basis to find out the genuineness of the sundry creditors is based upon surmises. At the most, it can be a case of inadequate enquiry, in which ld. CIT has no power to intervene u/s 263 of the Act. Bare perusal of the written submissions filed by the Revenue, it goes to prove that the Revenue has merely relied upon the case law to clarify the legal position so as to invoke the provisions contained u/s 263 of the Act but has failed to bring on record that the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had commenced by issue of notice u/s 143(2) and after several hearings, the AO completed the assessment u/s 143(3) at ₹ 21,60,55,880/-. That the CIT issued show cause notice u/s 263 on 1st October, 2015 in response to which the assessee filed the detailed written submissions in which each and every point was explained. The ld. CIT(A) alleged that the Assessing Officer did not make the inquiry on various points and he set aside the matter back to the file of Assessing Officer to make fresh assessment. Ld. Counsel explained in respect of each and every point raised by the CIT(A) and claimed that proper inquiry was made by the Assessing Officer in respect of each and every point and the allegation of CIT is factually as well as legally untenable. He has also furnished the written submissions, the relevant portion of which is reproduced below for ready reference:- "8) SUBMISSIONS BEFORE ITAT It is respectfully submitted that the assessment in this case was framed after making all inquiries and verification which were required to be made and that the assessment order in this case is neither erroneous nor prejudicial to the interest of the Revenue.lt is further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as on 31st March 2011. It was further explained that the capital of the assessee as also interest free loans available to the assessee of ₹ 3.16 crores and other interest free funds in the form of sundry creditors etc. were far in excess of the interest free loans advanced by the assessee at ₹ 7.52 crores. It was further explained that the A.O. has taken note of all this information when he had examined the Balance Sheet of the assessee, statement of affairs of the assessee, bank statements of the assessee as also the details of debtors, creditors and unsecured loans which were duly asked for vide notice dated 23.07.13. (page no.38 of paperbook) v. The assessee further submitted that the details of all unsecured loans along with confirmations of each of the transactions, bank account of each of the persons and income tax acknowledgment return of each of the persons from whom unsecured loans were received, were duly furnished before the Assessing Officer and were examined by him during the course of assessment proceedings. It was further explained that out of 11 persons whose loans were outstanding, fresh loans have been received only from three persons and that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interests of Revenue, following cases were relied upon in the course of hearing of the case before the ITAT. Gist of the cases so cited is as under:- i) Delhi High Court - Director of Income Tax vs. Jyoti Foundation 357 1TR 388 The Hon'ble Delhi High Court has held in this case as under:- "In cases where there is inadequate enquiry but not lack of enquiry, the Commissioner must record a finding that the order//inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in law. An order of remit cannot be passed by the Commissioner to ask the Assessing Officer to decide whether the order was erroneous". The Hon'ble Delhi High Court in this case followed its judgment in the case of D.G. Housing Projects Limited reported in 343 ITR 329. ii) Delhi High Court - 1TO vs. D.G. Housing Projects Limited 343 ITR 329 In this case the Hon'ble Delhi High Court has held as under:- "A distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e there are two possible views and the AO has taken one of the possible views, no occasion to exercise powers of revision can arise. Nor can revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry. The power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry." In this case the Hon'ble High court has further held as under: "Enquiry of a source of source is not the requirement of law. Once the A.O. is satisfied with the explanation offered on inquiry, it is not open to the CIT in exercise of his revisional powers to direct that further enquiry has to be done. At the very highest, the case of the Revenue is that this is a case of inadequate inquiry and not of "no enquiry". It is well-settled that the jurisdiction u/s 263 can be exercised by the CIT only when it is a case of lack of enquiry and not one of inadequate enquiry. It is very important to note that the CIT in his order under s.263 has recorded the fact that there has been no adequate inquiry. Thus this is not a case of no inquiry, warr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert them and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the Commissioner prior to the finalization of the decision." In the instant case, a perusal of the impugned order would show that the CIT has drawn adverse inference against the assessee on the basis of alleged information regarding DRI action in the case of the brother of the assessee namely Sehdev Gupta, with whom the assessee did not have any trading transaction . There was no material on record to support such allegations and the CIT neither issued any show cause to the assessee in this regard nor confronted the assessee on this issue during the course of s.263 proceedings." 3. Ld. DR, on the other hand, was of the opinion that the alleged inquiry made by the Assessing Officer was, in effect, no inquiry at all because the Assessing Officer has to discharge twin functions of adjudicator as well as investigator. Merely obtaining certain details or papers from the assessee and keeping it on record cannot amount to making a prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s be a case of lack of inquiry and not inadequate inquiry. The relevant portion of the order of Hon'ble ITAT is reproduced below:- "28.1 Ld. Special counsel has rightly pointed out that the expression, 'inquiry1, 'lack of inquiry' and 'inadequate inquiry', have not been defined and, therefore, when the action of the AO would be suggestive of lack of inquiry or inadequate inquiry, will depend upon the facts obtaining in a particular case. What emerges as a broad principle from the various decisions is that where the AO has reached a rational conclusion, based on his inquiries and material on record, the Commissioner should not start the matter afresh in a way as to question the manner of his conducting inquiries. It is not the province of the Commissioner to enter into the merits of evidence; it has only to see whether the requirements of essential inquires and of law have been duly and properly complied with by AO or not. 28.2 It is well settled that before the Commissioner can invoke his powers u/s 263, he has to arrive at a conclusion that the assessment order is erroneous in so far as it was prejudicial to the interests of the revenue. Then only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the AO in respect of unsecured loan would be in the category of 'no enquiry'. 6. It is undisputed fact that AO had asked for PANs of sundry creditors but in various cases these were neither provided during the assessment proceedings nor during proceedings u/s 263. Accepting such creditors as on the face of it (without making any further enquiry) is no application of mind as well as 'lack of enquiry' as per above stated ratio. 7.1 It is not disputed that there is investment of ₹ 5,52,00,000/- which makes it incumbent upon AO to investigate from angle of excluding expenditure which are made in relation to earning of exempt income or made not wholly and exclusively for earning the taxable income. 7.2 It is a fact that AO did not make any enquiry in this regard. 7.3 The case law of Holcim is not applicable to expenditure which are made not wholly and exclusively for earning the taxable income. 7.4 The case of Holcim does not lay down any ratio because it did not decide any question of Law. 7.5 The so called ratio of Holcim, assumed by the assessee that if no exempt income is there no addition could be made u/s 14A is in direct confrontation of fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 4.1 The Pr. CIT has given his opinion that no enquiry or investigation was made by the AO on the above discussed issues. 4.2 The opinion is bound to have a certain amount of subjectivity. The opinion certainly requires much lesser degree of material/evidence as compared to 'satisfaction' which in turn requires much lesser degree of material/evidence as compared to 'reason to believe'. It has been laid down by Hon'ble SC in case of Raymond Woollen Mills Ltd. that sufficiency of material cannot be challenged in case of 'reason to believe'. Therefore, the same cannot be done in case of 'opinion', also. 40.3 The assessee has not submitted any cogent material to show that this opinion is perverse." " WS-II on behalf of the Revenue: May it Please your honour: 1.1 The ratios of various judicial pronouncements including NUT Vs Commissioner of Income-tax (Central-II) [2015] 60 taxmann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the situations mentioned in the SCN dated 01.10.2015( page #46-48 of PB) . The main reply is as per letter dated 10.11.2015(page #5073). 3.2 A perusal of the reply dated 10.11.2015 shows that the assessee failed to show cause as to why the AO was not required to become inquisitor in the given situations. The specific situations are discussed in subsequent paragraphs. 4.1 The fact that the sale proceeds were less by ₹ 38.62 crores as compared to purchase cost is undisputed. The reply of the assessee doesn't not show any cause qua investigator. The reply of the assessee( para 10(i) of the reply dated 10.11.2015) is basically address the query as to whether an adjudicator in such a situation would make an addition or not. 4.2 The fact that the assessee did withdraw heavy amounts running into crores of Rs. is undisputed. The very fact that during the proceedings u/s 263, the assessee submitted a chart showing detailed utilization of such heavy withdrawals shows that The reply of the assessee doesn't not show any cause qua investigator. { ref. para 10(ii) of the reply dated 10.11.2015} 4.3 The fact that assessee borrowed interest bearing loans of above ₹ 19 Crores a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral properties and no rent is required to be paid. The assessee is not addressing the question qua investigator. The reply of the assessee does not make out a case that the AO should have become inquisitor in the situation. { ref. para 10(vi) of the reply dated 10.11.2015) 4.7 It is undisputed that the assessee dealt in readymade garment as well as diamonds. The assessee has not disputed the fact that profitability of diamond would not be same as that of readymade garment. The assessee has also not disputed the fact that only one (consolidated) trading account was before the AO. Therefore, it is apparent the AO as an investigator would have become inquisitor in such situation. The assessee is submitting that the act does not require such bifurcation or such examination. This plea is without any force because actual steps of investigation depends on a given situation and it is not the domain of the act. { ref para 10(ii) of the reply dated 10.1 1.2015) 4.8 The fact that the investment of ₹ 5.52 crores has been made is undisputed. It is not the case of the assessee that the material on record sufficient to indicate that there is no question of incurring any expense towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income Tax officer to further investigate the facts stated in the return when 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." ii) CIT vs Maithan International 56 taxmann.com 283 (Calcutta) "In the instant case, the Commissioner had reasons to hold that creditworthiness of the alleged lenders was not enquired into. Mere examination of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law." The decisions relied upon by the learned counsel are as under:- i) Director of Income Tax vs Jyoti Foundation 357 ITR 388 (Del.) "Revisionary power under section 263 of the Income Tax Act, 1961 is conferred by the Act on the Commissioner/Director of Income tax when an order passed by the lower authority is erroneous and prejudicial to the interests of the Revenue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interests of the Revenue, but orders which passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interests of the Revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. In cases where there is inadequate inquiry but not lack of enquiry, the Commissioner must record a findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquiry in cases of inadequate inquiry." v) CIT vs Arvind Jewellers 259 ITR 502 "The provisions of section 263 of the Income Tax Act, 1961, cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. It is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer and every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. When an Assessing Officer adopts one of courses permissible in law and it has resulted in loss of Revenue, or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon certain amount of subjectivity which requires much lesser degree or material / evidence as compared to the satisfaction; that since the presumption is in favour of the Revenue, the onus shifts on the assessee to prove otherwise with cogent material that the assessee has failed to show cause as to why the AO was not required to become inquisitor in the given circumstances; that the assessee borrowed interest bearing loans of about ₹ 19 crores but extended interest free loans about ₹ 7.52 crores about which neither any query was raised nor any document / reply was submitted by the assessee and as such, the contention of the assessee that the has orally explained these loans were out of interest free funds available with him is not tenable. 7. Ld. CIT by invoking the provisions contained u/s 263 of the Act issued show-cause notice to the assessee which is reproduced for ready reference as under:- "Dated : 01.10.2015 Sub : Show cause notice u/s 263 of the Income Tax, 1961 for the A.Y. 2011- 12 reg. The assessment records of Sh. Braham Dev Gupta proprietor of M/s. D.S.M. International (PAN - AAFPB5907Q) were called for and examined. On perusal of records I consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing officer has failed to examine the genuineness of the transactions. No enquiry has been raised as regards nature of source of credit in the banks accounts of the persons who have given loans to the assessee. For example Sh. Abhishek Gupta has shown income of ₹ 6,66,619/- for the A.Y. 2011-12 whereas in the banks statement there are a number of credits even in crores and immediately a cheque is issued either on the same day or within 2-3 days to some persons. It appears from the nature of entries in the bank account that Sh. Abhishek Gupta is perhaps indulging into giving accommodation entries. The assessing officer has not made any such enquiry to find out the genuineness of the transactions. Similar is the ease with Ms. Maya Gupta and other persons. Mere submission of documents does not lead to the genuineness of the transactions, particularly where nature of entries appear to be doubtful. 7. The assessee has furnished a list of Sundry Creditors against supply. The perusal of list shows that the assessee has not given even the PAN in some of the cases. The assessing officer has failed to make further enquiries as regards the genuineness of the sundry creditors part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act is as per P&L account, the assessee is selling the goods on loss and the loss determined by the assessee in the recasted trading account of ₹ 38,62,38,612/- and the CIT came to the conclusion that the AO has not made any enquiry qua incurrence of trading loss. 11. Undisputedly, during assessment proceedings, AO issued notice u/s 142 (1), available at page 38 of the paper book, which is reproduced as under for ready perusal :- "NOTICE UNDER SUB-SECTION OF SECTION 142 OF INCOME TAX ACT 1961 Office of the Asstt. Commissioner of Income-Tax, Room No.1305, 13th Floor, E-2 Block, Dr. S.P.Mukherjee Civic Centre, New Delhi Phone: 011-23216825, Fax - 011-23216829 F.No.Pr.ACIT/Cir-24/2013-14/142/462 Dated: 23.07.2013 PAN : AAFPB5907Q To, BRAHAM DEV 6/842, MAIN BAZAR, MEHRAULI, DELHI - 110 030. In connection with the assessment for the assessment year 2011-2012 you are required to : (a) ** prepare a true and correct return of your income/the firm's income/family's income / the local authority's income/ the company's income / income o the A.O.P. / income of the body individual / income of ______________ in respect of which you are assessable under the Income Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y conducted by the CIT, no concrete findings have come on record that the assessee has suffered trading loss during the year under assessment. 14. Moreover, the loss of ₹ 38,62,38,612/- computed by ld. CIT is factually incorrect because export incentive of ₹ 42,39,41,070/- and fluctuation in exchange rate of ₹ 3,42,08,969/- linked to the business of export needs to be included in the same and consequently, assessee earned a gross profit of ₹ 7,19,11,426/- and net profit of ₹ 3,33,31,484/-. So, the CIT has factually arrived at the wrong decision that the assessee has incurred loss on goods to the tune of ₹ 38,62,38,612/-. This fact has been duly explained by the assessee before the ld. CIT vide letter dated 10.11.2015, available at pages 50 to 73 of the paper book (relevant page 59). 15. This is settled principle of law that export incentive are part of export business profits only and reliance in this regard may be placed on the decisions rendered by Hon'ble Apex Court in case cited as Topman Exports vs. CIT - 342 ITR 49. So when the assessment has been completed after scrutinizing all the details and explanation supported with the documentary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital of the assessee as also interest free loans available to the assessee of ₹ 3.16 crores and other interest free funds in the form of sundry creditors etc. were in excess of the interest free loans advanced by the assessee at ₹ 7.52 crores. 19. When the assessee submitted the complete details of unsecured loans along with confirmation of each of the transaction, bank account of each of the person and income-tax acknowledgement return of each lenders from whom unsecured loans were availed to the AO who has duly examined the same during the course of assessment, it cannot be a case of lack of enquiry. 20. Moreover, the assessee has brought on record that three persons from whom fresh loans were taken, were closely related to the assessee being brothers of the assessee and brother's wife of the assessee and the loans from all the aforesaid three persons in the earlier years have been duly accepted by the AO, as is evident from the letter available at pages 41 to 43 of the paper book. It appears that the CIT without bringing on record any substantive piece of evidence to dispute the genuineness of the transactions proceeded on the basis of surmises to hold that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year ending 31.03.2011 but AO has not made any enquiry regarding disallowance u/s 14A / Rule 8D. Strangely enough, when the assessee has categorically submitted before the ld. CIT that the assessee has earned no exempt income on investment during the year under assessment and relied upon the decision rendered by Hon'ble High Court of Delhi in case of Cheminvest Ltd. vs. CIT - 387 ITR 33 (Del.), ld. CIT instead of examining the issue in the light of the settled principle of law, directed the AO to examine the case law and decide accordingly and this fact shows the casual approach adopted by the CIT. So again, in these circumstances, we are unable to hold that no enquiry has been conducted by the AO to complete the assessment u/s 143(3). 24. Ld. AR for the assessee further contended that ld. CIT has drawn adverse inference on the basis of non-existent facts by holding that there was lack of enquiry on the part of the AO as to the modus operandi of the assessee by making observation regarding the enquiries of the DRI against brother of the assessee, Sahdev Gupta. Since the assessee has no trading transaction with Sahdev Gupta, the question of drawing adverse inference does not aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by the AO and where the Income-tax Officer adopted one course permissible in law and resulted in loss of revenue or where two views are possible and the Income-tax Officer has taken one view with which Commissioner does not agree, it cannot be treated as erroneous order "prejudicial to the interest of the Revenue" unless the view taken by the AO is unsustainable in law. Not a single fact has been brought on record by the ld. CIT that the assessment order is prejudicial to the interest of the Revenue. Because the CIT has calculated loss of ₹ 38.62 crores which is factually incorrect have been calculated without including the export incentive of ₹ 42,39,41,070/- and the fluctuation in the exchange rate of ₹ 3,42,08,969/- which are part and parcel of business of export and thereby assessee earned gross profit of ₹ 7,19,11,426/- and net profit of ₹ 3,33,31,484/-. 29. Furthermore, Hon'ble Apex Court in CIT vs. Amitabh Bachchan (supra) held that though a notice to show cause is not a condition precedent for the CIT to hold that the order is erroneous and prejudicial to the Revenue still an opportunity to be heard in all the issue is mandatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable to the facts and circumstances of the case because CIT finds the enquiry conducted by AO inadequate and directed the AO to conduct further enquiry to verify and find out whether order passed is erroneous or not. 33. Ld. DR for the Revenue by relying upon the case cited as NIIT vs. CIT - (2015) 60 taxmann.com 313 (Delhi-Trib.) contended that expression "lack of enquiry" and "inadequate enquiry" have not been defined and, therefore, when the action of AO would be suggestive of lack of enquiry or inadequate enquiry will depend upon the facts obtaining in a particular of case. But, in the instant case, no such facts have been pointed out that the requirement of essential enquiries and of law has not been properly complied with by the AO. Because, as discussed in the preceding paras, when the AO has accepted the claim of the assessee by applying his mind, though the CIT has different opinion on the same it would certainly fall in the category of inadequate enquiry. So, in case of inadequate enquiry, the Commissioner is not empowered to invoke the provisions contained u/s 263. 34. In view of what has been discussed above, we are of the considered view that at the most, this ..... 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