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TMI Blog2018 (1) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... t the ld CIT had not brought on record how the order passed by the ld AO was erroneous. He had only directed the ld AO to make further enquiries by expanding its scope, to find out whether error had crept in in the earlier order. This, in our considered opinion, is not permissible in the revisionary proceedings u/s 263 of the Act by the ld CIT. - Decided in favour of assessee - I.T.A No.901/Kol/2016 - - - Dated:- 7-7-2017 - Sri A.T.Varkey, JM And Shri M. Balaganesh, AM For The Appellant : Shri S.K.Tulsiyan, Advocate For The Respondent : Shri R.S.Biswas, CIT ORDER Per M.Balaganesh, AM 1. This appeal of the assessee arises out of the order of the Learned Pr.Commissioner of Income Tax (Appeals) -14, Kolkata [ in short the ld CIT] in No. Pr.CIT- 14/Kol/AB(Wine)/Sec.263/2015-16/6748-6750 dated 11.03.2016 passed u/s 263 of the Act against the order passed by the Jt.CIT, Range-37, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ] dated 04.03.2014 for the Asst Year 2011-12. 2. The only issue to be decided in this appeal of the assessee is as to whether the ld CIT was justified in invoki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl.No Name of the purchase party 1. M/s. B Deboo Co.Pvt. Ltd. 2. M/s BBM Enterprise 3. M/s Mohan Brother (Drinks)Pvt. Ltd. 4. M/s. N C Shaw Co. 5. M/s S P Shaw Bros. 6. M/ Shree Riddhi Siddhi 7. M/s Sumo Son Exports Pvt.. Ltd. 8. M/s Victoria Wines Pvt. Ltd. 4.1. The ld CIT observed that the ld AO had overlooked the replies received in response to notice u/s 133(6) of the Act. He observed that in respect of 5 cases to whom notice u/s 133(6) of the Act was issued, no reply was received from them. In respect of 3 cases where reply has been received, there is a difference in closing balance in party account due to difference in the opening balance in the said party account. The assessee was asked to furnish the reconciliation of above discrepancies of purchases with supporting evidences like party ledger, cash book, purchase bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said letter are reproduced below:- 5. The firm is having a legal dispute with Federal Bank and the matter is lying in Debt Recovery Tribunal. Hence the firm is not in a position to carryout normal banking transaction. Transaction are made in cash only. 6. A statement of Sundry Creditors showing Op.Balance, Purchase during the year, payment during the year and closing balance for both the Assessment Year 2010-11 and 2011-12. 8. Copies of TCS Certificate of both the period i.e A.Y. 2010-11 2011-12 are enclosed. 6.2. The assessee also furnished the party wise reconciliation in a tabular form before the ld CIT explaining the discrepancy in purchases due to credit note issued by various parties to the tune of ₹ 2,31,550/- which is enclosed in page 13 of the paper book filed before us. 7. The assessee based on the aforesaid submissions stated that the ld AO had already made thorough enquiries on the subject mentioned issue of purchases and the sundry creditors thereon and hence the same cannot be construed as lack of enquiry warranting initiation of revision proceedings u/s 263 of the Act. It was argued that the ld AO on going through the details filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itors and the discrepancies found in the opening and closing balances of the three creditors namely, M/s BBM enterprises, M/s N.C. shaw co and M/s. Victoria Wines pvt. Ltd. Further, it is observed from the assessment record that the assessee firm has given an advance or ₹ 1,46,06,233/- to its partners without charging any interest. Whereas on perusal of the balance sheet, it is seen that capital of the partners in the firm is merely of (Rs. 96,347/- plus ₹ 1.02.375/-) ₹ 1,98,722/-. Meaning thereby, the assessee firm has no other source to finance the interest free advance to its partners except the liability shown in the name of sundry creditors for goods. Therefore, it can be seen that if the sundry creditors would have been genuine and existing, then in that case, the assessee might have paid them back as most of the creditors are shown to have coming as opening balances. But contrary to this, the assessee firm has shiphoned off the fund by financing interest free advance to partners. The doctrine of business prudence clearly demands that the nature and character of transaction shown in the name of sundry creditors must be thoroughly examined to ascertain thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence. 8. Aggrieved, the assessee is in appeal before us on the following grounds:- 1. That the Ld. Principal CIT, Kolkata-14 on the facts and circumstances of the case and in law erred in assuming jurisdiction u/s. 263 of the Act in order to impose his own views on the AO. on the same set of facts evidences considered by the A.O., by holding that the order passed by the AO. u/s. 143(3) of the Act on 04.03.2014 was erroneous inasmuch as it was prejudicial to the interest of revenue. 2. That, on the facts and in the circumstances of the case, the Ld. Pr. CIT erred in assuming jurisdiction u/s. 263 of the Act on the alleged ground of absence of thorough and proper inquiry by the A.O. and thus holding the assessment order passed u/s.l43(3) of the Act to be erroneous and prejudicial to the interest of revenue simply by differing with the plausible view taken by the A.O. 3. That, the Ld. Principal CIT grossly erred on facts and in law in invoking jurisdiction u/s. 263 of the Act and referring the case back to the A.O. for fresh examination of disallowance u/s. 40A(3) of the Act even though the disallowance made in the impugned assessment order on the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sundry creditors and found that in 5 cases, the same were not replied by the said parties. In 3 cases, the replies given did not match with the closing balances reflected by the assessee and this was explained by the assessee that differences arose in the opening balance. It is well settled that the difference in opening balance cannot be added in the year in which it was found out. If at all any addition is warranted on that count, then the ld AO should only refer to the relevant assessment year and make an addition in that year in the manner permissible in law. Hence the ld AO knowing this fully well had not chosen to make any addition towards the difference in closing balances of sundry creditors. Moreover, on verification of the cash book and ledgers of the assessee, the ld AO had disallowed a sum of ₹ 1,44,52,154/- u/s 40A(3) of the Act for making payments exceeding ₹ 20,000/- otherwise than by an account payee cheque or account payee bank draft. This has been done by the ld AO after verifying the transactions in all the parties account as could be evident from the list furnished in the assessment order by him. Hence the entire aspect of purchases had been duly ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion. This would enable the Assessee to challenge the same, if aggrieved. In fact the Gujarat High Court in CIT v. Nirma Chemical Works Ltd.[2009] 309 ITR 67 (Guj) has observed that if an assessment order were to incorporate the reasons for upholding the claim made by an assessee, the result would be an epitome and not an assessment order. In this case, during the assessment proceedings for both the Assessment Years, the Assessing Officer issued a query memos to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent-Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the identities of the donors, the source from where these funds have come and also the creditworthiness/capacity of the donor. Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the Assessment Order passed thereon. Thus, this objection on the part of the Revenue, cannot be accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Delhi High Court in D.G. Housing Projects Ltd., (supra) that as the Assessing Officer had not enquired into the source of the source of the gifts received by the Assessee, the Assessment Order is erroneous. The aforesaid decision holds that the power of Revision under Section 263 of the Act would normally be exercised in case of no enquiry and not in cases of inadequate enquiry. However, even in case of inadequate enquiry by the Assessing Officer, the order of the Assessing Officer could be erroneous in two classes of situation. The first class would be where orders passed by the Assessing Officer are ex facie erroneous i.e. a decision rendered ignoring a binding decision in favour of the Revenue or where enquiry is per se mandated on the basis of the record available before the Assessing Officer and that is not done. In the second class of cases, where the order is not ex facie erroneous, then the CIT must himself conduct an enquiry and determine it to be so. The Court held that it is not permissible to the CIT while exercising power under Section 263 of the Act to remit the issue to the Assessing Officer to re-examine the same and find out whether earlier order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... toria Wines P Ltd. Hence the fact that the parties did not respond to notices issued u/s 133(6) of the Act or that their balances did not match with that of the assessee is totally irrelevant as no claim of purchases from the said parties was made in the year under appeal by the assessee. Similarly in respect of the observation that no reply was received from M/s Mohan Brother (Drinks) Pvt Ltd and M/s B Deboo Co, it was submitted that they are old suppliers and purchases have been made from them in earlier financial years also. It was submitted by the ld AR that in the assessment for the Asst Year 2007-08, the ld AO had verified the purchases made from them who in turn had responded to notice issued u/s 133(6) of the Act . We hold that just because the said party had not responded to 133(6) notice in this year, it cannot lead to an inference that purchases from them are bogus especially when no material to this effect had been brought on record by the ld CIT. With respect to purchases from Shree Riddhi Siddhi and N.C.Shaw Co, it was submitted that the ld CIT had not recorded a finding to the effect that the said parties does not exist or that there was a mismatch of purchases r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the judicial precedent relied upon hereinabove, we hold that the ld CIT erred in invoking revisionary jurisdiction u/s 263 of the Act on the ground of lack of enquiry when adequate enquiries were already made by the ld AO in the assessment proceedings. Hence the action of the ld CIT in invoking revisionary jurisdiction u/s 263 of the Act in these facts and circumstances of the case is not in accordance with law and is hereby quashed. 10. We find that the ld AO by already making the disallowance u/s 40A(3) of the Act in the sum of ₹ 1,44,52,154/- had caused greater prejudice to the assessee in the assessment. Moreover, the said assessment is challenged before the ld CITA and the same is pending. While this is so, we are afraid whether the same issue could be the subject matter of revision proceedings u/s 263 of the Act by seeking to look into the very same issue from different perspective. We find that the action of the ld CIT was in complete disregard to the specific provisions of clause (c ) of Explanation to section 263(1) of the Act, which places a clear embargo on the ld CIT with respect to exercise of revisionary jurisdiction on assessments which have been sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is co-terminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do [Emphasis Supplied] (p. 229) The above observations are squarely applicable to the interpretation of section 251(1)(a). The declaration of law is clear that the power of the AAC is co-terminous with that of the ITO, if that be so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the ITO. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise an appellate authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision the appellate authority is vested with all the plenary powers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as the adjudicating authority. But his jurisdiction is limited to the appeal preferred before him. There are certain orders which are not appealable before the AAC but certain types of allegations can be taken up in an appeal by separate appeals. Apart from those two cases if an assessment is the subject-matter of appeal then any ground which was held in favour of the assessee can also be held against him though the appeal was preferred by the assessee. This jurisdiction of the AAC is indisputable. In this case the question is whether the quantum of allowance or disallowance or depreciation was the subject-matter of appeal or not. It is true that whether depreciation should be calculated on the basis of 12 months or it should be calculated on the basis of 11 months was not a specific aspect which was agitated before the AAC nor did he give any direction on this aspect of the matter but he had this aspect kept open for adjudication by him even though not taken by the assessee. Then, on that, he could have allowed 5% or 2 % depreciation and should have directed the ITO to compute the same on such basis as he considered fit and proper, namely, 11 months or 12 months on the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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