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TMI Blog2018 (7) TMI 1615X X X X Extracts X X X X X X X X Extracts X X X X ..... ull’ in the eyes of law. Therefore, we are inclined to quash the order impugned before us. - Decided in favour of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... ere undisclosed in the regular books maintained by the assessee. We note that the AO after taking note of the aforesaid facts have reproduced the undisclosed sale transactions for this relevant assessment year from page 2 of AO order to page 15 of his order i.e. from 01.04.2011 to 29.09.2011 which comes to ₹ 38,25,90,618/-. The AO thereafter made the addition of ₹ 40,50,672/- by recording his reason as under : "These transactions add up to ₹ 38,25,90,618/- As these transactions refer to undisclosed sales of the assessee, the assessee was asked to explain why profit at Gross Profit rate of 3.5% should not be applied to these undisclosed sales and added back to the income of the assessee. The assessee in his reply dated 02/02/2015 gave a detailed explanation of impounded material and working of income disclosed during the course of survey. The assessee himself has taken transaction of ₹ 38,75,90,617/- increasing suo motto the turnover by ₹ 50,00,000/- The assessee himself has applied GP rate of 2.5% to these undisclosed transactions while disclosing income at the time of filing Return of Income at ₹ 96,90,000/-. I have carefully considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout bills, the assessee in turn had resorted to buying goods without regular bills and thus the undisclosed purchases made of iron and steel items were brought to the store rooms of the assessee company and it was not properly accounted for. However when the sales of these undisclosed sales happens more attention was given to record the sales of the undisclosed items as there was collection of cash took place from the sale. According to the ld. AR, it is settled position that even if purchase details were not available, then also the entire sales cannot be added as the income of the assessee. According to ld. AR when sales figures have been accepted, then it goes without saying that there was definitely purchase of goods has taken place and thereafter the sale could happen. So according to the ld. AR, the entire thought process of ld. Pr. CIT is flawed. The ld. AR drew our attention to page 15 to 17 of paper book which we note is the assessment order of the assessee for AY 2011-12 passed after reopening u/s. 147 of the Act, wherein AO after taking note of the survey report, has accepted the gross profit of 2.5% on the undisclosed sales amounting to ₹ 33,36,84,250/- and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on the part of AO in respect of undisclosed purchases/sales. 9. We note that the assessee company has challenged in the first place, the very usurpation of jurisdiction by ld. Principal CIT to invoke his revisional powers enjoyed u/s 263 of the Act. Therefore, first we have to see whether the requisite jurisdiction necessary to assume revisional jurisdiction is there existing before the Pr. CIT to exercise his power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer's order was pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble income from sale of undisclosed items. So it cannot be said that AO did not do any enquiry on this issue. At the most it can be termed that the enquiry was not done at the expected standards of the ld. Pr.CIT., Then the question that arises is whether it is a case of lack of enquiry or inadequate enquiry. The settled position of law is that in a case of lack of enquiry on the part of AO on an issue makes his order erroneous on that issue; whereas inadequate enquiry cannot make the order erroneous unless, the ld. Pr.CIT himself conducts an inquiry on the issue in respect to question of fact or mixed question of fact and law and then demonstrate that the finding of AO on the issue is unsustainable in law, then certainly the ld. Pr.CIT satisfies the jurisdictional fact which is required to interdict and exercise revisional jurisdiction u/s 263 of the Act of the impugned assessment order. 11. In order to understand the difference between "lack of inquiry" and "inadequate inquiry" and when it can be termed as erroneous, let us look at the following case laws wherein their Lordships explains the difference :- INCOME TAX OFFICER vs. DG HOUSING PROJECTS LTD343 ITR 329 (Delhi) Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under s. 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction under s. 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted in 243 ITR 83, relied on. (Para 72) As regard the third question as to whether the assessment order was passed by the Assessing Officer without application of mind, it was held that the Court has to start with the presumption that the assessment order was regularly passed. There is evidence to show that the assessing officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under Section 142 (1) of the Act could not have been formulated. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cognizance of debit items in the profit and loss account, tax audit report, the impounded documents, statement recorded during the survey and during assessment proceedings, books of accounts and their documents, bills vouchers etc. We note that the sheet anchor on which the ld. Pr. CIT has found fault with the AO's action is that he has not made enquiry on the undisclosed purchase made by the assessee. In this context we would like to point out that there is a clear distinction between "lack of enquiry" and "inadequate enquiry. If there is an enquiry, even inadequate, that would not by itself give occasion to the ld. Pr.CIT to interdict and interfere by exercising his revisional jurisdiction merely because he is of opinion that some more enquiry should have been conducted in the matter. Then Ld. Pr. CIT should himself conduct the investigation and record a finding that the view of AO is unsustainable in law or else he cannot. 13. We note that the AO had called for explanation regarding his non acceptance of the gross profit rate of 2.5% shown by the assessee in its return of income in respect to the unrecorded sales and also suggesting as to why gross profit rate of 3.5% should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the precise material on which the reopening was carried out for A.Y.2010-11 and that was the main reason the AO did not venture to make any addition on the undisclosed investment for purchases or [apply the formula of sales minus purchase theory as suggested by the Pr.CIT in this case in hand] to arrive at the profit from undisclosed transaction was made by AO for that year, which applies to this assessment year also, because the undisclosed investment in AY 2010-11 of ₹ 1.2 crore is circulated to make undisclosed purchases. And it is not the case of Ld. Pr. CIT that the undisclosed investments of ₹ 1.2 crore for carrying out undisclosed purchases have been transferred for acquiring any undisclosed asset later after AY 2010-11. 14. Moreover, it is elementary that without purchases, there cannot be any sales. There is no quarrel even for the ld. Pr.CIT in respect to the sale figure which has been accepted by the AO. So therefore the Ld. Pr. CIT wants the AO to adopt the purchase figure collected during survey, and then he wanted the difference between the sale and purchases to be taken as profit, which proposition is attractive but not fair and reasonable in the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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