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TMI Blog2019 (12) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in the immediately preceding year. The only addition made and confirmed by the ld.CIT(A) in the Asstt.Year 2013-14 has been struck down. Thus, the ld.Commissioner ought to have looked into order of the ITAT, and thereafter, analysed the details, whether any income has escaped on account of failure of the AO to conduct adequate inquiry (in the opinion of CIT). The ld.Commissioner nowhere made out that case. Therefore, as far as first compartment of show cause notice is concerned, we are of the view that the ld.Commission failed to point out any reasons which can suggest that the assessment orders are erroneous. The materials referred by him are superficial, which at the most can rise a suspicion only. No firm conclusion can be drawn nor support the stand taken by the ld.Commissioner. Regarding the second compartment of the show cause notice - Held that:- We have minutely examined each and every reason assigned by the ld.Commissioner under serial no.VI of the reasons given by him in the show cause notice. It is discernible that all these details were submitted before the AO during the course of assessment proceedings. The assessment proceedings continued for almost more th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst actual delivery of the goods through licenced members appointed by the NSEL. All the appellants were appointed as licenced members to deal in Paddy. For this purpose, a settlement account of licensed member is maintained by NSEL with a designated bank in which amount of net proceeds are credited to settlement account. In the case of LCFL settlement account was opened with HDFC Bank, Feroze Gandhi Market, Ludhiana. The appellants have filed their returns of income electronically and notices for scrutinizing returns were issued under section 143(2) on 4.8.2015. The ld.AO after issuance of questionnaire under section 142(1) as well as show cause notice under section 143(2) passed scrutiny assessment orders in the case of each appellant under section 143(3) on 30.12.2016. The ld.Commissioner on perusal of the record formed an opinion that the assessment orders passed by the AO for the Asstt.Year 2014-15 in the cases of the appellants were erroneous in so far as it caused prejudice to the interest of the Revenue, and therefore, action under section 263 deserves to be taken against these orders. Accordingly, he recorded reason for taking action under section 263 in the case of ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese documents were never examined and considered during the course of assessment proceedings. During the course of survey at Khamanon statement of Sh. Janak Raj Singh S/o Sh, Balbir Singh Uppal was recorded who categorically stated that no stock related to NSEL was lying at the premises at Khamanon. This, finding regarding stocks and other documents were not considered in assessment proceedings. (iii) Action u/s 1.33A was also carried out at SCO-18-19, Sector-9D, Chandigarh being the office of the assessee company. During the course of survey documents in form of Annexure-A-l to A-6, 13 CDs as per A-7, 5 CDs as per A-8 and one hard disk were impounded. However, these documents and data contained in CDs and in hard disks were never examined or verified to determine its revenue implication if any. (iv) Similar action u/s 133A was carried out at 807, Kailash Building, 26, K.G. Marg, New Delhi and 4048, Nay a Bazaar, New Delhi being the offices of the assessee company. During the survey four hard disks were impounded from 807, Kailash Building, 26, K.G. Marg, New Delhi. However, the data contained in hard disks was never examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese loans advanced during the year. Even the details of such advances were not called for. e. Company has shown dividend income of ₹ 12,50,000/- during the year which has been claimed as exempt but AO has not examined as to whether any disallowances u/s 14A was required to be made. No inquiry/verification in this regard has been made. (vii) Apart from the above, the impounded documents/hard disks/CDs were required to be examined in the light of allegations about the genuineness of purchases, source of payments against equal purchases and user of funds received in view of reported substantial outstanding to the National spot exchange Limited (NSEL), after the payment crisis of NSEL surfaced in July, 2013. (viii) The criticality of these issues, their examination/verification, to determine their implication on the assessment of the company cannot be over emphasized. This, viewed, in the perspective of allegation(s) about dubious nature of transaction being carried on the platform of NSEL resulting in the suspension of trading on NSEL platform on 31.07.2013 only highlights that it was imperative upon the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Incometax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. 8. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 227 CTR 113 and Gee Vee Enterprises Ltd vs. Addl. Commissioner of Income Tax (99 ITR 375). In the case of Sun Beam Auto, the Hon'ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon'ble Delhi High Court are worth to note: 12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made 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. 5. In the light of the above, let us evaluate the impugned orders as well as record before us. A perusal of the show cause notice issued under section 263 of the Act would reveal that this show cause notice can be divided into two compartments; first issue contained in the reasons assigned by the ld.Commissioner at serial no.1 to 4, and second fold is contained in reasons nos.6 to 8 extracted (supra). As far as first fold of reasoning of taking cognizance under section 263 of the Act is concerned, it shows that the ld.Commissioner was of the view that NSEL was a platform where commodity trading had taken place. This exchange found to be involved in nefarious activities, which gave rise to various scams, and therefore, its operation has been suspended by the Ministry of Consumer Affairs, New Delhi on 31.7.2013. The ld.CITfurther noted that all the appellants were membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment orders for the Asstt.Year 2013-14 in the case of all the appellants are placed on the paper books, and for the purpose of reference, we take note of the observation of the AO in the case of Loil Continental Food Ltd., which reads as under: 9. In view of the detailed facts stated aforesaid The books of accounts of the assessee are not reliable and rejected. It may be further pointed out that as per the reports submitted by Sharp Tannan Associates submitted to Board of Directors of NSEL., recoveries have been worked out from various members of NSEL. The following amounts have been shown as receivable from assessee as on 31.08.2013: M/s.Loil Continental Foods Ltd = ₹ 338.40 cr. Assessee failed to even file confirmation of accounts from NSEL as on date. 10. Therefore amount of ₹ 338.40 crore shown as recoverable by NSEL from M/s.Loil Continental Food Ltd. is taken as unaccounted income of the assessee. 6. The ld.Commissioner has made an analysis of the stand taken by the appellants. In para-8 of the impugned order while dealing repli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the 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 Section 263 of the Act. In such matters, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us is, whether the material referred by the ld.Commisisoner is of such an importance, which can impact assessabilty of the income of the assessee, and if that be so, then only it be construed that the prejudice will be caused to the Revenue. Let us consider all these three aspects. As observed earlier, first observation made by the ld.Commsisioner is with respect to the information revealed in the data base of the NSEL. The second observation referred by him is the report of S TA , and the third discovery of the papers in Annexure-A-1 1 to 250 and Annexure-A/2, 1 to 206 during the course of survey. No doubt no discussion is available in the assessment order qua these materials. It is pertinent to note that the ld.AO has issued a questionnaire under section 142(1), and this questionnaire is available on page no.1 to 6. He called for information from all appellants on 37 counts. They have filed their detailed submissions along with audited accounts. The ld.AO made discussion, and then passed impugned assessment orders. It is further observed that no-doubt the assessment year 2013-14 is altogether an independent year. The inquiry conducted in that year might not have any bearing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, Ludhiana-141001 Telephone: 0161-2305215, /Fax: 0161 -2304419/Email ID: Ludhiana.dcit.cen3 F.No. DCIT/CC-III/Ldh./15-16/ Dated: 18.03.2016 To The Principal Officer, M/s Loil Continental Foods Ltd., SCO 18-19, 1st Floor, Sector 9-D, Chandigarh. Sir, Sub:- Assessment pending for the JA..Y.2013-14 - Regarding - Reference to the aforesaid matter. 2. In connection with the assessment proceedings, you are required to furnish the following details :- i) a) Copy of account of NSEL in your books since beginning. b) NSEL Settlement/Account (Settlement Bank Account copy) c) Details of Debit and Credit Entries more than One Crore with complete name addresses of the parties; iii) Commodity wise position of stock as per your books of accounts and the stock disclosed to NSEL. Relevant stock registers in this regard be produced. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u Bala Saini) Commissioner of income Tax, Central,Circle-III, Ludhiana. a.) Photocopies of the impounded documents A-1 (pages I to 250) and A-2 (pages I to 206) impounded from M/s Loil Health Foods Ltd., Loil Overseas Ltd., Loil Continental Foods Ltd., Khamano, Distt. Fatehgarh Sahib (Punjab). b.) Photocopies of the impounded documents Annexure A-1 (pages I to 241), A-2 (pages I to 180), A-3 (pages l to 254), A-4 (pages 1 to 371), A-5 (pages 1 to 148), A-6 (pages I to 65), A-7 (containing CDs), A-8 (Containing CDs), A-9 (Hard Disk) impounded from M/s Loil Health Foods Ltd., Loil Continental Foods Ltd., SCO 18-19,1st Floor, Sector 9-D, Chandigarh. c.) Photocopies of the impounded documents Annexure A-1 to A-4 (containing Computer Hard disk) impounded from M/s Loil Overseas Foods Ltd., 807, Kailash Building, 26, K.G. Marg, New Delhi. may be taken from this office at any time (If not already taken). 2. Statements of Sh. Janak Raj Singh dated 22.08.2013 u/s 131 is enclosed. 9. Similarly, questionnaires have been issued to other two con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m and conditions/whether the buyer and seller compulsory required to take the delivery ? 2. Kindly explain the debit credit entries in the settlement account with HDFC bank. 3. Copy of ledger account of Lakshmi Energy Foods Ltd./(Lakshmi Overseas Industries Ltd.) not produced. To produce the same. 4. Annexure D produced is details of the alleged purchases made by M/s Lakshmi Energy Foods Ltd. from the commission agents. The same be given ascending Descending order on the basis of quantity purchased. 5. To produce copies of accounts of Top 100 commission agents in the books of Lakshmi Energy Food Ltd.(Lakshmi Overseas Industries Ltd.). 6. To produce one sample copy of T form issued by the commission agents in respect of the Top 100 Commission agents to M/s Lakshmi Energy Food Ltd. 7. Original bank account of M/s Lakshmi Energy Foods Ltd. and copy of bank account in the books with explanation/narration of debit credit entries. 8. Original bank account of Sh. Balbir Singh Uppal and copy of bank account in the books wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No.99/CHD/2017, which reads as under: 16.1. We may also note here that after hearing the arguments of both parties, the AO was directed to appear in person for clarification on certain points on this matter. The AO, Sh. Amit Pratap Singh , DCIT, Central Circle-3, Ludhiana appeared before the Bench on final date of hearing of appeal on 16.03.2017. The AO after going through the record submitted that no statements of any responsible persons from NSEL or M/s Sharp and Tannan Associates have been recorded in support of showing recoveries against the assessee at the assessment stage. The AO submitted that the record would not reveal the alleged nature of transaction between assessee company and NSEL, whether it was purchase or loan? The AO also stated that the addition is made on account of inference of unaccounted purchases. The AO was not able to explain as to how the addition is made in assessment year 2013-14 under appeal when the report of M/s Sharp and Tannan Associates clearly prescribe the period of I.T.A .No.-98 99/CHD/2017 recovery from 01.08.2013 to 31.08.2013 in which assessee was not member of NSEL. Ld.DR in view of the above submitted that the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions conducted through NSEL. As per settlement of account, NIL amount was due against the assessee as is mentioned by the AO in the assessment order. The AO also specifically mentioned in the assessment order that though the recovery suit is pending before the Bombay High Court but it was between other parties. The assessee filed affidavit to prove that no recovery suit is pending against the assessee in any Court of law on behalf of the NSEL. It is, therefore, highly unbelievable that as per Report of M/s Sharp and Tannan Associates if huge amount is due against the assessee, NSEL would not file any recovery suit against the assessee. The authorities below have heavily relied upon the Report of M/s Sharp and Tannan Associates showing recoveries of NSEL against the assessee. The Report of M/s Sharp and Tannan Associates dated 02.04.2014 showed that there may be alleged recovery against the assessee for the period from 01.08.2013 to 31.08.2013 of the impugned amount. It is not clarified as to how these recoveries have been shown against the assessee when the assessee company was not Member of NSEL during this period after I.T.A .No.-98 99/CHD/2017 31.03.2013. Since it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such Report cannot be a basis for making addition against the assessee. Since NSEL do not indulge in actual sale and purchase, therefore, there cannot be purchases made by the assessee from NSEL. No evidence of any loan obtained by the assessee from NSEL have been brought on record to prove any recoveries to be made by NSEL from the assessee. The AO did not make any addition for any alleged discrepancies in the accounts of the assessee with its group concerns as regards transactions conducted through NSEL. The charges paid to NSEL for using their platform have not been doubted by the AO. All the stocks purchased were transferred to godown to NSEL on behalf of the assessee have been supported by all relevant evidences. The transactions were made through banking channels. All the evidences are filed in the paper Book Volume 4 5. No amount is due to NSEL on account of sale, purchase or loan. No difference was found in the accounts of MMTC Ltd. and others. The bail order in the case of Sh. Jignesh Shah would not lay down any ratio to be applied against the assessee. No concern of the assessee with bail order of Sh. Jignesh Shah has been established. It is observed in the bail order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of accounts of the assessee u/s 145(3) of the Act or to make an addition of ₹ 338.40 crores. We accordingly, set aside the orders of the authorities below and delete the addition of ₹ 338.40 crores. 22. In the result, the appeal of the assessee is allowed. ITA No.99/Chandi/2017 (M/s Loil Health Foods Ltd.) 23. This appeal by the assessee has been directed against the order of Ld. CIT(A)-V, Ludhiana dated 28.12.2016 for AY 2013-14 challenging the rejection of the books of accounts and addition of ₹ 287.48 crores as allegedly payable by the assessee to NSEL without any material and evidence on record. 24. Ld. Representatives of both the parties submitted that the issues are same as have been considered in ITA No.98/Chandi/2017 in the case of M/s Loil Continental Food Ltd. vs DCIT (supra) and order in that case may be followed. We, therefore, following the same reasons for decision, set aside the orders authorities below and delete the addition. Accordingly, the appeal of the assessee is allowed. 12. Analysis of these materials would indicate that when the ld. Commissioner was taking actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further stated that addition was made w.r.t certain documents of Sharp and Tannan in the A.Y. 2013-14 which again cannot be a basis for addition in A.Y. 2014-15. This warped argument of suggested replication of proceedings of A.Y. 2013-14 to A.Y. 2014-15 has been sufficiently dealt with in this order. Suffice, it is to say that the AO should have called for the report of Sharp and Tannan, examine the transactions of the assessee company with reference thereto and draw conclusions before completing the assessment for A.Y. 2014-15. 14. The above reasoning suggests in itself that how the ld.Commssioner has lost sight of all the relevant materials. In the Asstt.Year 2013-14 on the basis of S TA report, an addition of ₹ 338 crore was made in the case of Loil Continental Foods Ltd, ₹ 287, and ₹ 85 crores in the hands of other two appellants. We have extracted relevant part of the assessment order in para-5 of this order. From the questionnaire issued in the Asstt.Year 2013-14 and the ultimate addition made by the AO do suggest that the report of S TA was very well with the AO during the assessment proceedings for 2013- 14. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner. 15. As far as the second compartment of the show cause notice is concerned, a perusal of serial no.VI to VII of the reasons assigned by the ld.Commissioner would indicate that he has made reference to the outstanding advances in the account, opening stock of finished goods, trade payables, and increase under the head short term loans and advances. A perusal of the reply given by the assessee would indicate that all these aspects have been gone through by the AO before finalizing assessment order. In the case of Loil Continental Foods Ltd. first issue raked up by the ld.Commissioner is that there were outstanding advances from buyers of ₹ 25.38 crores. In his opinion, this issue was not considered by the AO. The ld.counsel for the assessee took us through the record and submitted that copy of the questionnaire dated 27.6.2016 is available on page nos.1 to 6 of the paper book. At Sr.No.28, the ld.AO has called for following information: Name and address of the person from whom advances/deposits were taken during the year under consideration 16. This questionnaire was replied and the assessee has submitted all details in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d thereafter recorded a finding that by acceptance of accounting entries, the AO has committed this error. Only then, he can relegate to the AO for re-adjudication, but no such steps have been taken. He just touched this issue peripherally without conducting any investigation. 17. The ld.CIT made reference to the Explanation -2 to Section 263 and also decision of Hon ble Supreme Court in the case of CIT Vs. Amitabhachan, 384 ITR 200. It is pertinent to note that Explanation -2 of section 263(1) would help the ld.Commissioner to take cognizance under section 263 of the Act, if no inquiry was conducted by the AO before finalizing the assessment order. No doubt the assessment orders are very brief, and did not have elaborate discussion on these issues, but it is pertinent to bear in mind that assessees have no control over the AO and cannot persuade him to draft the assessment order in a particular manner. It is the discretion of the AO, how to pass an assessment order. Had an elaborate discussion available, then that would be an ideal situation for the higher appellate authorities to appreciate, what has operated in the mind of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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