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TMI Blog2019 (12) TMI 1035X X X X Extracts X X X X X X X X Extracts X X X X ..... aid amount was part of the business loss claimed by the assessee and once that loss is disallowed, and estimated net profit is assessed as income; the aforesaid amount stands disallowed automatically. Therefore, assessee correctly submitted that there was no justification for once again making repeated addition on the aforesaid amount in the Assessment Order. DR agreed that the repeated addition made by the AO in respect of the aforesaid amount amounts to double addition of the same amount and he left it to the discretion of the Bench to give appropriate direction to the AO for deleting the double addition. As both sides are in agreement that repeated addition made by the AO amounts to double addition of the same amount; we accordingly direct the AO to delete the repeated addition. Claim of depreciation - estimation of net profit - HELD THAT:- Both sides were in agreement that the assessee was eligible for depreciation of Income Tax Act, 1961 and Income Tax Rules, 1962. As the AO has estimated net profit and not gross profit of business, both sides were also in agreement that the depreciation as claimed by the assessee in the books stands already allowed in the estimation of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant portion of aforesaid Order dated 18.03.2013 is reproduced as under: In this case an assessment order under section 143(3) of the Income-tax Act, 1961' was passed on 26.11.2010 by the ACIT, Circle-2, Meerut. 2. On examination of records, it was found that the assessment was done without proper enquiry in so far as discussed in subsequent paras, 3 Accordingly, notice un4er section 263 of the Income-tax Act , 1961 was issued pointing out as follows:- a) On the turnover loss of ₹ 1,69,62,106/-, loss of ₹ 1,75,74,887/- has been claimed. A.O. did not make any enquiry while accepting such huge unexplained logs. b) Under the heads selling and administrative expenses of ₹ 56,74,304/- debited in the Income Expenditure A/C, the assessee hag wrongly claimed a loss on sale of machinery at ₹ 49,46,196/-, The AO has failed to enquire into the same and has failed to disallow the same. c) The balance sheet as on 31.3.2007 showed the fixed assets as under: Gross Block ₹ 546,000.00 Add- Addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3.2007 vis a vis 31.3.2008. d) AO has also failed to enquire into the correctness of the claims towards financial charges which have more than doubled during the year under consideration for no apparent reason. e) asessee has claimed depreciation of ₹ 28,23,005/- on the plant and machinery and has simultaneously debited loss on sale of machinery amounting to ₹ 49,46,196/- in P L account. When the depreciation has been claimed on the block on plant and machinery, loss on sale of plant and machinery sold out of block is not allowable. Sale and of any asset under any block can only increase or decrease the value of block and depreciation can be accordingly claimed/ allowed. f) A.O. did not enquire into properly before accepting the unsecured loan of ₹ 30.00 Iacs. g) A.O. did not enquire into properly before accepting the Sundry creditors of ₹ 7,16,533/-. h) Freight debited is amounting to ₹ 6,93,425/- on which applicability of provisions of TDS have not been examined. 4. In view of above, the der passed by the AO was found to be erroneous and prejudicial to the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of Umashankar Rice Mill vs. CIT (1991) 187 ITR 638-39 (Ori), the Tribunal was held justified in upholding the revisional order Of the Commissioner which was passed by the Commissioner who felt that there should be a further enquiry. Reliance is further placed on the following: i. Jagdish Kumar Gulati vs. CIT, 269 ITR 71 (All.) in which it is held that while framing the assessment under section 143(3), it is expected from the AO that he will make a detailed inquiry to find out correct income of the assessee and not to facts placed by the assessee on their face value. Where the AO complete the assessment proceedings under section 143(3) and admitted that he could not make proper inquiries as assessment was becoming time barred, there was valid assumption of jurisdiction under section 263 by Commissioner and the Tribunal, in such a situation, did not commit any error in law in confirming the order of CIT(A) for setting aside the assessment and directing the AO to make an order of assessment. ii. Gee Vee Enterprises vs. AddI. CIT, 99 ITR 375 (Del.) in which it is held that the Commissioner can regard the order as erroneous on the ground that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 includes the failure to make such an inquiry. 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. [Duggal co. vs. CIT, (1996) 220 ITR 456, 459 (Del.)] CIT vs. Pushpa Devi, (1987) 164 ITR 639 (Pat); CIT vs. Smt. Rantbha Devi, (1987) 164 ITR 658 (Pat); CIT vs. Belal Nisa, (1988) 171 ITIR 643 (Pat); CIT vs. Smt. KaushalyaDevi, (1988) 171 ITR 686 (Pat); CIT vs. Bibi Khodaija Khatoon, (1988) 171 ITR (Sh.N.) II (Pat); CIT vs. Smt. Chandrawati Devi, (1988) 171 ITR (Sh.N.) III (Pat); CIT vs. smt. Devi, (1987) 59 CTR (Pat) 3; CIT vs. Bhagwant kaur, (1987) 63 CTR (Pat) 326; CIT vs. Pushpa Devi, (1988) 173 ITR 445 (Pat). 5.6. The Hon'ble Jurisdictional ITAT Delhi Bench In the case of Shri Virendra Kumar Gupta Vs CIT in ITA No. 2595/D/2009 dated 21/01/2011 relying upon aforesaid judgments has held that the facts of the case were in pari-materia with above judgments. Further, on consideration of these case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head 'Administrative expenses' of ₹ 56,74,304/-, evidently the assessee has claimed it wrongly. Firstly, because the same was to be taken to the balance sheet in the fixed assets as the block Of assets existed there and moreover the entire machinery or at least a major part thereof was new as the addition was made in the year ending 31.3.2007 out of which the machinery worth ₹ 1.05 crores was stated to have been sold on which loss (which was as such disallowable) to the tune of ₹ 49,46,196 has been claimed and accepted by the AO. The AO has further failed to look into if the transaction was collusive one or if the sales were made to the parties covered under section 40A(2)(b) of the I.T. Act, 1961. Hence, the claim of loss in the P L A/c is a prima facie wrong claim which is added to the income of the assessee alongwith the initiation of penalty u/s 271(1)(c) of the I.T. Act, 1961 as assessee has evidently concealed income and furnished inaccurate particulars of income. The AO is further directed to inquire into the correctness of the claim towards financial charges which are claimed at more than double of the previous year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces and affording reasonable opportunity to the assessee, be passed by the AO expeditiously. (B.2) In the aforesaid Assessment Order dated 28.03.2014, the net profit of the assessee was estimated @ 5% of the business receipt, by invoking Section 145(3) of I.T. Act, after the assessee failed to produce books of accounts, bills, vouchers etc. for verification despite opportunities provided to the assessee by the AO. The gross receipts being ₹ 1,69,62,107/-, net profit was estimated @ 5% of the gross receipts, at ₹ 8,48,105/-. The AO, in addition to the aforesaid ₹ 8,48,105/- made further addition of ₹ 49,46,196/- (on account of loss of on sale of machinery), ₹ 30,00,000/- (on account of unsecured loans) and ₹ 7,16,533/- ( on account of sundry creditors). The relevant portion of the Fresh Assessment Order dated 28.03.2014 is reproduced as under: 3. Regarding the claim Of loss Of the Id. CIT, Meerut has directed to look into the same and verify the relevant accounts properly before ascertaining and determining the actual profit/loss. Accordingly, the assessee, vide notice under section 142(1) of the Income Tax 1961 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges, the I d. CIT, Meerut directed to inquire into be correctness of the claim. In reply dated 14.2.2014, the assessee has submitted as under: that the assessee has paid interest to bank only, the -details of interest paid is duly supported by the Bank of Baroda CC limit and term loan account furnished earlier and again enclosed now. The details are as under: Interest on CC limit ₹ 6,85,662 Interest on term loan ₹ 21,50,666 Bank charges ₹ 48,049 ₹ 28,84,377 The term loan has been used to part finance the plant and machinery while CC limit is used for working capital which can be verified from the books of account to be produced on a later date. 8. Enough opportunities were provided to the assessee to produce books of account, bill, were hers etc. for verification and to ascertain the correctness of the Profit and Loss Account, but the assessee has failed to produce the same for verification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t opportunity, the assessee has failed to produce the books etc. even not presented in the office and sent a letter by post. Roorkee is not far from Meerut. If the assessee could make effort, he could produce the books. But the assessee has not availed any opportunity to produce the facts of the case regarding books or any other issue. 11. As discussed above, it is not ascertainable as to how from the final accounts, the total profit could be deduced, ascertained or verified. The P L A/c was as such not acceptable unless and until the same was duly verified from the books of account and records which also needed be correct and complete and maintained in such a manner from which true profit could deduced, ascertained and verified. As discussed in the detail earlier, the book results, shown the assessee cannot be accepted. As the books are not correct and complete and profit from business is to be estimated after rejecting the book results by invoking the provisions of sect 145(3) of the I.T. Act, 1961, the undersigned is of the opinion that it would be fair reasonable to estimate assessee's profit from the business receipts @ 5%. 12. Accordingly, the Net Profit is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in law and on facts in confirming the action of Ld. AO in estimating the income at5% of turnover and that too without allowing interest and depreciation. 4. That having regard to the facts and circumstances of the case, brought forward losses for AY 2007-08 ought to be allowed. 5. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other. (B.3) During appellate proceedings in ITAT, the Assessee filed Paper Book in two parts containing the following particulars: 1. Written submission 2. Photocopy of Audit Report Balance Sheet for the A.Y. 2008-09. 3. Photocopy of Notice U/s 143(2) dt. 20-08-2010 4. Photocopy of Notice U/s 142(1) dt. 14-05-2010 5. Photocopy of reply before A.O. dt. 22-11-2010 6. Photocopy of Sale Bill and C Form issued for sale Of Plant Machinery filed before A.O. 8. Photocopy of Notice U/s 142(1) dt. 23-06-2010 9. Photocopy of reply before DCIT, Circle-II, Meerut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Copy of CBDT Circular No: 29-D (XIX-14) dated 31.08.1965. (B.3.2) Moreover, Brief Synopsis was also filed from the assessee s side, the relevant portion of which is reproduced as under: BRIEF SYNOPSIS BEFORE HON BLE INCOME TAX APPELLATE TRIBUNAL AGAINST ORDER U/S 143(3)7263 FOR A.Y 2008-09 IN ITA NO. 2504/DEL- 2016 Assessee s Appeal GROUND NO. 1 it relates to the action of Ld. A.O. in disallowing the loss of ₹ 1,69,62,107/- which was confirmed by Ld. CIT(A). Ld. AO. has discussed this issue at page 3-4 of the assessment order. -Appellant s detailed reply are reproduced at page 3-4 of the assessment order according to which there were bank loans on which interest was paid and detailed justification for the loss was given. PB 64 is submissions during original assessment proceeding in which books of accounts were produced. GROUND NO. 2 it relates to the double disallowance to the extent of ₹ 49,46,196/- being the amount of loss on sale of machinery. This loss was directed to be disallowed by Ld. CIT in order u/s 263 (PB 73-75) but this loss was part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in aforesaid Assessment Order dated 26.11.2010) which was examined by the AO on test check basis; and the trading results were accepted. The Ld. Counsel for Assessee submitted, that book results should have been accepted in the second round of assessment proceedings also (resulting in aforesaid Assessment Order dated 28.03.2014). However, the Learned Departmental Representative ( Ld. DR , for short) contended that the Ld. CIT vide aforesaid order dated 18.03.2013, which was passed under Section 263 of the I.T. Act, had restored the matter back to the AO with direction to pass fresh order after examining the issue properly. Therefore, the assessee was required to produce the books of account, bills, vouchers etc. before the AO in the second round of assessment proceedings also (resulting in aforesaid Assessment Order dated 28.03.2014). The Ld. DR further submitted that the aforesaid order dated 18.03.2013 of the Ld. CIT passed under Section 263 of I.T. Act has attained finality because the assessee s appeal against this order was dismissed by ITAT vide order dated 18.11.2016 passed by Co-ordinate Bench of ITAT, Delhi in ITA No.- 2055/Del/2013. The relevant portion of which is rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26/11/2010, the Assessing Officer made following two additions: 1. disallowance of ₹ 41,253/- towards expenses on duties and taxes on the ground that same were not related to business expenses and disallowed under section 43B of the Act; 2. disallowance of ₹ 21,744/- to cover of the possible leakage due to selfmade and internal vouchers under the head repair and maintenance, welfare expenses, freight and cartage and vehicle maintenance, at the rate of 10% of the expenses. 3. Subsequently, the learned Commissioner of Income Tax examined the records and issued notice under section 263 dated 06/03/2013 stating that the assessment order was erroneous so as to prejudicial to the interest of Revenue and it was passed without inquiring on the following points: (a) the loss of ₹ 1,75,74,887/- on the total turnover of ₹ 1,69,62,106/-; (b) the loss on sale of machinery at ₹ 49,46,196/- under the head selling and administrative expenses of ₹ 56,74,304/-; (c)(i) the transaction of addition of new machinery in the year ending 31/03/2007 and out of which sale of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. the loss on sale of machinery amounting to ₹ 49,46,196/- was claimed wrongly because the same was to be taken to the balance sheet in the fixed asset as block of asset existed there. The Assessing Officer also failed to look into whether the transaction was collusive one or whether the sales were made to parties covered under section 40A(2)(b) of the Act; d. the AO is directed to inquire into correctness of the claim towards financial charges which claimed it more than double of the previous year; e. the Assessing Officer did not enquire into unsecured loan and sundry creditors and the assessee failed to explain the same; f. the AO is further directed to inquire into correctness of applicability of TDS and disallowance under section 40(a)(ia) of the Act in respect of freight expenses debited to the tune of ₹ 6.93 Lacs. 4. Against the above order under section 263 of the Act passed by the learned Commissioner of Income Tax, the assessee is in appeal before the Tribunal raising grounds as reproduced above. 5. The ground No. 1 was not pressed by the learned Authorized Representative of the assessee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Assessing Officer called for confirmation of sundry creditors unsecured loan creditors and examined TDS liability. He submitted that the assessee also duly complied with the queries asked by the Assessing Officer and the assessment has been completed after considering all the submission of the assessee and, therefore, on those issues there is no lack of enquiry by the Assessing Officer. He further submitted that the view taken by the Assessing Officer was one of the best, while framing the assessment under section 143(3) of the Act and setting aside those issues for further Inquiry was nothing but duplication of work, which was not permitted under section 263 of the Act. 4.1 He further submitted that learned Commissioner of Income Tax has not carried out enquiries in the respect of the above issues himself and arrived at whether the order was erroneous as well as prejudicial to the interest of the Revenue. 4.2 In response to this, the learned Commissioner of Income Tax (Departmental Representative) submitted that the Assessing Officer did not call for any information in respect of loss claimed on sale of machinery and, therefore, this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest of the Revenue. These twin conditions have to be cumulatively satisfied for obtaining a valid jurisdiction under this section. If the assessment order is only prejudicial to the interest of the Revenue, it is not sufficient to invoke the jurisdiction under section 263, unless it is shown that it is erroneous also. An assessment order may be termed as erroneous in various circumstances. Not making enquiry on the relevant issues, which the Assessing Officer is required to look into, makes the assessment order erroneous. Similarly, after making investigation but thereafter taking the patently erroneous view, also makes an order erroneous. But, however, if there are two possible view on the point of issue, then order cannot be said to be erroneous. In other words, if issue is debatable and the Assessing Officer has taken one possible and legally sustainable view, then the Commissioner of Income Tax, cannot be allowed to substitute his view holding the order as erroneous. In another situation, any order may be erroneous due to lack of enquiry on the issue. When the investigation was made by the Assessing Officer, but the circumstances warrant that further investigation was requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, which is signed by the counsel of the assessee on 25/11/2010, is available on page 9 of the paper book, which contains justifications of the loss and sale of machinery to M/s Apin Tax. Both the reply dated 15/11/2010 and 22/11/2010 are not bearing any stamp of acknowledgement either by the Assessing Officer or by the Income Tax Department. A perusal of the questionnaire issued by the Assessing Officer manifest that no query in respect of acquisition and sale of assets including machinery was raised by the Assessing Officer. It is also clear that no query in respect of sale of machinery was made by the Assessing Officer. In absence of any stamp of acknowledgement by the Department on the letter dated 15/11/2010 and 25/11/2010, it cannot be treated that same were filed before the Assessing Officer. Even if it is considered that the assessee filed reply dated 15/11/2010 and 25/11/2010 before the Assessing Officer, the Assessing Officer was required to carry out Inquiry in respect of the claim of loss on sale of machinery, however, no such enquiry was made by the Assessing Officer, and, therefore, the case of the assessee falls in the category of complete lack of Inquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is enclosed.) 4.7 In reply dated 15/11/2010, which is placed on page 18 of the assessee s paper book, reply in respect of creditors was as under: Answer No. 2: Copy of a/c of following creditors in our books of a/c: (a) M/s. ABN Enterprises Hissar (b) M/s. Apin Textiles. 4.8 Thus, it is evident from the submission of the assessee that no confirmation were filed in respect of the sundry creditors. Similarly, it is clear from the queries raised by the Assessing Officer that no details in respect of deduction of TDS on freight charges was examined by the Assessing Officer. Similarly, neither detail in respect of financial charges was also asked by the Assessing Officer nor any information was filed by the assessee. In view of the above, the learned Commissioner of Income Tax is correct in holding that further enquiry was necessary to examine the sundry creditors, financial charges, liability of TDS on freight charges. 4.9 The Hon ble jurisdictional High Court in the case of Meerut Roller Flour Mills Ltd (supra) held the assessment order as erroneous and prejudicial to the interest of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y case the CIT is expected to make an inquiry before passing the final order. The concluding portion of this sub-s. (1) of s. 263 shows that the CIT can pass various orders such as enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. If the CIT in this case had enhanced or modified the assessment, then looking to the facts of the present case, Shri Patel would have been justified in contending that, before passing the final order of enhancement or modification of the assessment, the assessee ought to have been given an opportunity to cross-examine Dr. Vyas. But here the CIT has not himself passed any final order as regards the assessment. What he has done is to cancel the original assessment and to direct a fresh assessment by the ITO with a further direction to the ITO to give proper opportunity to the assessee to substantiate its pleas as well as to cross-examine Dr. Vyas. Therefore, the question is whether it is obligatory on the CIT acting under s. 263 to enter into a regular inquiry in all cases before the original assessment order is cancelled and the ITO is directed to make a fresh assessment. There is nothing in the section it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full opportunity to produce evidence, if any, in support of her case. 16. In view of this, we find that considering the facts of this case, the CIT was not bound to make any inquiry before passing the final order and that in substance no prejudice is caused to the assessee by failure of the CIT to give it any opportunity to cross-examine Dr. Vyas. 17. Next question is whether at the time of passing the final order, the CIT was bound to record final conclusion. Now, even on this question, we find that there is nothing in s. 263(1) to show that before passing the final order under that section, the CIT must necessarily and in all cases record final conclusions about the points in controversy before him. As already noted by us above, we would have expected him to record final conclusions, which he thought proper if he was to settle the assessment finally but since he has not settled the assessment finally, and has preferred to direct the ITO to make an order for fresh assessment, it was proper that he did not express any final conclusions and recorded only prima facie conclusions at which he had arrived with reference to the facts of the case. Here it s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. The respondent-assessee shall bear the costs of the Revenue of this reference. 5. In the light of foregoing discussion and respectfully following the findings of the Hon ble Allahabad High Court in the case of Meerut Rolling Mills Ltd. (supra) and Hon ble Gujarat High Court in the case of Mukur Corporation (supra), we are satisfied that the learned Commissioner of Income Tax was justified in cancelling the assessment order by holding it as erroneous and prejudicial to the interest of the Revenue. The impugned order is accordingly upheld. 6. The ground No. 4 of the appeal was not pressed and, therefore, dismissed as infructuous. 7. The ground No. 5 of the appeal is general in nature, therefore, not required to be adjudicated upon by us. 8. In the result, the appeal filed by the assessee is dismissed. The decision is pronounced in the open court on 18th Nov., 2016. (C.1) He also submitted that the estimation of profit @ 5% of gross business receipt was a reasonable estimate, and should be confirmed. We have heard both sides. We have also perused the materials available on record. It is not in disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 8,48,105/- has been brought to tax on account of estimation of business profit. The aforesaid amount of ₹ 49,46,196/- was part of the business loss claimed by the assessee and once that loss is disallowed, and estimated net profit is assessed as income; the aforesaid amount of ₹ 49,46,196/- stands disallowed automatically. Therefore, the Ld. Counsel for the assessee submitted that there was no justification for once again making repeated addition on the aforesaid amount of ₹ 49,46,196/- in the Assessment Order. The Ld. DR agreed that the repeated addition made by the AO in respect of the aforesaid amount of ₹ 49,46,196/- amounts to double addition of the same amount and he left it to the discretion of the Bench to give appropriate direction to the AO for deleting the double addition. As both sides are in agreement that repeated addition of ₹ 49,46,196/- made by the AO amounts to double addition of the same amount; we accordingly direct the AO to delete the repeated addition, because double addition of the same amount is not sustainable in law. (E) The third issue before us, is regarding the claim of depreciation. At the time ..... X X X X Extracts X X X X X X X X Extracts X X X X
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