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TMI Blog2018 (11) TMI 1903X X X X Extracts X X X X X X X X Extracts X X X X ..... ported. Once all necessary facts and evidences were available before the Pr. CIT then even in terms of Explanation-2 to Section 263, it was incumbent upon the Pr. CIT to demonstrate that the order passed is erroneous and prejudicial to the interests of the Revenue. In order to demonstrate that it was incumbent upon him to atleast attempt to make a semblance of same minimalistic enquiry to assail the facts and evidences available on record to show that the A.O has just sat on the replies and not considered them. It is for the Pr. CIT to show that had any further queries been made by the A.O then the order passed could not have been passed as it would have been erroneous and prejudicial to the interests of the Revenue. Without assailing the facts and evidences the presumption based on mere suspicions that no enquiries or verification was made, does not clothe the Pr. CIT with the powers to exercise his Revisionary Powers. In the absence of the same it is an attempt at fishing and roving enquiries by the Pr. CIT invoking Explanation-2(a) or 2(b) of Section 263 which presumably has been invoked as in order to demonstrate that Explanation 2(c) or 2(d) of Section 263 was invoked, noth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd plethora of jurisprudence available on the issue which casts responsibility on the Pr. CIT to point being out the error and not any and every error but such an error which is prejudicial to the interests of the Revenue. The twin requirements and the sine-qua-non for exercising the Revisionary Power cannot be left at the mercy of whims and fancies of Revisionary Authority the same should be brought out on record mere suspicions are not enough. Accordingly, on a consideration of material available on record alongwith the arguments of the parties and the judicial precedent available for the detailed reasons set out hereinabove we hold that the order passed by the Pr. CIT being devoid of merit deserves to be quashed. - Decided in favour of assessee. - ITA No. 519/CHD/2018 And ITA No. 520/CHD/2018 - - - Dated:- 27-11-2018 - SMT. DIVA SINGH, JM AND Dr. B. R. R. KUMAR, AM For The Assessee : Shri Tej Mohan Singh For The Revenue : Dr. Gulshan Raj, CIT (DR) ORDER PER BENCH These two appeals filed by different assessees are being decided by common order. It was the common stand of both the parties before the Bench that the issues raised in these two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer had raised queries and replies of the assessee were also available on record. Relying upon the same, it was submitted, that when these are read alongwith the replies made available to the AO where upon further queries and questionnaires etc. were also issued by him which had also been replied to by the assessee, the assessee had successfully demonstrated its claim. Addressing these it was his submission that when these are read alongwith the submissions advanced before the Pr. CIT, it will be seen that none of these arguments and supporting documents have been disputed or upset by the Pr.CIT. Thus, in this background, the cursory observations of the Pr. CIT on the basis of which he has come to an incorrect conclusion that there was a lack of enquiry by the AO in the facts of the present case, it was his submission, was completely contrary to the facts on record. 4. The specific show cause notice u/s 263dated 07.03.2018 is reproduced as under : In this case, assessment was completed u/s 143(3) of the IT Act, vide order dated 25.05.2015. The record of the assessment proceedings have been examined. It is noted that assessment in this case was completed without m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. ( v) It is noted from record that the firm has claimed commission expenses at ₹ 69.06 -Lacs. Copy of commission paid account as appearing in the books is filed during assessment proceedings. The AO allowed the entire claim of commission payment without causing any inquiries or verification regarding the genuineness of the claim, nature of services rendered by the recipients to determine whether the commission payment is incurred wholly and exclusively for business purposes. In light of the above, it is evident that the assessment order passed on 25.05.2015 is erroneous in so far as it is prejudicial to the interest of revenue within the meaning of Explanation 2 of section 263(1) of the IT Act, 1961. In view of the above, you are being given an opportunity of being heard in the matter. If you wish to furnish any written submissions or be heard in the matter personally/through authorized representative (AR), you may do so on 16.03.2018 at 10.30 A.M. In case nothing is heard from you by the appointed date, it will be assumed that you have nothing to say in the matter and the proceedings will be concluded on merits and as per law. 5. Referring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, 1.2, 209 4, 63, 520 Foreign Trade Fair 9, 49, 648 633, 320 1, 71, 507 1, 44, 821 3, 16328 Total 23, 41, 181 15, 61, 333 4, 22, 818 3, 57, 030 7, 79, 848 There for an amount of Rs, 4, 22, 818/- is allocated to Nalagarh Unit which is tax Free unit u/s 801C is hereby disallowed and added back to the income of the assessee and an amount of ₹ 3, 57, 030/- is allocated to Samba Unit which is tax free unit u/s 80IB are hereby disallowed and added back to the income of the assessee company. I am also satisfied that the assessee has furnished inaccurate particulars of its Income on this account and therefore penalty proceedings u/s 271(l}(c) of the I.T. Act are hereby initiated separately, 4. Issue of pyment of bounes and leave with wages: On perusal of the expenses vouchers revealed that on some vouchers the signatures are not legible, hence, same is not possible and the claim of expenses under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Nature of remittance as per agreement/ document Import of raw material 13. In case remittance is for supply of articles or things (e.g Plant , machinery equipment etc.) please indicate, yes (a) Whether the recipiet of remittance has any permanent establishment (PE) in India through which the beneficiary of the remittance is directly or indirectly carrying on such activity of supply of articles or things. No (b) Whether such remittance is attributable to or connected with such permanent establishment No (c) If the reply Itam no. (b) above is yes the amount of income comprised in such remittance which is liable to tex. (d) If not, the reasons in brief thereof. Payment is being made to non resident for purchase of goods. 5.2 It was his submission that similarly at pages 230 to 231 and 232 onwards to 284, similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Foreign travelling expenses 6731961 Traveling expenses 35, 55, 232 Marketing staff traveling expenses 6091048 Sea /air freight on export 5685939 Inland fright forwarding on exports 1, 02, 59, 616 Trade fair expenses 35, 48169 Business promotion expenses 73, 35, 578 Repair Maintenance 1, 45, 08, 760 Foreign currency variation 4, 19, 01, 735 You are required to justify the large amount of above mentioned expenses alongwith documentary evidences such as bills of expenses clamed purpose of foreign and other traveling and repair and maintenance expenses you are also required to justify huge amount of foreign currency variation expenses clamed alongwith details and working of loss on account of foreign currency variation. 3. From the examination of details and AIR, it is noted that large ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been placed at pages 287-425. The ledger account, it was submitted, continues upto page 308 and from 309 onwards, the evidences and details qua the forward contracts specifying the period, the contract order, export amount entered into on a non-judicial stamp paper which has been placed on record. It was submitted that the evidence was further supported by copies of bank statements filed alongwith the copies of the contracts entered into with Canara Bank specifying the purpose. These evidences, it was submitted, were all available before the AO and this argument alongwith supporting evidences was made before the Pr. CIT also. These evidence, it was submitted, go on upto 425 of the Paper Book. Inviting attention to Paper Book page 445, it was submitted, that the assessee before the Pr. CIT also provided a chart of month-wise U.S. Dollar rate in Indian rupees right from April, 2011 at which point of time, it was, however, around 44.30 INR and thereafter had peaked to 55.15 INR in May, 2012 and August, 2012. In March, 2013 it hovered around 54.20 INR. It was his submission that no error in any of these submissions have been pointed out by the Pr. CIT. The AO admittedly on going throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Datw on which put to use Total amount 8.1 Reply to the above, it was submitted, had also been submitted before the Pr. CIT. The reply of the assessee, it was submitted, is available from page 70 onwards and the specific issue was addressed at page 72 in point No. 15 and elaborated at Paper Book page 186 to 192. These submissions of the assessee, it was submitted, were also supported by sample vouchers filed before AO before whom entire record was made available and these were also made available to the Pr. CIT. Attention was invited to Paper Book page 190 to show that the assessee had included the particulars showing date of purchase, date on which the asset was put to use and the sample invoices. It was submitted that these details are available from pages 193 to 222. It was his submission that the assessee had included sample invoices before the AO in response to his query, however, in the course of the hearing, the assessee had carried out complete sale bills, invoices, books of account etc. and it is not even the allegation of the Pr. CIT, that the complete details were not made available. These details it was reiterated were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of job work or rent or towards partner s salary. Attention was also invited to Paper Book page 74 which were the details of the sister concerns, herein also full disclosure about the manufacturing activity i.e. the nature of business carried out including the name of the party including particulars of their address alongwith name of the partners/Directors, the percentage of their share etc. had been disclosed. These details, it was submitted, carry on till page 184 of the Paper Book. The claims were supported by supporting Certificates of Chartered Accountants. These evidences and arguments have been advanced and relied upon before the Pr. CIT. Relying upon the invoices which were specifically filed by way of sample Invoices before the Pr. CIT also it was submitted, these would show that complete details of purchases etc. from page 446 to 510 were made available. In the circumstances it was submitted by the Ld. AR it was incumbent upon the Pr. CIT to support his conclusion that there was no error in the order of the A.O by referring to atleast some fact or evidence on record to upset the conclusions drawn. The Pr. CIT has only casted doubts that there could be an error but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and for exhibiting in trade fares for procurement of order product feedback and other incidental matters are addressed by the assessees representative on regular basis and has to undertake foreign travelling. It may further be mentioned that this is not first year of export and exports are being made for more than a decade in normal course and expenses are commensurate as well as incidental to the business. Similarly other expenses are incidental to business. That all expenses are vouched and books of account are kept in normal course. We are producing documentary evidence of expenses claimed as desired by you. 11.1 Attention was invited to Paper Book page 230 which is certificate of an Accountant u/s 15CB wherein the specific payment made to Jatinder Singh Kapoor as per column No. 10 has clearly been shown as payment towards commission. The fact that it has been made in foreign currency i.e. in U.S. Dollars is also clearly mentioned. The address of the party receiving commission in Russia is given. It has been clearly verified that payment is made to Non Resident Indian having no permanent establishment in India. Similarly, attention was invited to page 234 which is also a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Said proposition of law, it was submitted, was supported by the decision of the Apex Court in the case of Vatika Township reported in 366 ITR 466 (S.C.). Specific issue, it was submitted, has been addressed by the Court at page 489 of the said decision. Challenging the impugned order, it was his submission that the allegation of the Pr. CIT is that it was a case of lack of enquiry. The said conclusion it was submitted has to be demonstrated by some evidence of material to justify. Reading from the order it was submitted that there is nothing in the order to support the conclusion. The allegation of the Pr. CIT(A) based on whims is incorrect on facts when he has seen the issues raised by the AO by way of specific questionnaires in the course of the assessment proceedings and considering the replies given by the assessee and considered by the AO. alongwith supporting documents, the order of the Pr. CIT may be quashed. The Pr. CIT, it was submitted, has not assailed the documentary evidences filed before the AO which has also been made available to the Pr. CIT. Thus, considering the queries raised in the scrutiny proceedings and the replies available on record, it was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner has to examine the order of the AO on merits and the Court held that in those circumstances also, the Revisionary Authority has to form an opinion on merits that the order passed by the AO is erroneous and prejudicial to the interests of the Revenue. The Court in clear terms has held that the Commissioner exercising his Revisionary Powers cannot direct the AO to conduct further enquiry to verify and find out whether the order passed is erroneous or not. Reliance for similar proposition was also placed upon the order dated 09.04.20-18 in ITA 771/CHD/2017 in the case of Abhimanyu Gupta V Pr.cit. Specific attention was invited to page 44-46 where similar issue has been considered in para 4.4 (copy placed at pages 54 to 66 of the Paper Book) wherein specific finding addressing the legal position on facts in near similar facts relying upon the decisions of the Delhi High Court in the case of Delhi Airport Metro Express (supra) and considering the decision of the ITAT in the case of Narain Tatu Rane V ITO 70 Taxmann.com 227 (Mum) (copy placed at pages 43 to 54, 263 ), the ITAT quashed the 263 proceedings. 13.1 It was submitted that even where the Revisionary authority was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi and in the case of Anil Kumar Sharma 335 ITR 83. 13.4 By way of abundant caution, it was his submission that even if the department would want to allege that the assessment order is a short order and discussion on these issues is not coming out of the order. In the face of such a possible argument reliance is placed on Hari Iron Trading 263 ITR 437 (P H). It was submitted that the Court has clearly held that if the issues have been accepted by the AO, then it may not necessarily require him to make a mention of the same. Referring to CIT Vs Eicher Ltd. 294 ITR 310, it was submitted that where all material facts are disclosed in assessment stage before the AO to apply his mind, failure of the AO to record a finding in the assessment order does not mean that income has escaped assessment. The mere fact that the order is a short order or a cryptic order does not lay the order open to 263 proceedings. Accordingly, it was his submission that on the basis of these facts and arguments, the 263 orders in the respective appeals deserves to be quashed as the exercise of the power in the facts of the present case in the manner done, was not warranted. 14. It was his submission tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cilities availed by M/s Munix India P.Ltd. For the said purposes, attention was invited to copy of sanction letter from the Canara Bank, Paper Book page 233, 244 which was also shown to the Pr. CIT. It was his submission that all the unsecured loans had been used for the business purposes i.e. there were used for inventory, trade receivable or payment of trade payable. The fact that the funds have been used for business purpose were explained before the AO and the explanation had been accepted by him. The said explanation alongwith supporting evidences was made available even before the Pr. CIT who has not faulted it. Accordingly, in the circumstances, reliance which the Revenue may seek to place on the conclusions of the Pr. CIT which the Revenue may want to argue is a speaking order cannot be upheld as the submissions of the assessee partly extracted in the order have remained completely unrebutted and unaddressed by Pr. CIT. Specific attention was invited to Paper Book page 65, specific page 67 at S.No. 13 demonstrate that queries have been raised and the issues have been replied. For ready reference, the relevant extract of the details required to be shown by the AO is extracte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Referring to the same, it was submitted as an illustration, it can be seen that commission is paid to the agent in Russia, in foreign currency disclosed in column No. 10 and 13(d) would show that it was for commission and the payment was made to non-resident having no permanent establishment. As an illustration, attention was also invited to page 93 which reflects that payment is made to Kapoor Jatinder Singh with all necessary disclosures. Similar facts were available in ITA 519/CHD/2018. In the similar set of facts and circumstances relying upon similar arguments on the same set of facts as in ITA 320/CHD/2018, relying upon similar propositions of law, it was his submission that in the facts of the said case also, revisionary order passed by the Pr. CIT on facts is not justified. For ready reference, attention was invited to similar questionnaires issued by the AO. Replies thereof are also available which were also supported by Form 15CB in similar manner. 14.5 The last issue in ITA 519/CHD/2018 was also flagged by the A.O and replies by the assessee. Since the reply given by the assessee was accepted by the Pr. CIT. Accordingly the issue is not being addressed. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 2. - For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, - ( a) the order is passed without making inquiries or verification which should have been made; ( b) the order is passed allowing any relief without inquiring into the claim; ( c) the order has not been made in accordance with any order, direction or instruction 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. In the above case, it is humbly submitted that the following decision may kindly be considered with regard to validity of proceedings u/s 263 of I.T.Act: 1. Malabar Industrial Co. Ltd. Vs CIT [20001 109 Taxman 66 (SC)/(2000) 243 ITR 83 (SC) (2000) 159 CTR 1 (SO where Hon'ble Supreme Court held that where Assessing Officer had accepted entry in statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged bogus share application cases. 17. We have heard the rival submissions and perused the material on record. The decisions cited before us and the relevant pages of the Paper Book relied upon alongwith the arguments of the parties written and oral, all have been taken into consideration. On a consideration thereof, we find that in the peculiar facts and circumstances of the present case, the orders passed by the Pr. CIT cannot be upheld. The parties have extensively argued the issues ITA 520/CHD/2018 with the understanding that the arguments advanced therein would fully apply to similar set of facts and circumstances of the case in ITA 519/CHD/2018. We find on going through the specific findings of the Pr. CIT in ITA 520/CHD/2018 which on each of the issues has been addressed in the present proceedings at page 5, 7, 9, 10 and 11 respectively in the impugned order and find that no error in the order passed by the AO has been referred to by the Pr. CIT in the order passed by the AO let alone such an error which can be said to be prejudiced to the interests of the Revenue. The relevant extracts of the specific findings on each of these issues which are being extracted in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is not called for nor and examined by the AO. Admittedly the assessee is also an exporter but whether the said loss has arisen with reference to exports and the cancellation of forward contracts incidental thereto to determine whether the loss claimed is arising on account of regular business transactions has not been examined. There is lack of inquiry by the AO on this issue before allowing the loss claimed. 6. Additions in Fixed Assets .. I have carefully considered the submissions of the AR. In the show cause notice WDV of various fixed assets are recorded as additions made during the year. The Assessing Officer did call for the details of assets added during the year which have been placed on record without any verification regarding its installation and user during the year. He has not called for the invoices of the fixed assets installed during the year even on random basis. On this ground therefore there is lack of inquiry by the AO. 7. Purchases made from persons covered u/s 40A(2)(b) of IT Act, 1961 . . It is noted from the assessment record that form No.3CE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereby if the A.O failed to make any enquiry or necessary verification which should have been made, the order becomes erroneous in so far as it is prejudicial to the interest of revenue. In view of the aforesaid, the impugned order passed by the A.O. u/s 143(3) of the Act for A.Y. 2013-14 is set aside to be made afresh on the issues discussed above in para 5 to 8 and the show cause notice (supra) after properly examining the subject issues and conducting inquiries and verification after giving sufficient opportunity of being heard to the assessee. 17.2. We have seen that the Pr. CIT has invoked Explanation-2 to Section 263. For ready reference, the relevant provision is reproduced hereunder : Revision of orders prejudicial to revenue. 263. (1) ........................... Explanation 1 . .................. a) .......................................... b) ... c) Explanation 2 .. ( a) the order is passed without making inquiries or verification which should have been made; ( b) the order is passed allowing any relief without inquiring into the claim;- ( c) the order has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nothing has been placed on record by the Pr. CIT. So it is presumed that the Pr. CIT sought to invoke either Explanation 2(a) or 2(b) of Section 263. The Revisionary Power vested in the Pr. CIT, it is expected, would be exercised in a careful and responsible manner. Admittedly on each of the issues flagged by the Pr. CIT, the assessee's replies made available have been carelessly and arbitrarily brushed aside by stating that AO has not made any verification or enquiry. In order to demonstrate that there was an error, in terms of the judicial precedent available, the Pr. CIT should have carried the issue to its logical conclusion and not remanded the order with the bland direction directing that the assessment be made afresh. For the exercise of Revisionary Power, the error in the passing of the order should have been demonstrated. In the absence of the same, the power exercised by the Pr. CIT is open to the challenge of being arbitrarily whimsical and at best a fishing and roving enquiry. The fact that the assessment order passed is a cryptic order by itself at best can give rise to suspicion. Notwithstanding the fact that the writing of the order is not in the hands of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings and the Respondent-assessee's response to it. In fact this Court in the case of Idea Cellular Ltd. Vs. Deputy Commissioner of Income Tax Ors., [(2008) 301 ITR 407 (Bom.)] has held that if a query is raised during assessment proceedings and responded to by the assessee, the mere fact that it is not dealt with in the assessment order would not lead to a conclusion that no mind had been applied to it. 17.4. Reference may also be made to the strict view taken by the Delhi High Court in the case of statutory limitation of two years for the Revisionary Authority while exercising the Revisionary Power u/s 263 which can be extrapolated to the strict view taken by the Courts that the Revisionary power cannot be exercised casually and whimsically to carry out fishing and roving enquiries. Reference is being made herein qua limitation of two years in the case of Tulsi Tracom P.Ltd. V CIT (2018) 161 DTR 0148 where Court has held; CIT(A) who issued order u/s 263 ought to have been fully satisfied that adequate opportunity was given to Assessee to controvert facts stated in notice u/s 263 and to explain circumstances surrounding such facts- Section 263(2) was clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceed by carrying out some minimal enquiries to show that the conclusion of the AO is erroneous and prejudicial to the interests of the Revenue. In fact the Courts have held that even where the AO did not undertake any enquiry, even in such a situation, it becomes incumbent upon the Revisionary Authority to conduct such an enquiry and in cases whe4re nothing has been done, then it is necessary for the Revisionary Authority to demonstrate that the error which the authority seeks to address is clearly set out in the order to show how the error can be said to be prejudicial to the interests of the Revenue. In the facts of the present case, the Pr. CIT has exercised the power by merely flagging certain issues extracting the Show Cause Notice, extracting part of the reply of the assessee and without caring to address the same has summarily arrived at the conclusion ignoring the facts, evidences and plethora of jurisprudence available on the issue which casts responsibility on the Pr. CIT to point being out the error and not any and every error but such an error which is prejudicial to the interests of the Revenue. The twin requirements and the sine-qua-non for exercising the Revisiona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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