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TMI Blog2022 (9) TMI 551X X X X Extracts X X X X X X X X Extracts X X X X ..... urt held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. As in the case of the assessee, the AO during the course of assessment proceedings, made enquiries on the issues as discussed above and after consideration of written submissions filed by the assessee and documents / evidence placed on record, and then framed the assessment under section 143(3) accepting the return of income. This fact can be verified from the notice issued under section 142(1) of the Act by the AO and the reply of the assessee against such notice. Thus it is not the case that the AO has not made any enquiry. Indeed the Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of matters objected by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re detailed as under: i. As a result of survey operation at the business premises of the assessee under the provisions of section 133A of the Act, the unaccounted stock of brass scrap was found amounting to ₹53,00,075/- which was also admitted by the assessee but the same was not offered to tax in the income tax return. The AO has not verified the same properly during the assessment proceedings. ii. There was sharp decline in the gross profit ratio and net profit ratio in the year under consideration in comparison to the immediate preceding assessment year. The gross profit ratio and the net profit ratio for the year under consideration stands at 7.69% and 4.69% whereas the same stands in the immediate preceding assessment year at 20.74% and 15.74% respectively. Despite there was a sharp decline in the ratio as discussed above, but the AO has not verified the same thoroughly. iii. The deduction claimed by the assessee under section 80 IA (1) of the Act amounting to ₹ 30,06,181/- was not included in the gross total income and therefore it was not eligible for the deduction in respect of such income. But the same was allowed by the AO during the assessment framed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, the assessee was asked explain the reduction in the GP and NP during the year under consideration. Likewise, the learned AR also drew our attention on pages 18, 23, 24, and 25 of the paper book where the reply of the assessee in response to the notice issued under section 142(1) of the Act was placed. Thus, the learned AR contended that it cannot be said that the assessment order is erroneous which is causing prejudice to the interest of Revenue in the given facts and circumstances. 6. The learned AR further contended that the assessment was framed by the AO after considering the necessary details and verification and application of mind in respect of the deduction claimed by the assessee u/s 80IA of the Act. The learned AR in support of his contention drew our attention on page 20 of the paper book where the clarification of the assessee in respect of deduction u/s 80IA of the Act was placed. Thus, the learned AR contended that there cannot be said that the assessment order is erroneous which is causing prejudice to the interest of Revenue in the given facts and circumstances. 6.1 The learned AR further contended that the assessment was framed by the AO after considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dequate inquiry. The Hon ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. The relevant observation of Hon ble Delhi High Court reads as under: 12. .. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of lack of inquiry , that such a course of action would be open. --- From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. 8.4 The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words:- 20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provison shall apply, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Commissioner. The Hon ble High Court upheld Tribunal's order. The Hon ble Supreme Court while dismissing the SLP filed by the Department held as under:- We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed 8.6 The Supreme Court in the another recent case of Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd[2020] 114 taxmann.com 545 (SC), dismissed the Revenue s SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law, with the following observations: Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 9. Books of accounts alongwith stock registers. Reply dated 15-02-2014: 2. Gross profit and net profit Ratios : Assesment Year Gross Profit Ratio Net Profit ratio 2009-10 3.52% -7.53% 2010-11 20.13 7.69% 2011-12 15.74 4.09% As we known that during the FY year 2009-10 scrap market was extremely decline globally, it was very difficult to survive in the market that s why we suffered a loss in that yar, vise a versa market connnnnnn will be recovered in the succeeding year hence we gained a huge profit in F.Y. 2010-11 the condition will be unstable afterwards i.e immediate next financial year, that s why we still have huge profit compared to our normal business situation. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 7. Unsecured Loans We taken and given loand only to our share holders and we not taken or given any new loans details of unsecured loans are as per sheet attac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act was conducted on 23-3-11 at the business premises of our client. During the course of survey, excess stock of Brass scrap of 19.273 kgs. Valuing Rs.53,00,075/- was found and declared for taxation. The same has been added on the next day of survey in brass stock resulting into increase in normal profit by Rs.53,00,075/-. The above stock has not been added in purchase a/c. the above stock credited to material consumption a/c The same has been debited and shown as closing stock as per accounting method. The same has accordingly been transferred to P L. a/c. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX As discussed during the course of last hearing and our earlier explanation in our letter dt.7-3-14 respect of G.P. N.P., we, on behalf of our above client, submit further that we are furnishing herewith a chart of comparative purchase, sales, manufacturing administration exp. where from your honor will observe i) that sales increased by 1.77% i.e. in value of Rs.67,10,055A ii)' that material consumption increase by 7.34% i.e. in value of Rs.2,19,28,162/- iii) that Mfg. exp. decrease by Rs,l,003/- iv) that personal and adm. Exp. decrease b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this reasoning the order of the AO is also erroneous insofar prejudicial to the interest of revenue. In this regard, we make our observation that the learned PCIT has not invoked the explanation 2 of section 263 of the Act in show cause notice dated 17 January 2022 about the same. Therefore, the opportunity with respect to the explanation 2 of section 263 of the Act was not afforded to the assessee. Thus, on this count the learned PCIT erred in taking the re-course of such provisions while deciding the issue against the assessee. Secondly, the learned PCIT has also not specified the nature and the manner in which the enquiries which should have been conducted by the AO in the assessment proceedings. Thus, in the absence of any specific finding of the learned PCIT with respect to the enquiries which should have been made, we are not convinced by his order passed under section 263 of the Act. 8.11 In view of the above and after considering the facts in totality, we hold that there is no error in the assessment framed by the AO under section 143(3) causing prejudice to the interest of revenue. Thus, the revisional order passed by the learned PCIT is not sustainable and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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