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TMI Blog2023 (5) TMI 735X X X X Extracts X X X X X X X X Extracts X X X X ..... n merit of the case, we note that the honourable courts in series of the cases have held that the capital contribution made by the partner of the firm cannot be subject to the addition in the hands of the partnership firm. In this regard, we find support and guidance from the judgment of Pankaj dyestuff Industries [ 2005 (7) TMI 601 - GUJARAT HIGH COURT] - In view of the above we hold that the allegation framed by the learned PCIT cannot be made subject matter of revision under the provisions of section 263. AO made addition of outstanding sundry creditor on ad-hoc and actual amount worked out for supressed production and amount added while computing assessed income are different - Regarding both the issues, we note that the assessee is in appeal before the learned CIT(A). This fact can be verified from the memo of appeal filed by the assessee before the learned. Once the issue is pending before the learned CIT(A), the same cannot be made subject matter of revision under the provisions of section 263 - we note that in case of CIT vs. Vam Resorts Hotels (P.) Ltd. [ 2019 (8) TMI 1418 - ALLAHABAD HIGH COURT] as held that when an appeal is pending before the appellate co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly resulting under assessment of income by Rs. 6,00,000.00. 6.1 Thus, the learned PCIT in view of the above was of the opinion that the order of the AO suffers from error which is prejudicial to the interest of the Revenue and accordingly issued notice under section 263 of the Act. The assessee in response to such notice only submitted that original assessment file has been lost, hence it requires time to recollect the data. Thereafter several opportunities of being heard were provided but the assessee failed to avail the same. Hence the learned PCIT in view of the above held that the AO framed the assessment order without making proper inquiry or verification which made the assessment order being erroneous insofar prejudicial to the interest of the Revenue. In holding so, the learned PCIT also referred the explanation 2 to section 263(1) of the Act as well as several judicial pronouncements. 7. Being aggrieved by the order of the learned PCIT, the assessee is in appeal before us. 8. The learned AR before us filed a paper book running from pages 1 to 340 and submitted the AO during the assessment proceedings has carried out necessary verification on all the issues raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were number of judgments by various Hon ble High Courts in this regard. 12. Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of lack of inquiry . 13. The Hon ble Bombay High Court in case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), discussed the law on this aspect in length in the following manner: The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. 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-ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revised order under section 263 on ground that Assessing Officer had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal, thus, set aside the revised order passed 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing evidence which can be verified from the notice issued under section 142(1) of the Act dated 14-06-2017 and 17-08-2017 and show cause notice dated 18-12-2017. The relevant question reads as under i. Notice dated 14-06-2017: . 14. On perusal of audited accounts, it is seen than the partners have introduced substantial capital during the relevant previous year. Please furnish Copy of Return; Bank Statement; Copy of final/personal accounts of the partner for FY 2013-14 who have introduced new capital firm. ii. Notice dated 17-08-2017 . (3) On perusal of audited accounts, it is seen than the partners have introduced substantial capital during the relevant previous year. Please furnish Copy of Return; Bank Statement; Copy of final/personal accounts of the partner for FY 2013-14 who have introduced new capital firm. (4) Copy of accounts of partners and acknowledgement of returns of income filed by them. iii. SCN dated 18-12-2017 CAPITAL INTRODUCTION BY THE PARTNERS During the year, partners have introduced fresh capital of Rs.3,22,78,000/-. Vide query No. 14 of the questionnaire of dt. 14.06.2017 you were requested to furnish copy of retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the remaining 9 partners. 22. Even on merit of the case, we note that the honourable courts in series of the cases have held that the capital contribution made by the partner of the firm cannot be subject to the addition in the hands of the partnership firm. In this regard, we find support and guidance from the judgment of Hon ble Gujarat High court in the case of CIT v. Pankaj dyestuff Industries IT Reference No. 241 (Guj.) of 1993, dated 6-7-2005, the relevant extract of the judgement of the order is reproduced as under: 13. Applying the aforesaid principles to the facts of the present case, it is apparent that the assessee had furnished the details, which would discharge the onus which lay on the assessee. It is not the case of the revenue that the partners of the assessee firm are fictitious. The Income Tax Officer has not disputed that the credits in the accounts of the partners were not deposits from the partners. Moreover, it is an admitted position that this was the second year of the firm, and that it was running in loss. It is true that the Income Tax Office did not accept the explanation given on behalf of the assessee in respect of the new deposits or cash credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances, we note that the Hon ble Allahabad High Court in case of CIT vs. Vam Resorts Hotels (P.) Ltd. reported in 111 taxmann.com 62 has held that when an appeal is pending before the appellate commissioner, then the power under section 263 of the Act cannot be exercised. The relevant finding o the Hon ble High Court is extracted as under: 25. As, Clause (c) of Explanation 1 to Section 263 of the Act provides that when an appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act by CIT is barred. Thus, in the present case, the CIT wrongly exercised jurisdiction under Section 263 of the Act by remanding back the matter to assessing authority on 25.3.2013, while the appeal was decided by CIT (A) on 5.6.2013. Thus, the order passed by the ITAT does not suffer from any irregularity and needs no interference. 25.1 From the above principles laid down by the Hon ble High Court, we hold that the matters which are pending before the Ld. CIT(A) for the purpose of adjudication cannot be disputed in the proceeding s u/s 263 of the Act. 25.2 As we have decided the appeal of the assessee in its favour on merit, we are not inclined to adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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