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TMI Blog2023 (9) TMI 1309X X X X Extracts X X X X X X X X Extracts X X X X ..... have considered the said Judgments while framing the reassessment. In our opinion, the above judgments are not part of the assessment record and at the time of reassessment, the ld. AO is required to go through the records in accordance with reasons recorded and he cannot presume certain facts which are beyond his records. Even otherwise, the ld. PCIT is expected to examine the assessment records at the time of issuing notice u/s 263 of the Act. At the time of issuing notice u/s 263 of the Act by Ld. PCIT, the above referred Judgments were also not forming part of the assessment records. The findings of the ld. PCIT on this issue are contrary to facts and also against the material brought on record by ld. AO. AO is not expected to carry out enquiry with regard to issues which are not subject matter of the reopening. The findings of the ld. PCIT to give direction to the ld. AO to reframe the assessment order in the light of the Judgments of Allahabad High Court in the case of Daffodils Pharmaceuticals cited (supra) is unwarranted, which is beyond the scope of the jurisdiction which the PCIT can exercise u/s 263 of the Act. Payment of commission to various persons, PCIT expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri N. K. Billaiya, Accountant Member And Shri Yogesh Kumar U.S., Judicial Member For the Appellant : Mr. K. Sampath And Sh. V. Rajakumar, Advs. For the Respondent : Mr T. James Singson, CIT-DR ORDER PER YOGESH KUMAR U.S., JM: This appeal by assessee is directed against order of Principal CIT passed u/s 263 of the Income Tax Act, 1961 ( the Act for short) for the assessment year 2012-13 dated 29.3.2022. The assessee has raised following grounds of appeal: 1. That having regard to facts circumstances of the case, Ld. Pr.CIT has erred in law and on facts in assuming jurisdiction u/s 263 of Income Tax Act, 1961 and has erred in holding the reassessment order dated 29-12-2019 as erroneous as well as prejudicial to the interest of revenue and that too by recording incorrect facts and findings and in violation of principles of natural justice. 2. That having regard to facts circumstances of the case, Ld. Pr.CIT has erred in law and on facts in setting aside the reassessment order dated 29-12-2019 and directing the assessing officer to make the assessment afresh after taking into account the alleged facts mentioned in para 4.1 to 4.7 after due verif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 04.03.2022 stating as under:- 2. From perusal of assessment record, for the year under consideration, following discrepancies/errors have been noticed:- 2. It is observed that the AO did not examine the details submitted by the assessee through third party verification under the various provisions of the IT Act 1961, despite the fact mentioned in the report received from DDIT(Inv.). Meerut that the company was involved was involved in various unscrupulous activities related to infamous NRHM scam. 2.2. The company had also paid commission of Rs. 7,73,876/- on sales to Sh. Prashant Chaudhary. The amount falls under the category of section 40(A)(2)(b). which needed to be examined by the AO but he did not cross verify this fact. It is also seen that contradictory information, which was submitted by the assessee on different occasions during the assessment proceedings, are available on record. The AO did not confront these facts during the examination. 2.3 Further, it is seen from DDIT(Inv) report that a residential flat B- 514, cosmos executive Apartments, Palam Vihar, Gurgaon was shown to have purchased and depreciation of Rs. 1,17,500/- was wrongly claimed. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... habad High Court in the case of Daffodils Pharmaceuticals Vs. State of UP in case No.8071/2015 dated 24.04.2017, wherein the writ petition of the assessee has been dismissed by following observations: 11. It is necessary to mention certain facts relating to CBI case, on the basis of which the order impugned was passed by the Competent Authority. It is alleged that with the intention to obtain maximum orders of medicine and equipment and obtain profit by way of fake supply to various persons. Shri Surendra and Narender Chaudhary, props M/s Daffodills Pharmaceuticals and M/s Eastern Drug Sanitary Products in conspiracy with senior officers of Department of Health Family Welfare, got CMO/CMO (FW) posted in various District by paying huge illegal gratification to Senior Officers, politicians and other public functionaries. The CMOS/ CMO (FW) once posted awarded maximum supply orders for various purchases of medicine, equipment and other items above Rs. 2.72 crore for respective District through their firms fluting all the norms of purchases, by splitting orders to bring them under their financial powers, obtaining bogus quotations, receiving fake supply, accepting spurious/sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e genuine. Hence, the tender of M's Unicure (India) Pharmaceuticals Pvt. Ltd, NOIDA is forged one. The investigation also revealed that two Drafts, each amounting Rs 20,000/- bearing No. 201967 and 201968 were issued on 7.2.2011 from ICICI Bank, Meerut in favour of Chief Medical Officer, FW. Meerut from Current A/c No. 628505004795. The said A/c is in the name of M/s. Daffodills Pharmaceuticals Ltd, Meerut in ICICI Bank Raj Lok. Civil Lines, Meerut. The said Drafts were prepared on the written instruction of Sh.Surender Choudhary, Director M's Daffodils Pharmaceuticals Lid. These Drafts were respectively used for the tenders of Ms. Unicure (India) Pharmaceuticals Pvt. Ltd. NOIDA and M Sudharshan Pharmaceuticals, Indore and Mis. Daffodilla Pharmaceuticals, Meerut are hand in glove in submitted forged tender of Mix. Unicure Pharmaceuticals Pvt. Ltd. NOIDA More so the beneficiary of the tenders ure both the firms. The Investigation revealed that Sh. Vijay Randhar Director, M/s Sudharshan Pharmaceuticals Pvt. Ltd. Indore got Licence on 7.1.2011 for manufacturing Folifer M Tablet (Iron 30 mg Folic Acid 250 mcg) The licence was issued by the Licensing Authority Food ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a detailed judgment of a learned Single Judge of this Court reported in Devendra Mohan v. CBI New Delhi 2013 (4) ADJ Page 620. On the arguments that have been advanced by Sri Sam Gopal the reasons given in the aforesaid judgment clearly apply The entire gamut of facts and the fact of misappropriating government funds resulting in the NRHM scam is clearly extended therein and therefore there is no occasion or any reason to quash the proceedings or the charge sheet against the applicant. For all the reasons given in the above mentioned judgment as well as the reasons stated hereinabove, no case is made out for quashing of the proceedings or the charge sheet The Application is misconceived and is accordingly rejected. 6. According to the ld. PCIT, assessee had only furnished the cash flow statement, which is not showing the true picture in respect of difference of Rs. 12,98,24,588/- and no confirmation letters from the parties were collected or cross examination has been done by the ld. AO, which is essential in the case. Further, held that the assessee had claimed depreciation at Rs. 2,29,125/- on account of flat purchased, which is a residential Flat and no depreciation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest of the Revenue must be based on material on record of proceedings called for. If there are no material on record on the basis of which it can be said that the ld. PCIT acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by the PCIT will be illegal and without jurisdiction. The ld. PCIT 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. The first requirement to exercise the power suo-motu is that the order is erroneous. Secondly it should be prejudicial to the interests of Revenue. If the order is erroneous but not prejudicial, ld. PCIT cannot exercise the power under Section 263 of the Act. Every erroneous order cannot be the subject-matter of revision because second requirement must also be fulfilled. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law. 10. When an order of the AO is erroneous and granted relief not in accordance with law and secondly when the AO has failed to make out a case as is expected from him because he is an adjudicator as well as investigator, he cannot remain passive. It is the duty of the AO to invoke an enquiry. If the AO has failed to make an enquiry to unearth the true facts, the order is said to be erroneous. 11. In the present case, the ld. AO is not doing the original assessment. This is the case of reopening of assessment u/s 147 of the Act after issuing notice u/s 148 of the Act. We have to see the reasons for recording reopening of the assessment, which are as follows: (a) On the basis of STR information received from DDIT (Inves.) Unit-1, Meerut that difference between the credits in bank statements and turnover was am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The effect of s. 147 as it now stands after the amendment of 2009 can be summarized as follows : (i) The AO must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year; (ii) Upon the formation of that belief and before he proceeds to make an assessment, reassessment or re-computation, the ld. AO has to serve on the assessee a notice under sub-s. (1) of s. 148; (iii) The ld. AO may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section; and (iv) Though the notice under s. 148(2) does not include a particular issue with respect to which income has escaped assessment, he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. Upon the formation of a reason to believe under s. 147 and following the issuance of a notice under s. 148, the AO has the power to assess or reassess the income, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , when it enacted the Exp/n. 3 to s. 147 by the Finance (No. 2) Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Expln. 3 to s. 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain Courts that the AO has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by Parliament in the form of Expln. 3 consequently provides that the AO may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice under s. 148(2). Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under s. 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with reasons recorded and he cannot presume certain facts which are beyond his records. Even otherwise, the ld. PCIT is expected to examine the assessment records at the time of issuing notice u/s 263 of the Act. At the time of issuing notice u/s 263 of the Act by Ld. PCIT, the above referred Judgments were also not forming part of the assessment records. 16. Being so, the findings of the ld. PCIT on this issue are contrary to facts and also against the material brought on record by ld. AO. The ld. AO is not expected to carry out enquiry with regard to issues which are not subject matter of the reopening. In such circumstances, the findings of the ld. PCIT to give direction to the ld. AO to reframe the assessment order in the light of the Judgments of Allahabad High Court in the case of Daffodils Pharmaceuticals cited (supra) is unwarranted, which is beyond the scope of the jurisdiction which the PCIT can exercise u/s 263 of the Act. 17. Further, with regard to payment of commission of Rs. 1,36,12,647/- to various persons, the ld. PCIT expected the ld. AO to verify with various Government officers including CBI officers. In our opinion, this is also not subject ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the revenue. The phrase prejudicial to the interest of the revenue has to be read in conjunction with the erroneous order passed by the ld. AO. Every loss of revenue has a consequence of an order of the ld. AO cannot be treated as a prejudicial to the interest of revenue. For example, when ld. AO adopted one of the courses presumably in the law and it has resulted in loss of revenue, or where two views are possible and the ld. AO has taken one view with that ld. PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the ld. AO is unsustainable in law. In the present case, the assessment framed by ld. AO u/s 143(3) r.w.s. 147 of the Act and the A.O. had recorded various reasons for reopening assessment and went on framing the assessment on the said basis and collected the information with reference to the reasons so recorded for reopening of the assessment and the A.O. was satisfied with the explanation given by the assessee regarding various issues raised by him. Now the ld. PCIT cannot find fault with the act ..... 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