Income Tax Appellate Tribunal – Ahmedabad
M/S. Itt Corporation India Pvt. … vs The Pr. Cit-1, Vadodara on 28 January, 2021 आयकर अपील य अ धकरण, अहमदाबाद यायपीठ ‘D’ अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
“D” BENCH, AHMEDABAD
(Convened through Virtual Court)
BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND
SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No. 344/Ahd/2020
( नधा रण वष / Assessment Year : 2014-15)
ITT Corporation India बनाम/ Pr. Commissioner of
Private Limited Vs. Income Tax-1
Plot No.731, Manjusar Room No.214, Second
GIDC, Savli Road, Floor, Aayakar Bhawan,
Vadodara – 391775 Income Tax Offoce, Race
Course Circle, Baroda,
Gujarat 390007
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AABC I7013D
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से /Appellant by : Shri Dhinal Shah, A.R.
यथ क ओर से /
Shri Mohd. Usman, CIT.DR
Respondent by :
सन
ु वाई क तार ख / Date of
27/01/2021
Hearing
घोषणा क तार ख /Date of
28 /01/2021
Pronouncement
आदे श/O R D E R
PER : RAJPAL YADAV, V.P. :
The present appeal is directed at the instance of the assessee
against the order of the learned Principal Commissioner of Income
Tax -1, Vadodara, dated 22.04.2020 passed for A.Y. 2014-15 under
s.263 of the Income Tax Act, 1961.
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 2 –
2. Though the assessee has taken one ground of appeal but it
contains various sub-grounds. In brief, its grievance revolves
around a single issue, namely, ld.CIT has erred in taking cognizance
under s.263 of the Income Tax Act and thereby setting aside the
assessment order for framing it afresh.
3. The brief facts of the case are that assessee company at the
relevant time was engaged in manufacturing and trading of water
pump, industrial and chemical pumps and its accessories. It has
filed its return of income on 30.11.2014 declaring loss of
Rs.16,95,929/-. The book profit was declared at Rs.3,84,00,911/-.
The case of the assesse was selected for scrutiny assessment and the
notice under s.143(2) of the Act was issued on 31.08.2015, which
was duly served upon the assessee. Though ld.AO has made two
additions amounting to Rs.15.15 Crore but ultimately income was
determined at nil after setting off brought forward loss.
4. Dissatisf ying with the additions, assessee went in appeal
before the first appellate authority. During the pendency of appeal,
learned Administrative Commissioner took cognizance under s.263
of the Income Tax Act and issued a show cause notice inviting the
explanation of assessee as to why the assessment order should not
be treated as erroneous and prejudicial to the interest of the
Revenue. Copy of this notice has been placed on page no.1 of the
paper book which reads as under:
“NOTICE U/S 263(1) OF THE IT ACT
Sub: Proceedings u/s 263 of the I-T Act in the cas e of M/s. ITT
Corporation Pvt. Ltd., PAN: AABCI7013D for A.Y.2014-
15 -Reg.
Sir,
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 3 –
With reference to the assessment order u/s. 144 r .w.s .
92CA of the I,T. Act dated 30,12.2017 for A.Y. 2014-15, it is to be
noted that the same is erroneous and prejudicial to the interest of
revenue on account of the following:-
On verification of records, it is seen that for the A. Y.
2014-15, books of accounts were audited by M/s. Mukund &
Rohit Chartered Accountants and audit report in For m 3CB/3CD
was finalized on 30/11/2014 whereas for A.Y. 2013-14, case was
referred u/s. 142(2A) of the Act and for this purpose, M/s.
Prakash Chandra Jai n & Co. were appointed as auditor and
special audit u/s. 142(2A) of the Act and audit report u/s.!43(2A)
was finalized on 15/ 09/2016. However , books of accounts for
A.Y. 2014-15 were al ready finalized at closing balance as per
audit report in Form 3CB/3CD, dated 12/12/2013 for A.Y. 2013-
14, therefore, opening values of the year under consider ation,
i.e.. A.Y. 2014-15 was entirely different from the values certified
by the auditor under special audit u/s. 142(2A) of the Act for
A.Y. 2013-14. For instance, in the audited balance s heet
u/s.142(2A) of the Act the share capital as on 31/03/2013 was
certified at Rs. 1,81,58,80,000/- and the same had been declared
at Rs. 1,59,66,40,000/- in the balance sheet audited u/s. 44AB of
the Act. Likewise, each ingredient of balance sheet differs. Even
total of balance sheet (as on 31/03/2013) i s Rs.1,59,66,40,000/-
as per the balance sheet, audited u/s. 44AB of the Act whereas
the total of balance sheet is Rs, 1,81,58,80, OOO/- in the
balance sheet audited u/s. 142(2A) of the Act. It can, therefore,
be seen that books of account of the assessee do not reflect true
and fair state of affairs of its business and therefore, the
assessment order pas sed u/s. 144 r.w.s. 92CA of the I-T Act
considering those books of accounts of the assessee is erroneous
and prejudicial to the interest of revenue.
In view of above, you are being granted an opportunity of being
heard and to show cause as to why the aforesaid assessment made by
the Assessing Officer for A.Y. 2014-15 should not be set aside wi th a
direction to make fresh assessment in accordance with the provisions of
law in this regard. For this purpose, you may appear before the
undersigned, in person or through your authorized representative or
file written submission or. 27.02.2020 at 11:3O A.M./P.M. In case of
non compliance, the matter will be decided on merits as per material
available on records .”
4.1 In response to the show cause notice, assessee has filed
detailed submission which has been reproduced by the learned
Commissioner and thereafter he arrived at conclusion that
assessment order passed by the AO is erroneous and prejudicial to
the interest of the Revenue, therefore it requires to be set aside.
Accordingly, learned Commissioner has set aside the assessment
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 4 –
order directing the AO to pass a fresh assessment order after
conducting proper inquiries/verifications of the issues taken up in
Section 263 proceedings.
4.2 Shri Dhinal Shah, learned counsel for the assessee while
impugning the order of the CIT took us through this show cause
notice issued under s.263 of the Act. Thereafter, he took us through
the findings of the CIT. Appraising us the scope of the action under
s.263 of the Act, he put reliance on the following judgments, their
copies have been placed in paper book:
“1. Malabar Industrial Co. Ltd. v. CIT (243 I TR 83) (SC)
2. CIT Vs . Reliance Communication Li mited (SC)
3. CIT v. Reliance Communication Limited (ITA No. 1816 of 201 3)
(Bombay HC)
4. CIT v. Arvind Jewellers (259 ITR 502) (Gujarat HC)
5. CIT v. R.K. Construction (313 ITR 65) (Guj HC)
6. CIT v. Fine Jewellery (India) Ltd. (55 taxmann.com 514) (Mum
HC)
7. CIT v. Jain Construction Co. (34 taxmann.com 84) (Raj HC)
8. Merrut Roller Flour Pvt. Ltd. v. CIT (1 10 taxmann.com 170)
(Allahabad HC)
9. Munjal Casting Li mited (303 ITR 23) (P &H HC)
10. CIT v. Ratlam Coal As h Co. (171 ITR 141) (MP HC)
11. Ravi K Mody v. ITO (151 Taxmann 11) (Ahmedabad ITAT)
12. Cadila Healthcare Li mited vs. CIT (51 Taxmann.com 255)
(Ahmedabad ITAT)
13. Zaveri & Co. Pvt. Ltd. v. CIT (48 taxmann.com 153) (Ahmedabad
ITAT)
14. M/s. Direct Media Dis tribution Ventures Pvt . Ltd. vs . PCIT (ITA
No. 2211/Mum/2019forA.Y.2014-15) (Mumbai ITAT)
15. Antala Sanjaykumar Ravjibhai v. CI T (135 I TD 506) (Rajkot
ITAT)
16. Indo Enterprise Limited vs. The PCIT (ITA No. 751 / PUN/201 9)
(Pune ITAT)”
4.3 On the strength of these judgments, he contended that
proceedings under s.263 of the Act can be initiated by the learned
CIT if the order of the AO is erroneous and prejudicial to the
interest of the Revenue. According to him, if AO had made enquir y
and took up a particular view based on the documents submitted and
material available before him, then even if learned Commissioner
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 5 –
holds different view, action under s.263 of the Act cannot be taken.
In other words, if learned AO has taken a view permissible in law
which does not match with the view of the CIT, then also
proceedings under s.263 of the Act cannot be taken. After
appraising us with the scope of Section 263 of the Act, he drew our
attention to page no.15 of the paper book wherein a show cause
notice issued by the AO has been placed on record. This show
cause notice dated 20 t h December, 2017 reads as under:
“Sub: Assessment proceedings u/s 143(3) of the Act- A.Y.
2014-15 audit u/s 142(2A) of the Act- show cause-
regarding.
Kindly refer to the above.
2. At the preable, it is to mention here that your case was
referred u/s 142(2A) of the Income-tax Act for the A.Y. 2013-14.
For the purpose of Audit u/s 142(2A) of the Act, M/s Prakash
Chandra Jain & Co. were appointed as auditor. You have
submitted the copy of audited balance sheet and profit & loss
account to this office w.r.t A.Y. 2013-14.
3. In the course of the assessment proceedings for the A.Y.
2014-15, you have submitted copy of balance sheet and profit &
loss account, duly audited by M/s. Mukund & Rohit Chartered
Accountants. On verification, the balance sheet reflects different
opening values vis-a-vis balance sheet audited u/s 142(2A) of the
Act. For instance in the audited balance sheet u/s 142(2A) of the
Act, the share capital as on 31.03.2013 has been certified at
Rs.181,58,80,000/- and, the same has been declared at
Rs.159,66,40,000/- in the balance sheet audited u/s 44AB of the
Act. Likewise, each ingredient of balance sheet differs. Even total
of balance sheet as at 31.03.2013 is Rs.159,66,40,000/- in the
balance sheet provided by the assesses, i.e. audited u/s 44AB of
the Act, whereas, the total of balance sheet is Rs. 181,58,80,000/-
in the balance sheet audited u/s 142(2A) of the Act.
4. On the narrated backdrop, it can be said that the opening
values of the year under consideration, i.e. A,Y. 2014-15 is
entirely different then the values certified by the auditor under
special audit u/s 142(2A) of the Act, Accordingly, this office is of
considered opinion that the books of account do not reflect true
and fair picture of state of affairs of business, and, in the interest
of the revenue, your books of account is required to be audited by
an accountant defined u/s 288(2) of the Act, duly nominated by the
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 6 –
Principal Chief Commissioner of Income-tax, Ahmedabad. You are
hereby given an opportunity of being heard as provided in section
142(2A) of the Act and you are also requested to show cause as to
why you should not be .directed to get your accounts audited u/s
142(2A) of the Act. Considering the limitation for finalization of
assessment, i.e. 31.12.2017, your compliance is solicited on
22.12.2017 at 11:00 AM, failing which it would be construed that
you have nothing to say in the matter and appropriate inference
would be drawn accordingly. Further, please note that this office
would not be to grant any adjournment keeping in view the date of
limitation.”
4.4 Learned counsel for the assessee pointed out that issues taken
up in Section 263 proceedings, show cause notices are identical with
that of one enquired by the AO by way of the above show cause
notice. He further pointed out that special audit was undertaken in
the case of the assessee for AYs. 2012-13 & 2013-14. There were
differences between assets and liabilities in the balance sheet
prepared by the special auditor vis-à-vis balance sheet of assessee.
The additions have been made on the basis of such differences in
both the years. The special audit can only be ordered where the
conditions referred to in Section 142(2A) of the Act are fulfilled.
In other words, where there is complexity in the accounts and the
tree income cannot be deduced, only then special audit can be
ordered. But, in the present case, there were no complexity in the
accounts pointed out by the AO. Though, learned AO initiated the
proceedings for special audit but after the reply of the assessee no
such order was passed. The learned AO found difference in the two
balance sheets i.e. 12 month balance sheet audited by Chartered
Accountant M/s. Mukund & Rohit and 15 month balance sheet
audited by Delloitte Haskins & Sells. The difference between two
balance sheets has been added at Rs.6,06,25,125/- by the AO which
is a subject matter of appeal before the CIT(A). I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 7 –
4.5 The learned counsel for the assessee further submitted that as
far as observations of CIT that special audit was concluded in AY
2013-14 after the conclusion of audit from the present AY i.e. 2014-
15 is concerned, whatever may be the differences between the
balance sheet filed by the assessee after auditors’ reports vis-à-vis
the balance sheet prepared by the special auditor are concerned
those additions have been made in AYs. 2012-13 & 2013-14 itself
their impact will not percolate to the AY 2014-15. If one goes b y
the approach of the CIT then every year special audit of the
accounts will be required. Once the effect of the special audit has
been given in the year in which such audit was held, then in
subsequent year the balance sheet is not required to be disturbed.
He also explained that so far as the case laws relied upon by the
learned Commissioner are concerned, they are not applicable on the
facts of the present case. The learned counsel for the assessee has
filed gist of his arguments and also annexed Annexure-1 exhibiting
the details of additions made during the assessment proceedings for
AYs. 2012013 & 2013-14. For example, in AY 2012-13, as per
provisional accounts of the assessee, a sum of Rs.5,74,62,209/- have
been shown as advance recoverable in cash or kind or for value.
The special auditor in its report has quantified this amount at
Rs.10.94 Crore. The difference of Rs.5.19 Crore was added. He
made reference to other items also and submitted that once it is
assessed on this basis, though the report submitted by the assessee
as well as by the special auditor were provisional, then no effect
would come in the next assessment year i.e. 2014-15. Therefore,
according to the learned counsel for the assessee, no action ought to
have been taken under s.263 of the Act.
5. The learned CIT.DR, on the other hand, relied upon the
findings of the Commissioner recorded in the order passed under
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 8 –
s.263 of the Act. He further submitted that assessee has never been
maintaining its accounts according to the statutory requirements. Its
accounts were always incomplete and provisional. Even in AY
2012-13 & 2013-14, it has filed provisional accounts. This fact is
discernable from the details submitted by the learned counsel for the
assessee in Annexure 1 also. The accounts were to be finalized as
on 31 s t March, 2014. This was the date of balance sheet but there
were two different values on the date of balance sheet i.e. 31 s t
March, 2014. When learned CIT enquired about it, then explanation
of the assessee was that both the auditors Mukund & Rohit and
Delloitte Haskins & Sells had taken two different periods i.e.
Mukund & Rohit audited 12 months’ accounts, whereas, Delloitte
Haskins & Sells for 15 months. The learned CIT.DR pointed out
that there should not be any difference on the balance sheet date i.e.
31 s t March, 2014. There can be certain differences in quantitative
terms in some of the items but at the final day account should tally.
In the case of the assessee, there are differences. The AO has just
took cognizance of some of the items but thereafter left them there
without conducting the enquiry. This action of non-investigating
those issues is erroneous and prejudicial to the interest of the
Revenue. It duly fall within the ambit of Explanation (2) appended
to Section 263 which has been brought into statute book by Finance
Act No. 2015.
6. In his next fold of submission, he submitted that though AO
intend to recommend for a special audit under s.142(2A) of the Act
in this year also, but after issuing a show cause notice of his
intention, he abruptly left this issue without recording any findings
as to whether he has satisfied with the explanation of assessee and
dropping the special audit ? This abrupt divorce from the issue
without recording any reason either in favour of the assessee on the
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 9 –
basis of its explanation or against it on its original view point
amounts to an error in the assessment order which has rightly been
rectified by the learned Commissioner by setting aside the
assessment order.
7. With the assistance of ld.representative, we have gone thrugh
the record. Section 263 has a direct bearing on the controversy,
therefore, it is pertinent to take note of this section. It reads as
under:-
“263(1) The Commissioner may call for and examine the
record of any proceeding under this Act, and if he considers
that any order passed therein by the Assessing Officer is
erroneous in so far as it is prejudicial to the interest of the
revenue, he may, after giving the assessee an opportunity of
being heard and after making or causing to be made such
inquiry as he deems necessary, pass such order thereon as the
circumstances of the case justify, including an order
enhancing or modifying the assessment, or cancelling the
assessment and directing a fresh assessment.
[Explanation.- For the removal of doubts, it is hereby
declared that, for the purposes of this sub-section,-
(a) an order passed on or before or after the 1st day of
June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant
Commissioner or Deputy Commissioner or the
Income-tax Officer on the basis of the directions
issued by the Joint Commissioner under section
144A;
(ii) an order made by the Joint Commissioner in
exercise of the powers or in the performance of the
functions of an Assessing Officer conferred on, or
assigned to, him under the orders or directions
issued by the Board or by the Chief Commissioner or
Director General or Commissioner authorized by the
Board in this behalf under section 120;
(b) “record shall include and shall be deemed always to
have included all records relating to any proceeding
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 10 –
under this Act available at the time of examination
by the Commissioner;
(c) where any order referred to in this sub-section and
passed by the Assessing Officer had been the subject
matter of any appeal filed on or before or after the
1st day of June, 1988, the powers of the
Commissioner under this sub-section shall extend
and shall be deemed always to have extended to such
matters as had not been considered and decided in
such appeal.
(2) No order shall be made under sub-section (1) after
the expiry of two years from the end of the financial
year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section
(2), an order in revision under this section may be
passed at any time in the case of an order which has
been passed in consequence of, or to give effect to, any
finding or direction contained in an order of the
Appellate Tribunal, National Tax Tribunal, the High
Court or the Supreme Court.
Explanation.- In computing the period of limitation for
the purposes of sub-section (2), the time taken in giving
an opportunity to the assessee to be reheard under the
proviso to section 129 and any period during which any
proceeding under this section is stayed by an order or
injunction of any court shall be excluded.”
8. On a bare perusal of the sub section-1 would reveal that
powers of revision granted by section 263 to the learned
Commissioner have four compartments. In the first place, the
learned Commissioner may call for and examine the records of any
proceedings under this Act. For calling of the record and
examination, the learned Commissioner was not required to show
any reason. It is a part of his administrative control to call for the
records and examine them. The second feature would come when he
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 11 –
will judge an order passed by an Assessing Officer on culmination
of any proceedings or during the pendency of those proceedings. On
an analysis of the record and of the order passed by the Assessing
Officer, he formed an opinion that such an order is erroneous in so
far as it is prejudicial to the interests of the Revenue. By this stage
the learned Commissioner was not required the assistance of the
assessee. Thereafter the third stage would come. The learned
Commissioner would issue a show cause notice pointing out the
reasons for the formation of his belief that action u/s 263 is required
on a particular order of the Assessing Officer. At this stage the
opportunity to the assessee would be given. The learned
Commissioner has to conduct an inquiry as he may deem fit. After
hearing the assessee, he will pass the order. This is the 4th
compartment of this section. The learned Commissioner may annul
the order of the Assessing Officer. He may enhance the assessed
income by modif ying the order. He may set aside the order and
direct the Assessing Officer to pass a fresh order. At this stage,
before considering the multi-fold contentions of the ld.
Representatives, we deem it pertinent to take note of the
fundamental tests propounded in various judgments relevant for
judging the action of the CIT taken u/s 263. The ITAT in the case of
Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095,
analyzed in detail various authoritative pronouncements including
the decision of Hon’ble Supreme Court in the case of Malabar
Industries 243 ITR 83 and has propounded the following broader
principle to judge the action of CIT taken under section 263.
(i) The CIT must record satisfaction that the order of
the AO is erroneous and prejudicial to the interest
of the Revenue. Both the conditions must be
fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and
every type of mistake or error committed by the
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 12 –
AO and it was only when an order is erroneous
that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect
application of law will suffice the requirement of
order being erroneous.
(iv) If the order is passed without application of mind,
such order will fall under the category of
erroneous order.
(v) Every loss of revenue cannot be treated as
prejudicial to the interests of the Revenue and if
the AO has adopted one of the courses permissible
under law or where two views are possible and the
AO has taken one view with which the CIT does
not agree. If cannot be treated as an erroneous
order, unless the view taken by the AO is
unsustainable under law
(vi) If while making the assessment, the AO examines
the accounts, makes enquiries, applies his mind to
the facts and circumstances of the case and
determine the income, the CIT, while exercising
his power under s 263 is not permitted to
substitute his estimate of income in place of the
income estimated by the AO.
(vii) The AO exercises quasi-judicial power vested in
his and if he exercises such power in accordance
with law and arrive at a conclusion, such
conclusion cannot be termed to be erroneous
simply because the CIT does not fee stratified with
the conclusion.
(viii) The CIT, before exercising his jurisdiction under
s. 263 must have material on record to arrive at a
satisfaction.
(ix) If the AO has made enquiries during the course of
assessment proceedings on the relevant issues and
the assessee has given detailed explanation by a
letter in writing and the AO allows the claim on
being satisfied with the explanation of the
assessee, the decision of the AO cannot be held to
be erroneous simply because in his order he does
not make an elaborate discussion in that regard.
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 13 –
9. Apart from the above principles, we deem it appropriate to
make reference to the decision of the Hon’ble Delhi High Court in
the case of Gee Vee Enterprises Ltd vs. Addl. Commissioner of
Income Tax (99 ITR 375). In the case of Gee Vee Enterprise
(supra), the Hon’ble court has expounded the approach of ld.
Assessing Officer while passing assessment order. The observation
of the Hon’ble court on pages 386 of journal read as under:-
“… it is not necessary for the Commissioner to make further
inquiries before cancelling the assessment order of the
Income-tax Officer. The Commissioner can regard the order
as erroneous on the ground that in the circumstances of the
case the Income-tax Officer should have made further
inquiries before accepting the statements made by the assessee
in his return.
The reason is obvious. The position and function of the
Income-tax Officer is very diffident from that of a civil court.
The statement made in a pleading proved by the minimum
amount of evidence may be adopted by a civil court in the
absence of any rebuttal. The civil court is neutral. It simply
gives decision on the basis of the pleading and evidence which
comes before it. The Income-tax Officer is not only on
adjudicator but also an investigator. He cannot remain
passive in the face of the return which is apparently in order
but called for further inquiry. It is his duty to ascertain the
truth of the facts stated in the return when the circumstances
of the case are such as to provoke an inquiry… It is because it
is incumbent on the Income-tax Officer to further investigate
the facts stated in the return when circumstances would made
such an inquiry prudent that the word ‘erroneous’ in section
263 includes the failure to make such an enquiry. 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.”
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 14 –
10. In the light of above, we have examined the record carefully.
There is no dispute with regard to the proposition that if, on an y
issue AO has considered the details and formed an opinion, which is
one of the possible views in law, then that view deserves not to be
replaced by the higher authority i.e. learned Commissioner while
exercising the powers under s.263 of the Act. A moot question
before us is, whether the AO has taken one of the views possible in
law ? No doubt he issued a show cause notice dated 20.12.2017
regarding the details considered by the ld.CIT in the proceedings
under section 263 of the Act. But it is to be appreciated that this
notice was issued by the AO on 20.12.2017, and he has passed the
assessment order on 30.12.2017. According to the assessee, it has
filed a reply whose copy is available on page no.19 of the paper
book, but it does contain the date on which this reply was
submitted. The AO did not apply his mind as well as investigated
the issue in the notice issued on 20.12.2017. For the sake of
argument one can assume that the ld.AO had taken cognizance of
these details, and was duly aware about the discrepancy in the
accounts, but he adopted all these things in a peripheral manner. He
has no time because notice was issued on 20 t h December, 2017 and
order was passed on 30 t h December, 2017. He nowhere assessed the
impact of special auditor in earlier years coupled with the fact that
the accounts of the assessee were never being completed; they are
provisional even in earlier years. During the course of hearing, we
have put to the ld.counsel for the assessee that any of the authorit y
had an occasion to conclusively deal with the incompleteness of its
accounts even in 2012-13 and 2013-14, because in those years, the
assessee has already settled the issue under Kar Vivad Samadhan
Scheme. In the present year, impact percolating to this year has not
been assessed by the AO. This act of non-adjudication of the issue
at the end of the AO brand his order as erroneous which has caused
I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a
Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 – 15 –
prejudice to the Revenue. It is also pertinent to note that the AO
has expressed his desire to get the accounts audited by the special
auditor in this year also. But, all of a sudden he dropped his idea
without assigning any reason. This aspect has also been looked
into by the ld.Commissioner while assessing the fact, whether the
assessment order is erroneous or not. It is pertinent to observe that
when a conclusion had been reached on an appreciation of number
of facts established by evidence, whether that was sound or not must
be determined not by considering the weight to be attached to each
single fact in isolation but by assessing the cumulative effect of all
the facts in their setting as a whole. We have to appreciate the
impugned order of the ld.Commissioner by looking into the facts
and circumstances and not in a mechanical way that these ver y
details were considered by the AO, therefore, the ld.CIT is
precluded to look into this aspect while exercising power under
section 263 of the Income Tax Act, 1961. As observed earlier, the
ld.AO has not conducted an inquiry which was required after taking
into consideration the discrepancies in the accounts, and therefore
the ld.Commissioner has rightly taken cognizance under section 263
and set aside the assessment for conducting fresh inquiry and for
passing of fresh assessment order. We do not find any merit in this
appeal. It is dismissed.
11. In the result, appeal of the assessee is dismissed.
This Order pronounced on 28/01/2021
Sd/- Sd/-
(PRADIP KUMAR KEDIA) (RAJPAL YADAV)
ACCOUNTANT MEMBER VICE PRESIDENT
Ah med ab ad : Da ted 2 8 /0 1 /2 0 2 1
S. K. SINHA/vk
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