IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : G : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM
ITA No.3415/Del/2013
Assessment Year : 2008-09
Sunil Arora, Vs. CIT,
S/o Late Shri Prabhu Dayal, Meerut.
23, Arya Nagar, Kanker Khera,
Meerut.
PAN: AEJPA5605G
(Respondent)
(Appellant)
Assessee By : Smt. Rashmi Chopra, Advocate
Department By : Shri Ramesh Chandra, CIT, DR
Date of Hearing : 06.04.2015
Date of Pronouncement : 08.04.2015
ORDER
PER R.S. SYAL, AM:
This appeal by the assessee is directed against the order dated
21.03.2013 passed by the CIT u/s 263 of the Income-tax Act, 1961
ITA No.3415/Del/2013
(hereinafter also called `the Act') in relation to the assessment year
2008-09.
2. Briefly stated, the facts of the case are that the assessee is a
proprietor of Ganpati Traders, engaged in the trading of sweets and
namkeens, as a distributor of M/s Haldiram. Original assessment in
this case was completed u/s 143(3) of the Act on 8.12.2010 on total
income of Rs.7,61,920, making an addition of Rs.1 lac towards
disallowance of Conveyance, freight, labour and travelling expenses
over and above the declared income. The ld. CIT considered the
following points for exercising the jurisdiction under section 263 of the
Act : -
(i) The assessee showed lesser profit from the trading activity, which
was not properly looked into by the Assessing Officer;
(ii) The AO did not verify sundry creditors ;
(iii) The AO did not verify advances from customers; and
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(iv) The AO did not verify TDS claim and even TDS certificates were
not on record.
3. On the first aspect, the ld. CIT noticed that the assessee had shown
turnover of Rs.13.98 crore but a meager net profit of Rs.6,36,538/- was
declared. In his opinion, the AO did not examine Discount on sales
amounting to Rs.19.76 lac, Commission of Rs.22.27 lac, and Incentive
of Rs.8.56 lac. He further observed that no vouchers, bills or supporting
documents, etc., were produced before the AO. In his view, the AO was
not justified in making an ad hoc addition of Rs.1 lac out of some
improperly vouched expenses. He, therefore, rejected the books of
account u/s 145(3). After applying net profit rate of 5% on total
turnover, and, thereafter, adding other income of Rs.50.61 lac, the ld.
CIT computed business income at Rs.65,84,195/-. As regards non-
verification by the AO of sundry creditors and advances from customers,
he directed the AO to verify their genuineness. On the last aspect, the
AO was directed to examine the genuineness of TDS claim after
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obtaining TDS certificates, which were not on record. The assessee is
aggrieved against the impugned order.
4. We have heard the rival submissions and perused the relevant
material on record. We want to clarify that the mandate of section 263
is attracted only when the assessment order is found to be erroneous and
prejudicial to the interest of the Revenue. These twin conditions have to
be cumulatively satisfied for obtaining a valid jurisdiction under this
section. Merely because an assessment order is prejudicial to the interest
of the revenue is not enough, unless it is shown that the same is
erroneous too. An assessment order can be termed as erroneous in
several circumstances. Non-investigation by the AO on the relevant
issues, which are required to be properly looked into, makes an
assessment order erroneous. However, non-examination of the trivial or
insignificant issues cannot lead to making an assessment order
erroneous. Making due investigation but thereafter taking a patently
erroneous view, also makes an assessment order erroneous. A line of
distinction should be drawn between patently erroneous view and
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accepting one of the possible views. Only the former makes an
assessment order erroneous and not the later. In other words, if there is
a debatable issue and the AO has taken one of the possible and legally
sustainable views, then that aspect goes outside the realm of revision.
Another situation of an erroneous order may be when investigation was
made by the AO, but the circumstances suggest that further investigation
was warranted, which the AO failed to make. This would also make the
assessment order erroneous. But the mere fact that the AO chooses not
to incorporate certain issues in the assessment order on which he gets
satisfied during the course of hearing after proper examination, cannot
be lead to the passing of an erroneous assessment order. If material on
record suggests that the AO did embark upon the investigation and got
satisfied and further there is nothing to prompt further investigation,
then the assessment order cannot be characterized as erroneous simply
because there is no discussion in the assessment order on such aspects.
If a view is taken that non-discussion of an issue in the assessment order
on which the AO is satisfied, means the absence of application of mind
by the AO, then probably all the assessment orders would become
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erroneous. It is so for the reason that the AO cannot be expected to
discuss each and every, significant or insignificant aspect of assessment,
in his order. The essence of the matter is that on the non-discussed
relevant issues in the assessment order, so long as there is material to
suggest that the AO conducted inquiry and the assessee did file reply on
them, the assessment order cannot be held as erroneous, until it is shown
that the circumstances required the AO to conduct further inquiry on
such issues.
5. Coming to the facts of the instant case, we find the first objection of
the ld. CIT about non-production of books of account, etc. before the
AO and the resultant rejection of such books and the consequential
computation of business income at Rs. 65.84 lac, as unsustainable. We
have perused a copy of the order sheet entry of the AO, which is
available on pages 368 to 370 of the paper book. It is manifest that the
first notice was issued by the AO to the assessee on 26.8.2009. On
4.8.2010, the assessee appeared and was called upon to furnish various
details listed at sr. nos. a) to o), inter alia, of sundry creditors, various
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expenses including discounts, commission, etc. On 17.8.2010, the
assessee appeared and filed part reply. Again on 20.10.2010, the
assessee's representative appeared and filed part reply. On 25.10.2010,
the assessee's representative appeared and filed part reply. At this stage,
the assessee was called upon to produce the books of account on the next
date of hearing, namely, 9.11.2010. The order sheet entry of 9.11.2010
divulges that the assessee's counsel appeared and produced books of
account, which were test checked by the AO. Again, on 16.11.2010, the
assessee's C.A. appeared and produced books of account, which were
again test checked and the assessment proceedings were completed on
8.12.2010. A bare perusal of the order sheet entry of the AO amply
demonstrates that the assessee was called upon to produce books of
account, which were duly produced on at least two occasions and the
same were also checked by the AO. The observations of the ld. CIT
about the non-production of books of account are, therefore, not tenable.
It is apparent that initially, the ld. CIT held that books of account were
not produced before the AO, and later on he went on to reject such
books of account. Further, we are unable to find any rationale of the ld.
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CIT in applying a net profit rate of 5% on total turnover for computing
income of Rs.65.84 lac from business operations. This is again an
application of the ad hoc net profit rate, unsubstantiated with any cogent
reason.
6. The ld. AR has drawn our attention towards elaborate detail of all the
expenses, etc., which were called for and submitted before the AO,
whose copies have been made available to us as well. It can be seen
from the order sheet entry of the AO dated 4.8.2010 that the AO did ask
for details of Discount on sales and Commission etc., along with all
other expenses, which were duly filed. Simply because such expenses
account for a higher amount, cannot in itself be a reason to hold that the
assessment order, allowing deduction for such expenses, is rendered
erroneous and prejudicial to the interest of the Revenue.
7. It is vivid from the assessment order itself that some of the expenses
claimed as deduction were on the basis of self-made vouchers. The ld.
AR contended that these were petty payments on account of freight,
carriage, etc. made to rickshawalaas etc., for which there could have
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been no external evidence. We find that the AO, on appreciation of
entire material available before him, made an ad hoc addition of Rs.1 lac
to cover up possible leakage of revenue on account of self-made
vouchers. This decision was taken on a holistic consideration of the
material before him. It is not a case of no or improper inquiry conducted
by the AO. The view point of the ld. CIT that the disallowance of Rs.1
lac made by the AO out of expenses is paltry, cannot be a ground to hold
the assessment order erroneous. It cannot be characterized as a patent
mistake committed by the AO. At the most, it may be a debatable issue
as to what amount of expenses should be disallowed. The AO may
consider a particular amount as reasonably disallowable, while the CIT
may consider another amount. Going by any standard, it is a debatable
issue as to the reasonableness of the amount disallowable and as such,
the CIT cannot substitute his opinion of the disallowable amount with
that of the AO in exercising power u/s 263 of the Act.
8. As the AO did carry out investigation on all the relevant aspects of
the matter, which is evident from the order sheet entry, and the reply of
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the assessee giving details on several occasions, the assessment order
cannot be termed as erroneous. We, therefore, set aside the action of
the ld. CIT in making an addition of Rs.65.84 lac by applying an ad hoc
net profit rate.
9. In so far as the objections at sr. nos. 2 and 3 about the non-
verification of sundry creditors and advances from customers are
concerned, we find from order sheet entry dated 4.8.2010 that the
assessee was called upon to furnish details of sundry creditors along
with their copies of accounts, etc., which the assessee complied with. It
is not a case that there was some information with the AO casting doubt
on the genuineness of creditors and advances and the assessment order
was finalized without examining the creditors from that angle. The ld.
CIT has not referred to any circumstances suggesting, even remotely,
that these creditors were not genuine or at least further inquiry was
necessary due to some specific reasons, which the AO failed to do. It is
a simple case of certain creditors appearing in books of the assessee and
the AO getting satisfied with their genuineness after examining the
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details called for by him. It is not a case of no investigation at all by the
AO of such creditors and advances or the AO reaching a patently
incorrect conclusion or not conducting any further inquiry, which the
attending circumstances suggested. Simply saying that it was for the
assessee to prove the genuineness and credit worthiness of the creditors,
without any thing to the contrary in the extant facts of the case, is not
enough to exercise jurisdiction u/s 263. We, ergo, refuse to uphold the
view point of the ld. CIT in setting aside the assessment order on this
aspect of the matter.
10. As regards the last point about the AO not examining the
genuineness of TDS claim, we find that the assessee did furnish the
necessary details before the AO, which are available on pages 296
onwards of the paper book. The ld. CIT has not spelt out as to how
these details were lacking or incorrect. We are disinclined to accept the
view point of the ld. CIT on this score as well.
11. In the light of the foregoing reasons, we are satisfied that the ld.
CIT was not justified in cancelling the assessment order by branding it
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erroneous and prejudicial to the interest of the Revenue. The impugned
order is, therefore, set aside.
12. In the result, the appeal is allowed.
The order pronounced in the open court on 08.04.2015.
Sd/- Sd/-
[C.M. GARG] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 08th April, 2015.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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