Income Tax Appellate Tribunal - Chandigarh
M/S Loil Continental Foods Ltd., ... vs Pr. Cit (C), Ludhiana on 4 December, 2019
आयकर अपील य अ धकरण, चंडीगढ़ यायपीठ - चंडीगढ़।
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH - BENCH 'A' BEFORE S/SHRI N.K. SAINI, VICE-PRESIDENT AND RAJPAL YADAV, JUDICIAL MEMBER ITA No.577/CHD/2019 नधारण वष/ Asstt.Year: 2014-15 M/s.Loil Continental Foods Ltd. Pr.CIT (Central) SCO 18-19, Sector 9-D Vs. Ludiana.
Chandigarh:
New Add: SCO 38, 1st Floor Sector 26, Chandigarh.
ITA No.578/CHD/2019 नधारण वष/ Asstt.Year: 2014-15 M/s.Loil Health Foods Ltd. Pr.CIT (Central) SCO 18-19, Sector 9-D Vs. Ludiana. Chandigarh: New Add: SCO 38, 1st Floor Sector 26, Chandigarh. ITA No.579/CHD/2019 नधारण वष/ Asstt.Year: 2014-15 M/s.Loil Overseas Foods Ltd. Pr.CIT (Central) SCO 18-19, Sector 9-D Vs. Ludiana. Chandigarh: New Add: SCO 38, 1st Floor Sector 26, Chandigarh. (Applicant) (Responent) Assessee by : Shri Sudhir Sehgal, Advocate Revenue by : Shri Chandrajit Singh, CIT(DR) सन ु वाई क तार ख/ Dateof Hearing : 07/11/2019 घोषणा क तार ख / Date of Pronouncement: 04/12/2019 आदे श/O R D E R ITA No.577, 578 and 579/Chd/2019 2
Present three appeals are directed at the instance of the assessees against separate orders of the ld.Commissioner dated 30.3.2019 in each case of the appellants.
2. Each appellant has taken seven grounds of appeal which are not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal), 1962; they are descriptive and argumentative in nature. In brief grievance of the appellant is that the ld.Commissioner has erred in taking cognizance under section 263 of the Income Tax Act, 1961 and thereby erred in set setting aside assessment orders passed in the case of each appellant on 30.12.2016 under section 143(3) of the Act.
3. It is pertinent to note that facts on all vital points are common except variation in the quantum, and even at the time of hearing, the main arguments have been addressed in the case of Loil Continental Foods Ltd. ("LCFL" for short), therefore for the facility of reference, we take up the facts mainly from "LCFL".
4. Brief facts of the case are that appellants were engaged in trading of foodgrains viz. paddy and rice. The National Spot Exchange Ltd. ("NSEL" for short) was constituted for taking up the activities of spot exchange for trading in commodities, and it is a platform provided to enable buyers and sellers to transact on the spot against actual delivery of the goods through licenced members appointed by the NSEL. All the appellants were appointed as licenced members to deal in Paddy. For this purpose, a settlement account of licensed member is maintained by NSEL with a designated bank in which amount of net proceeds are credited to settlement account. In the case of "LCFL" settlement ITA No.577, 578 and 579/Chd/2019 3 account was opened with HDFC Bank, Feroze Gandhi Market, Ludhiana. The appellants have filed their returns of income electronically and notices for scrutinizing returns were issued under section 143(2) on 4.8.2015. The ld.AO after issuance of questionnaire under section 142(1) as well as show cause notice under section 143(2) passed scrutiny assessment orders in the case of each appellant under section 143(3) on 30.12.2016. The ld.Commissioner on perusal of the record formed an opinion that the assessment orders passed by the AO for the Asstt.Year 2014-15 in the cases of the appellants were erroneous in so far as it caused prejudice to the interest of the Revenue, and therefore, action under section 263 deserves to be taken against these orders. Accordingly, he recorded reason for taking action under section 263 in the case of each assessee, and issued a show cause notice under section 263 of the Act. A perusal of these show cause notices reproduced in each impugned order passed in the case of appellant would reveal that almost verbatim observations are being made by the ld.Commissioner except some variation of the quantum amount. Therefore, we take note of show-cause notice issued in the case of "LCFL" which reads as under:
"In this case, assessment was completed u/s 143(3) of the IT Act, vide order dated 30.12.2016. The record of the assessment proceedings have been examined. It is noted that assessment in this case was completed without making inquiries or verification which should have been made and therefore, the order passed by the Assessing Officer is considered to be erroneous in so far as it is prejudicial to the interest of revenue for the following reasons:
(i) It is noted that department had information that certain concerns including M/s Loil Continental Foods Limited, engaged ITA No.577, 578 and 579/Chd/2019 4 in commodity trading at NSEL( National spot exchange Limited) platform were involved in issuing bogus warehouse receipts which were not supported by actual stock and the contracts for sale/purchase were entered into with a view to raise finance and not with the intention to provide delivery of commodities. On the basis of this information a survey u/s 133A(1) of the Income Tax Act, 1961 was conducted at the company's Business premises on 22.08.2013 at Chandigarh, Khamanon and Delhi. During the survey no books of accounts were found at Khamanon. Further, as per the information from the NSEL Data Base there was a aggregate stock of paddy valued at Rs. 775.29 Crores as on 06.08.2013 with M/s Loil Continental Ltd., and associates concerns M/s Loil Overseas Food Ltd, and M/s Loil Health Ltd:
However, during the survey no stock was found at business premises at Khamanon. Further, there was no representative of NSEL at the premises at Khamanon. Neither any record of any warehouse receipts, Transportation documents relatable to the stocks were found at Khamanon. These findings of the survey report were not considered by the A.O during assessment proceedings.
(ii) It is further observed that during the course of survey at Khamanon loose paper as per annexure A-l, 1 to 250 and A-2, 1 to 206 were impounded. These documents were never examined and considered during the course of assessment proceedings. During the course of survey at Khamanon statement of Sh. Janak Raj Singh S/o Sh, Balbir Singh Uppal was recorded who categorically stated that no stock related to NSEL was lying at the premises at Khamanon. This, finding regarding stocks and other documents were not considered in assessment proceedings.
(iii) Action u/s 1.33A was also carried out at SCO-18-19, Sector-9D, Chandigarh being the office of the assessee company. During the course of survey documents in form of Annexure-A-l to A-6, 13 CDs as per A-7, 5 CDs as per A-8 and one hard disk were impounded. However, these documents and data contained in CDs and in hard disks were never examined or verified to determine its revenue implication if any.
ITA No.577, 578 and 579/Chd/2019 5
(iv) Similar action u/s 133A was carried out at 807, Kailash Building, 26, K.G. Marg, New Delhi and 4048, Nay a Bazaar, New Delhi being the offices of the assessee company. During the survey four hard disks were impounded from 807, Kailash Building, 26, K.G. Marg, New Delhi. However, the data contained in hard disks was never examined or verified to determine its revenue implication if any during proceedings.
(v) It is also noted from the assessment records for the A.Y.. 2013- 14 that there was a report by Sharp and Tannan Associates dated 02.04.2014 referred to by the AO in the assessment order, stating that an amount of Rs.338.40 crore was recoverable from the assessee by NSEL when the trading on NSEL platform was suspended by the Ministry of Consumer Affairs, New Delhi on 31.07.2013. However, the AO failed to consider the finding of the referred report as to whether it had any implications for this Assessment year also. No inquiries whatsoever or verification from NSEL or any other agency were made despite of the fact that the nefarious scam arising out of trading on online exchange platform of NSEL had been widely reported.
(vi) Apart from the survey findings, examination of the balance sheet for F.Y. 2013-14 shows that the followings issues were also not examined, less inquired into or verified into by the A.O before completing the assessment ofA.Y. 2014-15.
a. There were outstanding advances from buyers of Rs.25.38 crores, which were received during the year itself. The A.O., however failed to verify the nature and genuineness of these advances when no sales has been shown by the company during the year. During assessment proceedings it was submitted by the assesses that these transactions were made through banking channel. However, the A.O failed to verify the genuineness of these advances.
b. Company has shown opening stock of finished goods of Rs. 2.36 crores and during the year no sales has been shown yet no stock was found during the survey on 22.08.2013. The A.O failed to consider the findings of survey on this issue in the assessment proceedings.
ITA No.577, 578 and 579/Chd/2019 6 c. . There, are huge trade payables i.e. Rs. 64.31 Crores, despite the fact that company has not made any sale/ purchase during the year. The A.O failed to make necessary inquiries regarding these trade credits. Even the details of such creditors were not called for.
d. There is an increase of Rs. 15.44 Crores under the head 'short term loans and advances, despite the fact that the company has not made any sale/purchase during the year. The A. O failed to examine the genuineness and purpose of these loans advanced during the year. Even the details of such advances were not called for.
e. Company has shown dividend income of Rs.12,50,000/- during the year which has been claimed as exempt but AO has not examined as to whether any disallowances u/s 14A was required to be made. No inquiry/verification in this regard has been made.
(vii) Apart from the above, the impounded documents/hard disks/CDs were required to be examined in the light of allegations about the genuineness of purchases, source of payments against equal purchases and user of funds received in view of reported substantial outstanding to the National spot exchange Limited (NSEL), after the payment crisis of NSEL surfaced in July, 2013.
(viii) The criticality of these issues, their examination/verification, to determine their implication on the assessment of the company cannot be over emphasized. This, viewed, in the perspective of allegation(s) about dubious nature of transaction being carried on the platform of NSEL resulting in the suspension of trading on NSEL platform on 31.07.2013 only highlights that it was imperative upon the Assessing Officer to have made necessary verifications and inquiries before determining the income of the assessee for the A.Y. 2014-15. From the perusal of the case records, it is found that there is nothing in record to show that the A.O has examined the issues arising out the findings of the survey and the other issues highlighted above. No proper inquiries and verification have been made before completing the assessment for the relevant year.
ITA No.577, 578 and 579/Chd/2019 7
02. In light of the above, it is evident that the assessment order passed on 30.12.2016 is erroneous in so far as it is prejudicial to the interest of revenue within the meaning of sub clause (a) of Explanation 2 of section 263(1) of the FT Act, 1961.
03. In view of the above, an opportunity of being heard in the matter was given to you vide this office letter No. 812 dated 30.01.2019 at the address SCO 18-19, Sector 9-D, Chandigarh. However, the said letter was received back un-served with the comment of the postal authorities "LEFT".
04. You are being given an final opportunity of being heard in the matter. If you wish to furnish any written submissions or be heard in the matter personally/through authorized, representative (AR), you may do so on 19.02.2019 at 12:00 PM. In case nothing is heard from you by the appointed date, it will be assumed that you have nothing to say in the matter and the proceedings will be concluded on merits and as per law."
5. In response to the show cause notice, the appellants have filed detailed replies. The replies have also been reproduced by the ld.Commissioner. However, while making an analysis of the finding of the ld.Commissioner, we would refer the stand taken by the assessee against the show cause notice. After hearing the assessees, the ld.Commissioner has set aside the assessment orders and directed the AO to reframe the assessment orders after conducting inquiries.
6. We have considered rival contentions and gone through the record carefully. 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 ITA No.577, 578 and 579/Chd/2019 8 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 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.
ITA No.577, 578 and 579/Chd/2019 9 (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."
7. 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 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 ITA No.577, 578 and 579/Chd/2019 10 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 modifying the order.
8. 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 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 ITA No.577, 578 and 579/Chd/2019 11 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.
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 CIT vs. Sun Beam Auto reported in 227 CTR 113 and Gee Vee Enterprises Ltd vs. Addl. Commissioner of Income Tax (99 ITR 375). In the case of Sun Beam Auto, the Hon'ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous.
ITA No.577, 578 and 579/Chd/2019 12 The following observations of the Hon'ble Delhi High Court are worth to note:
"12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. 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".
10. In the case of Gee Vee Enterprise vs. Commissioner of Income Tax reported in 99 ITR page 375, 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:-
ITA No.577, 578 and 579/Chd/2019 13 "... 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."
5. In the light of the above, let us evaluate the impugned orders as well as record before us. A perusal of the show cause notice issued under section 263 of the Act would reveal that this show cause notice can be divided into two compartments; first issue contained in the reasons assigned by the ld.Commissioner at serial no.1 to 4, and second fold is contained in reasons nos.6 to 8 extracted (supra). As far as first fold of reasoning of taking cognizance under section 263 of the Act is concerned, it shows that the ld.Commissioner was of the view that NSEL was a platform where commodity trading had taken place. This ITA No.577, 578 and 579/Chd/2019 14 exchange found to be involved in nefarious activities, which gave rise to various scams, and therefore, its operation has been suspended by the Ministry of Consumer Affairs, New Delhi on 31.7.2013. The ld.CIT-
further noted that all the appellants were members of this exchange and the department had information that certain concerns including the appellants engaged in commodity trading at this exchange, were involved in issuing bogus warehouse receipts which were not supported by actual delivery, and contracts for sale and purchases were entered into with a view to raise finance, and not with intention to provide delivery of commodity. Thereafter, the ld.Commissioner took cognizance of the fact that a survey was carried out at the premises of the assessees on 22.8.2013. The ld.Commissioner made reference with regard to the data base of NSEL whereby it has been shown that aggregate stock of paddy valued at Rs.775.29 crores ought to be available with M/s.Loil Continental Ltd. The ld.Commissioner has made reference to a report by Sharp and Tannan Associates ("S&TA" for short) dated 2.4.2014 exhibiting the fact that the amount of Rs.338.40 crores was recoverable from M/s.Loil Continental Foods Ltd. Similarly, an amount of Rs.287.48 crores and Rs.85.19 crores was recoverable from M/s.Loil Health Foods Ltd., and M/s.Loil Overseas Foods Ltd. On the basis of this information as well as discovery of loose papers during the course of survey at Khamanon, he harboured a belief that, had these materials been considered by the AO probably a higher income ought to have been assessed. In response to the above show cause notice, the assessee has filed a detailed reply which has been reproduced by the ld.Commissioner in the impugned order. We have gone through this reply as well as other replies given by the assessees. The stand of the assessee was that ITA No.577, 578 and 579/Chd/2019 15 as far as the NSEL data exhibiting availability of stock of paddy of Rs.775.29 crores as on 6.8.2013 and revealed during the course of survey is concerned, this aspect was examined elaborately by the AO in the Asstt.Year 2013-14. The AO has considered outcome of the survey, but did not make any addition. The addition which has been made in the case of Loil Continental Foods Ltd. by the AO in the Asstt.Year 2013-14 of Rs.338.40 cores was based on the report of "S&TA". The AO harboured a belief that since "S&TA" indicated the outstanding dues of NSEL towards these appellants, and the appellants are not showing any amount payable, and therefore all these expenditure to be construed as income of these appellants under the head "unaccounted income". Assessment orders for the Asstt.Year 2013-14 in the case of all the appellants are placed on the paper books, and for the purpose of reference, we take note of the observation of the AO in the case of Loil Continental Food Ltd., which reads as under:
"9. In view of the detailed facts stated aforesaid - The books of accounts of the assessee are not reliable and rejected. It may be further pointed out that as per the reports submitted by Sharp & Tannan Associates submitted to Board of Directors of NSEL., recoveries have been worked out from various members of NSEL. The following amounts have been shown as receivable from assessee as on 31.08.2013:
M/s.Loil Continental Foods Ltd = Rs.338.40 cr. Assessee failed to even file confirmation of accounts from NSEL as on date.
10. Therefore amount of Rs.338.40 crore shown as recoverable by NSEL from M/s.Loil Continental Food Ltd. is taken as unaccounted income of the assessee."
ITA No.577, 578 and 579/Chd/2019 16
6. The ld.Commissioner has made an analysis of the stand taken by the appellants. In para-8 of the impugned order while dealing replies of the assessees, the ld.Commissioner has observed that from the opening paragraphs of replies submitted by all the appellants exhibit the details of sequence of the assessment proceedings for the Asstt.Year 2014-15. It is general statement made by him that the AO had issued questionnaire, and they have furnished the replied. Qua that proposition, the ld.Commissioner has no dispute; but he was of the opinion that whether the AO had made investigation Had he applied his mind ? He could not close his eyes on the material available before him. He also made reference to replies given by Shri Janakraj Singh during the course of survey. He thereafter observed that as far as the inquiry conducted in the Asstt.Year 2013-14 is concerned, it is not understandable, how those inquires are relevant for Asstt.Year 2014-15 also. On the basis of this inquiry, how one can conclude that no action under section 263 is required to be taken. He also observed that on one hand, the assessee is asking the material collected during the course of survey, and on the other hand, the assessee is submitting that such material was considered by the AO in the Asstt.Year 2013-14, and therefore the stand of the assessee is not sustainable.
7. Before adverting to record a finding on these issues, we would like to remind ourselves with judgment of the Hon'ble Delhi High Court rendered in the case of ITO Vs. DG Housing Projects Ltd., 343 ITR 329 (Del). We have brought this judgment to the notice of the ld.CIT-DR during the course of hearing also. Hon'ble Delhi High Court has laid down that the ld.Commissioner is duty bound to record a categorical ITA No.577, 578 and 579/Chd/2019 17 finding or conduct inquiry, and thereafter, record a categorical finding as to how the order which is sought to be revised under section 263 is erroneous. The ld.Commissioner cannot remit the issue to find out what was the error committed by the AO to the AO himself. We deem it appropriate to take note of the finding by the Hon'ble Delhi High Court, which reads as under:
"17. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.
ITA No.577, 578 and 579/Chd/2019 18
18. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing & Products Camphor Works [1998] 231 ITR 53 / 98 Taxman 1 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous."
8. The charge of the ld.Commissioner is that the assessment order is erroneous because the AO failed to examine certain material viz. outcome of the survey; details reflected in NSEL data base; report of "S&TA" and thus, such assessment order has caused prejudice to the interest of the revenue, and therefore, it deserves to be set aside. The question before us is, whether the material referred by the ld.Commisisoner is of such an importance, which can impact ITA No.577, 578 and 579/Chd/2019 19 assessabilty of the income of the assessee, and if that be so, then only it be construed that the prejudice will be caused to the Revenue. Let us consider all these three aspects. As observed earlier, first observation made by the ld.Commsisioner is with respect to the information revealed in the data base of the NSEL. The second observation referred by him is the report of "S&TA", and the third discovery of the papers in Annexure-A-1 1 to 250 and Annexure-A/2, 1 to 206 during the course of survey. No doubt no discussion is available in the assessment order qua these materials. It is pertinent to note that the ld.AO has issued a questionnaire under section 142(1), and this questionnaire is available on page no.1 to 6. He called for information from all appellants on 37 counts. They have filed their detailed submissions along with audited accounts. The ld.AO made discussion, and then passed impugned assessment orders. It is further observed that no-doubt the assessment year 2013-14 is altogether an independent year. The inquiry conducted in that year might not have any bearing on the assessment of income for the Asstt.Year 2014-15, but while evaluating and branding an assessment order as an erroneous, whether that information which has been discussed in the immediately preceding assessment year, could be relevant information for formation of belief at the end of the ld.Commissioner that the assessment order in the Asstt.Year 2014-15 is to be revised. To our mind, a discussion made in the Asstt.Year 2013-14 on these materials, and thereafter no action was taken by the AO on the basis of the material, is an important factor which deserves to be taken into consideration. During the course of hearing, our attention was drawn with regard to the questionnaire issued by the AO in the ITA No.577, 578 and 579/Chd/2019 20 preceding Asstt.Year 2013-14. We take note of this questionnaire in the case of M/s.Loil Continental Foods Ltd. that reads as under:
NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 Office of the Deputy Commissioner of Income Tax Central Cir.III, SCO 1-6, 3rd Floor Opp: BVM School, Kutchlu Nagar Ludhiana Dated: 18.03.2016 To M/s.Loil Continental Foods ltd.
SCO 18-19, 1st Floor, Sector 9-D Chandigarh.
Sir, There are certain points in connection with the return of income submitted by you for the Asstt.Year 2013-14 which I would like some further information.
2. You are hereby required to attend my office at SCO 1-6, 3rd Floor, Opp: BV School, Kitchlu Nagar, Ludhiana on or before 21.03.2016 at 12.30 PM either in person or by a representative duly authorized in writing in this behalf or produce or cause to be produced at the said time any documents, accounts and any other evidence on which you may rely in support of the return filed by you.
Yours faithfully, Sd/-
(INDU BALA SAINI) Deputy Commissioner of Income Tax Central Circle-III, Ludhiana.
"GOVERNMENT. OF INDIA Ministry of Finance Office of the Deputy Commissioner of Income Tax, Central Circle-III,Ludhiana.
SCO 1-6, 3rd Floor, Opp. BVM School, Kitchlu Nagar, Ludhiana-141001 ITA No.577, 578 and 579/Chd/2019 21 Telephone: 0161-2305215, /Fax: 0161 -2304419/Email ID: Ludhiana.dcit.cen3 F.No. DCIT/CC-III/Ldh./15-16/ Dated: 18.03.2016 To The Principal Officer, M/s Loil Continental Foods Ltd., SCO 18-19, 1st Floor, Sector 9-D, Chandigarh.
Sir, Sub:- Assessment pending for the JA..Y.2013-14 - Regarding -
Reference to the aforesaid matter.
2. In connection with the assessment proceedings, you are required to furnish the following details :-
i) a) Copy of account of NSEL in your books since beginning.
b) NSEL Settlement/Account (Settlement Bank Account copy)
c) Details of Debit and Credit Entries more than One Crore with complete name & addresses of the parties;
iii) Commodity wise position of stock as per your books of accounts and the stock disclosed to NSEL. Relevant stock registers in this regard be produced. Details of Rent paid godown wise (amount per month I mode of payment i.e. cheque / cash, original rent agreement, TDS details etc. be also furnished.)
iii) Inward outward registers of the ware house be produced alongwith relevant receipt furnished to the NSEL. Inspection reports of the officers of NSEL be also produced.
iv) a) Names, addresses, contact persons, Contacts numbers and copies of accounts of all suppliers in respect of stock mentioned in ware house receipts(WRs).
b) Party wise goods (Quantity) and amount of goods supplied.
c) Photocopy of bills from whom purchases/sales more than Rs. One Crore.
v) Bills and records relating to transport and delivery of commodities including transportabilty from supplier to the godown of the assessee and to the designated ware house of the NSEL.
vi.) Names of the directors with PAN Numbers and sister concerns with PAN Numbers.
vii) Copies of all banks accounts mentioning debit and credits alongwith copies of bank statements.
viii.) Details of stock of commodities which; have been., delivered, to NSEL accredited godown from 01 .04.2012 till date in the following format:-
Sr. Name of Quant Date of Amount Particul Address Whether Date No. the ity delivery at (in Rs.) ars of of the the inspecti Commodity NSEL received the godown commodi on by accredited against warehou where ty was NSEL godown the sing delivere finally ITA No.577, 578 and 579/Chd/2019 22 delivery receipt d sold or down purchase d back on the day of settlemen t 1 2 3 4 5 6 7 8 9 ix.) To produce the complete books of accounts with vouchers and soft copies. The said information be furnished on / before 21.03.2016.
Note:-
(Indu Bala Saini) Commissioner of income Tax, Central,Circle-III, Ludhiana."
a.) Photocopies of the impounded documents A-1 (pages I to 250) and A-2 (pages I to 206) impounded from M/s Loil Health Foods Ltd., Loil Overseas Ltd., Loil Continental Foods Ltd., Khamano, Distt. Fatehgarh Sahib (Punjab).
b.) Photocopies of the impounded documents Annexure A-1 (pages I to
241), A-2 (pages I to 180), A-3 (pages l to 254), A-4 (pages 1 to 371), A-5 (pages 1 to 148), A-6 (pages I to 65), A-7 (containing CDs), A-8 (Containing CDs), A-9 (Hard Disk) impounded from M/s Loil Health Foods Ltd., Loil Continental Foods Ltd., SCO 18-19,1st Floor, Sector 9-D, Chandigarh.
c.) Photocopies of the impounded documents Annexure A-1 to A-4 (containing Computer Hard disk) impounded from M/s Loil Overseas Foods Ltd., 807, Kailash Building, 26, K.G. Marg, New Delhi.
may be taken from this office at any time (If not already taken).
2. Statements of Sh. Janak Raj Singh dated 22.08.2013 u/s 131 is enclosed."
9. Similarly, questionnaires have been issued to other two concerns, and they have submitted a detailed reply. The ld.AO thereafter again issued questionnaire on 24.3.2016, and the details asked for were replied by the assessee. The questionnaire issued by the ld.AO is noted here as under:
ITA No.577, 578 and 579/Chd/2019 23 "Present Sh. Balbir Singh Uppal, Sh. Janak Raj Singh Uppal, Sh. Sudhir Sehgal, CA, and Sh. P.C. Jain attended the assessment proceedings and asked to furnish the following details :-
1. Settlement A/c of NSEL with HDFC Bank Ludhiana.
2. All bank accounts of M/s Loil Health foods Ltd. M/s Lo/l Continental Foods Ltd. & M/s Loil Overseas Foods Ltd.
3. All Bank Ledger A/c copies in the books with narrations.
4. Purchase Book/ register and delivery book/ register
5. Sales Book/register 5 a. Delivery books/ register
5.b. Delivery receipts book at warehouse/ register with acknowledgement proof.
6. Copy of agreement with NSEL
7. Mandi wise Committee purchase account with Mandi tax paid. Documentary proof of Mandi tax exemption certificate.
8. Procedure of operation at NSEL platform
9. Details of purchase at NSEL platform
10. Details of top 5 Buyers/Brokers with their copies of accounts
11. Party ledgers.
12. Stock registers
13. Trial Balance
14. Any court proceedings by you/ NSEL with documentary evidences.
15. Confirmation of account from NSEL Case fixed for hearing on 26.03.2016 at 9.00 AM."
10. We also incline to take note of questionnaire issued on 26.3.2016 which reads as under:
"Present Sh. Janak Raj Singh Uppal, Sh. Sudhir Sehgal, CA, and Sh. P.C. Jain, CA, attendee! the assessment proceedings and asked to furnish the following details:-
1. As per order sheet entry dated 2.03.2016 you were asked to explain the procedure of operation at NSFL Platform (alongwith documentary evidence).
• However the system of operation with N'SEL has not been explained viz.
• How the goods are received/ verified.
ITA No.577, 578 and 579/Chd/2019
24
• In how many days in NSEL is--required to make the
payment/ any roll over allowed if yes, term and conditions/whether the buyer and seller compulsory required to take the delivery ?
2. Kindly explain the debit & credit entries in the settlement account with HDFC bank.
3. Copy of ledger account of Lakshmi Energy & Foods Ltd./(Lakshmi Overseas Industries Ltd.) not produced. To produce the same.
4. Annexure D produced is details of the alleged purchases made by M/s Lakshmi Energy & Foods Ltd. from the commission agents. The same be given ascending & Descending order on the basis of quantity purchased.
5. To produce copies of accounts of Top 100 commission agents in the books of Lakshmi Energy & Food Ltd.(Lakshmi Overseas Industries Ltd.).
6. To produce one sample copy of T form issued by the commission agents in respect of the Top 100 Commission agents & to M/s Lakshmi Energy & Food Ltd.
7. Original bank account of M/s Lakshmi Energy & Foods Ltd. and copy of bank account in the books with explanation/narration of debit & credit entries.
8. Original bank account of Sh. Balbir Singh Uppal and copy of bank account in the books with explanation/narration of debit & credit entries.
9. Copy of account with narrations of M/s Ganeshay Overseas Industries Ltd. with assessment particulars /PAN / P & L A/c / Balance Sheet with annexure with narration of bank account (Debit / Credits).
Loil Health Foods Loil Continental Remarks
Ltd. Foods Ltd.
1. Sales to NSEL Purchase from Kindly explain
ITA No.577, 578 and 579/Chd/2019
25
(Member LCFL) = NSEL (member the discrepancy
4,18,824.82 (M.T.) LHFL)=2,21,721.21
Loil Continental Loil Overseas
Foods Ltd. Foods Ltd.
1 Purchase from Sales to NSEL Kindly explain
NSEL (Member Loil (Member Loil the discrepancy
Overseas)=2,01,600 Continental)=NIL
(M.T.)
Loil Health Food Loil Overseas
Ltd. Foods Ltd.
1 Sales to NSEL Purchase from Kindly explain
(Member Loil NSEL (Member Loil the
Overseas)=2,38,406 Overseas)=NIL discrepancy.
(M.T.)
11. All these questionnaires were duly replied; they were discussed by the AO. But she did not make any addition on the basis of information in the data of NSEL. She did not make any addition qua loose papers found during the course of survey, because survey was conducted much before the assessment year 2013-14. She had made specific reference about the loose paper in the questionnaire dated 13.3.2016 extracted (supra). Only addition made by the AO is based upon "S&TA" report. The addition made on the basis of "S&TA" report travelled to the Tribunal, and the Tribunal has deleted the addition even summoned the AO to the Tribunal for pointing out as to how he has made addition. The finding recorded by the Tribunal in the case of Loil Continental Foods Ltd. in ITA No.98/CHD/2017 and ITA No.99/CHD/2017, which reads as under:
"16.1. We may also note here that after hearing the arguments of both parties, the AO was directed to appear in person for ITA No.577, 578 and 579/Chd/2019 26 clarification on certain points on this matter. The AO, Sh. Amit Pratap Singh , DCIT, Central Circle-3, Ludhiana appeared before the Bench on final date of hearing of appeal on 16.03.2017. The AO after going through the record submitted that no statements of any responsible persons from NSEL or M/s Sharp and Tannan Associates have been recorded in support of showing recoveries against the assessee at the assessment stage. The AO submitted that the record would not reveal the alleged nature of transaction between assessee company and NSEL, whether it was purchase or loan? The AO also stated that the addition is made on account of inference of unaccounted purchases. The AO was not able to explain as to how the addition is made in assessment year 2013-14 under appeal when the report of M/s Sharp and Tannan Associates clearly prescribe the period of I.T.A .No.-98 & 99/CHD/2017 recovery from 01.08.2013 to 31.08.2013 in which assessee was not member of NSEL. Ld.DR in view of the above submitted that the matter may be remanded to the AO for fresh investigation into the matter.
17. The Counsel of the assessee however, submitted that there is no reason to remand the matter back to the file of the AO for further investigation because during the investigation at the assessment stage, the AO was not able to bring any evidence in assessee's case so as to reject the books of the accounts or to make additions on account of alleged recoveries to be made by NSEL. The Ld. Counsel for the assessee, therefore, submitted that the addition may be deleted.
18. We have heard the rival submissions. It is not in dispute that the assessee remained Member of NSEL till 31.03.2013 only. It is also not in dispute that only Members registered with NSEL could transact the activities at the platform of NSEL. Therefore, after 31.03.2013 there is no question for the assessee to have transacted any business activity through the platform of NSEL. The Ld. Counsel for the assessee also filed receipt of membership of the assessee, certifying the assessee company was Member of NSEL till 31.03.2013. The copy of the assessment order in the case of group concern M/s. Lakshmi Energy & Foods Ltd. u/s 143(3) for assessment year 2013-14 is filed in which no additions have been made for purchases from whom the substantial purchases have ITA No.577, 578 and 579/Chd/2019 27 been made by the assessee. The assessee also filed copy of the procedure of operation from NSEL platform. The assessee also filed copy of the Civil Suit filed against NSEL in which NSEL is restrained from printing or publishing or circulating any notice or advertisement in newspapers or others against the assessee.
I.T.A .No.-98 & 99/CHD/2017
19. The AO in the assessment order specifically mentioned the fact that NSEL was a platform provided to enable the buyers and sellers to transact on spot against actual delivery of the goods through licensed members appointed by NSEL. Ld. CIT(A) in his finding also affirmed same facts. It is, therefore, proved on record that NSEL provides platform to its Members to enable buyers and sellers to transact on spot against actual delivery of the goods. The NSEL, therefore, do not indulge directly in sale and purchase of any goods. The settlement account is maintained by the NSEL for the assessee with HDFC bank, Ludhiana in respect of all the transactions conducted through NSEL. As per settlement of account, NIL amount was due against the assessee as is mentioned by the AO in the assessment order. The AO also specifically mentioned in the assessment order that though the recovery suit is pending before the Bombay High Court but it was between other parties. The assessee filed affidavit to prove that no recovery suit is pending against the assessee in any Court of law on behalf of the NSEL. It is, therefore, highly unbelievable that as per Report of M/s Sharp and Tannan Associates if huge amount is due against the assessee, NSEL would not file any recovery suit against the assessee. The authorities below have heavily relied upon the Report of M/s Sharp and Tannan Associates showing recoveries of NSEL against the assessee. The Report of M/s Sharp and Tannan Associates dated 02.04.2014 showed that there may be alleged recovery against the assessee for the period from 01.08.2013 to 31.08.2013 of the impugned amount. It is not clarified as to how these recoveries have been shown against the assessee when the assessee company was not Member of NSEL during this period after I.T.A .No.-98 & 99/CHD/2017 31.03.2013. Since it is not in dispute that unlicensed Member cannot transact through NSEL then how the assessee conducted transactions during this period when it ceased to become Member of NSEL is highly doubtable ITA No.577, 578 and 579/Chd/2019 28 and unbelievable. No basis has been shown in the Report of M/s Sharp and Tannan Associates as to how the recoveries have arised against the assessee of the impugned amount. It is also not explained as to what was the nature of transaction conducted by the assessee with NSEL for showing alleged recovery against it. It is also not explained as to what material was collected by M/s Sharp and Tannan Associates for recovery of the impugned amount against the assessee. The AO appeared in person at the time of hearing of the appeals and has categorically stated that no statement of any responsible person of NSEL or M/s Sharp and Tannan Associates have been recorded during the course of the assessment proceedings so as to prove the case of the Revenue. The AO was not able to explain the nature of the transaction conducted by the assessee, whether it was purchase or loan? It was an inference of the AO that the assessee might have made some unaccounted purchase from NSEL for which no evidence or material have been collected or brought on record. No right to cross-examine the Report of M/s Sharp and Tannan Associates have been provided to the assessee at the assessment stage. Hon'ble Supreme Court in the case of Kishanchand Chelaram vs CIT (1980) 125 ITR 713 held that "any material collected at the back of the assessee unless confronted to the assessee and allowed cross-examination cannot be read any evidence against the assessee." In this case only copy of Exhibit (A) Paper Book page 181 was supplied to the assessee after completion of the assessment proceedings I.T.A .No.-98 & 99/CHD/2017 according to the submissions of the Ld. Counsel for the assessee. The complete report of M/s Sharp and Tannan Associates dated 02.04.2014 have been placed on record by the Ld. DR during the course of hearing of the appeal, therefore, such report cannot be read in evidence against the assessee so as to make the addition. Further, this report showing recovery against the assessee pertained to the period from 01.08.2013 to 31.08.2013 when the assessee was not Member of the NSEL and same would not fall in AY 2013-14 under appeal. Therefore, such Report cannot be a basis for making addition against the assessee. Since NSEL do not indulge in actual sale and purchase, therefore, there cannot be purchases made by the assessee from NSEL. No evidence of any loan obtained by the assessee from NSEL have been brought on record to prove any recoveries to be made by NSEL from the ITA No.577, 578 and 579/Chd/2019 29 assessee. The AO did not make any addition for any alleged discrepancies in the accounts of the assessee with its group concerns as regards transactions conducted through NSEL. The charges paid to NSEL for using their platform have not been doubted by the AO. All the stocks purchased were transferred to godown to NSEL on behalf of the assessee have been supported by all relevant evidences. The transactions were made through banking channels. All the evidences are filed in the paper Book Volume 4 & 5. No amount is due to NSEL on account of sale, purchase or loan. No difference was found in the accounts of MMTC Ltd. and others. The bail order in the case of Sh. Jignesh Shah would not lay down any ratio to be applied against the assessee. No concern of the assessee with bail order of Sh. Jignesh Shah has been established. It is observed in the bail order itself that it deals with bail matter only. No specific defects in the maintenance of books of I.T.A .No.-98 & 99/CHD/2017 accounts by the assessee have been pointed out. The assessee filed copy of the ledger account of the assessee in the books of accounts of NSEL showing assessee has to recover margin money of Rs.44.56 crores from NSEL and some amount is mentioned in the trail balance as due to the assessee, so there is no question of making any recovery against the assessee. The authorities below have made and confirmed the addition against the assessee because the assessee could not file confirmation accounts from NSEL as on the date. When the assessee was not Member of NSEL during the period from 01.08.2013 to 31.08.2013, the period the recovery, where is a question of filing confirmation from NSEL in this regard. If the AO wanted to make the addition of impugned amount against the assessee, the AO should have examined NSEL and M/s Sharp and Tannan Associates. However, the AO did not make any investigation from them so as to make any addition of the impugned amount against the assessee. Since the AO failed to make proper investigation into the matter and no basis have been shown for making the addition on account of the recoveries to be made by NSEL, the AO failed to discharge the onus upon him to make the addition of the aforesaid nature. There cannot be negative onus on assessee to prove it has not made purchases from NSEL in dispute. No evidence of any sham purchases/transactions have been brought on record. No evidence of any purchase made by assessee from NSEL have been brought on record.
ITA No.577, 578 and 579/Chd/2019 30
20. The above discussion clearly prove that the AO without any basis rejected the books of accounts of the assessee and without bringing any evidence or material on record, made the addition of the impugned amount. Even during the course of hearing of the appeal, the AO was present in the Court but could not I.T.A .No.- 98 & 99/CHD/2017 provide any evidence or material so as to sustain the orders of the authorities below. In such circumstances, we do not find it appropriate to remand the matter to the AO for fresh investigation as is argued by the Ld. DR.
21. In view of the above discussion and in the absence of any cogent and relevant evidence, we do not find any justification for the authorities to have rejected the books of accounts of the assessee u/s 145(3) of the Act or to make an addition of Rs.338.40 crores. We accordingly, set aside the orders of the authorities below and delete the addition of Rs.338.40 crores.
22. In the result, the appeal of the assessee is allowed.ITA No.99/Chandi/2017 (M/s Loil Health Foods Ltd.)
23. This appeal by the assessee has been directed against the order of Ld. CIT(A)-V, Ludhiana dated 28.12.2016 for AY 2013-14 challenging the rejection of the books of accounts and addition of Rs.287.48 crores as allegedly payable by the assessee to NSEL without any material and evidence on record.
24. Ld. Representatives of both the parties submitted that the issues are same as have been considered in ITA No.98/Chandi/2017 in the case of M/s Loil Continental Food Ltd. vs DCIT (supra) and order in that case may be followed. We, therefore, following the same reasons for decision, set aside the orders authorities below and delete the addition. Accordingly, the appeal of the assessee is allowed."
12. Analysis of these materials would indicate that when the ld. Commissioner was taking action under section 263 in the month of March, 2019, order of the Tribunal was before him. The assessee has demonstrated that specific inquiries qua the information revealed in ITA No.577, 578 and 579/Chd/2019 31 NSEL data base as well as in the survey have been examined in the assessment proceedings in the Asstt.Year 2013-14 elaborately. The ld.Commissioner did not try to analysis any of the details. He just noticed the information half-heartedly and observed that the assessment orders are erroneous. If these findings of the ld.Commissioner are being examined in the light of law laid down by the Hon'ble Delhi High Court in the case of ITO Vs. DG Housing Projects Ltd. (supra), then it would reveal that the ld.Commissioner has merely raised suspicion on the basis of certain information which were already in the knowledge of the AO, not only in this assessment year, but in earlier assessment years. The ld.Commissioner has not conclusively recorded any finding as to what is the ultimate impact of this information on the assessability of these appellants, and how non-consideration of this made the assessment order as erroneous. The AO has taken note of all these things, because these very materials were available in the immediately preceding year. The only addition made and confirmed by the ld.CIT(A) in the Asstt.Year 2013-14 has been struck down. Thus, the ld.Commissioner ought to have looked into order of the ITAT, and thereafter, analysed the details, whether any income has escaped on account of failure of the AO to conduct adequate inquiry (in the opinion of CIT). The ld.Commissioner nowhere made out that case.
13. In para-15 of the impugned order, the ld.Commissioner recorded a finding that the AO ought to have called for report of "S&TA", and then should have examined. The discussion made by the ld.Commissioner with regard to this issue is worth to note, which reads as under:
ITA No.577, 578 and 579/Chd/2019 32 "15. The AR in Para B, (v), (c) and Para C in his reply has referred to the report of Sharp and Tannan, and stated that the said complete report was not made available and only one page of the report was confronted during the assessment proceedings for the A.Y. 2013-14.
This only buttresses the premise that the AO did not call for the Report of Sharp and Tannan despite reference to the same in assessment proceedings for A.Y. 2013-14 and for the A.Y. 2014-15. The AR has further stated that addition was made w.r.t certain documents of Sharp and Tannan in the A.Y. 2013-14 which again cannot be a basis for addition in A.Y. 2014-15. This warped argument of suggested replication of proceedings of A.Y. 2013-14 to A.Y. 2014-15 has been sufficiently dealt with in this order. Suffice, it is to say that the AO should have called for the report of Sharp and Tannan, examine the transactions of the assessee company with reference thereto and draw conclusions before completing the assessment for A.Y. 2014-15."
14. The above reasoning suggests in itself that how the ld.Commssioner has lost sight of all the relevant materials. In the Asstt.Year 2013-14 on the basis of "S&TA" report, an addition of Rs.338 crore was made in the case of Loil Continental Foods Ltd, Rs.287, and Rs.85 crores in the hands of other two appellants. We have extracted relevant part of the assessment order in para-5 of this order. From the questionnaire issued in the Asstt.Year 2013-14 and the ultimate addition made by the AO do suggest that the report of "S&TA"
was very well with the AO during the assessment proceedings for 2013-
14. According to the assessee this report is neither here nor there for fixing a liability upon the assessee, much less giving rise to any taxable income in the hands of the assessee. It is just one page of the report from some professionals putting liability on certain entities. When the issue fallen for consideration before the Tribunal in Asstt.Year 2013-14 then it was found that such paper is not sufficient for putting the assessee under such huge liability, and again, the ld.Commissioner instead of ITA No.577, 578 and 579/Chd/2019 33 conducting any inquiry or collecting any material just repeated those assertion based on surmises. We also find that the ld.Commissioner has made reference to a letter written by NSEL to the President, ITAT when the appeal against the assessee for the A.Y.2013-14 was allowed. He reproduced copy of that letter in the impugned order. It is pertinent to observe that the ld.Commissioner being a quasi-judicial authority was required to show concern about the escapement of taxable income in the hands of the assessee. The Income-tax proceedings are not the proceedings where criminal liabilities or title pertained to civil dispute could be resolved. It is not ascertainable, what is the dispute between the NSEL and the appellants. During the course of hearing, we have put a question to both the representatives, whether any civil suit at the end of the NSEL against the appellants for recovery of any due is pending. The ld.counsel for the assessee gave reply in negative. Similarly, the ld.CIT-DR has expressed his ignorance about the above facts. He only pointed out that from the material, it is discernible that civil suits were filed against other parties. But he could not specify, whether any civil suit is being filed against the assessee. We fail to understand how the cognizance of such report or report of "S&TA" can have effect on the taxability of the present assessees; more so, when no investigation or inquiry has been conducted by the ld.Commissioner before branding the assessment orders as erroneous. Therefore, as far as first compartment of show cause notice is concerned, we are of the view that the ld.Commission failed to point out any reasons which can suggest that the assessment orders are erroneous. The materials referred by him are superficial, which at the most can rise a suspicion only. No firm ITA No.577, 578 and 579/Chd/2019 34 conclusion can be drawn nor support the stand taken by the ld.Commissioner.
15. As far as the second compartment of the show cause notice is concerned, a perusal of serial no.VI to VII of the reasons assigned by the ld.Commissioner would indicate that he has made reference to the outstanding advances in the account, opening stock of finished goods, trade payables, and increase under the head short term loans and advances. A perusal of the reply given by the assessee would indicate that all these aspects have been gone through by the AO before finalizing assessment order. In the case of Loil Continental Foods Ltd. first issue raked up by the ld.Commissioner is that there were outstanding advances from buyers of Rs.25.38 crores. In his opinion, this issue was not considered by the AO. The ld.counsel for the assessee took us through the record and submitted that copy of the questionnaire dated 27.6.2016 is available on page nos.1 to 6 of the paper book. At Sr.No.28, the ld.AO has called for following information:
"Name and address of the person from whom advances/deposits were taken during the year under consideration"
16. This questionnaire was replied and the assessee has submitted all details in annexure-15 along with its reply. On page no.21 of the paper book, the assessee has annexed list of advances from the buyers. It is from Lakshmi Energy Foods Ltd., address : SCO-18-19, Sector-9D, Chandigarh. The balance shown at Rs.25,38,99,211/-. Thereafter, the assessee has annexed ledger account showing the sales to this party. These details were before the AO when the assessment order was ITA No.577, 578 and 579/Chd/2019 35 passed. He has called for these details, and was satisfied. It is a different matter that his satisfaction may not match with the expected satisfaction of the ld.Commissioner. In that case, no action under section 263 can be taken. Similarly, next major item is huge trade payable i.e. Rs.64.31 crores. At the time of hearing, the ld.counsel for the assessee drew our attention towards serial no.21 of the questionnaire issued by the AO. The questionnaire reads "all details of sundry creditors at the end of the year under consideration along with complete address". This question was replied by the assessee and it was submitted that complete list of creditors as on 31.3.2014 is being enclosed in Annexure-12. Thus, details of all the trade payables have been submitted to the AO along with complete address. Such details are available on page no.25 and these amounts payable to Loil Overseas Foods Ltd., and Laxmi Energy Foods. Thus, details with regard to these concerns were also with the AO. He was also in seisin of assessing the income of one of the trade creditors viz. Loil Overseas Foods Ltd. He might have been satisfied with the accounts submitted before him. What verification would require i.e. genuineness of the transaction or identity of the parties? These were before him. We have minutely examined each and every reason assigned by the ld.Commissioner under serial no.VI of the reasons given by him in the show cause notice. It is discernible that all these details were submitted before the AO during the course of assessment proceedings. The assessment proceedings continued for almost more than eight to nine months, and the accounts were provided before the AO. The ld.Commissioner just made narrations in the show cause notice, but has not conducted any inquiry, and has not held how assessment order is erroneous by pointing out short-comings of ITA No.577, 578 and 579/Chd/2019 36 these accounting entries. He should have verified from Laxmi Energy Food or Loil Overseas Foods Ltd., and thereafter recorded a finding that by acceptance of accounting entries, the AO has committed this error. Only then, he can relegate to the AO for re-adjudication, but no such steps have been taken. He just touched this issue peripherally without conducting any investigation.
17. The ld.CIT made reference to the Explanation-2 to Section 263 and also decision of Hon'ble Supreme Court in the case of CIT Vs. Amitabhachan, 384 ITR 200. It is pertinent to note that Explanation-2 of section 263(1) would help the ld.Commissioner to take cognizance under section 263 of the Act, if no inquiry was conducted by the AO before finalizing the assessment order. No doubt the assessment orders are very brief, and did not have elaborate discussion on these issues, but it is pertinent to bear in mind that assessees have no control over the AO and cannot persuade him to draft the assessment order in a particular manner. It is the discretion of the AO, how to pass an assessment order. Had an elaborate discussion available, then that would be an ideal situation for the higher appellate authorities to appreciate, what has operated in the mind of the AO while passing the assessment. But in the absence of such discussion, it has to be ascertained from the questionnaire and the replies submitted by the assessee. Explanation-2 can be invoked when no inquiry was conducted by the AO. In the present case, he has issued a questionnaire calling for details on 37 counts. Those details were submitted. Some of the issues raked up by the ld.Commissioner in the impugned order were between the group concerns, and their accounts were open before the AO in simultaneous ITA No.577, 578 and 579/Chd/2019 37 proceedings. He was satisfied with these accounts. Thus, it is a case of inquiry and Explanation-2 cannot be invoked in the present case. In view of the above discussion, we are of the view that the ld.Commissioner is not justified in exercising powers under section 263, and setting aside the assessment orders. We allow all these appeals and quash the impugned orders passed under section 263 of the Income Tax Act in each case of the appellants.
18. In the result, all three appeals of the assessees are allowed.
Order pronounced in the Court on 4th December, 2019 at Chandigarh.
Sd/- Sd/- N.K. SAINI (RAJPAL YADAV) (VICE-PRESIDENT) JUDICIAL MEMBER