Income Tax Appellate Tribunal - Delhi
Mani Enterprises,, Meerut vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E': NEW DELHI
BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER &
SHRI B.P. JAIN, ACCOUNTANT MEMBER
ITA no.3783 /Del/2009
Assessment Year : 2005-06
Mani Enterprises Commissioner of Income Tax
A-229, Defence Colony, Vs. Aaykar Bhawan,
Delhi Road, Meerut. Meerut
(Appellant) (Respondent)
PAN: AALFM 4033 A
Appellant by : Shri O.P. Sapra, Advocate
Respondent by : Shri Jayant Mishra, CIT (DR)
ORDER
PER: C.L. SETHI, J.M. The present appeal has been filed by the assessee against the order dated 30.06.2009, passed by the ld. CIT u/s. 263 of the Income Tax Act, 1961 ("the Act"), in connection with the assessment order made by the AO u/s. 143(3) on 14.12.2007 pertaining to the A.Y. 2005-06.
2. Grounds raised by the assessee are as under:-
"That the impugned order as passed by the learned Commissioner of Income Tax u/s. 263 of the I.T. Act, 1961, is arbitrary, unjust and illegal on various factual and legal grounds including the followings:-
a) The assessment order u/s. 143(3) dated 14.12.2007 as passed by the ld. AO was neither erroneous nor prejudicial to the interest of Revenue.
ITA no.3783 /Del/2009
b) The learned Commissioner of Income Tax
had no jurisdiction to invoke sec. 263 of the I.T.Act, 1961.
c) The ld. AO had passed order u/s. 143(3) dated 14.12.2007 after proper application of mind.
d) Various observations made by the learned Commissioner of Income Tax are untenable.
That without prejudice to the above the ld. CIT has erred on the facts of the case by directing ld. AO to make an addition disallowances of Rs. 3,54,539/- u/s. 40A(3) of the I.T. Act, 1961, and modify the assessment order accordingly.
That the ld. CIT has erred by setting aside the assessment order on other issues for further verification of the ld. AO on the issues of sundry creditors & applicability of sec. 50C alleged MDA rates and valuation of closing stock on rates allegedly fixed by the Meerut Development Authority.
That the impugned order of the learned CIT u/s. 263 deserves to be cancelled and annulled."
3. In this case, the assessee filed its return of income disclosing total income at Rs. 53,90,710/-. Thereafter, the AO made the assessment u/s. 143(3) on 14.12.2007 determining the assessee's total income at Rs. 54,56,710/-. Thereafter, the CIT, Meerut, examined the assessment record and found that:-
I. As per column 17(h) of the Tax Audit Report cash payments of Rs. 17,72,693/- were made in violation of the provisions of section 40A(3). As per the Audit Report an additional disallowance of Rs. 3,54,539/- should have been made, but no such disallowance was made by the AO. This included a Page 2 of 24 ITA no.3783 /Del/2009 sum of Rs. 5 lakhs which was paid in cash for land purchase on which also disallowance u/s. 40A(3) was not made.
II. The case was selected to verify sundry creditors of Rs. 53.44 but no such verification was carried out.
III. The assessee had sold lands at a much lesser rates than Meerut Development Authority but sale instances have not been scrutinized.
IV. Closing stock of land was also valued at lower than MDA rates while the cost of projects has been estimated at MDA rates.
4. In the light of the aforesaid pointes noticed by the CIT, the CIT had issued show-cause notice u/s. 263 on 30.03.2009 to the assessee, in response to which the assessee's Authorized Representative, Shri Ravindra Aggarwal, CA attended proceedings, and the matter was discussed by the CIT with him.
5. With regard to the payments stated to be made in contravention of section 40A(3), the CIT observed that the payment aggregating to Rs. 18,37,745/- were made in contraventions of section 40A(3) of the Act, the details of which are as under:-
Page 3 of 24
ITA no.3783 /Del/2009 I. Paid to various individuals on account of Rs.5,00,000 land purchase II. Paid for stamps (used for registration of Rs.1,39,200 documents) III. Paid to MDA for various purposes Rs.11,33,493 IV. Paid for other development expenses Rs.65,052 Total Rs.18,37,745/-
6. CIT then worked out the inadmissible amount to be of Rs. 3,67,549/- against which the assessee only added back sum of Rs. 13,010/- by giving following remark:-
"No disallowance u/s. 40A(3), as mentioned in Tax Audit Report at Para 17th of Rs. 3,54,539/- has been made in view of the fact that the genuineness of land payment, stamp purchase and payments to MDA are fully verifiable and therefore, no disallowance be made in view of the basic legislative intention for introduction of section 40A(3) in the Income Tax Act, 1961."
7. The CIT further observed that in the course of assessment proceedings, no other clarification have been obtained by the AO.
8. In the course of proceedings u/s. 263 of the Act, the assessee contended before the CIT as under:-
"(i) In all the above cases payments were fully verifiable and genuine and, hence, not assessable to disallowance u/s. 40A(3).
(ii) payment for purchase of land was made before the Sub-Registrar, hence, the transaction should not be doubted.Page 4 of 24
ITA no.3783 /Del/2009
(iii) Stamp papers were purchased from stamp vendors who do not accept cheques or draft. Since stamp papers were actually used, this expenditure cannot be said to bogus.
(iv) Provision of S. 40A(3) should not be applied in respect of payments to MDA, since MDA is a Government Body."
9. The assessee also placed reliance upon the decision of Hon'ble Madras High Court in the case of CIT vs. KKSK Leather Processor (P) Ltd. reported in 292 ITR 669 (Mad.).
10. After considering the assessee's explanation and the AO's order, the CIT held that provisions of rule 6DD does not mention of genuineness or proof of identity of the payee as an exceptional circumstances so as to treat the same is covered by rule 6DD of the Income Tax Rules. The CIT's observation in this respect is as under:-
"4.3 With great respect, I am unable to subscribe to the above view because the provisions of Rule 6Dd, as it existed at that time, admitted a number of exceptions. At the present moment, the said Rule does not mention of genuineness or proof of identity of the payee as an ameliorating circumstance. Moreover, if the payment is demonstrably non genuine it would not be allowable at all. The entities to which payment in cash is allowed in full are enumerated in Rule 6DD(a). Significantly, MDA is not mentioned in this sub-rule. Rule 6DD(b) exempts those payments made to Government which are required to be made in legal tender. In the instant case, there was no such requirement. Thus, here also the assessee's case fails. The AO is, therefore, directed to make a further addition of Rs. 3,54,539/- and modify the assessment order accordingly.Page 5 of 24
ITA no.3783 /Del/2009 5.1 Alongwith the return of income the assessee submitted names of sundry creditors and suppliers (Rs53,44,404 as per Schedule IVA) names of sundry payable (Rs.1,87,88,548 as per Schedule IVB). The case was selected solely to verify the above. However, from the records, it appears that no such verification was carried out so much so that only the copies of accounts of suppliers wee obtained. Addresses were available only in some cases. In no case PAN was obtained."
11. With regard to the issue about the verification of sundry creditors and suppliers (Rs. 53,44,404/- as per Schedule IVA) and sundry payable (Rs. 1,87,88,548/- as per Schedule IVB), CIT observed that the AO selected the case to verify these items, but, from the records it appeared to him that no such verification was carried out except copies of accounts of suppliers was obtained. The CIT further observed that addresses of the parties were available only in some cases, and in no case PAN was obtained. In this respect, the ld. counsel for the assessee submitted before the CIT in the course proceedings u/s. 263 that the complete details containing names and addresses of all sundry creditors, the nature of transactions entered into with them, total amount of purchases made during the year and the total amount outstanding as at the end were duly filed during the assessment proceedings alongwith letter dated 05.11.2007. The assessee further submitted before the CIT that copies of accounts of all sundry creditors were also filed before AO alongwith Page 6 of 24 ITA no.3783 /Del/2009 letter dated 16.08.2007, and the amounts due to creditors were outstanding on accounts of purchases made from them in due course of business. It was further submitted by the assessee that the AO being satisfied regarding genuineness of the transaction, had not taken any adverse view, and, therefore, the assessment order in question could not be said to be erroneous and prejudicial to the interest of the revenue.
12. The CIT considered the assessee's explanation and then observed that the assessee's counsel statement is partially incorrect because only some addresses were given and no verification was carried out. In the light of this view taken by the CIT, the CIT set aside assessment order this point and direct the AO to obtain the addresses of sundry creditors and verify them.
13. With regard to the issue about the rate at which the sales were sold and stock was valued, the assessee submitted before CIT as under:
"i. That the sales were recorded in the books of account of the assessee on actual amount of the transactions entered into by it. The rates fixed by the District Authorities as Circle rates are not relevant in the case of the persons carrying on the business. There re no MDA rates as are referred to in para (v) of notice by our goodself. ii. Conclusion "Sec. 50C is applicable only for the purpose of determining the sale consideration for computation of capital gains and it can not be applied for determining the income under other heads."Page 7 of 24
ITA no.3783 /Del/2009 iii. The evaluation of closing stock has been made at cost i.e. on the basis normally accepted by all assessees for valuing of closing stock i.e. or market value whichever is lower land the closing stock under any circumstances can not be assessed at market value thereof or the rate fixed by any authority. The method of valuation of stock and details of costing thereof has duly been given in the Schedules forming part of the Balance-sheet on record and no deficiency therein is pointed out by the ld. AO. There is no provision under Income-
tax Act to value the closing stock on the rates fixed by any authority. It is however submitted that no rates whatsoever are fixed by MDA as also sated herein above. The cost of project is also not estimated by MDA."
14. However, the CIT in his order u/s. 263 has passed the order directing the AO to verify this aspect in the assessment to be made by him.
15. Being aggrieved with the CIT's order passed u/s. 263, the assessee has preferred this appeal before the Tribunal.
16. The ld. counsel for the assessee has submitted that the order passed by the AO u/s. 143(3) is not erroneous and prejudicial to the interest of the revenue in respect of the issue referred to the CIT in his order passed u/s. 263 of the Act in as much as copies of audited balance sheet, income & expenditure account etc., and, Tax Audit Report were duly filed by the assessee alongwith the return of income and all the details required by the AO with regard to the sundry creditors and suppliers, sundry amounts Page 8 of 24 ITA no.3783 /Del/2009 payable, matter with regard to the disallowance of payment u/s. 40A(3) and about the rate at which land was sold and stock was valued were duly furnished before the AO vide assessee's letter dated 16.08.2007 and 05.11.2007. The ld. counsel for the assessee further contended that in the course of assessment proceedings, the AO has issued enquiry vide letter dated 24.07.2007 (copy of which is placed at page 80-81 of the paper- book filed before us), in reply there to the assessee vide letter dated 16.08.2007 and further letter dated 05.11.2007, filed all the details as required by the AO and also produced books of accounts and vouchers for AO's verification. He further pointed out that in so far as amounts of creditors remaining outstanding at the end of the current year is concerned, the outstanding amount has been paid to all the creditors in the next year which has been accepted by the department. The ld. counsel for the assessee made a reference to the discussions made by the AO in the assessment order dated 14.12.2007, where the AO has mentioned that assessee had filed the necessary details and submissions and the books of accounts were produced, but were not accompanied with supporting vouchers as result there of he made an addition of Rs. 75,000/- to the income returned by the assessee to cover up all possible leakage in the result declared by the assessee during the year. Page 9 of 24
ITA no.3783 /Del/2009
17. The ld. counsel for the assessee placed reliance upon the following decisions, which are as under:-
I. CIT vs. Sun Ben Auto Ltd. (2009) 217 CTR (Delhi) 133 II. CIT vs. KKSK Leather Processor (P) Ltd. 292 ITR 669 III. CIT vs. Chaudhary & Co. 217 ITR 431 (All.) IV. CIT vs. Mata Prasad & Bros. 188 ITR 669 (All.) V. Attar Singh Gurmukh Singh vs. ITO 191 ITR 667 (SC) VI. CIT vs. Kanda Rice Mills 178 ITR 446 (P&H) VII. J.P. Srivastava & Sons vs. CIT 111 ITR 326 (All.) VIII. CIT vs. Goyal Private Family Specific Trust 171 ITR 698 (All.) IX. Rayon Silk Mills vs. CIT 221 ITR 155 (Guj.) X. Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83 (SC) XI. CIT vs. J.P. Goyal (HUF) 247 ITR 555 (Cal.) XII. Hari Iron Trading Co. vs. CIT 263 ITR 437 (P&H) XIII. CIT vs. Mehrotra Brothers 270 ITR 157 (MP) XIV. CIT vs. Gabriel India Ltd. 203 ITR 108 (Bom.) XV. CIT vs. Max India Ltd. 268 ITR 128 (P&H) XVI. CIT vs. Smt. D. Villammal 230 ITR 695 (Mad.)
18. The ld. DR, on the other hand, supported the order of the CIT and contended that the AO failed to apply his mind to the various issues Page 10 of 24 ITA no.3783 /Del/2009 referred to in the order of the CIT passed u/s. 263 and as such, assessment order passed by the AO is erroneous and prejudicial to the interest of the revenue. He further submitted that the AO has failed to make enquiries as to the disallowance of payment u/s. 40A(3) and as well with regard to the veracity and genuineness of the sundry creditors and sundry amount payable and as also with regard to the rate at which lands were sold and the stock was valued. He further submitted that the AO has merely accepted the details filed by the assessee at their face value without examining and verifying and without making any further enquiry and applying his mind as to the genuineness and veracity of the sundry creditors and the sundry amount payable. He, therefore, submitted that the CIT was very much justified in exercising his powers u/s. 263 of the Act, and then restoring the matter back to the file of the AO to make further verification and redo assessment.
19. Rival contentions of both the parties have been considered. We have carefully perused the assessment order as well as impugned order u/s. 263 passed by the CIT. We have also gone through the various documents and papers placed in the paper-book filed by the assessee. We have deliberated upon the provisions of law contained in that behalf and various decisions cited at the bar.
Page 11 of 24
ITA no.3783 /Del/2009
20. Before we proceed to deal with the various issues in respect of which the CIT has exercised his powers u/s. 263 of the Act, we find it fit to have a look to the various parameters and principles which governed the exercise of power by the Commissioner under the provisions of section 263 of the Act.
21. The Hon'ble High Court of Delhi in the case of CIT vs. Ashish Rajpal (2009) 180 Taxman 623 (Delhi), after analyzing and considering the decision of Hon'ble Supreme Court in the case of Malabar Industrial Company vs. CIT (supra), CIT vs. Max India Ltd. (2007) 295 ITR 282 and Ram Pyari Devi Sarogi vs. CIT (1968) 67 ITR 84 (SC) and the decision of Hon'ble High Court of Delhi in the case of Gee Vee Enterprises vs. ACIT (1975) 99 ITR 375 (Delhi and the decision of Hon'ble Bombay High Court in the case of CIT vs. Gabriel India Ltd. (supra) has laid down the parameters and principles which govern the exercise of power by the Commissioner under the provision of section 263 of the Act as under:-
(i) The power under section 263 is supervisory in nature, whereby the Commissioner can call for and examine the assessment records.
(ii) The Commissioner can revise the assessment order if the twin conditions provided in the Act are fulfilled, i.e., the assessment order is not only erroneous but is also prejudicial to the interest of the revenue. The fulfillment of both the conditions is an essential prerequisite.Page 12 of 24
ITA no.3783 /Del/2009
(iii) An order is erroneous when it is contrary to law or proceeds on an incorrect assumption of facts or is in breach of principles of natural justice or is passed without application of mind, that is, is stereo-typed inasmuch as the Assessing Officer accepts what is stated in the return of the assessee without making any enquiry called for in the circumstances of the case, i.e., proceeds with 'undue haste'.
(iv) The expression 'prejudicial to the interest of the revenue' while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the revenue.
(v) Every loss of tax to the revenue cannot be treated as being 'prejudicial to the interest of the revenue'. For example, when the Assessing Officer takes recourse to one of the two courses possible, in law, or where there are two views possible and the Commissioner does not agree with the view taken by the Assessing Officer which has resulted in a loss.
(vi) There is no requirement of issuance of a notice before commencing proceedings under section 263. What is required is adherence to the principles of natural justice by granting to the assessee an opportunity of being heard before passing an order under saction 263.
(vii) If the Assessing Officer acts in accordance with law, his order cannot be termed as erroneous by the Commissioner, simply because according to him, the order should have been written 'more elaborately'. Recourse cannot be taken to section 263 to substitute the view of the Assessing Officer with that of the Commissioner.
(viii) The exercise of statutory power under section 263 is dependent on existence of objective facts ascertained from prima facie material on record. The evaluation of such material should show that tax which was lawfully exigible was not imposed."
22. We shall first deal with the issue about the disallowance of payment under the provisions section 40A(3) of the Act. In the Tax Page 13 of 24 ITA no.3783 /Del/2009 Audit Report under clause 'h' of item 16, relating to the amount inadmissible u/s. 40A(3) read with rule 6DD, the auditor has stated as under:-
h Amount inadmissible (1) Rs. 13010/- @ 20% ON under section 40A(3) 65052/-BEING read with rule 6DD DEVELOPMENT EXPENSES and computation IS EXCESS OF RS.20000/- IN thereof CASH.
(2) RS. 3,54,539/- @ 20% IF RS.
17,72,693/- BEING CASH PAYMENTS u/s. 40A(3) IN EXCESS OF RS. 20000/-
EACH AS PER ANNEXURE (B) ATTACHED
23. Annexure B relating to this matter attached to the audit report giving details of payments covered u/s. 40A(3) of the Act reads as under:
ANNEXURE 'B' A. LAND PURCHASE DATE NAME OF PAYEE AMOUNT 16.11.2004 SMT. VEDWATI 160,000.00 13.12.2004 SH. MAIRAJUDDIN 300,000.00 18.03.2005 SH. AKBAR 40,000.00 500,000.00 B. STAMP PURCHASED IN CASH FOR REGISTRATION OF LAND PURCHASE FROM 11.10.2004 SH. MIRAJUDDIN KH. NO. 297 29,100.00 19.11.2004 SH. JAIPRAKASH KH. NO. 178 73,400.00 10.02.2005 SH. JAIPRAKASH KH. NO. 178 36,700.00 139,200.00 C. PAYMENTS TO M.D.A. FOR SUSPERVISION CHARGES EXTERNAL DEVELOPMENT & LAYOUT SANCTION FEE ETC.
20.05.2004 M.D.A. SUPERVISION CHARGES 35,638.00 Page 14 of 24 ITA no.3783 /Del/2009 22.05.2004 M.D.A. EXTERNAL 20,323.00 DEVELOPMENT CHARGES 22.05.2004 M.D.A. EXTERNAL DEVELOPMENT 84,331.00 CHARGES 22.05.2004 M.D.A. EXTERNAL DEVELOPMENT 74,900.00 CHARGES 22.05.2004 M.D.A. EXTERNAL DEVELOPMENT 164,655.00 CHARGES 22.05.2004 M.D.A. EXTERNAL DEVELOPMENT 37,162.00 CHARGES 22.05.2004 M.D.A. EXTERNAL DEVELOPMENT 37,450.00 CHARGES 22.05.2004 M.D.A. EXTERNAL DEVELOPMENT 26,215.00 CHARGES 22.05.2004 M.D.A. EXTERNAL DEVELOPMENT 20.323.00 CHARGES 22.05.2004 M.D.A. EXTERNAL DEVELOPMENT 153,413.00 CHARGES 03.07.2004 M.D.A. LAY OUT FEE 22,000.00 16.11.2004 M.D.A. FEE PLAN SANCTION 361,184.00 FEE 17.11.2004 M.D.A. EXTERNAL 95,899.00 DEVELOPMENT CHARGES 1,133,493.00 1,772,693.00 Inadmissible amount u/s. 40A(3) @ 20% OTHER DEVELOPMENT EXPENSES:
13.08.2004 STEEL FABRICATION 32,963.00 10.12.2004 G.I. SHEET PURCHASE 32,089.00 65,052.00
24. From the said report it is, thus, clear that the auditor quantified the amount of Rs. 13,010/- and Rs. 3,54,539/- being 20% of the total payments as inadmissible amount u/s. 40A(3) of the Act. However, in the return of income, the assessee has only added back the sum of Rs. 13,010/- in the total income and has not added back the amount of Rs. 3,54,539/- by giving rider as under:-
Page 15 of 24
ITA no.3783 /Del/2009 "No disallowance u/s 40A(3), as mentioned in Tax Audit Report at para 17th of Rs. 3,54,539/- has been made in view of the fact that the genuineness of land payment, stamp purchase and payments to MDA are fully verifiable and therefore, no disallowance be made in view of the basic legislative intention for introduction of section 40A(3) in the Income Tax Act, 1961."
25. The case was selected for scrutiny, and during the course of assessment proceedings the AO issued certain questionnaire and required the assessee to furnish certain information and details vide his letter dated 24.07.2007, containing about 16 items. But, no details or explanation with regard to the question as to why the sum of Rs. 3,67,549/- as worked out by the auditor in his audit report should not be disallowed u/s. 40A(3) of the Act. In the assessee's note filed alongwith return of income, the assessee has given a general explanation that no disallowance u/s. 40A(3), as mentioned in Tax Audit Report of Rs. 3,54,539/-, is to be made in view of the fact that the genuineness of the land payments, stamp purchase and payments to MDA are fully verifiable. Nothing has been stated as to why the payment made towards purchase of land, which was purchased as stock in trade is not covered by section 40A(3) of the Act, when the payment was admittedly made in cash in excess of Rs. 20,000/. The assessee has also not explained as to why the payment made to MDA for supervision charges, external development and lay-out sanction should also not be disallowed u/s. 40A(3) of the Act. Similarly, no Page 16 of 24 ITA no.3783 /Del/2009 details has been given about stamp purchases so as to exclude the same from the purview of section 40A(3) of the Act. The AO has also not made any enquiry as to the disallowance of Rs. 3,54,539/- though in the Tax Audit Report it was categorically and specifically mentioned that sum of Rs. 3,54,539/- is an inadmissible amount u/s. 40A(3) of the Act. It is also pertinent to note that nothing has been explained before the AO as to how and why these payments are to be excluded from the purview of the section 40A(3) or are otherwise covered by the exception provided in rule 6DD of Income Tax Rule. This is the case where the AO failed to apply his mind and has accepted the assessee's explanation on the face of it, which undoubtedly renders the AO's order as erroneous and prejudicial to the interest of the revenue in so far as this aspect of the matter is concerned. We, therefore, upheld the order of the CIT on this issue and direct the AO to examine and verify this aspect of the matter in the light of the provisions contained in section 40A(3) read with rule 6DD as applicable in the assessment year under consideration. The AO shall examine this issue in the light of the provisions as amended by the Finance Act, 1995, and in the light of amended rule 6DD of Income Tax Rules as applicable on or after 01.07.1995, whereby the clause (J) of rule 6DD has been omitted from 01.07.1995. The various decisions cited by the ld. counsel for the assessee are to be considered only in the light of Page 17 of 24 ITA no.3783 /Del/2009 the provisions of section 40A(3) read with rule 6DD as in force in the relevant assessment year, and not in the light of the provisions of section 40A(3) read with rule 6DD as they stood before 01.07.1995. We order accordingly.
26. Now, we shall deal with the ld. CIT(A)'s order directing the A.O. to redo the assessment after obtaining the address of sundry creditors and after verifying them. In this connection, we find that the A.O. vide his letter dated 24.07.2007 asked the assessee to furnish the following information and details:-
"5. Furnish the details in respect of creditors/ debtors in whose name sum exceeding Rs. 1 lakh is outstanding.
S. Name Nature of Total Amount Whether
No. and transactions amount outstanding person
address involved at the year covered
of the end u/s
person 40A(2)(b)
6. Details of unsecured loans in the following format, alongwith confirmations.
Name and PAN Bank a/c Whether Rate of
address No. related interest
party chargeable
****** ****** ******
8. Furnish name, address and copy of accounts of all parties from whom purchases exceeding Rs. 1 lakh have been made during the period under consideration.
******* ******* ******
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12. Furnish details of Sundry Payable with Name, Address, PAN, Amount, Purpose, Date."
27. In response to the said letter, the assessee vide its letter dated 16.08.2007 and 05.11.2007 submitted the details of suppliers from whom purchases exceeding Rs. 1,00,000/- were made during the year alongwith the photocopies of their accounts in the books of the assessee, details of sundry creditors outstanding exceeding Rs. 1,00,000/- on 31.03.2005. The assessee's averment in this regard in its reply dated 16.08.2007 and 05.11.2007 are as under:-
"2. Details containing the complete address of sundry creditors having outstanding balances exceeding rupees one lac are enclosed at Sl. No. 2. The details as enclosed also contain the total amount of purchases made during the year and the amount outstanding as on 31.03.2005.
***** ******* ******
7. The books of accounts and the vouchers are being produced for necessary verification.
****** ****** ******
5. There were no debtors as on 31.03.2005. The details of creditors of an amount exceeding 1 lac as on 31.03.2005 are enclosed in the requisite performa.
6. Details of unsecured loans in the requisite performa are enclosed herewith. The detail attached contains the amount of fresh amount raised from the parties concerned during the year. Confirmations from the unsecured depositors are also enclosed herewith.
***** ***** ******
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12. Sundry payables are not as such payable to any individual party and therefore, names, address and PAN of the payees cannot be given. The details of sundry payable are given at Annexure 'IV B" to the balance sheet on record."
******* ****** ******
28. The necessary details containing complete address of sundry creditors having outstanding balances exceeding Rs. One lac, the details of total amount of purchases and details of unsecured loans and amount payable has also been produced before us. We find that in the details of unsecured loans as on 31.03.2005, the assessee has given the name and address of the person concern alongwith their PAN. In the details of sundry creditors outstanding exceeding Rs. One lac as on 31.03.2005, we find that the assessee has given all the details as per performa given by the AO. Name & address of each sundry creditors remaining outstanding with an amount exceeding Rs. One lac has also been duly mentioned and the nature of the transaction has also been furnished. The amount outstanding under the head "sundry creditors" is on account of purchases of goods made by the assessee on credit and in some of the cases the amount of total purchase made during the year has been partly paid leaving only the part amount as outstanding at the end of the year. These persons are also not covered by section 40A(2)(b) as so stated in the details filed before the AO. The assessee has also given the details of Page 20 of 24 ITA no.3783 /Del/2009 suppliers from whom purchases exceeding Rs. One lac were made and the copy of their account as appearing in the assessee's books of accounts were also furnished. In the copy of accounts, the nature of transaction and the nature of the payment are duly given with respective narration made in the journal or cashbook. In the audited balance sheet and other details filed alongwith return of income, the details of secured loans, unsecured loans, sundry creditors and sundry creditors payable has been given. These facts were duly pointed out by the assessee to ld. CIT in the course of proceedings u/s. 263 of the Act. However, the CIT in his order u/s 263 has observed as under:-
"The counsel's statement is partly incorrect because some addresses were given and no verification was carried out. The assessment order is, therefore, set aside on this point. The AO will now obtain the addresses of sundry creditors and verify them."
29. In aforesaid observation made by the CIT, the CIT has failed to point out categorically as to in which cases, the assessee has not furnished addresses of sundry creditors. The CIT has made a general remark without pointing the specific name of the sundry creditor in respect of which no details of addresses were furnished by the assessee. Nothing has been brought to our notice to point out that in certain cases of addresses of creditors were not furnished by the assessee. In the light of the aforesaid general observation by the CIT, we are of the considered Page 21 of 24 ITA no.3783 /Del/2009 view that CIT has failed to apply his mind to all the details furnished by the assessee before the AO, and merely for the sake of setting aside the matter to the AO, the CIT has made this observation and directed the AO to obtain the addresses of sundry creditors. Generally, issues which are accepted by the AO do not find mention in the assessment order and only such points are taken note of on which the assessee's explanation are rejected and additions/disallowances are made. Therefore, in the light of these details filed by the assessee, the AO was satisfied with the explanation of the assessee and he did not find it necessary to make any further enquiry, which itself does not renders his order as erroneous and prejudicial to the interest of the revenue so as to give a power to CIT to invoke section 263 of the Act and then set aside the assessment for redoing. The CIT should have pointrd out categorical defects in the details filed by the assessee before the AO except by making a general remark that assessee's statement is partially incorrect because only some addresses were given and no verification was carried out. It is well settled that AO's order cannot be termed as erroneous by the Commissioner simply because according to him the order should have been written more elaborately or according to him the enquiry should have been conducted in such a manner as suggested by him. It is also well settled that recourse cannot be taken to section 263 of the Act to Page 22 of 24 ITA no.3783 /Del/2009 substitute the view of the AO with that of the Commissioner. It is also will settled that the exercise of powers u/s. 263 of the Act is dependent on existence of objective facts ascertained from prima facie material on record, and the evaluation of such material should show that tax which was lawfully exigible was not imposed. In this view of the matter, we, therefore, hold that the CIT's order directing the AO to obtain the addresses of sundry creditors and verify them is not according to the parameters and principles governing the exercise of powers by the Commissioner under the provisions of section 263 of the Act. We, therefore, set aside the CIT's this part of order relating to the issue about verification of sundry creditors. We order accordingly.
30. As regards the issue about the sale of land and valuation of stock at alleged low rates, we find that CIT after reproducing the assessee's submission in Para - 6 of his order has merely stated one line stating that "The AO will verify these aspects in the assessment to be made by him." While doing so he has not given any reason as to why these aspects are to be freshly examined by the AO in the fresh assessment to be made by him. The CIT has not pointed out any irregularity or illegality in the AO's original assessment made u/s. 143(3) in so far as the aforesaid issue is concerned. The order of CIT, directing the AO to verify these aspects seems to be passes very casually without giving any finding as to how Page 23 of 24 ITA no.3783 /Del/2009 and in what manner the AO's assessment order u/s. 143(3) could be rendered erroneous and prejudicial to the interest of the revenue. Therefore, this part of the CIT's order is also cancelled.
31. In the result, the CIT's order is upheld only to the extent of the issue about the disallowance of payment u/s. 40A(3) of the Act, and rest part of his order is cancelled. We order accordingly.
32. In the result, the appeal filed by the assessee is partly allowed.
33. This decision is pronounced in the open court on 5th February, 2010.
Sd/- Sd/-
(B.P. JAIN ) (C.L. SETHI)
ACCOUNTANT MEMBER JUDICIAL MEM,,BER
Dated: 5th February, 2010
*Nitasha
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
By Order
Deputy Registrar
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