Commissioner Of Income Tax Circle ... vs M/S Ankit Garments Manufacturing ...
2014 Latest Caselaw 6188 Del

$~22
*    IN THE HIGH COURT OF DELHI AT NEW DELHI

                              Date of decision: 26th November, 2014

+                         ITA 511/2013

      COMMISSIONER OF INCOME TAX CIRCLE - II..Appellant
                  Through    Ms. Suruchi Aggarwal, Sr.
                  Standing Counsel.

                          versus

      M/S ANKIT GARMENTS MANUFACTURING CO.
                                             .... Respondent
                   Through      Mr. Ved Jain and Mr. Pranjal
                   Srivastava, Advocates.

      CORAM:
      HON'BLE MR. JUSTICE SANJIV KHANNA
      HON'BLE MR. JUSTICE V. KAMESWAR RAO

      SANJIV KHANNA, J. (ORAL)

The present appeal by the Revenue under Section 260A

of the Income Tax Act, 1961 (Act, for short) relates to

assessment year 2008-09 and impugns the findings recorded by

the Income Tax Appellate Tribunal (Tribunal, for short) in their

order dated 26th March, 2013. Findings recorded in the said

order are primarily factual and it has been observed that the

assessee had submitted copies of accounts duly confirmed by all

trade creditors and debtors, whose balances were in excess of

Rs.1 lac at the closing date of the year under consideration. The

Tribunal accordingly set aside and quashed the order under

Section 263 of the Act passed by the Commissioner of Income

Tax.

2. The respondent-assessee is a partnership firm engaged in

the business of readymade garments. Search and seizure

proceedings were carried out under Section 132 of the Act on

16th October, 2007 in the case of Shri Dwarka Das Agarwal

Group and search had also taken place in the business and

residential premises of the respondent-assessee. Subsequently,

a notice under Section 142(1) of the Act was issued and the

respondent-assessee filed return on 2nd April, 2009, declaring

the same income as was declared in its original return i.e.

Rs.2,94,87,060/-.

3. The assessment records produced before us reveal that

possibly no effective proceedings were held till 26th October,

2009. Order sheet for the said period is not available. Effectuate

steps were taken for the first time by issue of notice dated 7th

October, 2009, by the Assessing Officer under Section 142(1)

of the Act, enclosing therewith a questionnaire going into nine

closely typed pages asking for information on 24

questions/points. Some of the questions were also having sub

questions. Voluminous data, confirmations and details were

asked. One such direction was to furnish copies of accounts

duly confirmed by all trade debtors and creditors, whose

balances at the end of the year, were in excess of Rs.1 lac. The

turnover of the assessee as declared in the return of income for

the year in question was Rs.16,01,30,230/-. The assessee

attended the proceedings, filed replies and other details.

Hearings were held on 23rd November, 2009, 11th December,

2009, 15th December, 2009 and 29th December, 2009. Order

sheets for proceedings held on 26th October, 2009 and thereafter

till 23rd November, 2009 are not on record. However, the

assessment records are bulky and show that numerous papers,

confirmations, particulars, explanations etc. were furnished.

Confirmations submitted by the respondent-assessee are more

than 100 in number. The debtors and creditors, it was stated,

were located all over India and the assessee had written and

asked them for confirmations to be submitted to the department.

4. As noticed above, the last hearing before the Assessing

Officer was held on 29th December, 2009. On the said date, the

assessee had furnished several confirmations and documents.

5. In assessment order passed on 31st December, 2009, two

additions of Rs.11,94,982/- and Rs.3,64,696/-, on account of

discrepancies, were made.

6. The Assessing Officer, it is claimed by the revenue, had

recorded the following office note:-

"Office Note

1. All the documents/materials seized/impound during the course of the search/survey operation conducted on 16.10.2007 in Dwarka Das Agarwal Group of cases have been examined and nothing adverse pertaining to this assessee in previous year under consideration; was noticed as a result thereof.

2. Copy of accounts of the assessee existing in this Circle have been verified from their respective assessment records and of the assessees existing elsewhere are being sent to their respective AOs for necessary verification at their end.

3. During the course of the assessment, the assessee was required to produce copies of accounts duly confirmed by the concerned parties in respect of fresh loans/deposits as also in respect of debtors and creditors whose balances were in excess of Rs. 1 lac. Since all of such confirmed copies of accounts have not been filed so far and since the assessment in this case is getting barred by time today, the assessment in this case is completed subject to the condition that the same shall be reopened in case any discrepancy is noticed subsequently in the aforesaid accounts."

7. The Commissioner of Income Tax issued notice under

Section 263 of the Act on the ground that the assessment order

was erroneous and prejudicial to the interest of the Revenue as

the Assessing Officer had passed the assessment order despite

noticing the fact that the assessee had not submitted confirmed

copies of accounts in all cases (See paragraph 3 of the above

office note).

8. Thereafter, the Commissioner of Income Tax, set aside

the assessment for fresh assessment as per law after affording

opportunity to the assessee and upon making proper inquires

and verifications. The reasoning of the Commissioner of

Income Tax in his order under Section 263 of the Act dated 27 th

March, 2012 reads:-

"It was observed that assessment has been completed by the Assessing Officer without obtaining the complete reply to the questionnaire annexed to notice u/s 142(1) dated 07/10/2009. In the above questionnaire, the assessee was inter alia asked to furnish copy of account, duly confirmed, of the parties from whom loans/deposits were given or taken and also in respect of debtors and creditors having balance above Rs.1 Lakh. The above information was not fully furnished by the assessee inspite of specific request. Provisions of Section 68 of the Income Tax Act, 1961 clearly lays down that where any sum is found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof, or the explanation offered is unsatisfactory, the sum so credited will be added to the income of the assessee. Since, the assessee had failed to furnish the confirmed copy of accounts till the fag end of the proceedings, inspite of specific request made by the Assessing Officer in the questionnaire annexed to notice u/s 142(1), the provisions of section 68 were attracted."

9. The Commissioner of Income Tax had documented the

stand of the assessee that they had furnished confirmations from

all trade creditors and debtors having a balance of Rs.1 lac and

above. In the impugned order, the Tribunal has accepted that

the assessee's contention that they had furnished confirmations

of all the creditors and debtors having a balance of Rs.1 lac and

above. The said finding was recorded by the tribunal after

examining the assessment records, which were produced on

directions before the Tribunal. In this factual background, it has

been held that the Commissioner of Income Tax could not have

exercised power under Section 263 of the Act. Thus the order of

the Tribunal is that the Commissioner of Income Tax had

proceeded on wrong facts and assumptions.

10. It is noticeable that in the grounds of appeal filed before

us, names and details of a single creditor or debtor having a

balance of Rs.1 lac or more from whom confirmation had not

been furnished has not been indicated or stated. The order

passed by the Commissioner of Income Tax under Section 263

also does not give names and details of any creditor or debtor

who had not furnished or given confirmation. Thus, the finding

of the Tribunal cannot be held to be perverse.

11. Learned senior standing counsel for the Revenue had

submitted that confirmations were filed on the last day and,

therefore, they were not verified. Thus, Commissioner of

Income Tax was justified in holding that the assessment order

was erroneous and prejudicial to the interest of the Revenue.

The said contention must fail for a number of reasons. Firstly,

with regard to the confirmations already submitted, note No.2 of

the office note is relevant. It records that copy of the accounts

of the confirming parties had been verified from their respective

assessment records with the said Assessing Officer. In respect

of the confirming assessees assessed under another charge,

details had been sent to the respective Assessing Officer for

verification at their end. It is not the allegation of the Revenue

that on verification any of the conformation given by the

creditors or debtors was found to be wrong or incorrect.

Secondly, this is not the ground or reason why the

Commissioner of Income Tax had invoked his power under

Section 263 of the Act and passed the said order. The power

and order under the said section is predicated that confirmations

from all debtors and creditors were not furnished. The order

does not proceed or hold that the Assessing Officer had failed to

carry out required verification of the confirmations furnished

and, therefore, the assessment order was erroneous and

prejudicial to the interest of the Revenue. By accepting the

arguments of the Revenue, we would be creating a new case,

which was not the basis of the notice and the order under

Section 263 of the Act.

12. It is unfortunate that in the present case, the Assessing

Officer waited till the end and took up the assessment

proceedings only three months before the end of the limitation

period. A detailed questionnaire was only issued in October,

2009 and the first effective hearing was fixed on 26th October,

2009. Surprisingly, even the order sheets between 26th October,

2009 till 23rd November, 2009 are not on record and have not

been shown. A reading of the questionnaire going into 9 pages

would indicate that enormous and magnitudes of

details/information were asked for. This would have required

time for compilation, affirmation and clarification. The queries

were answered by several letters on record. For confirmations,

the assessee had to write letters to the creditors and debtors all

over the India and wait for their response. The Tribunal has

noted that the assessee had submitted bill, invoices, vouchers

etc. to the Assessing Officer.

13. Normally, scrutiny assessment order under Section

143(3) of the Act should be presumed and hypothesised as

made after due verification and ascertainment of facts.

Principle of finality has sound and salutatory basis, but can be

disturbed as per the statute and within confines of the provision

applicable. Therefore, it has to be ensured administratively that

the Assessing Officer act and proceed promptly, keeping in

mind the limitation period and also the factum that the assessee

may require time to furnish details, confirmations etc.

14. In view of the finding of the Tribunal that the assessee

had furnished confirmations from all debtors and creditors, with

balances in excess of Rs.1 lac; a finding of fact that we do not

see any reason to disturb, the present appeal by the Revenue has

to be dismissed. We order accordingly. In the facts of the

present case, there will be no order as to costs.

SANJIV KHANNA, J.

V. KAMESWAR RAO, J.

NOVEMBER 26, 2014 NA