Commissioner of Income-tax- XII v. Indo Rub Industries
[Citation -2014-LL-1001-23]

Citation 2014-LL-1001-23
Appellant Name Commissioner of Income-tax- XII
Respondent Name Indo Rub Industries
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 01/10/2014
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags computation of income • revenue authorities • interest of revenue • issuance of notice • assessment record • tax audit report • returned income • capital account • closing stock • nil income
Bot Summary: The respondent assessee was subjected to scrutiny assessment for the said assessment year and assessment order dated 20.08.2010 under Section 143(3) of the Income Tax Act, 1961 was passed accepting income tax return declaring nil income. The assessment order mentions that the respondent assessee was engaged in manufacturing of rubber hose pipes, industrial and hydraulic hoses etc. In the body of the order, the Commissioner of Income Tax has referred to the ITA 19/2013 Page 3 of 13 explanation of the assessee on increase in the capital account of the partners as well as details submitted by the assessee vide letter dated 26.05.2010 regarding additions to the fixed assets along with photocopy of the receipts etc. Before the Income Tax Appellate Tribunal, the respondent assessee had filed a paper- book with documents to establish that full details and particulars had been furnished and enquiries were made by the Assessing Officer before passing the assessment order under Section 143(3) of the Act. The issue raised is whether or not the Assessing Officer before passing the order under Section 143(3) of the Act had conducted enquiries which were necessitated and required considering the substantial increase in the capital account of the partners as well as investments made by the assessee firm in the form of capital assets. In view of the aforesaid controversy by order dated 13.11.2013, we had asked the Commissioner of Income Tax, Delhi-XIII to file an affidavit, placing on record, copy of the order sheet of the Assessing Officer, letters written by the Assessing Officer to the assessee during the course of assessment proceedings and the letters/response filed by the assessee. The Commissioner of Income Tax was also required to state, whether any enquiry was made from the Assessing Officer who had passed the order under Section 143(3) of the Act as to the details and particulars which were filed before him by the assessee during the course of the original assessment proceedings.


$ 4 * IN HIGH COURT OF DELHI AT NEW DELHI Date of Decision: October 01, 2014 + ITA 19/2013 COMMISSIONER OF INCOME TAX-XII ..... Appellant Through Mr.Kamal Sawhney, Sr. Standing Counsel with Mr.Sanjay Kumar and Mr.Jatin Sehgal, Advocates versus INDO RUB INDUSTRIES ..... Respondent Through CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V. KAMESWAR RAO SANJIV KHANNA, J (ORAL) This appeal by Revenue pertains to assessment year 2008-09. respondent assessee was subjected to scrutiny assessment for said assessment year and assessment order dated 20.08.2010 under Section 143(3) of Income Tax Act, 1961 ( Act for short) was passed accepting income tax return declaring nil income. assessment order mentions that respondent assessee was engaged in manufacturing of rubber hose pipes, industrial and hydraulic hoses etc. It records that upon examination of documents and details, income of respondent assessee firm stood accepted. Details of computation i.e. profit in Profit and Loss A/c, depreciation, bonus etc. stand recorded. Disallowance under Section ITA 19/2013 Page 1 of 13 40(a)(ia) of Act of Rs.5,45,691/- was made by respondent assessee. 2. Subsequently notice under Section 263 of Act was issued by Commissioner of Income Tax, Delhi-XIII. relevant portion of notice is reproduced below:- On perusal of assessment record and assessment order dated 20.08.2010 for assessment year 2008-09 at NIL income which was also returned income in your case, it is found that assessment made u/s 143(3) is erroneous in so far as prejudicial to interest of revenue as Assessing Officer has while framing assessment neglected glaring and prima facie issues and material before him without making due inquiries and rather framed assessment on basis of partial and technical compliance ignoring substance of issue before him which clearly goes against framing of such order. 2. On examination of assessment record, it is found that Assessing Officer did not verify following issues:- (i) Assessing Officer had called for details in respect of addition to fixed assets during year, amounting to Rs. 5,36,73,181/- in first half of F.Y. and Rs. 69,31,924/- in second half of F.Y., along with copies of bills but same are not available on record. As such, said additions to fixed assets have remained unverified and unexamined and also, then AO failed to examine ITA 19/2013 Page 2 of 13 genuineness of assessee s claim of depreciation during period under consideration, amounting to Rs. 1,05,85,432/- and also did not examine date of installation and date of putting to use such assets. (ii) Assessing Officer did not examine addition to partner s capital accounts. It is noticed that there is addition of Rs. 53,36,482/- in case of Shri Baldev Raj Makija and Rs. 59,92,955/- in case of Praveen Makija. Thus nature and source of this capital introduced by partners has remained unverified and un-vouched (emphasis supplied) 3. respondent assessee filed response to said notice and submitted that at time of original assessment proceedings, Assessing Officer had verified addition to fixed assets amounting to Rs. 5,36,73,181/- in first half and Rs.69,31,924/- in second half. Similarly with regard to addition to capital account, assessee had filed details and proof in support. 4. Commissioner of Income Tax held that order passed by Assessing Officer under Section 143(3) of Act was erroneous and prejudicial to interest of Revenue as two issues were not considered/examined/investigated by Assessing Officer. However, in body of order, Commissioner of Income Tax has referred to ITA 19/2013 Page 3 of 13 explanation of assessee on increase in capital account of partners as well as details submitted by assessee vide letter dated 26.05.2010 regarding additions to fixed assets along with photocopy of receipts etc. He accepted as fact that these documents and details were not available on record. Commissioner did not comment why and for what reasons, these documents and papers were not available on record. Noticeably no adverse finding to contradict assertion that these documents and details were filed with Assessing Officer, was made. 5. respondent assessee thereafter filed appeal and has succeeded by impugned order dated 13.07.2012. Before Income Tax Appellate Tribunal ( Tribunal for short), respondent assessee had filed paper- book with documents to establish that full details and particulars had been furnished and enquiries were made by Assessing Officer before passing assessment order under Section 143(3) of Act. Paragraph 3 of order passed by Tribunal in this regard is relevant and for sake of completeness is reproduced below:- 3. assessee is now in appeal before us against aforesaid findings of ld. CIT. ld. AR on behalf of assessee while carrying us through page 8 to 14 of paper book contended that during course of assessment ITA 19/2013 Page 4 of 13 proceedings, AO issued show cause notice, seeking, inter-alia, details of fixed assets and sources of addition to capital account of partners. assessee vide letter dated 26th May, 2010 submitted details of additions to fixed assets along with photocopies of bills besides confirmations of partners towards addition to their capital to extent of Rs.53,36,428/- in account of Shri Baldev Raj Makhija and Rs.59,92,955/- in account of Shri Praveen Makhija along with computation of income, copies of their ITR acknowledgments and copies of their respective bank accounts. Thus, AO had made necessary inquiries and was satisfied. It was further pointed out that assessee submitted all relevant details again before CIT. Without pointing out as to how assessment order was erroneous, ld. CIT concluded that aforesaid assessment order dated 20th August, 2010 was prejudicial to interest of revenue, ld. AR added. ld. AR vehemently argued that ld. CIT incorrectly assumed jurisdiction under Section 263 of Act and set aside assessment. Inter-alia, ld. AR relied upon decisions in CIT vs. Sunbeam Auto Ltd. 332 ITR 167(Del.) (Delhi); CIT vs. Leisure Exports Ltd., 341 ITR 166(Del.), CIT vs. Hindustan Marketing & Advertising Co. Ltd., 341 ITR 180 (Del.); and CIT vs. Vikas Polymers, 341 ITR 537 (Delhi). ITA 19/2013 Page 5 of 13 Accepting said assertion, order under Section 263 of Act, stands struck down. 6. issue raised is whether or not Assessing Officer before passing order under Section 143(3) of Act had conducted enquiries which were necessitated and required considering substantial increase in capital account of partners as well as investments made by assessee firm in form of capital assets. finding recorded by Tribunal on basis of documents and papers filed before them, was that said enquiry was duly made. Tribunal has accepted that assessee had filed letter dated 26.05.2010 and had also filed copies of income tax returns, computation of income, copy of statement of respective bank accounts of partners to show that said additions to capital account were genuine. Similarly bills etc. for purchase of assets and relevant details were filed during course of assessment proceedings. 7. In view of aforesaid controversy by order dated 13.11.2013, we had asked Commissioner of Income Tax, Delhi-XIII to file affidavit, placing on record, copy of order sheet of Assessing Officer, letters written by Assessing Officer to assessee during course of assessment proceedings and letters/response filed by assessee. ITA 19/2013 Page 6 of 13 copy of show cause notice issued by Commissioner and reply given by assessee was also directed to be filed. Commissioner of Income Tax was also required to state, whether any enquiry was made from Assessing Officer who had passed order under Section 143(3) of Act as to details and particulars which were filed before him by assessee during course of original assessment proceedings. 8. Commissioner of Income Tax has filed affidavit dated 22.01.2014, in which she has stated as under:- 4. From perusal of record, it could not be ascertained whether any such enquiry was made from concerned Assessing Officer who had passed assessment order. However, there is letter on record dated 01-03-2011 written by A.O. to Commissioner of Income Tax, wherein he has stated that although then AO had called for details in respect of addition to fixed assets during year, amounting to Rs.5,36,73,181/- in first half of financial year and Rs.69,31,924/- in second half of financial year, alongwith copies of bills etc. vide notice u/s 142(1) dated 21-04-2010, but same are not available on record. Further, AO also stated that then AO had also not examined addition to partner's capital accounts although said details were specifically called for vide notice u/s 142(1) dated 26-05-2010 and that nature and ITA 19/2013 Page 7 of 13 source of this capital introduced by partners has remained unverified and unvouched and showed malafide intention of assessee in not furnishing details although same were specifically required to be furnished. copy of said letter dated 01.03.2011is being filed as Annexure A. 9. It is clear from aforesaid affidavit that no attempt was made by Commissioner of Income Tax to ascertain from then Assessing Officer, who had passed original assessment order under Section 143(3) of Act dated 20.08.2010 to assure correct factual position. Reference to letter of subsequent Assessing Officer is of no consequence as it is noticeable from show cause notice itself and findings recorded by Commissioner of Income Tax in order under Section 263 of Act that assessment record was incomplete. Papers and documents had gone missing and probably had been removed. To assume and cast aspersion and slur against assessee without ascertaining full facts, cannot be accepted, specially when surrounding and background facts, do not predicate and necessitated any such inference. Other causes for said malicious act cannot be ruled out, in absence of any material or justification implicating and incriminating assessee. To be fair to ITA 19/2013 Page 8 of 13 appellant revenue no such direct allegation and assertion is made in order under Section 263 of Act. order sheet of Assessing Officer filed on record shows issuance of notice under Section 143(2) of Act on 21.04.2010 for 21.05.2010. Thereafter case was taken up for hearing on 26.05.2010 when part details were filed. case was then taken up on 07.06.2010. Thereafter hearings were fixed on 14.06.2010, 24.06.2010, 05.07.2010 and 12.07.2010, on which dates nobody attended. Thereupon another notice under Sections 143(2)/142(1) of Act was issued on 20.07.2010 and hearings were held on 02.08.2010, 09.08.2010, when more details were filed, and then on 20.08.2010. Letter dated 26.05.2010 states that respondent assessee had furnished several documents showing expenses as well as confirmation of accounts from sundry debtors, trade creditors etc. Monthwise details of sales, purchases during year were enclosed. Details of gross profit earned for earlier years, details of opening and closing stock, statement of bank account, additions to fixed assets along with bills, and details of fringe benefits were furnished. assessment order records that initial statutory notice under Section 143(2) of Act was issued on 07.09.2009. By letter dated 15.03.2010, several other details including copy of income tax return for assessment year ITA 19/2013 Page 9 of 13 2008-09, financial statements, tax audit report and statement that assessee had four partners, along with names of partners had also been filed. As recorded above, these documents etc. which were missing, were filed before Commissioner in proceedings under Section 263 of Act. 10. Nothing prevented or obstructed Commissioner from ascertaining truth and verifying correctness of contents of said documents. This would have helped in identifying cause of missing papers. Absence or failure to properly maintain records cannot per se and by itself, would be ground to invoke Section 263 of Act i.e. assessment order was erroneous and prejudicial to interest of revenue. Other material and evidence to show and manifest complicity and maliciousness of assessee in question would or may satisfy requirements. But facts should be ascertained and finding implicating and exhibiting involvement of assessee should be elucidated and shown. 11. It is responsibility and duty of revenue authorities to maintain sanctity and piety of files and records and to ensure that there is no tampering, removal or effacing of papers. When lapses of such nature take place, authorities must and should rule out foul play and ascertain ITA 19/2013 Page 10 of 13 full facts. Guilty should then be taken to task and dealt with in accordance with law and punished. However, de-novo proceedings pursuant to order under Section 263 of Act cannot be initiated without proper ascertainment of facts. question whether papers/documents were filed and whether and what enquiries were conducted by then Assessing Officer, should be elucidated, investigated and answered. Custodian of records have to take responsibility and blame for tampering and other lapses, for any such act is not possible without involvement of insider whether acting on his own or at behest of third party, which may assessee himself. Facts therefore should and must be ascertained and mystery unrevealed. Fair and just conclusion as to involvement of person or persons concerned and responsible should be formed. 12. difference between absence of enquiry and inadequate enquiries, when power under Section 263 of Act is exercised has been highlighted in several decisions. Even in case of inadequate enquiries, power under Section 263 of Act can be exercised but not by way of remand. In case of inadequate enquiries, Commissioner cannot pass remand order, but he should himself conduct necessary enquiries and record findings why and ITA 19/2013 Page 11 of 13 how assessment order was erroneous and prejudicial to interest of revenue. said conclusion must be recorded. 13. It is rather unfortunate that department was not able to ensure trustworthiness of their records and has, therefore, proceeded on basis that no enquiry or investigation was conducted by Assessing Officer. This would not be correct inference unless proper and adequate enquiries were conducted or facts to indicate and infer said conclusion of no enquiry or complicity are brought on record by Commissioner. We had to ascertain and satisfy ourselves, given this opportunity by our order dated 13.11.2013. However, Commissioner did not get in touch with Assessing Officer, who had passed assessment order under Section 143(3) of Act dated 20.08.2010 to enquire and ascertain details furnished and documents verified. No such letter was written and no response from then Assessing Officer was called for. Commissioner on other hand, has stated that before issue or passing of order under Section 263 of Act, it could not be ascertained whether necessary inquiries were made from Assessing Officer. As noticed above, Assessing Officer in his assessment order does mention that he had examined documents and details before completing assessment. ITA 19/2013 Page 12 of 13 Tribunal has accepted stand and stance of assessee that confirmation, documents, details were filed and ascertained by Assessing Officer. 14. In view of aforesaid factual position, it is not possible for High Court while exercising jurisdiction under Section 260A of Act to interfere with impugned order. appeal is accordingly dismissed. SANJIV KHANNA, J V. KAMESWAR RAO, J OCTOBER 01, 2014/km ITA 19/2013 Page 13 of 13 Commissioner of Income-tax- XII v. Indo Rub Industrie
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