The order of the Bench was delivered by
B. R. JAIN (Accountant Member).-This appeal by the assessee against the order dated January 30, 2012 of the learned Commissioner of Income- tax, Kota, raises the solitary ground as under :
1. That the learned Commissioner of Income-tax has erred in invoking the provision of section 263 and setting aside the assessment order for the assessment year 2007-08.
Briefly the facts are that the learned Commissioner of Income-tax called upon the assessment record of the assessee in the assessment completed on May 20, 2009 under section 143(3) of the Income-tax Act, 1961 by the Income-tax Officer, Ward 1(2), Kota. Being prima facie of the opinion that the assessment order so made is erroneous in so far as it is prejudicial to the interests of the Revenue, he issued a show-cause notice under section 263 of the Act on January 11, 2012 raising the following points :
(i) As per balance sheet you have shown creditors of Rs. 10.96 lakhs during the year under consideration. Confirmation in this record are placed on record, but no further enquiry with reference to source, creditworthiness and genuineness has been made in respect of fresh loans taken.
As per the balance sheet, sundry debtors of Rs. 33,55,662 are appearing and on perusal of interest account, it is gathered that the amount of Rs. 57,795 is credited which includes Rs. 25,000 as interest from bank. Thus, the remaining amount of Rs. 33,795 has been charged by you from various persons who appears to be farmers. On the other side, you have paid interest of Rs. 2,28,400 on the loan borrowed. ConsiCiering the quantum of debtors (farmers) of Rs. 33,55,662 the interest received of Rs. 32,795 is meager amount which leads to the conclusion that the assessee has charged interest from the farmers but not accounted for in the books of account. The Assessing Officer has also not examined this case properly nor collected the details.
(ii) No details of TDS reconciliation vis-a-vis commission (adat) receipt is available on records. The Assessing Officer failed to collect the details or they were not furnished by you.
(iii) You have claimed loss in trading account in various agriculture items. However, the Assessing Officer has not examined the reasonableness and genuineness of this claim as the record is silent in this regard.
3 The assessee furnished reply, which was duly considered and the assessment was found erroneous in so far as it is prejudicial to the interests of the Revenue on the following grounds :
(A) The first point involved is the non-verification of the genuineness of the assessee's claim that there are outstanding sundry creditors of an amount of Rs. 10.96 lakhs at the end of the year 2006-07. Besides this, as per the balance sheet, sundry debtors of Rs. 33,55,662 are appearing and on perusal of interest account, it is gathered that the amount of Rs. 57,795 has been credited which includes Rs. 25,000 as interest from banle Thus, the remaining amount of Rs. 33,795 has been charged by the assessee from various persons who appears to be farmers. On the other side, the assessee has paid interest of Rs. 2,28,400 on the loans borrowed. Considering the quantum of debtors (farmers) of Rs. 33,55,662, the interest received of Rs. 32,795 is meagre amount which leads to the conclusion that the assessee has charged interest from the farmers but not accounted for it in the books of account. The Assessing Officer has also not examined this issue properly and not collected the details. There are sundry creditors (farmers) also of Rs. 35,27,224, the genuineness of which has not at all been examined.
(B) The order passed by the Assessing Officer for the assessment year 2008-09 is held to be erroneous and prejudicial to the interests of the Revenue because, the necessary details to verify the debtors/creditors, i.e., the full addresses of the farmers and genuineness of transactions with them, etc., have not been taken on record by the Assessing Officer while framing the assessment order. The assessee has also given advances to the farmers during the year and at the end of year, sundry debtors (farmers) are shown to the tune of Rs. 33,55,662 to prove or to verify the genuineness of the outstanding credit or debit balances the entire account of each farmer in the books is required along with their complete addresses. The date wise details of the transactions undertaken on behalf of farmers by the assessee would have helped the Assessing Officer in finding out as to whether the outstanding creditors/debtors are old or recent. If the outstanding creditors/debtors are very old it is to be ascertained as to why they are not pressing for payments. This fact can be verified only if the farmers are identified and transactions with them are cross-verified. For identifying them other details such as their complete residential address, etc., are required. But these details have admittedly been not furnished. The Assessing Officer, even though had asked for these details in the course of hearing, has completed the assessment without obtaining them and verifying them. This makes the assessment order passed by him erroneous in the sense that it is prejudicial to the interests of the Revenue. The amount involved is large and therefore, the chances of findings out bogus creditors/ debtors are more.
(C) I am satisfied that the sundry creditors/debtors have not at all been verified by the Assessing Officer regarding their identity and genuineness of transactions and thus the Assessing Officer has erred in accepting the huge sundry creditors/debtors without examining their identity and the genuineness of transactions with them. Hence the order passed by the Assessing Officer is erroneous in law as well as on facts. As far as the requirement of order being prejudicial to the interests of the Revenue is concerned, if the amounts shown as sundry debtors/creditors are not verifiable they become part of the taxable income of the assessee as unexplained creditors and bogus debtors and hence the interests of the Revenue is certainly prejudicially affected. Both the conditions are fulfilled in the present case.
(0) Therefore, the assessment order dated March 18, 2009 is set aside to be made afresh after following and directions given above and properly verifying the identity and genuineness of the transactions in regard to sundry creditors (farmers) of Rs. 35,27,224 and sundry debtors (farmers) of Rs.33,55,662 and the claims of interest charged from some of the debtors (of Rs. 33,795) and also if no interest is charged from some other debtors then on account of diversion of borrowed funds to them as interest-free advances-a disallowance to be examined and made.
(E) The second point is non-reconciliation of commission (adat) receipts from the TDS certificate by the Assessing Officer. During the course of hearing the Assessing Officer has not reconciled the commission income shown by the assessee in the pr9fit and loss account with the TDS certificates issued by the concerned parties. For invoking jurisdiction under section 263 of the Income-tax Act, the following two conditions are required to be fulfilled :
(i) The order passed by the Assessing Officer is erroneous.
(ii) And the said order is prejudicial to the interests of the Revenue.
(F) The details regarding commission received have been furnished by the assessee's letter dated April 29, 2009 and the TDS details were given in computation of income. But the Assessing Officer has failed to examine the correct receipts from commission from TDS details ; hence the order passed by the Assessing Officer is erroneous in law as well on facts and prejudicial to the interests of the Revenue. The assessee itself has mentioned that there is a difference of Rs. 4,81,212 - Rs. 4,34,779 = Rs. 46,433 and on this difference of commission payment no TDS has been done. This has not at all been verified by the Assessing Officer to detect violation of TDS rules, if any, which certainly makes the Assessing Officer erroneous as well as prejudicial to the interests of the Revenue.
(G) Therefore, the assessment order dated March 18, 2009 is set aside to be made afresh after following and directions given above and properly verifying the receipts from commission of the assessee and the propriety of the tax deduction at source on these commission payments.
(H) The third point is that the assessee has claimed loss in trading account in various agriculture items. However, the Assessing Officer has not examined the reasonableness and genuineness of this claim as the record is completely silent in this regard. The assessee itself in its reply to show-cause notice has stated that at least in trading account for makka there was a gross loss of Rs. 730.25. This clearly means that this point has not at all been verified by the Assessing Officer. Hence, the order of the Assessing Officer is also found to be erroneous and prejudicial to the interests of the Revenue on this issue as well because the Assessing Officer has not examined the claim of loss in trading account claimed by the assessee on the various items traded by it, which was disallowable if not explained.
4 The assessee's counsel making reference to show-cause notice dated January 11,2012, and to the written submissions laid on record at pages 14 to 16 contains that the replies were given to the Assessing Officer on each and every issue. All the issues are stated to have been enquired by the assessing authority. It has, therefore, been contended that the order passed after making enquiry cannot be termed erroneous. That apart it has been conterrded that in the show-cause notice, the learned Commissioner of Income-tax merely sought to explain the difference of interest of Rs. 32,795 (on the amount of debtors/farmers for Rs. 33,55,662), as to whether the same was accounted fm: in the books of account of the assessee or not, but the learned Commissioner of Income-tax travelled beyond the show-cause notice and directed enquiry afresh to verify the genuineness of such debtors and trarisactions with them. In this view of the matter, it has been contended that the order passed by the learned Commissioner of Incometax needs to be set aside.
5 On the other hand, the learned Departmental representative contends that theelearned commissioner of Income-tax has acted within the scope of his jurisdiction· and· after affording adequate opportunity of being heard to the assessee and considering replies furnished by him, found that the assessment order dated May 25, 2009 suffers from lack of enquiry. It was, therefore, termed as an erroneous order in so far as it is prejudicial to the interests of the Revenue. The learned Commissioner of Income-tax, Kota, therefore, set aside the assessment to be made afresh after following the direction and properly verifying the issues raised in his order.
Heard parties with reference to material on record. Perusal of impugned order reveals that provisions of section 263 of the Act mandate that an order for enhancing, modifying or cancelling the assessment and directing afresh assessment can only be passed after giving an opportunity to the assessee of being heard and after making or causing to be made such enquiry as is deemed necessary. The grant of an opportunity to the assessee is a necessary concomitant of the enquiry. The learned Commissioner of Income-tax is required to give opportunity for coming to a conclusion that an order is erroneous or is prejudicial to the interests of the Revenue. In the present case in appeal, neither in the show-cause notice dated January 11, 2012 nor in the subsequent show-cause notice dated January 11, 2012 nor even in any proceedings under section 263 of the Act, had he afforded an opportunity to the assessee on the issue of verification of the genuineness of the outstanding creditors of Rs. 35,27,224 or debtors amounting to Rs. 33,55,662. The learned Commissioner of Income-tax, however, travelled beyond the issues contained in the notices and thus his order on that count was not in accordance with the spirit of the provisions of section 263 of the Act in that regard. In view of the aforesaid finding and having regard to the judgment by the hon'ble Delhi High Court in the case of crr v. Ashish Rajpal [2010] 320 ITR 674 (Delhi) are set aside the order on these issues.
In so far as the issue of outstanding credit of Rs. 10.96 lakhs is concemed, it is admitted that the appellant has plated on record confirmations in assessment proceedings before the Assessh3g Officer. The learned Assessing Officer did not make any enquiry thereon and accepted the fact on its face value. This was to be termed as a case of only half-hearted enquiry as no definite conclusion could be arrived merely on the filing of confirmation before the Assessing Officer. This finds support from the judgment rendered by the hon'ble Calcutta High Court in the case of Hindusthan Tea Trading Co. Ltd. v. CIT [2003] 263 ITR 289 (Cal) pages 299 and 300 as under :
"But when the income-tax file numbers were disclosed, even though despite service of notices, the 14 persons failed to respond, it was incumbent on the income-tax authority to ascertain from the income-tax file numbers whether the files were in existence and on the basis of such files the identity of the shareholders could be established or not and their creditworthiness and genuineness of the transaction could be proved. Until such enquiry was made, it cannot be said that the income-tax authority had acted upon the materials so disclosed. The onus may not be discharged simply on production of the materials but, at the same time, once the materials were produced by the assessee and which were already on record, it was incumbent on the taxing authority to find out the creditworthiness of such materials and only after ascertaining the same, it could come to a conclusion. Otherwise, it would be a half-hearted or incomplete enquiry on the basis whereof no definite conclusion could be arrived at."
8 The learned Commissioner of Income-tax in the present case only gave direction to decide afresh. Such a direction does not cause prejudice to the assessee as has also been held by the hon'ble Madhya Pradesh High Court in the case of CIT v. Deepak Kumar Garg [2008] 299 ITR 435 (MP). The learned Commissioner of Income-tax,. therefore, is found justified in setting aside the order of the Assessing Officer to be erroneous in so far as it is prejudicial to the interests of the Revenue on this issue.
9 In so far as the issue of TDS reconciliation and trading account in various agricultural items is concerned, the Assessing Officer has not made due and proper enquiry. The learned Commissioner of Income-tax merely gave direction to decide afresh. This causes no prejudice to the assessee, as has also been held by the hon'ble Madhya Pradesh High Court in the case of CIT v. Deepak Kumar Garg [2008] 299 ITR 435 (MP).
10 In this view of the matter, we uphold the order under section 263 on the limited issues as stated hereinbefore and partly allow the appeal raised by the assessee.
11 In the result, the appeal stands partly allowed.
12 The order pronounced in the open court on May 24, 2013.