The Principal Commissioner Of Income Tax-3 v. N K Proteins Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/TAX APPEAL NO. 203 of 2020 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX-3 VersusN K PROTEINS LTD ========================================================== Appearance:MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE THE CHIEF JUSTICE MR. VIKRAM NATHandHONOURABLE MR. JUSTICE J.B.PARDIWALA Date : 16/09/2020ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1This Tax Appeal under Section 260A of the Income Tax Act,1961 (for short, ‘the Act, 1961’) is at the instance of the Revenueand is directed against the order passed by the Income TaxAppellate Tribunal, Ahmedabad, Bench ‘C’ Ahmedabad dated12[th] December 2019 in the ITA No.699/Ahd/2015 for the A.Y.2010-11. 2The Revenue has proposed the following substantialquestions of law for the consideration of this Court: “[A] Whether on the facts and in the circumstances of the case,the Tribunal was justified in law in quashing the order u/s 263 ofthe Income tax Act, 1961, passed by the Principal Commissionerof Income Tax? [B] Whether Tribunal was justified in facts and in law in ignoringthe finding of the Principal Commissioner of Income Tax thatnecessary enquiries had not been conducted by the AssessingOfficer while framing assessment in undue haste resulting in nonapplication of mind on the part of the Assessing Officer? [C] Whether on the facts of the case and in law Tribunal is right tohold that the Assessing Officer conducted necessary andsufficient enquiries while should have been made warranted onfacts of the case in respect of each of the issues raised in theimpugned order u/s 263 dated 25/02/2015 as recorded in the263 order in general and in para-3 (items 1 to 7) in particular andalso whether proper submissions in respect of these were madeby the assessee to Assessing Officer before assessment wascompleted?” 3We have heard Ms. Mauna Bhatt, the learned SeniorStanding Counsel appearing for the Revenue. 4It appears from the materials on record that the assesseecompany filed its return of income on 29[th] September 2010declaring total income at Rs.15,31,24,189/-. The assessmentorder was passed under Section 143(3) of the Act dated 26[th]March 2013 determining the taxable income of the assessee atRs.15,47,54,611/-. 5The CIT-3, Ahmedabad took up the order of assessmentdated 26[th] March 2013 referred to above in suo motu revision inexercise of his power under Section 263 of the Act, 1961 andvide order dated 26[th] March 2013 quashed and set aside theassessment order. The CIT-3 came to the conclusion that theassessment order under Section 143(3) of the Act, 1961 referredto above is erroneous and prejudicial to the interest of Revenue. 6Later, pursuant to the directions of the CIT-3, Ahmedabadvide order dated 15[th] March 2016, the accounts of the assessee’scompany were audited under Section 142(2A) of the Act. Thespecial audit submitted his report dated 16[th] September 2016.The order under Sections 143(3) read with 263 and 142(2A)respectively of the Act, 1961 was passed on 11[th] November 2016 making various additions on the basis of the report of the specialaudit as well as the order passed under Section 263 of the Act.The issue related to the payment to the related parties coveredunder Section 40A(2)(b) of the Act including the job workcharges, purchases of services, etc. 7The assessee, being dissatisfied with the order passed bythe CIT-3, Ahmedabad under Section 263 of the Act, preferredan appeal before the Appellate Tribunal. The Appellate Tribunalvide its order dated 12[th] December 2019 partly allowed theappeal. 8The Revenue, being dissatisfied with the impugned orderpassed by the Tribunal has come up with the present appeal.The Appellate Tribunal, while partly allowing the appeal filed bythe assessee, held as under: making various additions on the basis of the report of the specialaudit as well as the order passed under Section 263 of the Act.The issue related to the payment to the related parties coveredunder Section 40A(2)(b) of the Act including the job workcharges, purchases of services, etc. 7The assessee, being dissatisfied with the order passed bythe CIT-3, Ahmedabad under Section 263 of the Act, preferredan appeal before the Appellate Tribunal. The Appellate Tribunalvide its order dated 12[th] December 2019 partly allowed theappeal. 8The Revenue, being dissatisfied with the impugned orderpassed by the Tribunal has come up with the present appeal.The Appellate Tribunal, while partly allowing the appeal filed bythe assessee, held as under: “9We have heard the rival contentions of both the parties andperused the materials available on record. In the instant case, theLd. Pr.CIT has held that the order of the AO as erroneous insofarprejudicial to the interest of Revenue on account of non-verification of the items as discussed above. 9.1However, we note that the AO during the assessmentproceedings has required the assessee to furnish the details ofthe fixed assets in the notice issued under section 142(1) of theAct dated 22-10-2012. The relevant extract of the notice isreproduced as under: “11. Regarding additions to fixed assets, furnish the copiesof major bills of additions to Fixed Assets. Give details inthe following proforma: C/TAXAP/203/2020 ORDER If any extra charges like insurance, carriage, interest etc.have been incurred for the purchase of these assets, pleaseprovide bills. The assessee is response to such notice filed the reply vide letterdated 5[th] November 2012. The relevant extract of the letter isreproduced as under: “9. The details of addition to fixed assets i.e. description ofasset, date put to use and value of the asset is alreadygiven in Annexure-3A to the audit report under form 3CD.” 9.2We also find that the assessee in response to the abovenotice has also filed the details of the assets for each block ofassets which are placed on pages 141 to 149 of the paper book.Thus after perusal of the details of the fixed assets which wereavailable before the AO during the assessment proceedings, wefind that the AO after due application of mind framed theassessment under section 143(3) of the Act. 9.3Similarly, we note regarding the proceeds from depositsand cash credit i.e. unsecured loans, that the AO during theassessment proceedings has required the assessee to furnish thedetails in the notice issued under section 142(1) of the Act dated22-10-2012. The relevant extract of the notice is reproduced asunder: “8. Details of the secured loans taken from banksalongwith the Name and address of the Branch and Typeof loan and the amount of loan taken. Also state thesecurity hypothecated / mortgaged. 9. Please provide details of unsecured loans in thefollowing proforma: 10. In respect of any new unsecured loans taken and concerning any squared up loans, give confirmations of thepersons and also provide the ITRs showing returnedincome of the lenders.” … 19. Details of deposits along with the name & address ofthe person and amount. The assessee is response to such notice filed the reply vide letterdated 5[th] November, 2012. The relevant extract of the letter isreproduced as under: “7. The details of secured loans along with the details ofsecurity furnished relevant to AY 2010-11 is enclosed. 8. The details of unsecured loans in the required formatrelevant to AY 2010-11 is enclosed.” 9.4We also find that the assessee in response to the abovenotice has filed the details of the unsecured loan which areplaced on pages 137 to 140 of the paper book as well asconfirmations which are placed on 178 to 199 of the paper book. … 19. Details of deposits along with the name & address ofthe person and amount. The assessee is response to such notice filed the reply vide letterdated 5[th] November, 2012. The relevant extract of the letter isreproduced as under: “7. The details of secured loans along with the details ofsecurity furnished relevant to AY 2010-11 is enclosed. 8. The details of unsecured loans in the required formatrelevant to AY 2010-11 is enclosed.” 9.4We also find that the assessee in response to the abovenotice has filed the details of the unsecured loan which areplaced on pages 137 to 140 of the paper book as well asconfirmations which are placed on 178 to 199 of the paper book. 9.5Similarly, we note, regarding the transactions coveredunder section 40A(2)(b) of the Act assessee in response to thequeries raised in the course of hearing has submitted vide letterdated 06/03/2013 that the transactions were carried out withthe related parties at the prevailing market rate. “In the course of hearing certain queries are raised. Theyare explained as under: 1. As regards Section 40A(2)(b) the assessee has madepurchases from NKIL, N.K. Roadways P. Ltd. and TirupatiProteins P. Ltd. They are all at prevailing market rate. Thismay be verified from the purchase invoices from the saidparties and thir parties produced for your verification.Therefore the question of applicability of Section 40A(2)(b)does not arise.” 9.6We also note that the assessee has filed the completecopies of the ledgers of the transactions carried out with theparties which are placed on page 295 to 671 of the paper book. 9.7Similarly, we note, regarding the current liabilities that theAO during the assessment proceedings has required the assesseeto furnish the details in the notice issued under section 142(1) of the Act dated 22-10-2012. The relevant extract of the notice isreproduced as under: “15. Give details of outstanding provisions in the followingproforma: 16. Provide a complete list of all your sundry creditors for AY2010-11 in the following proforma: The assessee is response to such notice filed the reply vide letter5[th] November 2012. The relevant extract of the letter isreproduced as under: “7. The details of secured loans in the required formatrelevant to AY 2010-11 is enclosed.” 8. The details of unsecured loans in the required formatrelevant to AY 2010-11 is enclosed. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 13. The details of provision made relevant to AY 2010-11 isenclosed. 14. The list of creditors outstanding as on 31/03/2009 and31/03/2010 are enclosed.” 9.8 We also note that the assessee has filed the complete detailsof the parties and the accounts of the provisions which are placedon pages 150 to 167 of the paper book. 9.9 In view of the above, we hold that the assessment order wasframed under section 143(3) of the Act after due verification bythe AO. Accordingly, we are of the view that the order of the AOcannot be held as erroneous insofar prejudicial to the interest ofRevenue on account of non-verification on the facts as statedabove.” 9We also take notice of the fact that the Tribunal, in supportof its reasonings and conclusions, has placed reliance on variousdecisions of the Supreme Court and High Courts. 10The finding of fact recorded by the Appellate Tribunal, afterdue consideration of the relevant aspects of the matter, is thatthe assessment order was framed under Section 143(3) of the Actafter due verification by the A.O. Therefore, the order of theAssessing Officer could not be said to be erroneous andprejudicial to the interest of the Revenue. The Tribunal has alsorecorded a finding that the assessee had furnished completedetails of the parties and the accounts. 9We also take notice of the fact that the Tribunal, in supportof its reasonings and conclusions, has placed reliance on variousdecisions of the Supreme Court and High Courts. 10The finding of fact recorded by the Appellate Tribunal, afterdue consideration of the relevant aspects of the matter, is thatthe assessment order was framed under Section 143(3) of the Actafter due verification by the A.O. Therefore, the order of theAssessing Officer could not be said to be erroneous andprejudicial to the interest of the Revenue. The Tribunal has alsorecorded a finding that the assessee had furnished completedetails of the parties and the accounts. 11In the overall view of the matter, we are convinced with thereasonings assigned by the Appellate Tribunal while allowing theappeal of the assessee. We are of the view that none of the threequestions proposed by the Revenue could be termed as thesubstantial questions of law. 12In view of the aforesaid, this appeal fails and is herebydismissed. (VIKRAM NATH, CJ) (J. B. PARDIWALA, J)