O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal by the assessee is arising out of the order of Pr. Commissioner of Income-tax - 2, Kolkata in DIN & Letter number ITBA/COM/F/17/2020-21/1-1027175554(1) dated 29.05.2020 passed under section 263 of the Income-tax Act, 1961 (hereinafter referred to as the Act) against the assessment order passed under section 143(3) of the Act by ITO, Ward - 4(4), Kolkata, dated 21.09.2017.
2. Grounds of appeal taken by the assessee are reproduced as under:
"1. That on the facts and in the circumstances of the case, the order passed by the learned Pr. CIT. u/s 263 of the l.T. Act is ab initio void being bad in law.
2. On the facts and in the circumstances of the case, the learned Pro CIT erred in setting aside the assessment order dated 21st day of September, 2017 and directing the Assessing Officer to pass a fresh assessment order.
3. That on the facts and circumstances of the case and in law, the impugned order passed by the PCIT is illegal and bad in law, being barred by limitation prescribed under section 263(2) of the Act.
4. That appellant craves leave to produce additional evidences in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963.
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5. That appellant craves to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal"
3. Before us, Shri Raja Ram Chowdhury and Shri Vinay Jalan, FCA represented the assessee and Shri Sudipta Guha, CIT, DR represented the Department.
4. We note that there is a delay of 430 days in filing the appeal for which petition for condonation of delay along with affidavit is placed on record. The impugned order was passed on 29.05.2020 for which the appeal should have been filed before the Tribunal on or before 28.07.2020. This due date fell during the period of Pandemic of Covid
19. The appeal was filed on 01.10.2021. The period of delay is covered for exclusion by the order of Hon'ble Supreme Court in the case of Suo moto Writ Petition (C) No. 3 of 2020 dated 10.01.2022 by which the period from 15.03.2020 to 28.02.2022 has been directed to be excluded for the purpose of limitation. Vide this order a further period of 90 days has been granted for providing the limitation from 01.03.2022. Considering this direction from the Hon'ble Supreme Court the period of delay of 430 days falls within the exclusion and accordingly, the delay noted by the Registry is condoned and appeal is admitted for adjudication.
5. Brief facts of the case are that assessee filed its return of income on 23.09.2015 reporting total income of Rs.2,26,460/-. Case was selected for scrutiny assessment through CASS for which statutory notices were issued and served on the assessee. Assessment was completed by accepting the returned income. Subsequently, a proposal was received from the Ld. AO in the office of the Ld. Pr. CIT-2, Kolkata for the review of the assessment order u/s. 263 of the Act. From the perusal of the said proposal of the Ld. AO, Ld. Pr. CIT made a prima facie observation that AO namely ITO, Ward-4(4), Kolkata had failed to take a logical action on the information available with him according to
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which the impugned assessment is erroneous in so far it is prejudicial to the interest of the revenue. He thus, after going through the assessment records, embarked upon initiating the proceedings u/s. 263 of the Act by issuing notice dated 12.03.2020 noting down the discrepancies as observed by him. The discrepancies observed by him and noted in the show cause notice are extracted as under:
"The case was selected for Limited scrutiny under CASS primarily on the basis of following parameters:
• Large increase in investment in unlisted equities during the year.
• Low income in comparison to high investment On going through the assessment record, it is noticed that:
1. As per the balance sheet, there was no net increase in investment in unlisted equities during the period under scrutiny, but the assessee's investment in unlisted equity stands at Rs. 46.78 Cr as on 31.03.2015.
2. From P & L account and submission filed by the assessee, it is seen that the assessee company had booked a gross loss on saree/other garments to the tune of Rs.13,51,350/-, which had reduced the income claimed from miscellaneous sources (primarily interest income). It is also apparent that the assessee claimed a loss of Rs. 9,24,300/- from F & O transactions. No details were called for by the officer on both these issues, considering that low income was one of the primary reasons for selection of scrutiny in this case.
In the course of assessment proceedings, the A.0 had passed the order without proper verification/examination of the issues mentioned above and accordingly making disallowance/addition in this regard."
6. Assessee submitted its reply on the above show cause that its case was selected for limited scrutiny on the following reasons:
(i) Low income in comparison to very high investments and
(ii) Large increase in investment in unlisted equities during the year.
It was submitted by the assessee that all the details and documents as required by the Ld. AO on the above two issues were furnished in the course of assessment proceedings vide letter dated 11.09.2017 and 21.09.2017. It was also submitted that Ld. AO had formed an opinion on the said issues after being satisfied with the aforesaid submissions and was pleased to pass the assessment order dated 21.09.2017 by accepting the returned income as the assessed income. Assessee thus, contended that it cannot be said that Ld. AO
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failed to examine the issues for which its case was selected for limited scrutiny as well as issues raised in the show cause notice issued for initiating the revisionary proceedings u/s. 263 of the Act.
7. After taking into account the facts of the case and the submissions made by the assessee and on going through the assessment records, Ld. Pr. CIT made the following observations:
(i) On the issue of large increase in investment in unlisted equities during the year, it was observed from the Balance Sheet that there was no net increase but the assessee's investment in unlisted equity stands at Rs.46.78 Cr. as on 31.03.2015. It was further observed that assessee had stated in its submission dated 21.09.2017 that it had submitted opening balance, purchase, sales and closing balance of investment but no such details were available on the record.
(ii) Assessee has stated that it has filed its submission dated 21.09.2017 and another submission (undated) both of which are on record but the last date of hearing recorded in the order sheet is of 19.09.2017. Assessment order was passed on 21.09.2017. In this factual background, ld. Pr. CIT observed that when the case was last discussed and heard on 19.09.2017, it is not clear how the submission dated 21.09.2017 and another undated submission found placed in the records were considered for making the assessment.
(iii) Assessee has stated that in compliance to the notice issued by Ld. AO, it had filed all the details including those for which the case was selected for limited scrutiny vide letter dated 11.09.2017 and 21.09.2017 and after going through these submissions furnished by the assessee, Ld. AO had formed an opinion on the said issues and passed the assessment order dated 21.09.2017. Relevant extracts from order sheet placed at page 5 and 6 of the paper book are reproduced as under:
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(iv). Ld. Pr. CIT also observed from the P&L Account and submissions of the assessee that assessee had booked a gross loss on sarees and
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other garments to the tune of Rs.13,51,350/- which had reduced the income claimed from miscellaneous sources i.e. interest income. Further, assessee had claimed a loss of Rs.9,24,300/- from F&O transactions. Despite 'low income' being one of the primary reasons for selection of scrutiny of the case, no details were called for by the Ld. AO on this issue.
8. Taking into account these observations and discrepancies, Ld. Pr. CIT drew his consideration that the AO has not done verification on the issues for which the case was taken up for scrutiny assessment as is evident from the assessment order, the order sheet of the assessment proceedings and the submission of the assessee which is dated 21.09.2017, when the case was discussed and heard on 19.09.2017. Thus, on the basis of all these details, Ld. Pr. CIT concluded that Ld. AO has not carried out proper verification and completed the assessment without application of mind. Ld. Pr. CIT thus completed the revisionary proceedings by holding that impugned assessment order dated 21.09.2017 is erroneous in so far as prejudicial to the interest of the revenue and restored the file back to the Ld. AO with a direction to verify the issue as discussed in para 3 and 6 of his order afresh after giving opportunity to the assessee. Aggrieved, the assessee is in appeal before the Tribunal.
9. Before us, Ld. Counsel for the assessee has placed on record a paper book containing 124 pages. At the outset, Ld. Counsel challenges the assumption of jurisdiction by the Ld. Pr. CIT for invoking the revisionary proceedings u/s. 263 of the Act which is based on proposal received from the ld. AO. Ld. Counsel submitted that it is the Ld. Pr. CIT who has to call for and examine the record of any proceedings under the Act and then draw his consideration if the order passed by the Ld. AO is erroneous in so far as it is prejudicial to the interest of the revenue by giving the assessee an opportunity of being heard and
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making or causing to be made such enquiry as he deems necessary. According to the Ld. Counsel, assessment order has been held to be erroneous in so far as it is prejudicial to the interest of the revenue by the Ld. Pr. CIT on the basis of proposal of the Ld. AO and, therefore, the impugned revisionary order is without proper jurisdiction and bad in law which is ought to be quashed as void ab initio. To buttress his contentions, ld. Counsel placed reliance on the decision of Co-ordinate bench of ITAT, Kolkata in the case of Rupayan Udyog Vs. CIT, ITA No. 1073/Kol/2012 dated 28.11.2018 and referred to para 3 of the said order which is reproduced as under:
"3. At the outset itself, assailing the decision of the Ld. CIT exercising his revisional jurisdiction u/s. 263 of the Act the Ld. AR drew out attention the second paragraph of the impugned order which reads as under:
"2. Thereafter, the AO vide letter dated 15.04.2008 has sent proposal u/s. 263 of the I. T. Act stating therein that in respect of 10 parties from whom advance of Rs.42,75,375/- was received, no verification could be made about the source of receipt. The AO further stated that in respect of 4 out of aforesaid 10 parties notices were not served and the Inspector returned the notices undeserved and therefore, as per opinion of the AO, the assessment order is erroneous and prejudicial to the interest of revenue and accordingly required to be set aside to frame de novo assessment on receiving direction from the CIT."
10. He also referred to the decision of Co-ordinate Bench of ITAT, Pune, in the case of Alfa Laval Lund AB Vs. CIT (IT/TP), ITA No. 1287/PUN/2017 dated 02.11.2021 wherein in para 4 it was pointed out that "the consideration that the assessment order is erroneous and prejudicial to the interests of the revenue should flow from and be the consequence of his examination of the record or proceedings. If such a consideration is not preceded by the examination of record of the proceedings under the Act, the condition for revision does not get magnetized." The Ld. Counsel further referred to the decision of Hon'ble jurisdictional High Court of Calcutta in the case of Pr. CIT Vs. Sinhotia Metals & Minerals Pvt. Ltd. in IA No. GA/1/2019 in ITAT/104/2019 dated 07.01.2022 from which it was pointed out as under:
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"After noting the said decision the Tribunal points out that the appellant department has not controverted the contents of the letter of the Joint Commissioner of Income Tax dated 18thAugust, 2016 and has recorded that the said letter clearly brings out that the PCIT has called for proposal from the JCIT/Assessing Officer to exercise jurisdiction under section 263 of the Act. Therefore, the Tribunal concluded that the PCIT has not exercised jurisdiction under section 263 of the Act himself, but he exercised jurisdiction at the instance of the Assessing Officer/JCIT, which is against the provisions of law."
11. On the aspect of selection of case for limited scrutiny and Ld. Pr. CIT making contradictory observations on the issue of limited scrutiny as alleged by the Ld. Counsel, he placed reliance on the decision of the Co-ordinate Bench of ITAT, Chennai in the case of Yuvraj Vs. ITO in ITA No. 1722/Chny/2019 dated 07.03.2022 from where it was pointed out that "It is an admitted position of law that in limited scrutiny assessments, scope of verification is limited to the issues mentioned in the notice issued under CASS system. The AO cannot travel beyond the issues on which assessment has been taken up for scrutiny." Then obviously, the Ld. Pr. CIT cannot term the assessment order passed by the AO as erroneous in so far as it is prejudicial to the interest of the revenue on issues other than the issue taken up by the AO in scrutiny assessment proceedings… We are of the considered view that the Ld. Pr. CIT has exceeded her jurisdiction in examining the issues other than the issues which are subject matter of limited scrutiny assessment proceedings before the AO."
12. Ld. Counsel also referred to the decision of Co-ordinate Bench of ITAT, Amritsar in the case of Paradise Rubber Industries Vs. PCIT in ITA No. 115/ASR/2020 dated 24.09.2021 relating to the issue of selection of case for limited scrutiny.
13. Per contra, Ld. CIT, DR referred to the observations made by the Ld. Pr. CIT and the discrepancies pointed out in respect of noting made in order sheet of the assessment proceedings and the submission made by the assessee in the assessment proceedings. He submitted that it is evident from the records so also as claimed by the assessee that it has
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made all the submissions before the AO vide letter dated 11.09.2017 and 21.09.2017 whereas discussion and hearing of the case was concluded on 19.09.2017. Thus, there was no occasion for the Ld. AO to consider and take into account the submissions made by the assessee vide letter dated 21.09.2017 for passing the assessment order on 21.09.2017 itself. Ld. CIT, DR further pointed out that the submissions made and as claimed by the assessee vide letter dated 21.09.2017 are vital in respect of the two issues for which the case was selected for limited scrutiny as these submissions of 21.09.2017 contains the relevant details and explanations along with supporting documents for the same. This submission is placed in the paper book of the assessee at pages 36 to 39 along with relevant supporting documents from pages 40 to 69 in the paper book. Ld. CIT, DR also pointed out that there was no business of sarees undertaken by the assessee in the earlier years nor in the subsequent years. He thus submitted that Ld. Pr. CIT has carefully and thoroughly examined the assessment records and brought to surface, the discrepancies of the assessment proceedings which lacked enquiry on the two issues for which the case was selected for scrutiny assessment and thus, the revision has been rightly done in accordance with the provisions of section 263 of the Act.
14. We have carefully considered the rival submissions and perused the material available on record and given our thoughtful consideration to the submissions made by both the parties. On the contention of the Ld. Counsel of the assessee that the impugned assessment has been held to be erroneous in so far as it is prejudicial to the interest of revenue by the ld. Pr. CIT on the basis of proposal of the Ld. AO, it is appropriate to understand the role of proposal of ld. AO made before the ld. PCIT. To our understanding, it is nothing more than a 'stimuli' for the ld. PCIT which could be either an internal or external source. It is 'suggestive' in nature on which the ld. PCIT is required to apply his
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independent mind to draw his own consideration. It is a source or a clue which tinkers the ld. PCIT to look into a particular case and probe into its records to arrive at a consideration if the order is erroneous in so far as it is prejudicial to the interests of the revenue so as to set in motion, the revisionary provisions of section 263 of the Act.
14.1. What is important is the application of mind by the ld. PCIT on the records of the case. This aspect of application of mind by the CIT has been succinctly dealt by the Hon'ble Delhi High Court in the judgment of DG Housing Finance Co. Ltd. [2012] 20 taxmann.com 587 (Del).
14.1.1. While adverting on the issue, Hon'ble High Court held that the CIT has to come to the conclusion and himself decide that order is erroneous, by conducting necessary enquiry, if required and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the AO will be erroneous because the order passed is not sustainable in law and the said finding must be recorded by CIT who cannot remand the matter to the assessing officer to decide whether the findings recorded are erroneous.
14.1.2. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the AO, making the order unsustainable in law.
14.1.3. In some cases, possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation
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but the AO had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the AO to conduct further enquiries without a finding that the order is erroneous, the condition or requirement which must be satisfied for exercise of jurisdiction u/s 263 of the Act. In such matters, to remand the matter/issue to the AO would imply and mean that the CIT has not examined and decided whether or not the order is erroneous but has directed the AO to decide the aspect/question.
14.1.4. The Hon'ble Court further held that this distinction must be kept in mind by the CIT while exercising jurisdiction u/s 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the AO, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/enquiry himself. The order of the AO may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT holds and records reason why it is erroneous. Therefore, CIT must after recording reasons, hold that order is erroneous. The jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. 14.1.5. It was further observed by the Hon'ble High Court that the material, which the CIT can rely up on includes not only the records as it stands at the time when the order in question was passed by the AO but also records as it stands at the time of the examination by the CIT.
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Nothing prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the AO is erroneous.
14.2. In the present case before us, we note that what the Ld. Pr. CIT has recorded in para 2 is his prima facie observation on the perusal of the proposal of the AO. After keeping in mind, the observation that the Ld. AO failed to take a logical action on the information available with him, Ld. Pr. CIT on examination of assessment records and by applying his mind, embarked upon the journey of revisionary proceeding by issuing a notice u/s. 263 of the Act by pointing out and observing the discrepancies detected in the assessment proceedings as available from the assessment record.
14.3. Subsequent to the reply furnished by the assessee on the show cause notice issued by the Ld. Pr. CIT u/s. 263(1) of the Act, he carefully considered the facts of the case and the submissions made by the assessee and made several observations as noted in para 6 of the impugned order specifically pointing out the discrepancies vis-à-vis noting in the order sheet of the assessment proceedings and the submissions claimed to have been made by the assessee in the assessment proceedings to demonstrate that AO has not done verification on the issues for which the case was taken up for scrutiny and has passed the order without applying his mind to the material on record.
14.4. On the case law relied on by the Ld. Counsel in Rupayan Udyog (supra), we note that the Ld. AO himself has expressed his opinion that the assessment order is erroneous and prejudicial to the interest of revenue since no verification could be done about the source of receipt of advance and, therefore, is required to be set aside to frame de novo
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assessment on receiving direction from the Ld. Pr. CIT. On the decision of Hon'ble Jurisdictional High Court of Calcutta in the case of Sinhotia Metals & Minerals Pvt. Ltd. (supra), we note that the distinguishing fact is that Ld. Pr. CIT himself had called for a proposal from the JCIT/AO to exercise jurisdiction u/s. 263 of the Act. In the case of Alfa Laval Lund (supra), the important observation made is that the consideration for holding the order as erroneous and prejudicial to the interest of revenue should flow and be the consequence of examination of record of proceedings by the Ld. Pr. CIT.
14.5. On the aspect of limited scrutiny, in the case laws referred to by the Ld. Counsel, it is held that in limited scrutiny assessment, scope of verification is limited to the issues for which the selection is made and Ld. Pr. CIT cannot revise the assessment order on the issues other than the issues considered by the AO in the assessment proceedings. We note that there is a discrepancy emanating from the noting made in the order sheet of the assessment proceedings (reproduced supra) and the submissions claimed to have been made by the assessee dated 21.09.2017 which demonstrates that ld. AO has not applied his mind and executed the due verification and examination on the two issues (supra) for which the case was selected for limited scrutiny.
14.6. It is a fact on record that the discussion and hearing of the assessment was concluded on 19.09.2017 for which both the Ld. AO and the authorized representative of the assessee, Ms. Manisha Patwari had put their signatures on the order sheet (reproduced supra). Ld. Counsel has repeatedly claimed that all the submissions were made vide letter dated 11.09.2017 and 21.09.2017, more importantly all the relevant submissions and explanations relating to the two issues for limited scrutiny criterion forms part of the submission dated 21.09.2017 as placed on record in the paper book.
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14.6.1. In the written submission dated 21.09.2017, placed at page 36 of the paper book, it is submitted by the assessee it is producing the bills and vouchers for the claim of expenses of Rs.13,00,098/-. The relevant para is reproduced as under -
"We are enclosing herewith the details of other expenses of Rs 13,00,098/- claimed in the profit and loss account of ITR along with their ledger copy for the financial year ended 31stMarch 2015 relevant to the assessment year 2015-16 for your record and perusal. We also producing bills and vouchers related to the aforesaid other expenses were produced before you for verification."
[emphasis supplied by us by underline]
14.6.2. Also, in the same written submission, reply in reference to S/No:12, assessee submitted that it is producing the books of accounts of the year for verification. The relevant para is reproduced as under -
"We are enclosing herewith Form no 26AS for your record and perusal and submit that all the income on which TDS is deducted as per Form no 26AS are accounted for in the books of accounts of the assessee company and can be verified from the Profit & loss account for the year ended 0n 31stMarch, 2015 relevant to assessment year 2015-16 of the assessee company. We also producing the books of accounts of the year under consideration before you for verification at the time of hearing."
[emphasis supplied by us by underline]
14.6.3. There is no entry in the order sheet of the assessment proceedings of the above submission of 21.09.2017 wherein assessee has claimed to produce bills, vouchers and books of accounts for verification at the time of hearing. The last entry is on 19.09.2017 wherein it is recorded that the case was discussed and heard under the signatures of both, the ld. AO and the Authorized Representative of the assessee. These facts evidently demonstrate that Ld. AO has failed to conduct required verification and examination and has not applied his mind before passing the assessment order and accepting the returned income as assessed income.
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14.7. Ld. Pr. CIT also referred to the insertion of explanation 2 to section 263 of the Act w.e.f. 01.06.2015 which is reproduced below:
"Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner:-
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing any relief without inquiring into the claim;
(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or
(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person."
15. We note that Ld. Pr. CIT on his own examination of the assessment records has carefully and elaborately surfaced out the discrepancies in the assessment proceedings as evident from the order sheet entries (reproduced supra) and has called for the required explanations from the assessee in the revisionary proceedings. In the revisionary proceedings also, assessee asserted to have made all the submissions before the ld. AO on the issues raised by the ld. Pr. CIT vide its submissions dated 11.09.2017 and 21.09.2017. Considering the facts on record and the submissions made by both the parties as elaborately discussed above, we have no hesitation in upholding the revisionary order passed by the ld. Pr. CIT u/s. 263 of the Act. Accordingly, grounds taken by the assessee are dismissed.
16. In the result, appeal of the assessee is dismissed. Order is pronounced in the open court on 2ndNovember, 2022 Sd/- Sd/-
(SANJAY GARG) (GIRISH AGRAWAL)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 02.11.2022
JD, Sr. P.S.
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Copy to:
1. The Appellant:
2. The Respondent:.
3. The ITO, Ward-4(4), Kolkata
4. The DR, ITAT, Kolkata Bench, Kolkata / / T r u e C o p y / / [
By Order
Assistant Registrar
ITAT, Kolkata Benches, Kolkata