2003 (6) TMI 175 - AT - Income Tax

Challenged the Revision order passed u/s 263 - Opportunity of hearing - Of orders prejudicial to interests of revenue - bogus or genuine - HELD THAT - The only fact is that the AO passed a very brief assessment order and no infirmity has been pointed out by the learned CIT in regard to allowing the claim by the AO to the assessee, inter alia, the expenses for business promotion and marketing. The case of Uma Shankar Rice Mill 1990 (7) TMI 78 - ORISSA HIGH COURT is not relevant for the issue under consideration before us as in that case the issue was whether there was any question of law, arose from the order of the Tribunal. The Delhi Bench of the Tribunal has held in the case of Joy Commercial Co. Ltd. that it is necessary for the CIT to state in which manner he considered that the order of the ITO was erroneous and prejudicial to the interest of the Revenue and should also state the basis for arriving at such conclusion. In the absence of specific finding by the learned CIT, the assessment order cannot be construed to be erroneous and prejudicial to the interest of the Revenue. The Madras High Court has held in the case of CIT vs. Smt. D. Valliammal 1996 (6) TMI 11 - MADRAS HIGH COURT that the CIT cannot be set aside an assessment order under s. 263 of the Act on the ground that verification of accounts was needed. The Mumbai Bench of the Tribunal has held in the case of Andhra Valley Power Supply Co. Ltd. vs. Dy. CIT 1995 (5) TMI 49 - ITAT BOMBAY that the CIT's action u/s 263 must resemble that of a surgeon's knife and he cannot open the assessment wide and direct the AO to consider everything afresh. The Supreme Court has held in the case of Malabar Industrial Co. Ltd. vs. CIT that the phrase 'prejudicial to the interest of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of an order of the AO cannot be termed as prejudicial to the interest of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of Revenue, or where two views are possible and the ITO has taken one view to which the CIT does not agree, it cannot be treated as erroneous or prejudicial to the interest of the Revenue unless the view taken by the ITO is unsustainable in law. The Madras High Court in the case of CIT vs. Sakthi Charities 2000 (2) TMI 75 - MADRAS HIGH COURT confirmed the order of the Tribunal in holding that the assessment order did not call for any interference under s. 263 from the CIT when the Tribunal found that the ITO had considered all relevant materials on record and when the CIT in his order did not indicate that the enquiry undertaken by the ITO fell short of the required that was expected by him in considering the question of grant of exemption. Therefore, we are of the considered view that the order passed by the learned CIT in setting aside the assessment with the direction to the AO to complete the assessment de novo after making all the relevant enquiries and investigation is not sustainable and the same is liable to be quashed. Not only this, we observe that the AO while making the assessment by order dt. 27th March, 2002, under s. 143(3)/263 of the Act has not made any addition on account of fall in GP which was one of the aspects considered by the learned CIT while setting aside the assessment under his revisional jurisdiction u/s 263 of the Act. Therefore, in our considered opinion, condition precedent for assuming jurisdiction u/s 263 did not exist in the case before us. Accordingly, we quash the impugned order. In the result, the appeal of the assessee stands allowed.

Summary

Issues Involved:
1. Legality of the CIT's order u/s 263.
2. Opportunity of hearing provided by the CIT.
3. Adequacy of the AO's enquiry.
4. Justification for setting aside the entire assessment.

Summary:

1. Legality of the CIT's order u/s 263:
The assessee contended that the order passed by the CIT u/s 263 was "wholly bad, illegal, unjustified and uncalled for." The CIT issued a notice u/s 263 stating that the GP rate had declined and business promotion and marketing expenses had increased significantly. The CIT argued that the AO failed to examine these issues properly, making the assessment erroneous and prejudicial to the interest of Revenue. However, the Tribunal found that the AO had conducted proper enquiries and the CIT's disagreement with the AO's conclusions did not justify the revision of the order.

2. Opportunity of hearing provided by the CIT:
The assessee argued that no proper opportunity of hearing was allowed by the CIT. The Tribunal noted that the assessee had filed a detailed reply to the CIT's notice, explaining the reasons for the decline in GP rate and the increase in business promotion and marketing expenses. The Tribunal found that the CIT did not provide specific reasons for considering the AO's order erroneous and prejudicial to the interest of Revenue.

3. Adequacy of the AO's enquiry:
The CIT claimed that the AO did not make proper and complete enquiries. The Tribunal observed that the AO had issued a detailed letter u/s 142(1) calling for various details, including advertisement and business promotion expenses, commission payments, and books of accounts. The assessee had furnished the requisite details, which were considered by the AO. The Tribunal held that the AO had conducted adequate enquiries and the CIT's order was based on mere assumptions and presumptions.

4. Justification for setting aside the entire assessment:
The CIT set aside the entire assessment to be done de novo, citing only two defects. The Tribunal found that the AO had made detailed enquiries and the CIT did not provide any evidence to show that the expenses claimed by the assessee were bogus or not genuine. The Tribunal held that the CIT's direction for a fresh assessment was not justified and quashed the impugned order.

Conclusion:
The Tribunal quashed the CIT's order u/s 263, concluding that the AO had conducted proper enquiries and the CIT's revision was not justified. The appeal of the assessee was allowed.