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2009 (7) TMI 1254 - AT - Income TaxAppeal filed against the order of the CIT - order passed by the CIT u/s. 263 is arbitrary, without proper reasons, invalid and bad in law - The return was processed u/s. 143(1). The case was selected for scrutiny and notice u/s. 143(2) was issued on 12th Jan., 2005. AO has investigated the issues thoroughly and after examination he has made certain disallowances. assessee filed appeal against this order of the AO before the CIT(A), The CIT(A) partially allowed the relief from disallowance from carrying charges paid to C.S. Bohra where TDS was deducted. The AO disallowed ₹ 71,339 and the CIT(A) sustained only ₹ 26,399. This order of the CIT(A) has been asserted by the Department as well as by the assessee. Hence, this appeal. HELD THAT - The CIT has mentioned in his order that the AO has passed an order in haste without making any inquiry on the issues. In this connection, we hold that the case was selected on a scrutiny on 12th Jan., 2005 fixing the hearing on 20th Jan., 2005. The order was passed on 13th Dec., 2006. Thus there was a time of two years for investigation of the case. The details on the order sheet are placed in the paper book at pp. 8 to 17. We find that the questionnaire has been issued and that too under the direction of the Addl. CIT which is evident from p. 9 of the paper book which is a note sheet dt. 19th Jan., 2005. The various notings in the note sheets show that the assessee has produced the books of account, bills and vouchers which have been verified by the AO. The questionnaires issued to the assessee calling details are also evident from pp. 18, 19, 20, 21, 53, 54 and 55 of the paper book. Thus these facts show that the AO has issued the details of questionnaires on the various issues which had been replied by the assessee which is evident from pp. 56 and 57 of the paper book. Sundry creditors - we find that the AO has himself verified these sundry creditors by calling information u/s. 133(6) and they have replied to the AO by confirming the transaction. Thus after inquiry the AO has reached to the conclusion not to make addition on this issue. Thus the AO has adopted one course of two courses permissible in law. The AO had taken one view where two views are plausible and such view cannot make the order erroneous and prejudicial to the interest of the Revenue. The CIT's view cannot be invoked to substitute the view of the AO. The assessment also does not become erroneous where queries raised during the assessment proceedings are not recorded in the final assessment order. The queries were raised during the assessment proceedings which have been answered by the assessee and the AO has taken a view and on that the order passed by the AO does not become ipso facto erroneous and prejudicial to the interest of the Revenue. regarding the payments made in cash - we find that the AO has made specific queries in respect of the land and building expenditure which is capital in nature of ₹ 8,93,337 in his questionnaire dt. 11th Jan., 2005 which is evident from page No. 18 of the paper book. Thus the necessary inquiry in this regard appears to have been made by the AO and after examination he has not made any addition on this account. Similarly the expenses debited under the head Travelling and conveyance expenses we find that necessary details were submitted which is evident from p. 60 of the paper book and after verification the AO did not make any addition on this account. Similarly in the case of carrying charges the AO asked the details which is evident from p. 12 of the paper book. The assessee furnished the information and details in this regard during the assessment proceedings which are evident from pp. 60 and 62 of the paper book and after the examination the AO arrived at a conclusion and made the addition @ 1 per cent of the total expenses at ₹ 71,339 against which the assessee filed an appeal before the CIT(A) and after verification the addition has been reduced to ₹ 26,399. Thus this issue has not only been examined by the AO but also by the CIT(A) and after the verification the CIT(A) granted partial relief to the assessee. Thus this issue cannot be made a basis for invoking the revisionary power by the CIT. Similarly in respect of the labour expenses, after verification, the AO made certain additions and in the appeal the CIT(A) had deleted the addition after verification. As far as the site Peditar expenses are concerned, we find that the AO made a specific query in his questionnaire dt. 19th Oct., 2006 which is evident from page No. 53 of the paper book. After the verification the AO made same addition and this issue cannot be made a basis to invoke the revisionary powers u/s. 263. regarding the genuineness of the sub-contracts - we find that the amount was paid and the AO in his questionnaire dt. 19th Oct., 2006 has specifically made a query in this regard which is evident from page No. 54 of the paper book and the assessee submitted details and information in this regard. Audited accounts also show that the sub-contract made to the sister concern M/s M.K. Agarwal Co. was made on the prevailing market price. As far as TDS on this account is concerned, the assessee has submitted TDS return which was also verified by the AO which is evident from page No. 55 of the paper book. Regarding the payments made to the persons as specified in s. 40A(2)(b), we find that there was no deviation from the policy followed by the assessee in the past years. Thus from the above facts we are of the view that the invoking of the provisions of s. 263 by the CIT is not justified. In holding so, we also get the strength and support from the following decisions CIT vs. Max India Ltd 2007 (11) TMI 12 - SUPREME COURT . The phrase 'prejudicial to the interests of the Revenue' in s. 263 of the IT Act, 1961, has to be read in conjunction with the expression 'erroneous' order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law. The issue that has been raised is that, since the assessment order adverted to only MN property and was silent with respect to the properties located at GE and DC on this short ground alone the revisional order of CIT ought to be sustained. We, therefore, set aside the order of the CIT and the appeal of the assessee is accordingly allowed.
Issues Involved:
1. Invoking of provisions of Section 263 of the IT Act, 1961 by the CIT. 2. Examination and verification of sundry creditors. 3. Verification of cash payments made by the assessee. 4. Genuineness of sub-contracts and TDS payments. 5. Scrutiny of payments made to persons specified in Section 40A(2)(b). Detailed Analysis: 1. Invoking of Provisions of Section 263 of the IT Act, 1961 by the CIT The core issue was whether the CIT was justified in invoking Section 263 of the IT Act, 1961, which allows the CIT to revise an order passed by the AO if it is deemed erroneous and prejudicial to the interests of the Revenue. The CIT argued that the AO's order was erroneous and prejudicial to the Revenue's interest. However, it was emphasized that for the CIT to invoke Section 263, two conditions must be satisfied: the order must be erroneous, and it must be prejudicial to the Revenue. The Tribunal found that the AO had conducted a thorough investigation and adopted one of the two permissible courses in law, which does not make the order erroneous or prejudicial to the Revenue. 2. Examination and Verification of Sundry Creditors The CIT raised concerns about the balances of sundry creditors, alleging inconsistencies not addressed by the AO. The Tribunal noted that the AO had verified these balances by calling information under Section 133(6) of the IT Act and received confirmations from the parties involved. The Tribunal cited the Supreme Court's decision in CIT vs. Max India Ltd., emphasizing that when the AO adopts one of two permissible courses in law, it cannot be treated as erroneous and prejudicial unless the view taken by the AO is unsustainable in law. 3. Verification of Cash Payments Made by the Assessee The CIT questioned the verification of various cash payments, including land and building expenses, traveling and conveyance expenses, carrying charges, site Peditar expenses, and labor expenses. The Tribunal found that the AO had made specific inquiries and verified the details provided by the assessee. For example, the AO had issued a questionnaire and received detailed responses regarding land and building expenses. The Tribunal also noted that the AO had made certain disallowances, which were partially upheld by the CIT(A). The absence of specific mentions in the AO's order does not imply a lack of inquiry, as supported by various judicial decisions. 4. Genuineness of Sub-Contracts and TDS Payments The CIT alleged that the AO failed to verify the genuineness of sub-contracts, particularly with the sister concern M/s M.K. Agarwal & Co., and the TDS payments. The Tribunal found that the AO had specifically queried these issues during the assessment proceedings and received detailed responses from the assessee. The accounts were audited, and the sub-contracts were made at prevailing market prices. The TDS return was also verified by the AO. The Tribunal concluded that the CIT's allegations were baseless and based on assumptions. 5. Scrutiny of Payments Made to Persons Specified in Section 40A(2)(b) The CIT alleged that the AO failed to scrutinize payments made to persons specified in Section 40A(2)(b). The Tribunal found no deviation from the policy followed by the assessee in previous years. The director's remuneration and salary were in accordance with the company's resolutions and practices. The Tribunal held that the CIT's revisionary powers under Section 263 could not be invoked based on these allegations. Conclusion The Tribunal set aside the order of the CIT, concluding that the AO had conducted a thorough investigation and verification of all relevant issues. The CIT's invocation of Section 263 was deemed unjustified, as the AO's order was neither erroneous nor prejudicial to the interests of the Revenue. The appeal of the assessee was allowed.
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