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TMI Blog2005 (4) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... n his reply to the show-cause notice. He, however, did not do this but reached a conclusion that the order was prejudicial with a view that the present AO shall undertake that exercise after the assessment has been set aside for his consideration. Such a view is not well founded in law and accordingly action taken by the learned CIT is liable to be set aside. Dividend received invoking provisions of s. 14A - We fail to understand how advancing of loans to subsidiary and other companies have any bearing on the question of deduction of interest from the dividend income. If at all this issue is relevant it will be relevant in the context of allowability of interest expenditure and not in the context of attribution of interest cost to earning of dividend. It is also pertinent to note that in the immediately succeeding year, i.e., in asst. yr. 2001-02, AO has specifically looked into the applicability of s. 14A and has made no disallowance. Further, in the preceding years also there has been no disallowance of interest against dividend income. Applying the rule of consistency, no disallowance was called for unless there has been material change in the facts. The CIT in his order has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial institutions. This was unnecessary and, as such, order of AO could not be revised. On the last issue of payment for commission, the learned CIT has set aside the assessment order by holding that AO has not done any enquiry. However, Authorised Representative has pointed out that it was enquired by the AO during the assessment proceedings and he even obtained a written explanation on non-deduction of TDS on commission payment to non-resident parties which is decisive on allowability thereof in terms of provisions of s. 40 of the Act. There was nothing unusual about commission payment. We, therefore, do not find that the AO did not make any enquiry on allowability of deduction for commission payment. Furthermore, the learned CIT did not state as to what prejudice has been caused to Revenue by allowing the deduction of assessee s claim. Without doing so, the decision taken by the learned AO cannot be termed as erroneous and prejudicial to the interest of Revenue so as to revise the same. Having considered the factual as well as the legal position, we do not find any justification in the action of learned CIT to revise the order passed by the AO. As a result, appeal of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn. It was also not furnished during the assessment proceedings. Therefore, the aforesaid sum of Rs. 2,54,24,232 seems to have been wrongly allowed to you by the AO; (iii) Sch. 7 of your balance sheet/P L a/c lists your closing stock. It is seen that as on 31st March, 2000, you had total closing stock amounting to Rs. 70.56 crores of which finished goods were shown at Rs. 21.80 crores. A further perusal of Annex. M of your tax audit report enclosed with the returns shows that you had a closing stock of SAW pipes weighing 10,105 metric tonnes as on 31st March, 2000. It is also seen from the details of sales furnished by you that during the previous year under consideration, you had sold 40,453 metric tones of SAW pipes for a total consideration of Rs. 12,179.36 lakhs. The average sale price of these pipes comes to Rs. 30,102 per metric tonne. If this value is applied to the closing stock of 10,105 metric tonnes of SAW pipes, the value of SAW pipes alone comes to Rs. 30.41 crores which is much higher than the value of Rs. 21.80 crores of all finished goods shown by you. Even after making discount for your profit margin included in the sale price, the value of finished saw pipes is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P L a/c, you had claimed Rs. 206.34 lakhs as commission on sales. The AO accepted this claim without obtaining the relevant details and without any examination or verification . He concluded by stating that Thus, since the assessment framed by Addl. CIT, Range 7, in your case for the assessment year is erroneous and prejudicial to the interest of the Revenue, I, in exercise of power vested in me by s. 263 of the IT Act, proposes to direct the AO to make the assessment afresh. 3. After considering assessee s reply the CIT held that there is no error in the assessment order with respect to point Nos. (ii) and (iv) of his show-cause notice, however, with respect to point Nos. (i), (iii), (v) and (vi) he held that the order of the AO was erroneous and prejudicial by giving the under mentioned finding in para 37 of his order : Having dealt with all the issues mentioned in my show-cause notice, I, in exercise of my powers under s. 263, cancel the assessment order passed by the Addl. CIT, Range 7, except in respect of those issues which have already been considered and decided by the CIT(A), and direct the present Addl. CIT, Range 7, to reframe the assessment after making necessary inquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudicial to the interest of the Revenue. 6. With reference to the above four points, the learned Authorised Representative invited attention to the provisions of s. 263(1) and argued that the section requires that two conditions should be satisfied in order to entitle a CIT to set aside an order passed by the ITO. The said conditions are : (1) that the order proposed to be revised is erroneous; and (2) that such order has resulted in prejudice to the interests of the Revenue. Reliance was placed on the apex Court decision in Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC). 7. He further stated that the learned CIT in his order has laid emphasis only on the first condition and according to him an erroneous order empowers him to set aside the case. For such a view entertained by him, reference was made to the following passages in his order : Para 3. The assessees attention was also drawn to the settled legal position with regard to s. 263 of the IT Act, namely, that the AO s failure to make the necessary inquires makes an order erroneous and prejudicial to the interests of the Revenue. In this connection, the assessee was informed about a few i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. Thus, the assessment order is based on incorrect assumption of facts and has been passed without application of mind to this important issue. The order is clearly erroneous inasmuch as it is prejudicial to the interests of the Revenue in regard to this issue also. Reliance is placed on the Court decision referred in paras 8 and 9 above. Para 36. I have considered the assessee s submissions but find them devoid of merit. Firstly, it is not borne out from record that the AO made inquiries regarding the commission paid by the assessee. As stated earlier, even the details of commission paid were not obtained by him. Secondly, even from the details filed before me, it is seen that the commission as a percentage of sales increased from 0.91 per cent in the immediately preceding year to 1.16 per cent in the year under consideration. Therefore, even with regard to this issue, I have no hesitation in holding that the AO failed to make the necessary inquiries before accepting the assessee s claim. Thus, even on this ground, the assessment framed by him is erroneous inasmuch as it is prejudicial to the interests of the Revenue. 8. On the basis of the above, the learned Authorised Repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing facts : No amount of money has been invested in shares in the year under consideration. The change in the investment in shares, as pointed out by the CIT, in the above companies happened consequent to the scheme of arrangement whereby the erstwhile holding of Jindal Strips was apportioned in the ratio of 60 : 40 into shares of Jindal Strips Ltd. and Jindal Power Ltd. This fact has been given as a note in Sch. 6 of the balance sheet of the appellant. In fact in the course of assessment the AO also noticed this and inquired into the taxability of such change in the investment in shares and the same was replied to vide appellant s letter No. SPL/FIN/NM/J/2003. The CIT did not consider the following arguments of the appellants : (a) No expenditure debited in the P L a/c and claimed deduction by the appellant was incurred in relation to earning dividend income as : (i) the finance expenditure of Rs. 32.51 crores consisting mainly of interest and was paid to financial institutions/banks on monies borrowed for specific purposes and not for making investment in shares; (ii) all major loans outstanding as at the end of the relevant previous year (except Rs. 200 lakhs which were availe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s : (i) CIT vs. United Collieries Ltd. (1990) 49 Taxman 227 (Cal); (ii) CIT vs. Enamour Investments Ltd. (1994) 72 Taxman 370 (Cal); (iii) CIT vs. Carolina Investment Ltd. (1996) 87 Taxman 238 (Cal); (iv) CIT vs. Kanoria Investment (P) Ltd. (1999) 151 CTR (Cal) 160 : (1998) 232 ITR 7 (Cal); and (v) Tata Fertilisers Ltd. vs. Dy. CIT (1997) 92 Taxman 423 (Mumbai)(Mag). In the case of Usha Martin Investment Ltd. vs. Dy. CIT (2003) 79 TTJ (Cal) 23 : (2003) 86 ITD 261 (Cal), the action of the CIT in directing the AO to ascertain the expenditure incurred in earning dividend and deduct the same from gross dividend earned for the purpose of arriving at the amount deductible under s. 80M of the Act was held to be erroneous as the assessee had categorically stated that no specific expenses had been incurred to earn the dividend and as per the Tribunal there was no scope of making estimate and no notional expenditure could be allocated to the dividend income. The proposition laid down in the aforesaid decisions would equally apply in the context of s. 14A of the Act. (b) The dividend income cannot be said to be exempt income since the company distributing dividend has to pay dividend distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied with the reply and held in para 22 of his order that the AO s order cannot be considered erroneous and prejudicial to the interest of Revenue on this account. However, he still chose to give directions to the AO to make appropriate enquiry with the financial institutions. It was submitted that such directions were not warranted and were beyond the jurisdiction. Valuation of closing stock The CIT has stated that the closing stock of the finished goods as per Sch. 7 of the balance sheet is Rs. 21.8 crores whereas the average sale price of SAW pipes is Rs. 30,102 per MT which when multiplied by the closing stock of SAW pipes at Rs. 10,105 per MT results in the value of closing stock of Rs. 30.41 crores. It has been stated by the CIT that the AO had not examined the aforesaid discrepancy and had accepted the closing stock of finished goods as shown by the appellant as a result whereof the order of the AO is erroneous and prejudicial to the interests of Revenue. In response to this the Authorised Representative submitted as under : (i) The method followed by the appellant for valuation of the closing stock is as per Accounting Standard 2 (AS 2) on valuation of inventories iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this assessee has submitted detailed reply giving the break-up of closing inventory as at the end of the relevant year. In view of the aforesaid, the action of the AO accepting the closing stock valuation made by the appellant cannot be said to be erroneous and prejudicial to the interest of the Revenue. (v) Also, even if the assessment order is held to be erroneous in this regard there is no prejudice caused to the Revenue, as the closing stock of one year constitutes the opening stock of the next year. Reliance is further placed on the case law stated earlier for the proposition that the order of the AO should not only be erroneous but also prejudicial to the interests of Revenue and if one of the two conditions is missing, power of suo motu revision under s. 263 of the Act cannot be exercised. (vi) The CIT has stated that he is not deciding on merit the issue whether any addition to the closing stock of finished goods is to be made. As the CIT has to record a prima facie finding on merits, the revision under s. 263 of the Act was not warranted. The case law stated earlier for the aforesaid proposition are relied upon. (vii) Reliance is further placed on the case law stated earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be unwarranted and beyond jurisdiction. Disallowance of interest on borrowed funds The CIT in his show-cause notice has stated that assessee has claimed finance expenses amounting to Rs. 32.51 crores on borrowed funds. It has advanced a sum of Rs. 68.15 crores to its subsidiary companies and 48.90 crores by way of inter-corporate loans to other corporate bodies. The AO had allowed the entire claim of interest by accepting appellant s contention that the borrowed funds have no nexus with money advanced as loans without proper examination despite clear-cut legal pronouncements against assessee. The Authorised Representative submitted as under : (i) As the AO had raised the issue of interest charged by the appellant on the loans given to subsidiary companies and had asked the appellant to state whether the same was more than or equal to the rate of interest paid by the appellant, it cannot be said that the AO had not applied his mind or made proper enquiries in respect of the above issue. No disallowance was made by the AO as the AO was satisfied with the appellant s reply that the average rate of interest on monies borrowed was more or less the same as charged on loans given and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds and funds advanced to sister-concerns, which was necessary in order to make any disallowance. To the same effect are the following decisions of the Tribunal : (i) Motor General Finance Ltd. vs. Dy. CIT (ii) Shahibag Enterprises (P) Ltd. vs. ITO (1994) 49 TTJ (Ahd) 554 (iii) Beta Napthol (P) Ltd. vs. Dy. CIT (1994) 50 TTJ (Ind) 375 (iv) Pragati Construction Co. vs. Dy. CIT (1997) 93 Taxman 86 (Del)(Mag) (v) Devisahai Banwari Lal vs. ITO (1997) 94 Taxman 232 (Del) (Mag) (vi) ITO vs. UniversalInd.Trading Corpn. (1995) 83 Taxman 350 (Bom)(Mag) (vii) Meenakshi Synthetics (P) Ltd. vs. Asstt. CIT (viii) Malwa Cotton Spinning Mills (ix) Usha Martin Industries Ltd. vs. Dy. CIT (x) Motor General Finance Ltd. vs. Dy. CIT The decision of Delhi High Court in the case of CIT vs. Motor General Finance Ltd. (2002) 173 CTR (Del) 123 : (2002) 254 ITR 449 (Del), relied upon by the CIT has been set aside by the Supreme Court in Motor General Finance vs. CIT (2004) 189 CTR (SC) 297 : (2004) 267 ITR 381 (SC). (d) it has been held in the following cases that in case of mixed funds the option is with the assessee to appropriate the funds and expenditure in a manner most favourable to the assessee : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (1988) 171 ITR 141 (MP) (ii) CIT vs. Shri Govindram Seksariya Charity Trust (1987) 65 CTR (MP) 28 : (1987) 166 ITR 580 (MP) (iii) CIT vs. Arvind Jewellers (2002) 177 CTR (Guj) 546 : (2003) 124 Taxman 615 (Guj) (iv) Srinivasa Hatcheries (P) Ltd. vs. Dy. CIT (2004) 89 TTJ (Hyd) 545 : (2002) 81 ITD 36 (Hyd) (v) Sahara India Mutual Benefit Co. Ltd. vs. Asstt. CIT (2002) 74 TTJ (All) 67 (vi) Nirmal Kumar Sheel Kumar Jain vs. ITO (2000) 71 TTJ (Jab) 494 : (2002) 111 Taxman 185 (Jab)(Mag) (vii) Indian Hotels Co. Ltd. vs. Dy. CIT (2000) 68 TTJ (Mumbai) 706 : (1999) 107 Taxman 205 (Mumbai)(Mag) (viii) Vidisha Tractors vs. Asstt. CIT (1995) 53 TTJ (Ind) 432 (ix) Sunil Lamba vs. Dy. CIT (2004) 83 TTJ (Del) 174 : (2003) 131 Taxman 35 (Del)(Mag) (x) CIT vs. Kelvinator of India Ltd. (2002) 174 CTR (Del)(FB) 617 : (2002) 256 ITR 1 (Del)(FB). (vii) The CIT has alleged that the appellant has not filed copies of accounts of inter-corporate loans which is not correct. The same were filed by the appellant before the AO and the CIT. (viii) It has been held in the following cases that where the assessment was completed after considering all requisite information filed by the assessee and assessment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded, an analysis of the materials on the record by itself may justify the AO to initiate a proceeding under s. 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-s. (1) of s. 143 or sub-s. (3) of s. 143. When a regular order of assessment is passed in terms of the said sub-s. (3) of s. 143, a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of cl. (e) of s. 114 of the Indian Evidence Act, judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. The learned Authorised Representative further stated that the CIT was, therefore, unjustified in restoring this aspect of the matter back to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory examination of this claim and failed to make proper inquiries despite the following disquieting feature : (a) The assessee had given huge advances (Rs. 172 crores as on 31st March, 2000) to its subsidiary and other group companies. It had also made substantial investment (Rs. 67 crores) in the shares of these companies. It was necessary to inquire whether any borrowed funds were advanced/invested in these companies. (b) A major portion of the interest receivable (Rs. 12.94 crores, on Rs. 68.15 crores advanced to it) was shown from Hexa Securities Finance Company Ltd., a subsidiary, which had huge accumulated losses. Chances of actually receiving any money from this company were bleak. In similar situations, the assessee had stopped showing any interest income from another group company, namely, Jindal Seamless Tubes Ltd. It was necessary to inquire whether any borrowed funds were advanced to Hexa Securities. (c) It was also necessary to inquire whether or not accounting for interest income in respect of money advanced to Jindal Seamless Tubes Ltd., (Rs. 610.13 lakhs) was correct. (d) The assessee had claimed Rs. 14.45 crores as bank and finance charges. No examination whatsoev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed Representative pointed out that reliance placed by learned Departmental Representative on the decision in the case of Malabar Industrial Co. Ltd. vs. CIT for the proposition that non-application of mind makes an order erroneous and prejudicial, is misplaced. The apex Court has very categorically stated that the order should be both erroneous and prejudicial. In this case the assessee has considered receipt in modification of terms of contract of sale of estate of rubber plantation as agricultural income. There was no material before the AO to accept assessee s said claim, therefore, the order was erroneous. Further, in the very last sentence of the judgment it has been held that the said receipt is taxable as income from other sources. Therefore, both the conditions were present, i.e., incorrect assumption of facts and loss of revenue by treating the taxable income as exempt. 11.1 Further, learned Authorised Representative pointed out that reliance placed on the two apex Court decisions in Rampyari Devi Saraogi vs. CIT and Tara Devi Aggarwal vs. CIT is also not well founded. From the facts of these cases it is very clear that on the very face the acceptance of assessee s return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions were filed before the Hon ble High Court challenging the set aside of assessment orders by the CIT in exercise of his powers under s. 263. All these cases pertain to ladies who have invested money in the business of their husbands. They all have shown accumulation of amount by doing money-lending business out of money received at the time of marriages as gift. In all these cases assessments were made on the same day on which the returns were filed. The contention of the CIT was that no enquiry has been conducted by the AO about the receipt of initial capital as donation; neither the names of the persons are available to whom the money has been lent. The exercise has been done to support the use of funds in their husband s business. The counsel admitted that the order is prejudicial, as assessee wants to be taxed by declaring income belonging to somebody else. However, his contention was that the order is not erroneous since the AO had the power to accept returns under s. 143(1). Therefore, he could make an assessment without conducting an enquiry. Since the assessments were made legally they cannot be called erroneous. Consequently, there was the absence of second condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue. (1) The CIT may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 13. From the perusal of the above provision it is very clear that before a CIT can exercise his right to enhance, modify or cancel the assessment and direct fresh assessment, he has to satisfy the undermentioned twin conditions : (1) That the order of assessment is erroneous and (2) It is be prejudicial to the interest of the Revenue. If one of these conditions is absent, then revision cannot be done. This position becomes amply clear by the following passage of the apex Court as propounded in the case of Malabar Industrial Co. Ltd. vs. CIT cited at Bar and also referred by learned CIT in his order: A bare reading of this provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as of the order of learned CIT on each of the issue where he has held that he is not supposed to look into the merits of the claim are referred in para 7 hereinbefore. If no loss of revenue is caused and the result remains the same even after conduct of proper enquiry, no purpose would be served to order such reinvestigation. Our this view finds support from the following decisions : (i) In the case of J.P. Srivastava Sons vs. CIT, the Allahabad High Court held as under : Now, reverting to the merits of the case, we find that the only ground upon which the action was taken by the CIT under s. 33B was that the ITO did not apply his mind to the claim of the assessee as contained in Part D of the return. The CIT himself did not apply his mind to the merits of the claim. In fact, the CIT has specifically refrained from going into the merits. In para 7 of his order, he has observed : I consider that it will be in the fitness of things if the ITO s order dt.7th March, 1964, is cancelled because no attention was paid to the item mentioned in Part D of the return dt.23rd Sept., 1960. The question of considering the merits does not arise at this stage, since the ITO has not applied his mind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, justified in setting aside the order of the CIT. (iii) Similarly, in the case of CIT vs. Chawla Trunk House, the Punjab Haryana High Court held as under : We agree that the ITO s order of assessment was erroneous by reason of the aforesaid omission, but it was necessary for the learned CIT to give a finding that the assessment order was prejudicial to the interests of the Revenue. In the instant case, no such finding is available in the impugned order nor was the learned Departmental Representative able to point out any material on record to show that the total income-tax to be assessed in the instant case should have been at a figure higher than the one at which the ITO completed the assessment. In this view of the matter, we hold that the ITO s order is not shown to be prejudicial to the interests of the Revenue. (iv) On similar lines the Allahabad High Court in the case of CIT vs. Kashi Nath Co. (1987) 64 CTR (All) 177 : (1988) 170 ITR 28 (All) held as under : The power of the CIT under s. 263 is quasi-judicial in character. He must give reasons in support of his conclusion that the assessment order is erroneous insofar as it is prejudicial to the interests of the Revenue. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iry, and is otherwise prejudicial to the interests of the Revenue is not well founded in law. 16. In the light of principles set out in the aforesaid judgments, it will be wrong to say that merely because proper enquiry was not conducted, the assessment would become prejudicial also. It was incumbent upon the learned CIT to have shown as to how the order was prejudicial to the interests of Revenue. The appellant has furnished a detailed reply to the show-cause notice by making reference to the facts of the case. Despite that, learned CIT did not deal with any of the points raised in the assessee s written statement. He is rather found emphatically stating that I am not deciding the merit of the question whether any disallowance was called for or not, or that I am only concerned with the question whether the AO applied his mind to the issue. The conclusion of the learned CIT that the order is prejudicial to the interests of Revenue is not a matter of subjective satisfaction of the CIT. He, therefore, ought to have found out this on the basis of objective material after assessing the contentions raised by the appellant in his reply to the show-cause notice. He, however, did not do th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, what remains relevant to be considered is whether the appellant made any investment out of borrowed funds in the year under consideration which would call for disallowance by operation of provisions of s. 14A of the Act. The appellant s case is that all its present borrowings are for earmarked purposes and none of them was for investment in shares. Further, all the present borrowings had been made after the investments were made. No major investment has been made in last five years. While dealing with this issue, the learned CIT has also dealt with the aspect of advancing loans to subsidiary and other companies, which he has alleged that the AO has not examined. We fail to understand how advancing of loans to subsidiary and other companies have any bearing on the question of deduction of interest from the dividend income. If at all this issue is relevant it will be relevant in the context of allowability of interest expenditure and not in the context of attribution of interest cost to earning of dividend. It is also pertinent to note that in the immediately succeeding year, i.e., in asst. yr. 2001-02, AO has specifically looked into the applicability of s. 14A and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lisable. We are not able to appreciate how in the opinion of learned CIT a bad financial investment of funds, if made, can be a relevant factor in determination of assessable income of an assessee during a particular year. The settled principle of law is that a business has to be run as per the decision made by the assessee and not as per whims and fancies of the Revenue authorities. Further, we are not able to understand how learned CIT can object to appellant s act of declaration of interest income of Rs. 12.94 crores on money advanced to M/s Hexa Securities. Declaration of certain income can by no stretch of imagination be prejudicial to the interest of Revenue unless the same does not belong to him. At the same breath he has objected to non-accounting of interest on loans advanced for Rs. 6.10 crores to M/s Jindal Seamless Tubes Ltd. due to their poor financial health. We also do not agree with the learned CIT that AO has not examined the details and rate of interest on loans and advances made to subsidiary and other corporate bodies. The learned CIT in para 12 of his order has narrated that the AO vide letter dt.14th Jan., 2003, did call for the relevant informations from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xure is placed at p. 93 of the paper book. The major amount is towards interest to financial institution and balance is towards bonus and professional tax. We find that once the tax auditor has certified the payments, no further evidence was needed in this respect. It is also pointed out that CBDT has accepted this position in its Circular No. 601, dt. 4th June, 1991. We also find that the learned CIT in his order vide para 22 has himself very clearly expressed that the order cannot be said to be erroneous and prejudicial on this ground. He still went on to hold that AO may call for certificates of payment from financial institutions. This was unnecessary and, as such, order of AO could not be revised. 20. As regards the issue of bad debts also, the learned CIT in para 33 of his order has expressed his satisfaction that the appellant s claim of bad debts of Rs. 6.19 crores is correct and the assessment order cannot be called erroneous and prejudicial on this account but still in para 34 of his order he went on to hold that AO may make proper enquiries in this regard also. Again, this part of the CIT order is beyond jurisdiction and, as such, the order of AO could not be revised. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of inventories. Sec. 311(3)(C) of the Companies Act makes it mandatory for every company to follow accounting standards as prescribed by the ICAI. Such a change was not voluntary but was in compliance with a statutory provision. In fact, such a change is also consistent with the provisions of s. 145 of the Act. Sub-s. 3 of s. 145 of the IT Act makes it mandatory for all the assessee s to follow the accounting standards as notified by the Central Government. Vide Notification No. SO 69 (E), dt. 25th Jan., 1996, the Central Government has prescribed two standards and in point No. 9 of Standard 2, it has been specified that a change in accounting policy is permissible if it is required by a statute. Therefore, such a change was permissible and no prejudice was caused to the Revenue by following such change. Consequently, we do not agree with the learned CIT s contention that by not looking to this aspect the assessment order is erroneous and prejudicial to the Revenue. 22. On the last issue of payment for commission, the learned CIT has set aside the assessment order by holding that AO has not done any enquiry. However, Authorised Representative has pointed out that it was enquired b ..... 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