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TMI Blog2005 (1) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... rned CIT. The learned CIT has stated that the assessment has been completed in routine manner, but he has not pointed out that any extraordinary circumstances existed so as to warrant assessment proceedings in an extraordinary manner in this case. As to the examination of the facts and bringing material on record, it is quite possible that the learned CIT would have liked it in more depth and detail. From that it does not follow that the learned Assessing Officer did not perform his task properly. While it is true that on the particular facts and the circumstances of a case want of enquiry and examination of facts on the part of the Assessing Officer in itself may render the assessment order erroneous and prejudicial to the interest of revenue, but it is not that if an assessment order suffers from some deficiency from the perfectionist point of view that order is erroneous and prejudicial to the interest of revenue. We, therefore, do not see much substance in various general observations of the learned CIT in relation to the Assessing Officer carrying out enquiring in a routine or perfunctory manner. In the case before us, we find that the assessment order has been made by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and without even obtaining the details thereof; ( v )Interest amounting to Rs. 59,49,355 paid to the directors and others, being persons specified in section 40A(2)( b ) was allowed without examining what was the rate of interest paid and whether it was reasonable; ( vi )As per Annexure II of the audit report enclosed with assessee s return, the profit for the year was lower by Rs. 15.90 lakhs on account of change in the method of accounting in respect of leave pay, by Rs. 21.61 lakhs on account of change in the method of accounting in respect of service charges and by Rs. 39.85 lakhs on account of change in the method of accounting in respect of depreciation. The Assessing Officer accepted this statement without examining why the change in the method of accounting was introduced in this year when the statutory requirement of following either the cash or mercantile system was bought about in the Income-tax Act w.e.f. 1-4-1997 and without examining whether the assessee s income required any adjustment due to the aforesaid lowering of profit as a result of the change in the method of accounting; ( vii )Despite assessee s admission that there was significant deviation, having implica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC); Tarajan Tea Co. (P.) Ltd. v. CIT [1994] 205 ITR 45 (Gau.) and [1997] 225 ITR 456 (Del.)( sic ). 3. According to the learned CIT, the Assessing Officer did not obtain any detail and conducted no examination or enquiry before allowing business promotion expenses amounting to Rs. 88.38 lakhs and discount, commission and incentives amounting to Rs. 1.48 crores. From the details of expenses filed by the assessee before learned CIT, he found that these expenses included gift items such as, cameras, wrist watches, emergency lights. The Assessing Officer ought to have obtained the relevant details and examined the relevant bills of major purchases. The Assessing Officer should have also examined whether the gift items had been utilized in the year or there were any major left over. According to the learned CIT, business promotion expenses also included entertainment expenditure amounting to Rs. 10,46,913. In respect of rental income also the learned Assessing Officer had not obtained any details nor conducted any examination. Moreover the income was assessed under the head business income and not under the head income from other sources . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that the royalties were based on the turnover. The agreement was duly approved by the Government of India. Royalty payment had been allowed as revenue expenditure since the assessment year 1991-92. The foreign company had to provide only technical assistance regarding the manufacture of the products. From record it was seen that the previous 5 years agreement had expired on 22-11-1998, but the new agreement was entered into only w.e.f. 10-5-1999. Thus for over six months there was no technical assistance agreement in force. In the absence of renewal of agreement, the assessee was required to stop manufacture of the products covered by the agreement. It was, therefore, required to be seen as to under what authority the assessee continued with the production during the period there was no agreement. Moreover it was also required to be seen whether the assessee had already acquired the technical know-how for manufacture of certain types of transformers. The assessee could, therefore, manufacture those products independent of the technical assistance agreement. The assessee was manufacturing these transformers earlier on its own. It was necessary to see as to what actual assista ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to earlier assessment years. The assessee was not being assessed for the first time. The expenditure incurred and claimed as deduction and various other facts of the case were identical to those in the earlier assessment year. Under these circumstances, the learned CIT erred in relying upon the judgment of the Hon ble Delhi High Court in the case of Gee Vee Enterprises ( supra ). The facts of that case were entirely different and the assessee s was not the case of the category of Gee Vee Enterprise s case ( supra ). 10. The learned counsel argued that show-cause notice under section 263 issued by the learned CIT itself showed that the learned CIT had a pre-determined opinion. The assessee replied to the show-cause notice by written submissions along with a paper book in support thereof. The assessee once again on 8th March, 2004 filed further details in reply to the queries of the learned CIT as per Annexures A to E. From paragraph 6 of the order of the learned CIT, it would be seen that he has made general observation that before completing the assessment in February, 2003, no proper enquiry had been made. The learned CIT had not spelt out what was the yardstick of such pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductions, such as bad debts, change in method of accounting and deviation from provisions of section 145A. According to the learned CIT, the revenue implication ran into crores of rupees. That fact in itself could not make the order of the Assessing Officer erroneous. There was no material on the basis of which the learned CIT could say that Assessing Officer had routinely accepted the Chartered Accountant s certificate. He did not specify what according to him routine acceptance was and what according to him was the course to be adopted. Under the provisions of law, discretion was vested in the Assessing Officer to be exercised judicially on the facts of each case. The powers of the learned CIT were limited to correct the assessment order being not in accordance with law. He could not hold the order erroneous for reason only that he considered that more detailed enquiries could have been made in respect of any particular item. The learned CIT could not usurp the power of the Assessing Officer and proceed to make and assessment order in his own way. For that reason the further observations made by the learned CIT that it was incumbent upon the Assessing Officer to collect releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was not of revenue character. In the latter assessment years, viz., 2001-02 also apart from disallowance of royalty expenditure no addition had been made. Therefore, at best the learned CIT could allege that the assessment order was cryptic. The same could not be made the basis for holding that order to be erroneous. Reliance in this respect was placed on the judgment of Hon ble Punjab Haryana High Court in the case of CIT v. Chawla Trunk House [1983] 139 ITR 182 . 14. In support of various contentions made the learned counsel for the assessee took us closely through the paper book filed by the assessee. He referred to the past history of the assessment in the case of the assessee for which purpose Annual Accounts, copies of assessment orders, orders passed by appellate authorities, including Tribunal for assessment years 1995-96 to 1999-2000 were furnished. He also took us through the copy of the letter dated 12-2-2002 furnished during the course of assessment proceedings. The learned counsel also took us through the assessment order in the case of the assessee for subsequent assessment year 2001-02. The learned counsel pointed out that only fault found by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Assessing Officer in relation to deduction allowed by the Assessing Officer of royalty and bad debts. The learned DR emphasized the observations of the learned CIT in the impugned order in paragraphs 9 to 14. He argued that findings of the learned CIT in that behalf were quite clear. The learned CIT, DR also referred to item 6 at page 2 of the impugned order and argued that it showed that there was no application of mind on the part of the learned Assessing Officer. Both in respect of powers under section 263 and royalty payment for technical know-how the learned DR referred to a number of case law as per the list placed on file. 17. In his reply the learned counsel referred to the letters of the learned Assessing Officer dated 8th October, 2002, the assessee s reply dated 5-12-2002, 13-12-2002, 23-12-2002 and 27-12-2002. The assessee also referred to his letter dated 14-2-2003 along with certificate of Chartered Accountant M/s. K. Prasad Co. regarding bad debts. He argued that the correspondence that ensued between the Assessing Officer and the assessee and the details being called for by the learned Assessing Officer on various dates of hearing showed that there was prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not therefore, be said that the Assessing Officer completed the assessment taking the version of the assessee at its face value and without application of mind. In respect of a number of claims of deduction of the assessee, the learned CIT has observed that the Assessing Officer did not call for full details. In our view it has been rightly pointed out by the learned counsel for the assessee that in this case the accounts of the assessee had been audited and the return of income was backed by an elaborate Tax Audit Report on various points relating to the assessment. The assessee has been assessed year after year and the past history of the case contained nothing to provoke intensive investigation into the facts of the case. The learned counsel has placed assessment orders for various assessment years prior to the completion of the assessment order in question by the Assessing Officer and compared against them, there does not appear to be any prima facie case that the learned Assessing Officer was oblivious of his responsibilities while completing assessment under section 143(3), as alleged by the learned CIT. The learned CIT has stated that the assessment has been completed in rou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63. It is noteworthy that learned CIT did not feel it necessary to do so himself before making the impugned order. The observations of the learned CIT in relation to rate of interest paid to directors are based on scant material. The same applies to the finding of the learned CIT that royalty paid by the assessee represented capital expenditure and should not have been allowed. The learned CIT has not based these observations on any proper examination of the facts of the case. It is important to bear in mind that it is equally true that a disallowance should not be made without proper enquiry and in a perfunctory manner. We do not see any basis for the observation of the learned CIT that royalty payments of the assessee were disallowable as capital expenditure. That being so the impugned order under section 263 itself has been made on subjective opinion without indepth examination of facts of the case. In the case of Malabar Industrial Co. Ltd. ( supra ), the Hon ble Supreme Court have held that an order cannot be said to be erroneous and prejudicial to the interest of revenue merely because the superior officer takes a different view of the matter. We find considerable substance i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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