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TMI Blog2011 (3) TMI 1039X X X X Extracts X X X X X X X X Extracts X X X X ..... n nature. Thus the order of the AO has merged in the order of the CIT (A). As regards disallowance of foreign travel/tour expenses CIT (A) has gone through the details. The assessing officer had considered the foreign travel expenses liable to FBT and the assessee had paid the tax thereon. If the expenditure was in nature of personal expenses of the Directors, there was no reason to charge FBT on such expenditure. CIT (A) has gone through the VISA and Pass-ports of the Directors on test-check basis and has found that the expenditure was incurred for the purpose of business. Therefore, the order of the AO has merged in the order of the CIT (A). As regards issue that the Directors have siphoned off money of Rs.50 crores in assessment year 2002-03 to 2008-09 by illegal withdrawals of money by way of addition to the fixed assets, the assessment cannot be held to be erroneous merely on hear-say or failure to make inquiries into the allegations contained in complaint that too for the purposes of making the roving enquiries. The expenditure incurred by the assessee on fixed assets has been found to be genuine by the AO, which has been also upheld by the ld. CIT (Appeals). Therefore, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xceeding Rs.50,000/- was made but the assessee filed details of payment exceeding Rs.5 lakhs only and failed to file the remaining details before the AO. The AO also requested the assessee to produce four parties, namely, Shri Choti Lal, Shri Chander Singh, Shri Sat Narain and M/s. Singh Construction, but these parties were not produced before the AO. Consequently, the AO had concluded in the assessment order that the genuineness of these expenses could not be verified and deserves to be allowed. However, the AO had treated 90 per cent of such expenses to be of enduring advantage to the assessee company and of capital in nature. This action of the AO is contrary to the complaint and the observations of the AO himself that the genuineness of the expenses could not be verified and deserves to be disallowed. In the absence of verification of genuineness of expenses, the whole of expenses to the tune of Rs.6,67,88,797/- should have been disallowed as bogus/non-genuineness expenses. 4. In response to a query raised by the ld. CIT, it was submitted that the ld. CIT (A) has already decided this issue and his findings are recorded on page 9 of the appellate order. It was, therefore, argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the letter submitted by them were of similar font. The assessee company had not produced the pass-ports of the Directors and others who have undertaken the foreign visits. Travelling expenses incurred by the Directors and others are of personal expenses of the Directors. He has further noted that Directors have not submitted business report on their foreign visit. The expenses of foreign tour have not been approved by the Board although the expenses have been incurred every month for their foreign visits. Before execution of the tour of the Directors, it has not been approved by Board of Directors. As per the operational agreement, the Directors of the company have nothing to do with the operation and promotion of the business of the company which is looked after by Indian Hotel Company. Moreover the books of accounts of the assessee company had not been produced. The AO, therefore, came to the conclusion that the expenses were in the nature of personal expenses of the Directors and had nothing to do with the business of the company. 6. In response to the notice issued the assessee submitted that the ld. CIT (A) had already decided this issue and, therefore, provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished details regarding description of assets purchased during the year, date of purchase, cost of asset and depreciation on fixed assets purchased during the year. The details furnished were discussed by the assessing officer who did not ask for any further information. It was, therefore, argued that allegation/aspect has been examined and, therefore, the assessment order could not be revised under section 263 of the Act on this issue. 8. The ld. CIT on consideration of these facts noted that the assessing officer had not made any enquiry/investigation into allegation of siphoning of money by illegal withdrawal of money in the form of additions to the fixed assets. The AO was required to thoroughly examine the genuineness of the purchase/acquisition of the assets during the previous year. Since the AO had failed to make enquiry/investigation into the genuineness of the purchase/acquisition of assets during the year the assessment order is erroneous and prejudicial to the interest of the revenue. He accordingly directed the assessing officer to make through enquiry/investigation into purchase/acquisition of assets into illegal siphoning off the money in the complaint. 9. Befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivolous without having any supporting evidences. The AO had considered the complaints and required the assessee to satisfy about the genuineness of the expenditure in respect of each of the head, which was duly complied with by the assessee. It was further submitted that the alleged complaint is neither by a share-holder nor is by a Director. No evidence or material whatsoever has been furnished by the alleged complainant to establish that the assessee company had debited expenditure which was bogus or any moneys were siphoned off. He also submitted that the assessing officer made addition which has been deleted by the ld. CIT (A). This alone shows that the allegations in the complaint were frivolous and the ld. CIT had no material to hold the order to be erroneous being prejudicial to the interest of revenue. It has further been submitted that assumption of jurisdiction under section 263(1) of the Act is not valid as the ld. CIT (A) had considered and decided the matter which was the subject matter of appeal before him. Therefore, the ld. CIT could not have taken any proceedings under section 263 of the Act. Reliance was placed on the decision of Hon'ble Supreme Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction u/s 263 by the Commissioner is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interest of Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interest of Revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of fact or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principle of natural justice or without application of mind. The phrase "prejudicial to the interest of Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad knowledge of the complaint filed against the assessee. 14.1 On appeal the ld. CIT (Appeals) deleted the addition relying on the expenditure incurred by the assessee in earlier years. The expenses incurred in earlier years ranged from Rs.5 crores to Rs.7 crores per year. Since the expenses were incurred in the same range, the disallowance based on vague statement that repair and maintenance expenses incurred during the year had given enduring benefit or a new advantage was contrary to the facts of the case. The ld. CIT (A) further noted that the assessing officer had held that the assessee could not produce the vendors for physical verification and, therefore, subject expenses were bogus. As regards the genuineness of the expenses, the ld. CIT (A) observed as under:- "The AO has also held that the appellant could not produce the vendors for physical verification and, therefore, the subject expenses are bogus. On perusal of submissions and record, it is noticed that the appellant had duly produced all material facts to establish that the vendors are not fake parties. The appellant produced copy of their bank account, copy of ledger account and their Income-tax return. All thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g meeting with them. The ld. CIT (Appeals) on the basis of the above submissions, held that foreign travel expenses were incurred wholly and exclusively for the purpose of the business. The ld. CIT (A) relied on the decision of the ITAT for assessment year 1997-98. 17. From the above facts it is evident that the ld. CIT (A) has gone through the details. The assessing officer had considered the foreign travel expenses liable to FBT and the assessee had paid the tax thereon. If the expenditure was in nature of personal expenses of the Directors, there was no reason to charge FBT on such expenditure. The ld. CIT (A) has gone through the VISA and Pass-ports of the Directors on test-check basis and has found that the expenditure was incurred for the purpose of business. Therefore, the order of the assessing officer has merged in the order of the ld. CIT (A). 18. As regards the third issue that the Directors have siphoned off money of Rs.50 crores in assessment year 2002-03 to 2008-09 by illegal withdrawals of money by way of addition to the fixed assets, the assessment cannot be held to be erroneous merely on hear-say or failure to make inquiries into the allegations contained in co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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