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TMI Blog2012 (11) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... made by assessee the assessment was framed u/s. 143 (3) vide order dated 4-12-2009 and the total income was determined at Rs.50,72,180/- by making following disallowances/additions: (1) Excess deduction claimed u/s. 80IB Rs.4,21,099/- (2) Disallowance out of machinery repairs. Rs.1,12,000/- (3) Disallowance of clearing and Forwarding expenses. Rs.1,26,071/- Rs. 6,59,170/- =========== 4. Subsequently the CIT issued show cause notice dated 19-5-2011 to assessee requiring assessee to show cause as to why assessment should not be modified or cancelled u/s. 263 of the I.T. Act and a fresh assessment be made for the assessment year in question for the reason that assessee has not included the unutilized MODVAT and VAT credit aggregating to Rs.95,45,446/- while valuing closing stock of Raw material and work in progress. In response to the above show cause notice A.R. of the assessee filed written submissions vide letter dated 22-6-2011 wherein the A.R. submitted that under the exclusive method of accounting adopted by the assessee as per Accounting Standard-2 (AS-2) of the Institute of Chartered Accountants of India (ICAI in short), the assessee had excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is clearly evidenced by the assessment order passed by the A.O. u/s.143(3) of the Act on 4-12-2009. 6.1. Section 145A of the I.T. ACT provides as under:- Method of accounting in certain cases. 145A. Notwithstanding anything to the contrary contained in section 145, the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "profits addition gains of business or [profession" shall be - (a) In accordance with the method of accounting regularly employed by the assessee; and (b) further adjusted to include the amount of assessment year tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation - For the purposes of this section, assessment year tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment.) The section was substituted by the Finance (2) Act of 2009, and came into effect from 1-4-2010.Section 145A, clearly clarifies that tax duty, cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as required by the aforesaid section, was carried out by the assessee nor was the assessee directed by the A.O. to do so. The A. O. simply failed to recognize the fact that the assessee had failed to abide by and conform to the provisions of section 145A of the I.T. Act. This clearly made the assessment erroneous and hence, prejudicial to the interests of the Revenue. This is thus a fit case for the assessment order to be cancelled u/s. 263 of the I.T. Act. 8. In the case of the assessee, a clear finding has been given throughout this order, as to how the assessment order passed by the Assessing Officer u/s.143(3) dated 4-12-2009 was erroneous, and thus prejudicial to the interests of the Revenue. It has been brought out in considerable detail how the Assessing Officer failed to apply his mind to all aspects of the case. He passed the assessment order on the basis of incorrect appreciation of facts addition incorrect application of law. The assessee's case is thus covered by the ratio and the facts of the cases discussed above. Consequently, in exercise of the powers vested in me u/s. 263 of the I.T. Act,I hereby cancel the assessment order passed u/s. 143(3) dated 4-12-2009, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of the A.O. is erroneous and prejudicial to the interest of the Revenue. Thus, according to the Ld. D.R. since the A.O. had failed to make any inquiry, the CIT was fully justified in invoking the provisions of section 263. The Ld. D.R. relied on the decision of co-ordinate Bench in the case of ACIT vs. J. K. Paper Ltd. (ITA No.790 & 791/Ahd/2006). 11. We have heard the rival contentions and perused the material on record. The issue before us is whether the CIT was justified in passing an order u/s. 263 of the Act. We observe that the CIT after verifying the assessment records was of the view that the order of the A.O. was erroneous and prejudicial to the interest of Revenue. 12. A bare reading of Sec. 263 makes it clear that to justify exercise of jurisdiction by CIT, the order of the A.O. is to be erroneous in so far as it is prejudicial to the interest of the Revenue. The satisfaction of the aforesaid twin conditions is a prerequisite to justify intervention by the CIT under sec. 263 of the Act. The order should be erroneous so that Sec. 263 is attracted. Similarly, the second condition of the order being 'prejudicial to the interest of the Revenue' is to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e one determined by the Income Tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. This is because the Income tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfies with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself would not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interests of the Revenue, then the power of suo motto revision cannot be exercised. Any and every erroneous order cannot be the subject matter of revision because the second requirement must be fulfilled." 14. It is also well-settled that order passed by the Assessing Officer would be erroneous only if the A.O. has not considered all materials or had not done proper ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Bombay High Court in the case of Gabriel India Ltd. (supra) specifically observed that "such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. With respect to the issue as to whether the stand of the A.O. on the issue can be said to be unsustainable in law, the decision of the A.O, is supported on the issue of MODVAT credit, by the decision of the coordinate Bench in the case of DCIT vs. Bahubali Electronics relying on the decision of Apex Court in the case of CIT vs. Indo Nippon Chemicals Co. 261 ITR 275 (SC) has held that no addition on account of modvat credit can be made. The decisions relied by the Ld. D.R. are distinguishable on facts. 15. Having regard to the facts and circumstances of the case and also in the light of various judicial pronouncements we are of the view that the stand taken by the A.O. was not an unsustainable in law so as to render the order as prejudicial to the interest of Revenue. Therefore the order of the A.O. cannot be considered either to be erroneous or prejudicial to the interest of the Revenue. Accordingly, the order of Ld. CIT is quashed and the appeal fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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