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TMI Blog2012 (12) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - Dated:- 19-10-2012 - CHANDRA POOJARI AND SAKTIJIT DEY, JJ. I. Rama Rao for the Appellant. V. Srinivas for the Respondent. ORDER Chandra Poojari, Accountant Member - This appeal by the assessee is directed against the order of the CIT-III, Hyderabad dated 27.3.2012 passed u/s. 263 of Income-tax Act, 1961 for assessment year 2007-08. 2. The assessee raised the ground that the CIT erred in assuming jurisdiction u/s. 263 of the Act thereby directing the Assessing Officer to disallow payment of Rs. 4,18,80,995 incurred towards commission out of commercial expediency on account of a trade practice. 3. Brief facts of the issue are that in this case the assessment was completed determining total income at Rs. 6,10,74,327 u/s. 143(3) of the Act wherein the Assessing Officer accepted declared income by the assessee. The CIT on examining the record found that the assessee incurred expenditure of Rs. 4,18,80,995 as commission paid to the following parties: Name of the party Commission paid (Rs.) R.K. Marketing Service 99,59,139 Vijay Mining Pvt. Ltd. 99,59,139 Lakshmi Mines Minerals 2,03,895 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment without any additions. However, the CIT vide show-cause-notice dated 23.02.2011 sought to revise the assessment order on the ground that the learned Assessing Officer had not carried out further enquiries with regard to the commission payments. The Assessee had opposed the revision on the ground that the very same issue was examined and considered by the Assessing Officer during the course of assessment proceedings vide the questionnaires dated 22.06.2009, 12.10.2009 and 16.10.2009. After considering the explanation furnished by the Assessee in response to the said questionnaires, the learned Assessing Officer, on being satisfied with such explanation, chose not to make any addition in respect of the same and thus completed the assessment. Therefore, the assessment order cannot be termed as "erroneous" and therefore, jurisdiction under Section 263 of Income Tax Act, 1961, cannot be exercised. However, the CIT not having been satisfied with the explanation furnished in response to the show cause notice, had passed an order under Section 263 on 27.03.2012 disallowing the commission payment of Rs. 4,18,80,995. 7. The AR submitted that the impugned order passed by the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer, revision was justified. In spite of this, the learned Commissioner finally settled the controversial issue vide operative portion of the impugned order and disallowed the commission payment of Rs. 4,18,80,995. Thus, the impugned order had travelled beyond the scope and ambit of show cause notice and therefore, the order under Sec. 263 of Income Tax Act, 1961 is null and void and is liable to be quashed. (d) Even assuming that the enquiries made by the Assessing Officer are inadequate, the jurisdiction under Sec. 263 of Income Tax Act, 1961 cannot be assumed as it was only in the cases of lack of enquiries that the jurisdiction under Sec. 263 of Income Tax Act, 1961 can be assumed. Reliance in this regard is placed on the following decisions: 1. CIT v. Anil Kumar Sharma [2011] 335 ITR 83; 2. CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167; 3. CIT v. Gabriel India Ltd. [1993] 203 ITR 108 8. The AR submitted that in Gabriel India Ltd., case (supra), law on this aspect was discussed in the following manner (page 113) : "From reading of sub-section (1) of section 263, it is clear that the power of suo moto revision can be exercised by the Commissioner only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have estimated the income at a figure higher than the 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. It 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 formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was made as to the material, viz. subsequent assessment proceedings, based on which he had come to such conclusion. It is well settled principle of law that the principle of res judicata does not apply to the Income Tax proceedings; more so, in respect of question of fact. Each assessment year is a separate unit of assessment. The issues in the present year may be the same as they might have been in the subsequent year; but, still it is expected of the Assessing Officer to verify the facts on those issues and then he may follow his order for the subsequent year. The Hon'ble Orissa High Court in the case of CIT v. Orissa State Financial Corpn. [1993] 203 ITR 747 held that no revision was possible based on the earlier order of the Tribunal. 12. No new material has been brought on record to suggest that the assessment order was erroneous and prejudicial to the interests of revenue. Therefore, the jurisdiction under Section 263 of Income Tax Act, 1961 cannot be assumed. Reliance in this regard is placed on the decision of Hon'ble Income-tax Appellate Tribunal - Chennai Bench in the case of IClCI Bank Ltd. v. Jt. CIT [2009] 309 ITR (AT) 235 (Chennai). 13. The AR submitted that tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d DR submitted that the Assessing Officer allowed payment of commission as business expenditure without carrying out necessary enquiry regarding genuineness of payment and service rendered. The assessee only filed confirmation letters from these parties and on that basis the Assessing Officer allowed payment of commission. He submitted as follows: (a) The Assessing Officer merely accepted the confirmatory letters (from the alleged commission agents) filed by the assessee firm without conducting any independent enquiry/investigation. (b) The Assessing Officer had not called for the copies of agreements entered into by the assessee firm with the alleged commission agents. (c) The Assessing Officer had not called for correspondence made by the assessee firm with the commission agents. (d) The Assessing Officer had not called for the partywise list of customers introduced by the alleged commission agents. (e) The Assessing Officer had not called for specific tonnage details of sales effected through each of the commission agent. (f) The Assessing Officer had not called for documentary evidence in support of services rendered by the alleged commission agents. (g) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the rival submissions in the light of material placed before us and also gone through all the judgements cited by the parties before us. First we take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the learned CIT. The scheme of the IT Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the assessing officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the revenue. As held in the case of Malabar Industries Co. Ltd., (supra), the Commissioner can exercise revision jurisdictional u/s 263 if he is satisfied that the order of the assessing officer sought to be revised is (i)erroneous; and also (ii) prejudicial to the interests of the revenue. The word 'erroneous' has not been defined in the Income Tax Act. It has been however defined at page 562 in Black's Law Dictionary (seventh Edition) thus'; 'erroneous, adj. Involving error, deviating from the law'. The word 'error' has been defined at the same page in the same dictionary thus: 'error No. 1 : A psycholo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue. 22. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we are supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi (supra), Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC), and Malabar Industrial Co. Ltd's (supra). 23. In Malabar Industrial Co. Ltd. case (supra) the Hon'ble Court has held as under: "There can be no doubt that 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 facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall the orders passed without applying the principles of natural justice or without application of mind. In our humble view, arbitrariness in decision-making would always need correction regardless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge." 24. Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. Mfg. Co. of India Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi-judicial capacity. An assessment order is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. He simply accepted the income declared by the assessee. This is a case where the Assessing Officer mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry. The evidence available on record is not enough to hold that the return of the assessee was objectively examined or considered by the Assessing Officer. It is because of such non-consideration of the issues on the part of the Assessing Officer that the return filed by the assessee stood automatically accepted without any proper scrutiny. The assessment order placed before us is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee. The Assessing Officer has completely omitted to examine the issues in question from consideration and made the assessment in an arbitrary manner. His order is a completely non-speaking order. In our view, it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order considering the issues raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of the learned Counsel for two other reasons also. First reason is that the view so taken by the Assessing Officer without making the requisite inquiries or examining the claim of the assessee will per se be an erroneous view and hence will be amenable to revisional jurisdiction under Section 263. Second reason is that it is not taking of any view that will take the matter under the scope of Section 263. The view taken by the Assessing Officer should not be a mere view in vacuum but a judicial view. It is well established that the Assessing Officer being a quasi-judicial authority cannot take a view, either against or in favour of the assessee / revenue, without making proper inquiries and without proper examination of the claim made by the assessee in the light of the applicable law. As already stated earlier, we are not able to appreciate on what material was placed before the Assessing Officer at the assessment stage to take such a view. The assessee has also not been able to lead enough evidence to show to us that any inquiry was made by the Assessing Officer in this regard. Therefore mere allegation that the Assessing Officer has taken a view in the matter will not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law or what are the possible views on the issue before him. In case he comes to the conclusion that more than one view is possible then he has necessarily to choose a view, which is most appropriate on the facts of the case. In order to apply the aforesaid observations to a given case, it must therefore first be shown that the Assessing Officer has "adopted" a permissible course of law or, where two views are possible, the Assessing Officer has "taken" one such possible view in the order sought to be revised under Section 263. This requires the Assessing Officer to take a conscious decision; else he would neither be able to "adopt" a course permissible in law nor "take" a view where two or more views are possible. In other words, it is the Assessing Officer who has to adopt a permissible course of law or take a view where two or more views are possible. It is difficult to comprehend as to how the Assessing Officer can be attributed to have "adopted" a permissible course of law or "taken" a view where two or more views are possible when the order passed by him does not speak in that behalf. We cannot assume, in order to provide legitimacy to the assessment order, that the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the Assessing Officer had considered all the relevant aspects of the case carefully while passing the order. According to him, the mere fact that the assessment order passed by the Assessing Officer was short would neither mean failure on his part in not examining the matter carefully nor would render his order erroneous so long as the view taken by him was a possible view. In our view, the aforesaid submission of the assessee must fail for the reasons already explained in the foregoing paras of this order as the order, which is sought to be revised under Section 263 reflects no proper application of mind by the Assessing Officer and thus be amenable to revision under Section 263. In this case before us, the assessment order passed by the Assessing Officer lacks judicial strength to stand. It is not a case where the order is short but is not supported by judicial strength. It is in this view of the matter that we feel that the learned Commissioner has correctly exercised his revisional jurisdiction under Section 263. 33. In our opinion, the Assessing Officer has been entrusted the role of an investigator, prosecutor as well as adjudicator under the scheme of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R.K. Marketing Service 99,59,139 Vijay Mining Pvt. Ltd. 99,59,139 Lakshmi Mines Minerals 2,03,895 B. Bhagyalakshmi 1,99,10,281 K. Annapurna 18,56,501 Total 4,18,80,995 35. The CIT was of the opinion that there is no proper enquiry by the Assessing Officer. The Assessing Officer accepted the claim of payment of commission by placing reliance only on confirmation letters filed by the assessee firm without conducting further enquiry with regard to genuineness of the commission payments. The Assessing Officer not gathered any information regarding the genuineness of payments and evidence to suggest the nature of services rendered by these parties. It is incumbent on the part of the Assessing Officer to come to independent conclusion that the payments commensurate with the nature of services rendered by the parties. The Assessing Officer absolutely closed his eyes for extraneous reasons and accepted the commission payments just on the basis of confirmation letters. Confirmation letters themselves cannot prove the genuineness of the payments and nature of services rendered. Being so, it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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