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TMI Blog2014 (3) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessee's submissions dated 12.12.2011 & 2.2.2012 appear to be satisfactory. Ld. CIT cannot review the order of her predecessor; therefore, impugned order is contrary to law and thus nullity. 3. That without prejudice, ld. CIT, cannot initiate proceedings u/s 263 on an audit objection which stands duly explained by AO. Further ld. CIT (Audit) after considering the record had already ratified dropping of audit objection while replying to predecessor CIT's letter in this behalf. Thus the predecessor CIT having dropped the proceedings u/s 263 after due verification by CIT(Audit); on this count also the impugned 263 order is without jurisdiction. 4 That without considering assessee's explanation and assessment proceedings, the finding of the ld CIT that issue of loss of Rs. 23,02,984/- from M/s Sterling Exports and interest accrued on fixed deposits has not been considered at the stage of assessment is factually incorrect and contrary to record. AO having allowed the claims after making reasonable enquiries and finding a reasonable view on the issues, the order of assessment cannot be regarded as erroneous in as much as prejudicial to the interest of revenue merely because ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the I.T. Act were initiated requiring the assessee to explain as to why claim of deduction u/s 10AA of the I.T. Act be not disallowed. There were following reasons for the same: (i) It was not clarified by the assessee as to what services were rendered by it. (ii) The assessee did not produce statement of account with the Italian Co. and also did not provide information with respect to concern to which he was instrumental in supplies made on behalf of the Italian Co. (iii) The interest earned on FDRs by the assessee which were made out of payments received from Italian Co. was also claimed as exempt u/s 10AA and was not allowable. ...... . "23.2. The interest income derived by the assessee is business income in line to his business authorization issued by the Development Commissioner and is from one SEZ into to another SEZ unit and is in foreign exchange till date and is therefore included in the declared receipts as it qualifies in totality to section 10AA. 23.3. It is submitted that this is our provisional reply for want of copies of documents/ information which are the basis of the show cause notice like the details of inquiries made from the different customers and, cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85 of case law PB at page 185 para 10) following judgments of Apex Court in the case of CC vs. Toho Engineering India Ltd. reported in 7 SCC 592) - 320 ITR 674 (Del) CIT vs. Ashish Rajpal at page 689 case law PB at page 192. - 77 DTR 249 (Pune)(Trib) Brahma Builders vs. DCIT 3.1. Apropos the remaining issue i.e. interest on FDRs ld. CIT only has alleged in the 263 show cause notice as under: "15. The assessee had invested Rs. 27,57,91,533/- in FDRs as on 31.3.2008. However, he had declared interest income of Rs. 11,852/- only. It appears the assessee had not declared interest accrued on the said fixed deposits. The income arising on account of accrued interest has not been brought to tax resulting in underassessment of income to that extent." 3.2. Thus the objection was limited to reduced declaration of interest income which is dropped by CIT herself. 3.3 It is contended that the proposed error mentioned in 263 notice is based only on an audit party objection dated 31.3.2011 (PB 56) which reads as under: "(B) The assessee had invested Rs. 27,57,91,533/- in FDRs as on 31.3.2008. However, he has only declared interest income of Rs. 11,852/- only. It appears the assessee had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se facts and circumstances action of successor CIT in again revising the order clearly amounts to review of predecessor's order, which is not permitted by the Act. (vi) Alternatively, the action of reviewing predecessor CIT's order can at best be termed as holding a third opinion by the impugned CIT. Difference of opinions with equal rank officers can not to be the base for revising AOs order u/s 263. (vii) CIT while exercising powers u/s 263 can not act on doubts and assumptions to direct the AO to conduct further enquiries. Ld. CIT has to independently decide the exact error in AOs order and how it is prejudicial to the interest of revenue. Sec. 263 does not envisage setting aside for exploring doubts by further enquiries. Thus the action qua issue about non-inclusion of FDR interest is not only wrong as the interest is included in the books but also arbitrary and unsustainable. 3.6 Ld. counsel placed reliance on the following judicial citations for the propositions that revision u/s 263 based on audit objections is without application of independent mind is untenable and unsustainable in law: i) 108 ITR 407 (Cal) Jeewanlal [1929] Ltd. vs. Addl. CIT (pages 217-219 of JPB) at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unit, of articles or things or services received in, or brought into, India by the assessee....... (Explanation 1 to section 10AA)..... ........ It is most respectfully submitted that the audit has simply pointed out that the small interest income of Rs. 11,852/- shown by the assessee from investment in the fixed deposits is not in consistent with the huge investment of Rs. 27,50,91,533/- in the FDRs, and therefore the audit has opined in routine to collect the details of interest income on FDRs from the banks and to tax the same in various relevant assessment years, which is without assigning any specific and forceful reasons for taxing the same in contravention of other relevant provisions of law and definitions of wide import on various terms, conditions and words used in the relevant laws. The audit has also not pointed out any activity which the assessee might have done outside the ambit of relevant various provisions of law rendering him disqualified from availing of exemption under section 10AA............" [Emphasis supplied] 3.9. Besides before issuing notice u/s 263 ld. CIT overlooked the audit reply dated 16.8.2011 sent by the Assessing Officer to CIT Audit-I, New ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o review or revise the order of her compatriot i.e. predecessor CIT of equal status. 3.14. Thus the impugned order to set aside the issue of eligibility of interest on FDRs u/s 10AA to the file of the AO for further enquiries, is not only bad on the specific counts like non verification of record, not application of independent mind but is also vitiated by lack of any enabling power in this behalf. 3.15. Ld. Counsel contends that legally the revision proceedings initiated by predecessor CIT-VII, Delhi by notice dated 12-12-2011 were finalized by his order dated 4-3-2012 mentioned above. Once 263 action on these issues was concluded, the successor CIT has no powers to revive the closed proceedings or review the order of predecessor in the garb of fresh 263 order on same issue. 3.16. In the light of these facts, ld. Counsel contends as under: a) That proceedings u/s 263 initiated by CIT-VII, Delhi vide notice dated 12.12.2011 stand concluded by an order dated 4.3.2012; b) That without prejudice, the fresh proceedings initiated by vide notice dated 31.01.2013 in accordance with letter dated 8.2.2013 form CIT, Audit is limited to examination of services rendered in respect of clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edecessor CIT. 3.19. Without prejudice to above contentions, it is thus submitted that, ld CIT has not even bothered to go through the record and has given patently contradictory observations. When proper inquiries are conducted, then merely because the assessment order did not specifically mention the queries raised by AO and the assesses response thereto, it cannot be assumed by CIT that there was no inquiry and therefore, the AO's order was erroneous and prejudicial to the interest of the revenue. Reliance is placed on following case laws placed on PB: i) 320 ITR 674 (Del) CIT vs. Ashish Rajpal at page 686. ii) 203 ITR 108 (Bom) CIT vs. Gabriel India Ltd. at page 114 iii) 32 ITR 167 (Del) CIT vs. Sunbeam Auto Ltd. at page 179) 3.20. It is settled law that proceedings u/s 263 can be initiated only when CIT from record demonstrates that there is lack of enquiry by AO and not for inadequate enquiries. The scope of inquiry or way of writing assessment order depends on perception of different officers, AO being a quasi judicial authority is vested with discretion to choose his method of enquiry and writing order as long as it is sustainable order. As per the legislative sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table Trust 167 ITR 129 (Jaipur) It is advocated that CIT's order u/s 263 merely setting aside the order of assessment without giving tenable and cogent reasons is an unsustainable order which deserve to be quashed. The revision proceedings are not envisaged for roving or further enquiries. Reliance is placed on: (iii) 96 ITR 310 (All) CIT vs. Sunder Lal (iv) 111 ITR 326 (All) J. P. Srivastava & Sons Ltd. vs. CIT (v) 170 ITR 28 (All) CIT vs. Kashi Nath & Co. 3.23. In view of the foregoing submissions, facts, propositions of law and judicial citations, it is pleaded that ld. CIT has utterly failed to satisfy the twin conditions required for invoking the provisions of section 263 of the Act. The impugned instant 263 order is without jurisdiction, untenable and unsustainable. Therefore, the same deserves to be quashed. 4. Ld. CIT (DR) Shri Ramesh Chander apart from oral arguments has filed detailed written submissions. The gist of relevant and effective submissions are as under: (i) The new ITO incumbent AO (Smt Sushma Gupta) found that assessment order was passed without proper investigation/enquiries by her predecessor and she rightly proposed the case for action u/s 263. Sh. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudicial to the interest of Revenue--it is submitted that observations of the CIT as made in the order show that the case was clearly prejudicial to the Revenue's interest. 4.4. About the assesses preposition that CIT cannot simply ask the AO reexamine the matter, he can do so only after finding order or assessment is erroneous and prejudicial to the interest of Revenue. Ld. CIT(DR) contends that it is inapplicable in the facts of the present case because here the CIT has pointed out as to how the order is prejudicial to Revenue's interest and is also erroneous. 4.5. Apropos assessees preposition that error should be one which depended on the facts or law and not merely possibility or guess work--it is pointed out that at her own CIT has conducted enquiry and only thereafter she held the order to be erroneous and hence clearly present order is not on guess work. 4.6. Assessees contention that the order of the CIT merely setting aside the order without giving reasons is a vitiated order, ld CIT(D) counters that for revising the order CIT has given detailed reasons which becomes apparent from her 25 page long order where she has discussed full facts and circumstances to arrive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the successor CIT. 4.11. Regarding the submission of the appellant that the notice is based on audit objection and not on independent application of mind it is submitted that there is no such law that on the basis of Audit objection 263 is not possible and in this context reliance is placed on the decision in Mannesmann Demag {53 ITD 533 Del} where it has clearly been held that CIT can exercise jurisdiction on the basis of internal audit objection provided he applies mind. 4.12. In support of the order of the CIT passed u/s 263 further reliance is placed by ld. CIT(DR) on: (a) On Supreme Court judgment in Rampyari Devi {67 ITR 84 SC} & Tara Devi Aggarwal {88 ITR 323 SC} saying that if an order is a stereo-typed one which simply accepts what assessee stated in his return & fails to make enquiries which are called for in the circumstances of the case action u/s 263 would lie. (b) On the Delhi Tribunal decisions (copies given) in M/s Garuda Imaging & Diagnostics P. Ltd{ITA 5956/Del/2010 dated 23-03-2012} & Navbharat International Ltd. { ITA No.1684/Del/2011 dated 30-03-2012} involving identical circumstances where after analyzing various decisions it was held that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that it would be against the principles of natural justice that a person who has not been confronted with any ground be saddled with the liability thereof. Consequently the Tribunal held that as the said issue did not form part of the show cause notice and the assessee was not even confronted with it, even before the CIT, it cannot for the basis for revision of the assessment order under section 263." 5.1. This view is further supported by Hon'ble Supreme court judgment in the case of Toho Eng. (supra). In view of these facts and circumstances, the issue of SE loss having not been mentioned in 263 show cause notice, the setting aside order by CIT in this behalf can not be sustained. 5.2. Apropos the remaining issue i.e. FDR interest in the case of SSS ld counsel contends that the error mentioned in the 263 notice is limited to audit parties objection that perusal of record reveals that though the FDR interest amounted to Rs. 27,57,91,533/-, only Rs. 11,852/- was declared in interest a/c. According to assessee it has been demonstrated from the assessment record and audited statements that the entire interest was duly entered in the books and the final balance of Rs. 11,852/-, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings on the same issues and review the order of her predecessor on same issues. Thus looking at the language of sec. 263 and catena of judgments cited, successor CIT becomes functus officio in this regard after the exercise conducted by predecessor CIT. . Therefore we have no hesitation to hold that the 263 order is not sustainable on these legal counts. 5.6. On merits also when the issue is not mentioned in 263 show cause notice, any revisional order is bad in law on that issue. Apropos the FDR interest issue also the show cause notice was to verify whether interest income was included in the books or not. Assessee had demonstrated this aspect to the satisfaction of audit party, CIT(Audit) and predecessor CIT. In these circumstances, the set aside for a new issue i.e. eligibility of FDR interest u/s 10AA cannot be sustained. 5.7. There is another angle to it. CIT had issued a notice for examining the eligibility of sec 10AA of the unit SSS, which includes all the items. This issue has been examined by CIT and sec. 10AA eligibility has not been disturbed in 263 order. Thus the direction to re-examine eligibility of 10AA qua the FDR interest has to fail on both counts i.e. i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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