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TMI Blog2015 (8) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudicial to the interest of revenue. b. That the Ld CIT had no jurisdiction to invoke the provisions of section 263 of the IT Act, 1961. c. That the Ld. Assessing officer has passed the assessment order dated 29.12.2010 after proper application of mind and after verifying all records either filed during assessment proceedings or produced before him during assessment proceedings. d. That various observations and directions made by the Ld. CIT in her order u/s 263 are either factually incorrect or are not tenable in law. e. That the plethora of judgments relied upon by the Ld. CIT in her order u/s 263 are either not applicable to the appellant's case or are distinguishable on facts of appellant's case. 3. That the Ld. CIT was not correct and justified in directing the assessing officer to disallow proportionate interest on the loans and advances given by the appellant on the basis of facts and circumstances of the case. 4. That the Ld. CIT was not correct and justified in directing the assessing officer to verify the TDS deducted or not on the payments made for building repairs & Maintenance on the basis of facts and circumstances of the case. 5. That the Ld. CIT was not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09.2010 and 11.11.2010 during the assessment proceeding. Ld. AR further contended that the assessment order was neither erroneous nor prejudicial to the interest of Revenue and the CIT had no valid jurisdiction to invoke the provisions of Section 263 of the Act. Ld. AR strenuously contending that the plethora of judgment relied by the CIT in her impugned order are not applicable to the assessee case and are distinguishable on the facts and circumstances of the present case. 6. Ld. AR also pointed out that the CIT was not correct and justified in directing the AO to disallow the proportionate interest with higher low advance given by the assessee on the basis of facts and circumstances of the case as the assessee had sufficient interest free funds in its hands for advancement of interest free advances which were given out of business purposes. Ld. AR further drawn our attention towards issue of TDS agitated by the CIT and submitted that the CIT was not correct and justified in directing the AO to verify the TDS deducted or not on payments made for building repairs and maintenance on the basis of facts and circumstances because the assessee filed entire details of TDS before the AO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order on the issue of interest paid on interest free investment, advances and loan, on the issue of TDS and on the issue of claiming deduction u/s 80IB(7A) of the Act incurred to income earned from sale of shop and interest on FDR. The Ld. DR placing reliance on the various orders/judgments of the Hon'ble Supreme Court and Hon'ble jurisdictional High Court of Delhi including recent decision of the Hon'ble High Court of Delhi in the case of CIT Vs. Goetze (India) Ltd. (2014) 361 ITR 505 (Del) wherein submitted that the Revenue Department does not have any right to appeal against the order of the Assessing Officer therefore, the power of revision has been conferred of on the commissioner u/s 263 of the Act to revise erroneous assessment orders which are also prejudicial to the interest of the Revenue. Ld. DR supporting the action of the CIT, strenuously contended that when the Assessing Officer takes a view but the view is not correct and is erroneous according to the findings recorded by the commissioner with the findings that the order passed by the AO was also prejudicial to the interest of Revenue. Then the order of the commissioner cannot be set aside on the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT issuance of notice u/s 263 of the Act and passing impugned order is not valid and bad in law, which is also not sustainable in the light of the provisions of Section 263 and other relevant provisions of the Act. 11. On careful consideration of above rival submissions of both the sides and carefully perusal of relevant paper book filed by both the sides, at the very outset, we note that the CIT issued notice u/s 263 of the Act agitating five issues in the impugned order of the CIT and partly set aside the assessment order on three issues directing the AO to work out interest free advances for non business purposes and disallowances of proportionate interest free thereon, for verification of TDS on certain payments noted in point no. (2) of notice u/s 263 of the Act and to exclude income on sale of shops and FDR interest from business income for the purpose of deduction u/s 80IB(7A) of the Act, when we analyse and examined the questionnaire dated 11.06.2010 (Pages 25 to 27 of assessee paper book 2) we note that the Assessing Officer have not raised any query in regard to interest free advances for non business purposes showing intention to disallow proportionate interest there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and circumstances of the present case and vigilant consideration of submission of contention of both the sides we clearly observe that there was enquiry by the AO on the issue of interest free advances for non business purposes and proportionate disallowance interest thereon on the issue of verification of TDS certificates on certain payments and on exclusion of income on sale of shops and FDR interest from business income and on the issue of claim of assessee and its claim of pertaining to deduction u/s 80IB(7A) of the Act. 12. Now, we proceed to consider the ratio of the orders/judgments relied by the Ld. AR at the very outset, we note that since the CIT dropped the issue of treatment of rental income as business income by the assessee in the final impugned order passed u/s 263 of the Act, therefore, benefit of the ratio of the order of the ITAT Kokatta 'A' Bench in the case of PFH Mall & Retail Management Ltd. (Supra) is not available for the assessee in the facts and circumstances of the present case. On careful consideration of the ratio laid down by the Hon'ble jurisdictional High Court of Delhi in the case of CIT Vs. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter." No substantial question of law arises for our consideration." 14 When we analyise the facts and circumstances of the present case, in the light of ratio laid down by the Hon'ble High Court in the judgment of CIT Vs. Sunbeam Auto Ltd. (Supra) we note that the present case is not a case of 'lack of inquiry' or inadequate inquiry but present case is the case wherein the Assessing Officer has not made required inquiry on the issue of interest free advances for non business purposes and consequently proportionate disallowance of interest thereon, on the issue of verification of TDS and on the issue of claim of deduction of the assessee u/s 80IA(7A) of the Act specially on the issue of exclusion on income of sale of shop and FDR interest from finding income for the purpose of computation of claim of deduction under the said provision. For the facts and circumstances, we respectfully hold that the benefit of ratio of decision in the case of CIT Vs. Sunbeam Auto Ltd. (Supra) and CIT Vs. Anil Kumar Sharma (Supra) is not available for the assessee as the facts and circumstances of the present case are clearly distinguishable from these cases. 15. When we proceed to consider the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word „erroneous‟ includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. The Delhi High Court in Gee Vee Enterprises v. Additional Commission of Income-Tax, Delhi-I, (1975) 99 ITR 375, has observed as under:- "The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the exercise of power by the Commissioner of Income-tax under section 263 of the Incometax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would 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 interpret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 ITR 329 (Delhi). It has been observed in Nagesh Knitwears Private Limited (Supra):- "The Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression „prejudicial to the interest of the Revenue‟ is of wide import and is not confined to merely loss of tax. The term „erroneous‟ means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The aforesaid observations have to be understood in the factual background and matrix involved in the said two cases before the Supreme Court. In the said cases, the Assessing Officer had not conducted any enquiry or examined evidence whatsoever. There was total absence of enquiry or verification. These cases have to be distinguished from other cases (i) where there is enquiry but the findings are incorrect/erroneous; and (ii) where there is failure to make proper or full verification or enquiry." In Nagesh Knitwears Private Ltd. (supra), reference was made to CIT Vs. Sunbeam Auto Ltd. (2011) 332 ITR 167, with the following quote from the later decision:- "In the case of CIT v. Sunbeam Auto Ltd (2011) 332 ITR 167 (Delhi), the Delhi High Court was considering the aspect, when there is no proper or full verification and it was held as under (page 179) "We have considered the rival submissions of the counsel on the other side and have gone through the record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10)........ From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue." 17. In view of above, if we analyise facts and circumstances of the present case, wherein the Assessing Officer conduct the assessment proceeding and passed impugned assessment order accepting the return of income of the assessee we clearly observe that the Assessing Officer has not made inquiry on the issue of interest free advances and proportionate disallowance of interest thereon, on the issue of verification on TDS and on the claim and calculation of the assessee for the purpose of deduction u/s 80IB(7A) of the Act specially on the issue of exclusion of income/receipt on sale of shop and FDR interest. In this situation, we have no hesitation to hold that the order of the AO which is apparently very precise and cryptic, was not passed after due examination and verification of certain or issue and therefore, there was an error on the part of AO which leads to a correct conclusion of the CIT with the order of the AO is not only erroneous or also prejudicial to the interest of Revenue. We may further point out that the assessment order suffers lack of necessary enqui ..... X X X X Extracts X X X X X X X X Extracts X X X X
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