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TMI Blog2015 (10) TMI 1758X X X X Extracts X X X X X X X X Extracts X X X X ..... s per AIR information. The AO completed the assessment by making an addition of Rs. 6,11,230/- on surrendered amount made by the assessee vide order sheet dated 20.12.2013 as business income @8% of gross receipts of Rs. 76,40,380 as prescribed u/s 44AF of the Act. Finally, the said addition was made being 8% of turnover made on account of trading of cloth during the relevant financial period. The AO completed the assessment u/s 143(3) of the Act at an income of Rs. 7,52,860/- as against the returned income of Rs. 1,40,180. 4. Subsequently, the CIT noticed that the AO has passed order u/s 143(3) of the Act on 20.12.13 and on examination of relevant assessment record, it was noticed that the order passed by the AO is prejudicial to the interest of revenue and erroneous, hence, the CIT issued notice u/s 263 of the Act on 9.9.2014. After considering the reply and explanation of the assessee, the CIT held that impugned assessment order is erroneous and prejudicial to the interest of revenue as not only assessment order has been passed in utmost haste and in a cryptic manner but the AO has also allowed benefit of section 44AD/AF of the Act erroneously without considering whether conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment. Ld. AR strongly contended that the assessee was fair enough in submitting all details of cash deposits to his bank account and the assessee not only submitted details of cash deposit with HDFC Bank but also submitted details of other bank accounts of the assessee and these facts were properly explained before the AO and after examining the same, the AO recorded his satisfaction in this regard. Ld. AR further submitted that there was no mala fide during assessment proceedings as the AO adopted the course in the best interest of the revenue and took 8% of gross receipts of trading business of cloth for estimation of business income of the assessee. The AR has further drawn our attention towards contents of the notice issued to the assessee u/s 263 of the Act and reply of the assessee to the said notice and submitted that while the AO is adopting higher percentage of profit for estimation of business income of the assessee, then the order cannot be held as erroneous and prejudicial to the interest of revenue because for invoking provisions of section 263 of the Act, twin conditions are required to be fulfilled, viz. the assessment order should be erroneous and secondly, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke fresh assessment after considering the correct legal and factual position of the case. 8. In the rejoinder, ld. AR submitted that even if it is presumed that the provisions of section 44AF/44AD of the Act are not applicable to the assessee's case, then also if the AO is adopting higher percentage of 8% for making estimation of business income, then the view is obviously favourable to the revenue which cannot be held as erroneous or prejudicial to the interest of revenue because as per ratio of the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs CIT (2000) 243 ITR 83 (SC), the phrase 'prejudicial to the interest of revenue' has to be read in conjunction with an erroneous order passed by officer. Ld. AR contended that every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of revenue and in the present case, the AO has taken a view by adopting 8% instead of 5% for making estimation of business income of the assessee which was not prejudicial to the interest of revenue and hence notice u/s 263 of the Act and impugned order may kindly be quashed. 9. On careful consideration of above submissions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Joint Commissioner under Section 144-A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under Section 120; (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub- section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct." 13. In the said judgment, Delhi High Court had referred to earlier decisions of the Supreme Court in Rampyari Devi Sarogi vs. CIT (1968) 67 ITR 84 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113): " . . . From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is „erroneous in so far as it is prejudicial to the interests of the Revenue . It is not an arbitrary or unchartered power, it can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be „ erroneous‟ simply because in his order he did not make an elaborate discussion in that regard."" 16. Thus, in cases of wrong opinion or finding on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant financial period and at the same time when we analyse the totality of the contents of the impugned assessment order, we can safely infer that the intention of the AO was to estimate business income of the assessee and he estimated the same by taking 8% of total gross receipts of Rs. 76,40,380 vide order sheet entry dated 20.12.13 and the AO made an addition of Rs. 6,11,230 as business income from trading of cloth on account of profit earned from this business. However, it is clear that when the gross receipts of the assessee were more than Rs. 40 lakh, then the provisions of section 44AF(1) of the Act are not applicable but the AO made estimate of profit earned by the assessee during the relevant financial period for trading of cloth by estimating 8% of total gross receipts, then the recourse adopted by the assessee is more than beneficial to the revenue and which cannot be held as prejudicial to the interest of revenue. 11. From the operative part of the impugned order passed u/s 263 of the Act, we clearly note that the CIT has directed the AO to make a fresh assessment after considering the correct legal and factual position and he has not drawn any definite conclusion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year reflects receipt of a sum of Rs. 1,80,000/- from M/s Shine Bath, his employer, towards salary. All these facts clearly indicate that the money deposited in the various bank accounts of the assessee was not in the nature of sale proceeds/business receipts, since the assessee is not even aware of the nature and type of business carried on by him and could not produce Sales Tax/V AT details in this regard. In such a situation the entire cash deposits in different bank accounts of the assessee should be treated as unexplained money of the assessee u/s 69A of the I.T. Act. 5. In CIT vs Raja Industries (2012) 340 ITR 344 (P&H), it has been held that where enquiry is warranted but not made, it would certainly constitute prejudice to revenue, so that jurisdiction for the Commissioner is available for remanding the matter for such enquiry. 6. In Jyoti Electric Motors Ltd. vs CIT (1999) 237 ITR 280 (Guj), it was held that even where facts are disclosed by the assessee, the order of assessment can be the order of assessment can be revised if the correct provisions of law are not examined. In the instant case even the facts are not disclosed by the assessee in his return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (1999) 237 ITR 280 (Guj), and ratio of the judgment of Hon'ble Calcutta High Court in the case of CIT vs Active Traders (P) Ltd. (1995) 3214 ITR 583 (Cal) and noted that in the instant case, facts are not disclosed by the assessee in his return of income as regards maintenance of bank accounts and deposit of cash in the said bank accounts. The CIT also held that the AO passed order in utmost haste and without proper inquiry and it was incumbent upon the AO to investigate the fact stated in the return particularly when the circumstances suggest that inquiry would have been necessary and prudent. In para 8, the CIT without drawing any conclusion about the outcome of the impugned assessment order has held that the assessment made by the AO u/s 143(3) of the Act dated 20.12.13 is treated as erroneous and prejudicial to the interest of revenue as not only assessment order has been passed in a cryptic manner but the AO has also the benefit of section 44AD/44AF of the Act erroneously without considering whether the conditions are fulfilled or not. The CIT also held that the assessment order has been passed by not applying the provisions of section 69 of the Act resulting in non-appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous because the order passed is not sustainable in law and said finding must be recorded. In this judgement, it was also held that the CIT cannot remand the matter to the AO to decide whether findings recorded are erroneous. In the case where there is inadequate inquiry but not lack of inquiry, again the CIT must give and record his finding that the order/inquiry made is erroneous and this can happen if an inquiry is conducted by the CIT and thereafter he is able to establish and shows the error or mistake made by the AO, making the order unsustainable in law. It was further held that the matter cannot be remitted for a fresh decision to the AO to conduct further inquiry without a finding that the order is erroneous is a condition or requirement which must be satisfied for valid exercise of jurisdiction u/s 263 of the Act. Lastly, their lordships, speaking for the jurisdictional High Court, made it clear that in such matters, to remand the matter/issue to the AO would imply and mean that the CIT has not examined and decided whether or not the order is erroneous but has directed the AO to decide the aspect/question. 14. In para 17 of this order, their lordships enlightened us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case, proceeded to estimate the business income of the assessee @8% of gross receipts and made an addition of Rs. 6,11,230/- which was accepted by the assessee without any further litigation. However, we cannot ignore that the AO in the operative part of the assessment order has referred to section 44AF of the Act while estimating the business income @8% of gross receipts but as per said provision, the business income has to be assessed @5% of the total turnover during the previous year on account of such business provided total turnover of the assessee does not exceed an amount of Rs. 40 lakh in the relevant previous year. 17. Furthermore, in the present case, the AO has not taken total turnover of assessee in the trading of cloth and the AO has adopted higher figure taking total amount of gross receipts of Rs. 76,40,380 during the relevant financial period. The CIT has not brought out any fact to establish that the assessee had not undertaken any inquiry in regard to the alleged cash deposited to his bank account and the CIT has not brought out any fact to this effect that in absence of amount and other records, which were lost by the assessee, the AO was not cor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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