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TMI Blog2010 (8) TMI 988X X X X Extracts X X X X X X X X Extracts X X X X ..... otice issued by the CIT is dt. 2nd March, 2010. Thus, the said ground cannot be said to be subject-matter of s. 263 as the said issue was not existing on the date when CIT has initiated the proceedings u/s 263. regard to claim of depreciation - HELD THAT:- it is observed that the AO had raised specific query with regard to user of the asset on which the assessee had claimed depreciation and the replies were also given by the assessee to the AO. The AO being satisfied with the reply has accepted the claim of the assessee regarding depreciation. Learned CIT in his order has nowhere specified that which part of the machinery was not utilized by the assessee for whole of the year and to pinpoint that how the claim of the assessee regarding depreciation was wrongly decided by the AO. In the absence of any such material, the ratio applied by us in respect of the issue regarding raw material purchase will be fully applicable to this issue also and applying the same reasons we hold that learned CIT was wrong in invoking the s. 263 on the issue of depreciation. Therefore, we are of the opinion that learned CIT has wrongly invoked s. 263 to the case of the assessee. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial purchased to the tune of ₹ 1,94,66,944 were left to be verified, the bills and vouchers for purchase of raw material were not verifiable. The second point on which s. 263 was sought to be invoked was regarding donation of ₹ 13,000 debited to PandL a/c which was not verified. The third issue for invoking s. 263 was that there was addition shown under the head 'fixed assets' i.e., under the head vehicle of ₹ 16,22,718, 'computer' at ₹ 1,11,300 and machinery at ₹ 80,02,328 on which depreciation was claimed at ₹ 57,53,582 which, according to the CIT, was allowed by the AO without verifying the fact that whether the machinery was put to use during the whole year or not. 4. The assessee submitted the reply to the said notice vide letters dt. 16th March and 17th March, 2010, the copies of which are placed on record. In the letter dt. 16th March, 2010, it was submitted that during the course of original assessment proceedings, the AO had issued questionnaire dt. 16th Jan., 2007 wherein he asked for filing the details of purchases amounting to ₹ 20,77,49,195. Vide reply dt. 22nd March, 2007 the details of purchases amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Machinery 2,38,980.00 25.02.2005 10. Machinery 9,85,928.00 08.02.2005 11. Machinery 10,92,000.00 18.02.2005 12. Machinery 1,50,800.00 25.02.2005 13. Machinery 35,000.00 27.04.2004 14. Machinery 18,65,000.00 24.02.2005 15. Machinery 3,12,000.00 19.02.2005 16. Machinery 12,48,000.00 05.06.2004 17. Machinery 15,60,000.00 13.02.2005 Total 97,37,726.99 7. It was submitted that it will be incorrect to say that the AO has not verified the addition made to the fixed assets and also to the fact that whether they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passing the assessment order. According to the learned CIT, the AO should have made cross-verifications of the reply/facts submitted by the assessee during the course of assessment proceedings before coming to a logical conclusion/finding instead of being satisfied with the information filed by the assessee. Learned CIT has made reference to various judicial pronouncements according to which if submissions of the assessee are accepted by the AO without application of mind, that will make the order passed by the AO as erroneous and prejudicial to the interest of Revenue and learned CIT has referred to following judicial pronouncements to support such contention:- (i) CIT vs. South India Shipping Corporation Ltd. (1998) 147 CTR (Mad) 433 : (1998) 233 ITR 546 (Mad); (ii) Gee Vee Enterprises vs. Addl. CIT and Ors. 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del); (iii) Addl. CIT vs. Mukur Corporation (1978) 111 ITR 312 (Guj); (iv) Duggal and Co. vs. CIT (1994) 122 CTR (Del) 171 : (1996) 220 ITR 456 (Del). 11. It is observed by learned CIT that the AO is not only an adjudicator but also an investigator and he cannot remain passive in the return which is apparently in order bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62,253.50. 13. Similarly, it is observed by the AO that he has verified the labour and purchase charges which have been shown to be incurred at different sites. Those expenses were also test checked and it was found that the twenty three vouchers aggregating to ₹ 8,98,555 were not verifiable, the details of which have also been tabulated by the AO at pp. 2 and 3 of the assessment order. Further, the AO has observed that the bills and vouchers in respect of machinery hire charges were also examined and it was found that 17 vouchers aggregating to ₹ 7,54,128 were not verifiable and these vouchers have also been tabulated at p. 3 of the assessment order and aggregate of these three items being a sum of ₹ 34,14,936 was agreed to be added to the income of the assessee by the counsel of the assessee and the same was added to the returned income of the assessee of ₹ 49,93,780 and, in this manner, the total taxable income of the assessee was computed at ₹ 84,08,716 against returned income of ₹ 49,93,780. 14. Learned Authorized Representative submitted that the tenor of the assessment order itself shows that during the course of assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted to the AO as per page 58 of the paper book which read as under:- Purchase Accounts Group Summary 1st April, 2004 to 31st March, 2005 Particulars Closing balance Debit Credit Bitumen account 20,36,907.00 Bitumen purchase agst. 3B (2.5%) 2,59,94,004.81 Bricks account 36,050.00 Burning oil 97,44,128.00 Diesel account 41,59,692.48 Dust 20,39,310.00 LDO account 2,28,010.00 LDO purchase agst. 3B (2.5%) 16,77,52.00 Raw material others 1,14,30,656.00 RBM 1,96,98,619.25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neither a case of lack of inquiry nor a case of non-application of mind by the AO. The AO after extensively examining the details has come to the conclusion and specified the discrepancies found in those details and, accordingly, the addition was made and, thus, it cannot be said that the assessment order passed by the AO was either erroneous or prejudicial to the interest of Revenue. 24. He submitted that learned CIT himself has also not been able to show or depict that how he has arrived at a figure of ₹ 1,94,66,944 which, according to him, was left to be verified. He submitted that the entire raw material purchased by the assessee was to the tune of ₹ 20,77,49,195, the details of which were duly submitted to the AO and it is also not the case of CIT that any particular voucher other than those specified by the AO was remained to be verified by the AO in respect of which he has computed the figure at ₹ 1,94,66,944. 25. He submitted that donation was also added by the AO in the order passed under s. 154 much prior to the invocation of s. 263, therefore, that issue also cannot be made as basis for invoking s. 263 and on that account also the assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order (2004) 268 ITR (St) 215. (ii) CIT vs. Arvind Jewellers (2002) 177 CTR (Guj) 546 : (2003) 259 ITR 502 (Guj); (iii) CIT vs. D.P. Karai (2003) 185 CTR (Guj) 497 : (2004) 266 ITR 113 (Guj); (iv) Paul Mathews and Sons vs. CIT (2003) 181 CTR (Ker) 207 : (2003) 263 ITR 101 (Ker); (v) CIT vs. Girdhari Lal (2002) 176 CTR (Raj) 92 : (2002) 258 ITR 331 (Raj); (vi) CIT vs. Gabrial India Ltd. (supra); (vii) Hari Iron Trading Co. vs. CIT (2003) 183 CTR (P and H) 228 : (2003) 263 ITR 437 (P and H); (viii) CIT vs. Ratlam Coal Ash Co. (1987) 65 CTR (MP) 305 : (1988) 171 ITR 141 (MP); (ix) Decisions of Tribunal, New Delhi, in the case of Chiranjiv Sharma, Prop., Shiv Shakti Automobiles, dt. 8th May, 2008 and in the case of Sanjay Kumar Jain, dt. 22nd Jan., 2010. 29. Thus, it was pleaded by learned Authorized Representative that order of CIT passed under s. 263 should be quashed as the order passed by the AO was neither erroneous nor prejudicial to the interest of Revenue. 30. On the other hand, learned Departmental Representative relied upon the order passed by learned CIT. He pleaded that the AO failed to make inquiries and relying on the decision relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls which were submitted by the assessee and those details were verified by the AO. 34. Though learned CIT has referred to a figure of ₹ 1,94,66,944, but he has not quantified that amount vis-a-vis the vouchers or other head from where such figure has been drawn. Moreover, in the order passed by him he has not specified those items and he has just asked the AO to make fresh assessment without specifying that which vouchers were not verified by the AO. Therefore, we are of the opinion that powers under s. 263 have been wrongly exercised by the CIT as he has not brought specific material on record to show that how the AO did not verify the raw material purchased to the tune of ₹ 1,94,66,944. 35. The AO is vested with the power to make the assessment as per the provisions of the statute. Normally, the AO while initiating the assessment proceedings will call for the required details to enable him to complete the assessment. In the present case, according to such normal procedure the AO has called for the necessary details from the assessee by issuing questionnaires to the assessee. The assessee had produced the books of account and other details which, as per the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which learned CIT has invoked power under s. 263, the AO did not make any addition either on an incorrect assumption of facts or on an incorrect application of law. Incorrect assumption of facts can be said to have existed only if learned CIT is able to bring on record any material to show that apart from the vouchers, which were identified and stated in the assessment order, there were certain other vouchers which were unverifiable. Learned CIT has not brought any such material on record. In the absence of any such material, it is very difficult to hold that the assessment order passed by the AO was erroneous. What has been done by learned CIT is that he has simply cancelled the assessment order passed by the AO to be made afresh after giving the assessee a reasonable opportunity of hearing. Therefore, it is not a case where assessment order is based on an incorrect assumption of facts. It is not even the case of learned CIT that assessment order is based on an incorrect application of law. Thus, on both accounts, the order of AO cannot be said to be erroneous. The AO, in the assessment order, has identified the vouchers which could not be substantiated by the assessee and the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, it was observed that when an ITO adopted one of the courses permissible in law and it has resulted in loss of Revenue or where two views were possible and the AO has taken one view with which CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the AO is unsustainable to law. Even applying the said principles to the facts of the present case, it is observed that only lawful loss of revenue can be considered to be prejudicial to the interest of Revenue. The CIT nowhere in his order is able to demonstrate that there was any lawful loss of revenue when the AO framed the assessment. 40. In view of above discussion, so far as it relates to the issue regarding invocation of power under s. 263 with regard to non-verification of raw material purchases to the tune of ₹ 1,94,66,944, we hold that the power has wrongly been exercised by CIT under s. 263. 41. Now, coming to the issue relating to donation of ₹ 13,000, it is observed that the said mistake was rectified by the AO much prior even to the show-cause notice issued by learned CIT. The said mistake was rectified by the AO vide order passed u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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