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TMI Blog2008 (2) TMI 893X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Indian and Eastern Newspaper Society vs. CIT (1979) 119 ITR 996 (SC) wherein the Apex Court had observed that the reports of the Internal Audit Party represented a piece of information and that the same could not be the only basis for the issue of the notice under section 147 or section 263 of the Act (iii) The CIT had erred in not appreciating that the expenditure for the training of one of the partners of the appellant firm at London was admissible under section 37(1) of the Income Tax Act, especially when the said expenditure had been incurred wholly and exclusively for the purpose of the business of the appellant and that the said expenditure did not represent either capital expenditure nor personal expense of the appellant firm for this year. 3. (i) The CIT had erred in overlooking the judgment of Madhya Pradesh High Court in the case of CIT vs Kohinoor Paper Products (1997) 226 ITR 220, whereby the High Court had held that the expenditure in respect of the training of one of the partners was admissible under section 37(1) of the Act (ii) The CIT had erred in overlooking the judgment of Calcutta High Court in the case of Hindustan Aluminium Corporation vs C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 263 which has set aside the order of the Assessing Officer dated 28.3.2002 for the assessment year 1999-2000. CIT's passed order dated 5.3.2004 u/s 263 holding that the AO's order is erroneous as the expenditure of ₹ 15,36,395/- was wrongly allowed by the AO. In his order, the CIT set aside order of the ASSESSING OFFICER with the direction to pass a fresh assessment order after giving due opportunity to the assessee. 3. Briefly stated, the facts are that the assessee is engaged in the purchase and sale of diesel trucks, its accessories and spare parts. He is a dealer of vehicles manufactures by TELCO. The firm is constituted under the instrument of partnership deed dated 15.10.1981 with the three partners namely, - 1. Shri Amrit Kumar Sanghi, son of Shri M.G, Sanghi, resident of Delhi, hereinafter called party of the First Part. 2. Shri Ajay Sanghi son of Shri A.K. Sanghi, resident of Delhi, hereinafter called party of the Second Part. 3. Smt. Deepika Sanghi W/o Shri Vijay Kumar Sanghi, resident of Delhi hereinafter called party of the Third Part. Partners agreed to admit Miss Apoorva Sanghi and Master Anuj Sanghi both minor children of partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 12,40,318/- 1999-2000 Rs. 15,36,395/- 2000-2001 Rs. 11,07,066/- 2001-2002 Rs. 5,77,575/- It was the assesee's case that the aforesaid expenditure had been incurred wholly and exclusively for the purpose of the firm's business and it was fully allowable under section 37(1) of the Act. 5. The assessment order was passed by the AO allowing partner's training expenses fully. The Ld. CIT Delhi X, New Delhi in exercise of his powers u/s 263 of the Act examined the records of the proceedings u/s 143 (3) and held that there is nothing on record to show that the said expenses have been incurred wholly or exclusively for the purpose of business of the Assessee firm. He was of the view that the Assessing Officer's order is therefore, erroneous and prejudicial to the interest of the Revenue. Accordingly, notice u/s 263(1) dated 22.9.2003 was served on the assessee to show cause as to why an appropriate order u/s 263 be not passed including issuing of directions to the AO to modify assessment suitably for the purpose of removing the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case, especially when the course pursued by the partner had no nexus with the nature of business carried on by the Assessee. Records do not show that the AO has taken a view for or against the assessee, as the assessment order is silent on this issue completely. It was pointed out that the AO has not called for any specific details to establish that the said expenses are allowable u/s 37(1) of the Income Tax Act on fulfilling the four conditions specified therein particularly the condition relating to incurring expenditure wholly and exclusively for the purposes of the business. He relied on various judgments viz. Malabar Industies co Ltd (2000) 159 CTR (SC) 1 : 243 ITR 83 (SC); Honda Siel Power Products Ltd vs. DY CIT (2001) 77 ITD 123 (Delhi) Gee Vee Enterprises (99 ITR 375) etc for the proposition that inaccurate presumption of facts and inaccurate presumption of law are sufficient grounds for the purpose of section 263. Similarly, routine nature of inquiries and Assessing Officer's failure to conduct further enquiries is also a sufficient ground for invoking the provisions of section 263 by the CIT. 10. Elaborating his arguments further, he reasoned that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of them is absent -it the order of the Income tax Officer is erroneous but is not prejudicial to the Revenue or it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of fact and an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fail orders passed without applying the principles of natural justice or without application of mind. Further, on 88 of the said Report, in the context of 'prejudicial to the interest of revenue' the Apex Court held that: The scheme 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 an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue . The order of the ASSESSING OFFICER must suffer from i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eels P. Ltd (supra) that the,- expenditure which a father incurs out of his natural love and affection for his children in meeting the cost of their education cannot become a business expenditure merely because he is also the owner or a director of a business in which the son or daughter subsequently takes part . 13. In the light of above scope of the section 263, we proceed to analyze the assessee's case. We find that the questionnaire, which runs into three pages, contains 22 items for scrutiny. On the order hand, the two reply letters from assessee dated 18.3.2002 and 26.3.2002 are exactly on the issue of partners training expenses account implying that there was detailed discussion and debate on this issue during the hearing before the assessing officer. Assessee's letters dated 18.3.2002 contains reference to another letter of the assessee dated 11.3.2002. Relevant extracts from the questionnaire, letters dated 18.3.2002 and 26.3.2002 are reproduced as under. a. Extract from the questionnaire dated 22.2.2002: S. No. 20 (n) of the questionnaire-dated 22.2.2002 is relevant and the same is as follows: 20 (n) Details and nature of partner's training ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s training It Is clarified that Shri Anuj Sanghi proceeded to London in the year 1996-97. He joined Rechmond University, London for 4 years course in BSC in System Engineering (specialized course in Computer Software Technology and Management). The said course is essential to boost skill in Software Engg. and Management (emphasis supplied). The course perused by Sh. Anuj Sanghi helps in acquiring knowledge of the proper management process, system programming with the rising concern for internet security, evaluating the results under both controlled and uncontrolled conditions, documentation standardizing process to reduce cost and time spent on maintenance work, (emphasissupplied). The proficiency acquired by Sh. Anuj Sanghi shall be beneficial and of great assistance in the business activities (emphasis supplied) of the assessee firm. 2. The complete details of interest expenses debited to P and L Account is annexed. We hope the above shall meet your requirement to finalise the assessment. 14. To sum up the extracts quoted in para 12 above, in our considered opinion, the item 20 (n) is in the nature of routine question on this issue of Partner's Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law does not constitute information for the purpose of reopening an assessment u/s 147(b) of the Act. We also feel that the said ratio is in the context of the provisions of section 147 of the Income Tax Act. Further the plain reading of the provisions of section 263 says that CIT is endowed with powers under the said section to call for and examine the records of any proceedings . Thus, we find that the source of the information is irrelevant while judging the validity of proceedings under section 263 of the Act. 17. Assessee relied on the judgment of Hon'ble MP High Court in the case of CIT vs Kohinoor Paper Products 1997) 226 ITR220, where the educational expenses of a partner's post graduate studies were allowed as a deduction. We find that this case is distinguishable as there is finding of the Tribunal in the said case that the expenditures incurred was wholly and exclusively for business purposes. There is no such finding by lower authorities in the instant case. Incurring expenses in sponsoring partners to attend an international leather fair in Paris (Southern Leather Industry 164 ITR 194 (Mad), sending 24 employees for some advance training as in case of Hindu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umed facts and that the investigation undertaken by the AO is of routine nature, the judicial pronouncement relied upon by the AR of the assessee are distinguishable on facts of those cases. On the facts and circumstances of the present case, we find that the CIT has rightly assumed jurisdiction under section 263 of the Income Tax Act, 1961. In the result, the grounds 1 to 7 of the assessee's appeal are dismissed. 21. Assessee filed another appeal vide ITA No. 1129/D/05 grounds in this appeal are as under :- 1a. That the Learned. CIT (A) has erred on facts and in law in confirming in reopening of the completed proceedings under section 148 when the provisions of same are not applicable in the case. 1b. That the learned CIT (A) has erred in holding that the A.O. had no valid reasons to believe that income had escaped assessment and therefore was not justified in issuing notice under section 148 of the I.Tax Act 1961. 2. That the Learned. CIT (A) has erred in confirming an addition of ₹ 15,36,395/- being the expenses incurred on partners training and being allowable under section 37(1) of I.Tax Act 1961. 3. That the impugned assessment order is arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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