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TMI Blog2012 (11) TMI 1192X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to earlier years was debited to profit and loss account. However, this was not added back to the income of the assessee. After giving opportunity of hearing to the assessee, the CIT directed the Assessing Officer to bring the entire renovation expenditure of ₹ 15,13,07,595 and also prior period expenses of ₹ 19,03,712 which consists two parts i.e., 1. service tax of ₹ 13,00,348 and 2. Modvat, sales tax, house tax compensation relating to A.Ys. 1996-97, 1993-94, 2000-01, 2004-05 to tax in A.Y. 2005-06. Against these the assessee is in appeal. 4. The learned AR submitted that the assessee has furnished all the information at the time of completion of original assessment u/s. 143(3) of the Act and the assessee has not kept hidden any information from the Assessing Officer. After furnishing entire information at the time of assessment by the assessee to Assessing Officer. he had examined and accepted the expenditure. According to the AR assuming of jurisdiction is bad in law. Accordingly he prayed to annul the order u/s. 263 of the Act. 5. The AR further submitted that the Commissioner of Income-tax erred in holding that the order passed by the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lga Restaurant [2002] 253 ITR 405. In that case, due to a fire accident, besides business premises, air-conditioning plant installed therein also got damaged. The assessee's claim for allowance of the expenditure as repairs was disallowed by the Assessing Officer. When the matter reached the High Court, it has been held that the real test to be applied is whether, as a result of expenditure claimed as expenditure on repairs, what is really being done is to preserve and maintain an already existing asset and not to bring a new asset into existence or obtain a new or fresh advantage. Applying the said test, the Hon'ble High Court held that the expenditure was revenue expenditure incurred for the purpose of repairing and restoring the damaged AC unit to its original working condition. The Commissioner of Income-tax brushed aside the facts stating that the said case was on entirely different facts. 9. The AR submitted that the expenditure incurred by it was purely to bring back the damaged assets into their previous condition. There is no allegation that the expenditure resulted in increased capacity or endowed the assessee with any new advantage. In this connection, the AR br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to goods transport operators for the period 16-11-97 to 2-6-98. These writ petitions were dismissed by the High Court of AP by order dated 27-1-2005. The AR submitted that the assessee received demand notice No. 221/2005 dated 16-3-2005 from the Superintendent of Customs and Central Excise, Bhadrachalam Range, consequent to the Court order. The assessee paid service tax of ₹ 13,00,348 on 31-3-2005. The demand crystallised during the year and was allowable. In any case it was paid during the year and is allowable u/s. 43B. Item 2: Modvat of ₹ 58,436 availed in earlier years, debited to RG-23C Part 11 Particulars Rs. Rs. Debited in RG-23C, Part-II on 24-11-2004 as per demands dated 15-10-2004 consequent to CESTAT order dt.24-8-2004 - Columns of Heavy Fabricated structures and bracings 2,97,387 - HR Coils 36,504 3,33891 Less: Credits taken in RG-23C, Part-II as allowed by the Asstt. Commissioner, Customs & Central Excise, Warangal on - Welding electrodes Welding electrodes 18,691 Glass and HR sheets 56,123 HR Sheets 2,00,641 2,75,455 Net amount of expenditure 58,436 12. The AR submitted that the assessee company availed MODVAT credit of ₹ 2,97, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Asstt. Commissioner, Central Excise, Warangal allowed Modvat credit vide his order dated 26-04-2004. The amount of ₹ 2,00,641 was taken credit in RG- 23C, Part-II on 10-05-2004. 16. The AR submitted that since the demands dated 15-10-2004 received on 19-10-2004 on account of orders of CESTAT fell in the Asstt. Year 2005-06, the expenditure of ₹ 58,436/- was claimed. The same is allowable Item 3: Sales Tax of ₹ 1,39,530/- on lease rentals on boiler for the month of January, 2000: The assessee company took a bagasse-fired boiler on lease from M/s. Sundaram Finance Ltd. on 29-9-97 for a period of 7 years. Towards the end of the lease period the assessee received a letter dated 23-09-04 from the lessor stating that sales tax was exempted on lease rentals up to 31-12-99 and again from 31-1-2000 and thus lease charges were liable to sales tax for the month of January, 2000. Therefore, Sales tax of ₹ 1,39,530 was levied by Sales tax authorities on lease rentals for the month of January, 2000. The assessee reimbursed the tax paid by the lessor on 09-10-2004 based on the letter received in September, 2004. Since the demand was received in the Asstt. Year 2005-06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 and held: "it is not unnatural for large organisations to miss out certain expenses or income either inadvertently or otherwise. Whenever these omissions or errors come to the notice of the assessee-company, they were brought into their account and claimed as expenditure. It was on similar logic that the revenue accepted the income of ₹ 12,17,080 which also pertained to accounting periods prior to the financial year in question. What is not in dispute is that the expenditure in question has been incurred by the company but the only ground on which the CIT(A) disallowed these expenses was that it should have been claimed during the previous asst. year i.e., 1992-93 and not in the assessment year in question in the case of statutory liabilities. We are of the considered opinion that the C.I.T(A) should have allowed this expenditure as it was paid during the year 1993-94 and not 1994-95." 18. The AR further submitted that the assessee having paid the service tax liability during the year under account it is allowable in this year. Similar is the case with the liability to Central excise, sales tax and house tax. As regards the compensation of ₹ 1,99,798/- t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment year 2004-05. The Assessing Officer had allowed such claims of the assessee without applying his mind, thereby rendering the assessment not only erroneous but also prejudicial to interest of revenue in the light of the decision of the Hon'ble Apex Court as laid down in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC). As regards the other items, i.e., Modvat, sales-tax, house-tax, compensation, they evidently relate to earlier assessment years such as 1996-97, 2000-01, 1993-94, 2004-05, respectively. No evidence has been produced by the assessee regarding the accounting treatment of the said items in the respective assessment year. In view of these facts and circumstances, the Assessing Officer is directed to bring to tax aggregate amount of ₹ 6,03,364 i.e., representing these four items. 21. We have heard both the parties and perused the material on record. We have carefully perused the order passed by the Assessing Officer u/s. 143(3) of the Act on 31/12/2007. First we take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the learned CIT. The scheme of the IT Act is to le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be rectified, but the shame or ridicule which is occasioned by a blunder, who can counteract. Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgment or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived." 23. In order to ascertain whether an order sought to be revised under Section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of "errors" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon'ble Supreme Court as follows: "Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r passed by the Assessing Officer becomes erroneous and prejudicial to the interests of the Revenue under Section 263 in the following cases: (i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it. (ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind. (iii) The order passed by the Assessing Officer is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case. 28. We shall now turn to the facts of the present case to see whether the case before us is covered by the above said principles. A perusal of the assessment order does not show any application of mind by the Assessing Officer on his part. He simply accepted the claim of the assessee. This is a case where the Assessing Officer mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry. The e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng upon the results of his enquiry or examination into the claim of the assessee. Thus, the formation of any view by the Assessing Officer would necessarily depend upon the results of his inquiry and conscious, and not passive, examination into the claim of the assessee. If the Assessing Officer passes an order mechanically without making the requisite inquiries or examining the claim of the assessee in accordance with law, such an order will clearly be erroneous in law as it would not be based on objective consideration of the relevant materials. It is therefore, the mere failure on the part of the Assessing Officer in not making the inquiries or not examining the claim of the assessee in accordance with law that per se renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing else is required to be established in such a case to show that the order sought to be revised is erroneous and prejudicial to the interests of the revenue. 30. We are unable to accept the submission of the learned Counsel for two other reasons also. First reason is that the view so taken by the Assessing Officer without making the requisite inquiries or examining the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adopting" one of the courses permissible in law necessarily requires the Assessing Officer to consciously analyse and evaluate the facts in the light of relevant law and bring them on record. It is only then that he can be said to have "adopted" or chosen one of the courses permissible in law. The Assessing Officer cannot be presumed or attributed to have "adopted" or chosen a course permissible in law when his order does not speak in that behalf. Similarly, "taking" one view where two or more views are possible also necessarily imports the requirement of analysing the facts in the light of applicable law. Therefore, proper examination of facts in the light of relevant law is a necessary concomitant in order to say that the Assessing Officer has adopted a permissible course of law or taken a view where two or more views are possible. It is only after such proper examination and evaluation has been done by the Assessing Officer that he can come to a conclusion as to what are the permissible courses available in law or what are the possible views on the issue before him. In case he comes to the conclusion that more than one view is possible then he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , said Lord Morrin in Harrington v. British Railways Board [1972] 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases." Therefore, the observations of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd's case (supra) on which reliance has been placed by the learned Counsel cannot be read in isolation. The judgment deserves to be read in its entirety to cull out the law laid down by the Hon'ble Supreme Court. If so read, it is quite evident that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue. If the order sought to be revised under Section 263 suffers from any of the aforesaid vices, it cannot be said that the Assessing Officer has "adopted", in such an order, a course permissible in law or "taken" a view where two or more views are possible." 34. It was next contended by the learned Authorized Representative that the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer, which was prejudicial to the interest of the revenue. In fact, such a course would be counter productive as it would have the effect of promoting arbitrariness in the decisions of the Assessing Officers and thus destroy the very fabric of sound tax discipline. If erroneous orders, which are prejudicial to the interest of the revenue, are allowed to stand, the consequences would be disastrous in that the honest tax payers would be required to pay more than others to compensate for the loss caused by such erroneous orders. For this reason also, we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of Section 263. 36. Adverting to the facts of the present case, there is no enquiry by the Assessing Officer whatsoever on the issue in dispute. He just accepted the claim of the assessee with regard to current repairs and other expenses in the assessment year under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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