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TMI Blog2017 (8) TMI 1547X X X X Extracts X X X X X X X X Extracts X X X X ..... ile passing the order dated 12.10.2009 as under:- In view of above stated facts the order passed by the AO under section 143(3) of the IT. Act, 1961 is not only erroneous but is also prejudicial to the interest of revenue. After taking into the fact and circumstances of the case the order u/s 143(3) of the Act dated 27.10.2008 is set-aside to be made de-novo. The AO is directed to made fresh assessment order after proper examination of the issues discussed above and investigations where- ever are necessary. When no other material was placed before CIT (A), requires serious consideration by the Chief Commissioner of Income Tax. The appropriate proceedings, if he is in service or retired, be taken to put his house in order. - Decided in favour of assessee - D.B. Income Tax Appeal No. 283 / 2010 D.B. Income Tax Appeal No. 13 / 2011 - - - Dated:- 28-8-2017 - HON'BLE MR. JUSTICE K.S. JHAVERI And HON'BLE MR. JUSTICE INDERJEET SINGH For Appellant : Mr. Sameer Jain For the Respondent : Mr. Anuroop Singhi JUDGMENT 1. In both these appeals, since similar question of law and facts are involved, they are decided by thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment carried survey in several cases. The persons surveyed admitted issue of bills without delivery of goods by providing accommodation entries which are included in the list of suppliers to the assessee. Besides this the Investigation Wing of the Department during search in the case of Sanjeev Prakashan, Moti Sons Group, Bardia Group etc. also detected several persons issuing bills without delivery of goods. The name of such suppliers also appeared in the list of purchases made by the assessee. An illustration of a few such persons is made here under:- Sr. No. Name of Suppliers Amount in Rs. 1 Aayush Enterprises 51,888/- 2 Abhay International 8,03,335/- 3 Ash. Exports 6,01,442/- 4 Bright Stones 12,22,553/- 5 Gaurav Exports ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eries were accepted. The AO has passed assessment order accepting returned income without discussing any of the issues mentioned above. The details made available by the assessee were not examined by the AO and no investigation was made. The issues raised in the notice u/s 263(1) of the Act referred to above were replied by the assessee but none of the issue was examined by the AO during the course of assessment proceedings. 6. Counsel for the appellant has also taken us to the order of the Tribunal and contended that the Tribunal 11 observed as under:- 11. Even the CIT conceded the position that the opinion of the A.O. made the enquiries, elicited replies and there after passed the assessment order. The grievances of the CIT was that the A.O. should have made further enquiry rather than accepting the assessee s explanation. Therefore it could not be said that it was a case of lack of enquiry as stated above no where the CIT had concluded that opinion of the A.O. was clearly erroneous. Accordingly we hold that order passed u/s263 was only on account of change opinion as it could not establish that how the order of the A.O. is erroneous and prejudicial to the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the assessing officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income Tax Officer was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under section 263(1) was justified. 9. He also relied on the decision of Calcutta High Court in Commissioner of Income Tax, Central-I, Kolkata Vs. Maithan International, (2015) 56 Taxmann.com 283 (Calcutta) wherein it has been held as under:- 19. It is not the law that the assessing officer occupying the position of an investigator and adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial orders. Where the relevant enquiry was not undertaken, as in this case, the order is erroneous and prejudicial too and therefore revisable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended that without considering reply, the CIT (A) passed order under Section 263 remanding the matter. He has further taken us to the observation made by the Tribunal which reads as under:- We have heard rival submission and considered them carefully alongwith various case laws relied upon by Ld. A.R. It is seen that various objection raised by Ld. CIT which have been incorporated in this order some where above, were examined by the A.O. as during the assessment proceeding. The A.O. issued a querry letter dated 28.05.2008. Assessee filed reply by letter dated 12.06.2008. 10.2. He contended that after considering the judgment of the Bombay High Court, the Tribunal has taken a view which is required to be approved. 10.3 He has relied on the following decisions:- 1. Commissioner of Income Tax vs. Deepak Real Estate Developers (I) (P) Ltd. (03.03.2014 - RAJHC) 3. The CIT, however, in exercise of his power under s. 263 of the Act, issued notice to the respondent- assessee being of the opinion that the assessment of the AO was erroneous and was further prejudicial to the interest of the Revenue. The respondent-assessee entered a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in physical form. Referring to the supporting documents produced on behalf of the respondent-assessee, the learned CIT observed that the same had not been filed during course of the assessment proceedings and thus, were not verified and commented upon by the AO. It held the view that proper verification thereof was necessary by the AO to ensure that 1,43,000 shares of Overseas Capital Ltd., which were received and delivered in physical form to the director of the respondent-assessee, were transferred to its demat account, so as to ensure that these were held by it (respondent-assessee) in physical form for a period of more than one year to entitle it to the benefit of exemption under s. 10(38) of the Act. With regard to amount of loan of ₹ 43,28,000, taken by the respondent-assessee from one Smt. Usha Gupta, the learned CIT held that the documents and records produced before him in connection therewith, had not been laid before the AO earlier. He, thus, concluded that in view of lack of enquiry and non-application of mind on the part of the AO, the assessment was erroneous and prejudicial to the interest of the Revenue. Noticeably, the learned CIT did not record any catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in ultimate conclusion that the return of the respondent-assessee was acceptable as a whole. The text of the decision of the learned CIT authenticates that the respondent-assessee had furnished to him all relevant records and documents in support of its return accepted by the AO. The learned CIT did neither reject the said documents/records to be irrelevant, nor lacking in their probative worth. It simply remanded the matter to the AO observing that these ought to have been laid before him and examined at the time of assessment. 8. It is no longer res integra that the revisional jurisdiction available to a CIT under s. 263 of the Act, is essentially circumscribed by the determinant that the order of the AO is erroneous so much so that it is prejudicial to the interest of the Revenue. This statutory enjoinment carves out an extremely constricted ambit of such discretionary jurisdiction. The word considers applied in the statutory provision involved, signifies a genuine satisfaction of that authority that the order of the AO is erroneous and that the interest of the Revenue is prejudicing thereby. Any exercise of the revisional jurisdiction, bereft of such satisfactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 263 of the Act, and thus the findings arrived at by the Tribunal essentially remain findings of fact, which do not give rise any substantial question of law, requiring consideration by this Court. Mere alleged insufficiency of the enquiry in the opinion of the Commissioner by the Assessing Authority, could not permit him to invoke the revisional jurisdiction under Section 263 of the Act and, therefore, the essential twin conditions for invoking the revisional jurisdiction, namely, the impugned assessment being erroneous as well as prejudicial to the interest of Revenue, were not at all satisfied in the present case and, therefore, the Tribunal was perfectly justified in allowing the assessee's appeal and setting aside the order of learned Commissioner under Section 263 of the Act. 3. Income Tax Officer vs. DG Housing Projects Ltd. (01.03.2012 - DELHC) 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing 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 itself give occasion to the Commissioner to pass orders under Section 263 of the Act, merely because he has 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. (Supra), law on this aspect was discussed in the following manner: xxx.... From a reading of Sub-section (1) of section, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. x x x There must be some prima facie material on record to show that tax which was lawfully eligible 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. x x x 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s laid down by Courts with regard to the exercise of power by the Commissioner under the provisions of Section 263 of the Act. The power of suo moto revision exercisable by the Commissioner is undoubtedly supervisory in nature. The opening words of Section 263 empowers the Commissioner to call for and examine the record of any proceedings under the Act. A bare reading of Section 263 also makes it clear that the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the revenue. If one of them is absent - if the order of the Income Tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but it is prejudicial to the revenue - recourse cannot be had to Section 263(1) of the Act See Malabar Industrial Co. Ltd. v. CIT MANU/SC/3008/2000MANU/SC/3008/2000 : (2000) 243 ITR 83 (SC). 13. It is also trite that there is a fine though subtle distinction between lack of inquiry and inadequate inquiry . It is only in cases of lack of inquiry that the Commissioner is empowered to exercise his revisional powers by calling for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. x x x x 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.... 15. Applying the aforesaid law to the facts of the present case, we are of the view that the exercise of revisional power by the Commissioner in the instant case was uncalled for and unjustified. It was more in the nature of roving and fishing enquiry. The Commissioner has proceeded on the assumption that no such infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the assessee is allowed. The Tribunal has held that the case under section 263 of the Act is not made out and we are in complete agreement with the view taken by the Tribunal. Power of section 263 cannot be exercised for want of enquiry in a particular manner. 7. Commissioner of Income Tax vs. Fine Jewellery (India) Ltd. (03.02.2015 - BOMHC) 7. We find that the impugned order of the Tribunal does record the fact that specific queries were made during the assessment proceedings with regard to details of expenditure claimed under the head miscellaneous expenses aggregating to ₹ 2.94 crores. The respondent-assessee had responded to the same and on consideration of response of the respondent-assessee, the Assessing Officer held that of an amount of ₹ 17.98 lakhs incurred on account of repairs and maintenance out of ₹ 2.94 crores is capital expenditure. This itself would be indication of application of mind by the Assessing Officer while passing the impugned order. The fact that the assessment order itself does not contain any discussion with regard to the balance amount of expenditure of ₹ 1.76 crores, i.e., ₹ 2.94 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termed to be erroneous only because the CIT does not feel satisfied with the conclusion. 16. We are also of the view that the CIT in the subsequent order passed under s. 263 held that the assessment order was without jurisdiction and is not valid order and in our view, original order passed under s. 143(3) and 263 cannot be rectified either under s. 154 or under s. 263 of the Act through the revisional power conferred on the CIT under s. 263. 17. As discussed hereinabove, the AO had the jurisdiction when the notice under s. 143(2) was issued and once the ITO had valid jurisdiction at the time of issuance of notice, then the AO ought to have informed the assessee if there was some internal circular. The CIT later on was of the view that the ITO had no jurisdiction and in our view, it cannot be said to be proper as the assessee appeared on valid notice and after considering all the submissions or representation, the ITO passed an order. It is not a case where the ITO passed order in a cryptic or summary manner accepting the returned income and we notice that the assessment order is running into 12 pages and after elaborate discussion on most of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td's case (supra): 10. In view of the aforesaid pronouncement of law and taking into consideration the language employed under Section 263 of the Act, it is clear as crystal that before exercise of powers two requisites are imperative to be present. In the absence of such foundation exercise of a suo motu power is impermissible. It should not be presumed that initiation of power under suo motu revision is merely an administrative act. It is an act of a quasi-judicial authority and based on formation of an opinion with regard to existence of adequate material to satisfy that the decision taken by the Assessing Officer is erroneous as well as prejudicial to the interests of the Revenue. The concept of prejudicial to the interests of the Revenue has to be correctly and soundly understood. It precisely means an order which has not been passed in consonance with the principles of law which has in ultimate eventuate affected realisation of lawful revenue either by the State has not been realised or it has gone beyond realisation. These two basic ingredients have to be satisfied as sine qua non for exercise of such power. On a perusal of the material brought on record and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y expressed the view as follows: From a reading 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 insofar as it is prejudicial to the interests of the Revenue . It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in Sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , allowed the appeal of the assessee and quashed the order of the CIT passed under Section 263 of the said Act. 7. In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the assessing officer, the record showed that the assessing officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under Section 263 would fall into the area of the CIT having a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this Court. That being the position, the present case would not be one of lack of inquiry and, even if the inquiry was termed as inadequate, following the decision in Sunbeam Auto Ltd. (supra), that would not by itself give occasion to the CIT to pass orders under Section 263 of the said Act, merely because he has a different opinion in the matter. No substantial question of law arises for our consideration. Consequently, the appeal is dismissed. 10. DIT vs. Jyoti Foundation (09.07.2013 - DE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Saraogi vs. CIT MANU/SC/0177/1967MANU/SC/0177/1967 : (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal vs. CIT MANU/SC/0339/1972MANU/SC/0339/1972 : (1973) 88 ITR 323 (SC), wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. After reference to these two decisions, the Delhi High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. MANU/MH/0220/1993MANU/MH/0220/1993 : [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 uncharted power, it can be exercised only on fulfillment of the requirements laid down in subsection (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 4. In the present case, inquiries were certainly conducted by the Assessing Officer. It is not a case of no inquiry. The order under Section 263 itself records that the Director felt that the inquiries were not sufficient and further inquiries or details ..... X X X X Extracts X X X X X X X X Extracts X X X X
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