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TMI Blog2021 (6) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... opal, has erred in setting aside the impugned assessment order dated 26.04.2017 passed u/s. 143(3) of the Income Tax Act,1961 holding it to be erroneous and prejudicial to the interest of the Revenue for complete lack of enquiry on the part of the Ld. Assessing Officer on all the stated issues. 3. That, the appellant craves leave to add, amend, delete any grounds of appeal before and/or at the time of hearing. 2. Brief facts of the case as culled out from the records are that the assessee is a partnership firm engaged in the business of trading of two wheelers their part and accessories. The assessee is an authorized dealer of M/s. Bajaj Auto Ltd., Pune. The case was selected through CASS for complete scrutiny for the following reasons: a) Low Income shown by large contractors. b) Mismatch in amount paid to related persons u/s. 40A(2)(b) reported in Audit Report and ITR. c) Higher Turnover reported in Service Tax Return compared to ITR and assessee has deposited large amount of cash in saving bank account. Statutory notice u/s. 143(2) of the Act and 142(1) of the Act were duly served upon the assessee with detailed questionnaire placed at pages 1 to 5 of the paper book da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards, higher turnover return in Service Tax Return as compared to ITR and alleged deposit of large amount of cash in Saving Bank Account is concerned, the assessee says that there is no mismatch and the auditor has shown total receipt of services amounting to Rs. 66.95 lacs and receipts from other services at Rs. 24.72 lacs. However, at the time of filing of Service Tax Return the assessee has shown total services in his return. In regard to deposit of cash the assessee says that the assessee firm does not have any Saving Bank Account. Thereafter, the allegation of cash deposit is not correct. 5. It was also submitted before the Ld. Pr. CIT that all details required by Ld. AO were filed. Ld. AO was aware of the issues involved in reasons for complete scrutiny and raised specific queries. In response of which replies were filed and Ld. AO examined each and every aspect with the books of account and relevant records with due application of mind. 6. However, Ld. Pr. CIT was not satisfied with this reply and after placing reliance on various judgments concluded that as there was a complete lack of enquiry on the part of Ld. AO, all the stated issues which have rendered the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were placed before the ld. AO as well as Ld. Pr. CIT to draw attention to the fact that there is no mismatch. Further as regards the cash deposited in Saving Bank Account it was submitted that the assessee is a partnership firm and cannot open Saving Bank Account. Details of all Bank Account held by assessee were filed before lower authorities. Ld. Pr. CIT made no further enquiry to bring out the information as to which is the Saving Bank Account in which cash was deposited and account not disclosed by the assessee. In support of the above contention Ld. Senior Counsel for the assessee has relied on following judgment: 1. Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, (2000) 243 ITR 83 (SC) 2. CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom). 3. Micro Inks Limited v. CIT (2018) 407 ITR 681 (Guj) (HC). 4. D.G. Housing Projects Ltd.-[2012] 20 taxmann.com 587 (Delhi). 8. Per contra Ld. Departmental Representative (DR) referred to the finding of Ld. Pr. CIT and also decisions referred in the impugned order by the Ld. Pr. CIT and the same is mentioned below: 4. I have carefully considered the facts of the case, the show cause notices, the reply filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter or the particular source of income with a view to its taxability or to 'its taxability and not to any incidental connection. Related question arises: can a AO pass an order without giving any proper reasons whatsoever? The issue stands settled by the Hon'ble S.C. Ld. Pr. CIT was relied following decisions: 1. CIT vs. Toyota Motor Corpn. (2008) 306 ITR 49(Delhi) dated April 2, 2008. 2. Toyota Motor Corporation vs. CIT (2008) 306 ITR 52 (SC). 3. Pr. CIT vs. India Finance Ltd. (2016) 389 ITR 242 (Calcutta). 4. State Bank of Indore v. CIT (1998) 64 ITD 209 (Indore). 5. S.N. Mukherjee vs. Union of India (1990) AIR 1984 : 1990 Supl. (1) 44 DID, 28th August, 1990. 6. Boston Analytics P. Ltd. Mumbai vs. ITO I.T.A.T. Mumbai B Bench ITA No. 2745/Mum/2012. 6. Based on the above, it is clear that, there is complete lack of enquiry on the part of the assessing officer on all the stated issues which has rendered the order erroneous and because it has resulted in a potential loss of revenue, the order is also prejudicial to the interest of revenue. The assessment order is accordingly set aside on the above three issues with the direction to conduct full and proper enquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation.--For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income Tax Officer on the basis of the directions issued 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous." 14. The Hon'ble Bombay High Court in the case of Gabriel India Ltd. 203 ITR 108 has held as under: "The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub10 section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he problem with Section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of Section 263 particularly when as stated above we have to% take into account the position of law as it stood on the date when the Commissioner passed the order dated March 5, 1997, in purported exercise of his powers under Section 263 of the Income Tax Act. 3. For the above reasons, civil appeals filed by the department stand dismissed." 16. It is a settled position of law that powers u/s. 263 of the Act can be exercised by the Pr. Commissioner/Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, the Tribunal has remanded the proceedings, nothing stated in this order would affect either side in considerations of such claim. 7. No question of law arises. Tax Appeals are dismissed." 19. Now examining the facts of the case in the light of the above decisions and discussions made hereinabove including the submissions made before lower authorities and before us by both the sides. We will analyze the facts referring to each of the reasons: i. As regards "low income shown by large contractors" we observe that prima facie going through records it appears that the assessee is a trader and authorized dealer of M/s. Bajaj Auto Ltd. and also sales accessories and spare parts. No documents are placed before us which could prove that the assessee is a large contractor. Even otherwise the turnover of the assessee has increased from 76.42 cr. (Approx.) in A.Y. 2014-15 to Rs. 79.54 Cr. (Approx.) in A.Y. 2015-16. Gross profit and net profit ratio has also been more or less consistent at 14.72% and 0.83% for A.Y. 2014-15 and 14.34% and 0.74% for A.Y. 2015-16. Though there is a decline in overall net profit of Rs. 4,25,773/- but the same has already been considered to a large ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Return compared to ITR and assessee has deposited large amount of cash in saving bank account", it comprises of two parts; firstly, the higher turnover reported in Service Tax Return compared to ITR and secondly large cash deposited in Saving Bank Account. So far as mismatch of turnover in the Services Tax Return and ITR is concerned, we observe that in the profit and loss account service charges of Rs. 66,95,750/- is shown on credit side being service charges received. In the services tax returns we find that the return for first six months shows a taxable receipt of Rs. 26,47,323/- and for second half of the year service receipt of Rs. 15,19,842/- which total to Rs. 42,38,165/-. But apart from the taxable services assessee also received nontaxable service amounting to Rs. 24,72,851/-. If both taxable and nontaxable services are added up they would almost match to the service charges shown in the profit and loss account. These details of service tax returns were filed before the Ld. AO. On the strength of these documents Ld. AO was satisfied with the submissions and was of the view that there is no mismatch in turnover as per the service tax return and ITR. We therefore are o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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