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TMI Blog2021 (6) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... 016. Assessing officer, can only deviate from the limited scrutiny and converted into the only after following the procedure provided under the circular (5/16 supra). In the present case it is not the case of the principal Commissioner that case was required to be converted into the complete scrutiny and the proposal should have been made by the assessing officer. In our view the assessing officer had acted within the limits circumscribed by the limited scrutiny in accordance with the material available in is file after the last date of deciding the assessment. If the assessing officer during the course of assessment comes to the conclusion that some investment were made in the books of account, then the addition can be made under section 69 of the act but for that procedure as provided by the circulars, were required to be followed by the assessing officer. In our considered opinion once the order was passed based on the material available on record and investment in shares and subsequent allotment have been accepted by the assessing officer and additions were made on account of sundry creditors, then no fault can be found in the order passed by the assessing officer. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of revenue; The order passed u/s. 263 is illegal iv. That the cancellation of assessment order which was passed by the AO after due inquiries on the limited issue assigned to him under limited scrutiny assessment scheme of CBDT, the order passed u/s. 263 is illegal beyond jurisdiction, and against the principle of natural justice v. That no material has been brought on record by the Pr. CIT to support that order passed was erroneous or prejudicial on the issues covered by limited scrutiny assessment Brief facts The assessee filed return of income at Rs. Nil and the assessment u/s. 143(3) of the I.T. Act, 1961 was completed on 27.12.2016 at the total income of ₹ 50,43,054/-. The case of the assessee was selected for limited scrutiny. The AO in para 1 and 2 of his order mentioned as under : 1. This case of the assessee M/s. Hardik Resort Pvt. Ltd. Raja Ram Colony, Behind Phool Bagh, Orchha, Dist. - Tikamgarh was selected for scrutiny for the A.Y. 2014-15 through CASS (computer aided scrutiny selection) system during the F.Y. 2015-16 under Limited Scrutiny . In pursuance of the selection for scrutiny, a notice u/s. 143(2) was issued on 18.09.2015, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarding valuation and completion certificate of hotel building, it is kindly submitted that the hotel building; under completion. 2. Regarding Share Application Money of ₹ 5955000/-:- Regarding share application money of ₹ 5955000/- pending for allotment, it is kindly submitted that no fresh application money has been accepted during the year under consideration except from Smt. Anuradha Singh amounting to ₹ 1600000/-. Further, it is kindly submitted that authorised capital has been increased from ₹ 5000000/- to ₹ 7500000/- and the above share application money has been allotted to the respective persons during F.Y. 2014-2015. The present paid capital of the company is ₹ 6055000/-. 4. The AO had completed the assessment by making the additions of ₹ 50,43,054/- to the income of the assessee. It would be appropriate to reproduce the paragraphs 3-6 of assessment order to show the manner in which the assessment proceedings were completed: Para 3-A.O. - In pursuance of the above notices Shri Sumitjain CA, appeared for hearing from time to time and he filed written submission to the queries along with necessary evidence, copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion money have been allocated during F.Y. 2014-15, the issue of pending share application money of ₹ 59,55,000/- is found to be verified and accordingly contention of the assessee is accepted. Large increase in sundry creditors with respect to turnover as compared to preceding year Para 6-A.O. - In the case of assessee, huge sundry creditors at total ₹ 1,72,93,054/- is found, despite of the fact that M/s. Hardik Resort has not carried out any business, during financial year 2013-14. The counsel of the assessee in this reply dated 21/07/2016 submitted that the assessee has established a hotel at Orachha Dist.:-Tikamgarh (M.P.) and construction of the hotel building was in full swing during the year consideration. The company had also availed term loan of ₹ 1,70,00,000/- from Punjab national bank, Jokhanbagh, Jhansi for the construction of the hotel building and to purchase other assets during the year, associate group company M/s. Ghanaram Infraengineering P Ltd. Had repaid its term loan and an amount of ₹ 1,34,50,000/- was payable to M/s. Ghanaram Infraengineering P. Ltd. at the end of the year, which is included in the sundry creditors. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d scrutiny, it 'is clear that the issues for examination were sundry creditors and share application money. It was during the course of assessment proceedings and examination of sundry creditors, it was found that the amounts were linked with unsecured loans and also other investments including the investment in fixed assets. After considering the facts on record and circumstances of the case, it was observed that the Assessing Officer had not properly inquired into the investment made out of the amounts shown as share application money against un-allotted shares and increase in sundry creditors. In view of the above mentioned facts, notice u/s. 263 of the Income Tax Act was issued to the assessee on 27.02.2019 13.03.2019 fixing the date of hearing on 05.03.2019 18.03.2019 respectively. The assessee has furnished a letter dated 19.03.2019 where it has been mentioned that the issues raised vide notice u/s. 263 were not the issues covered by the limited scrutiny proceedings. However, the assessee has not discussed any details regarding the query raised by notice u/s. 263 of the I.T. Act, 1961 while quoted only the assessment order passed by the Assessing Officer. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addl CIT, Delhi ITA No. 6767/Del/2019, Shri Sitaram Swami vs. ITO, Ward 4(5), Jaipur ITA No. 73/JP/2020, Shri H.N. Ravindra vs. ITO ITA No. 1065/Bang/2019 an Suresh Jugraj Mehta vs. Addl CIT, Range-3, Dhule ITA No. 05/PUN/2016. 7. Ld. AR had further submitted that Questionnaire relating to issues under limited scrutiny as well as other points was issued by the Ld. A.O. and also reply was furnished by the assessee. However, no valuation report has been submitted by the Valuation Officer and no adverse inference has been drawn till date. He had drawn our attention to the following paragraph of order passed under section 263. The assessee filed return of income at Rs. Nil and the assessment u/s. 143(3) of the I.T. Act, 1961 was completed on 27.12.2016 at the total income of ₹ 50,43,054/-. On going through the balance sheet, it is seen that almost whole of the amount raised through unallotted share application money and trade payables/sundry creditors, have been invested in fixed assets of total ₹ 2,59,84,300/- including cost of land. To arrive at the actual investment in the construction out of the money raised through sundry creditors an enquiry was conducted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e without any legal authority and was done at the back of the assessee and never confronted to the assessee for explanation/rebuttal. IV. When the valuation report was not received by the Assessing Officer and the matter was getting time barred on 31/12/2016 then how can passing of the assessment order within the time prescribed render the assessment order erroneous and prejudicial to the interest of revenue. V. What empowers the Ld. Pr. CIT to make a vague and unfounded remark that undisclosed investment of ₹ 1,25,75,000/- remained escaped from assessment when the investment in land was not done by the assessee company. VI. It is a matter of record that the assessee has made an investment of ₹ 2,42,31,696/- in building. Total investment in fixed assets including plant machinery and furniture and fixtures as disclosed in the balance sheet as on 31.03.2014 is ₹ 2,59,84,300/- and the same is fully explained. VII. The Ld. PCI has said that the The assessee did not co-operate with the valuation officer for the valuation of the property . This statement of the Ld. PCIT is grossly incorrect, the assessee has categorically communicated to the Ld. A.O. t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus become susceptible to Section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not the intent of legislature. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee totally and has passed the order in after making several additions and disallowances on the issues involved impliedly after due application of mind. Hence, the very foundation for exercise of revisional jurisdiction is sorely missing in the present case. Reliance is placed on Torrent Pharmaceuticals Ltd. Vs. CIT (ITAT Ahmedabad) (2018) 173 ITD 0130. XI. Reliance is also placed upon the decision of the Hon'ble ITAT Mumbai in the case of Narayan Tatu Rane vs. ITO: [2016] 70 taxmann.com 227 (Mum) wherein it has been held section 263 could be invoked only if the assessment order has been passed without making inquiry or verification which a rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake assessment order prejudicial to interest of revenue for revision under section 263. Institute of Chartered Accountants of India vs. DIT (2011) 50 DTR 409 (Delhi)(Trib.) XV. Order under section 263 passed by the CIT setting aside the assessment order on the ground that the Assessing Officer has not made enquiries in respect of certain issues is not valid, CIT vs. Leisure Wear Exports Ltd. (2010) 46 DTR 97 (Delhi) Tribunal having found that the Assessing Officer had made reasonably detailed enquiries, collected relevant material including the seized documents, and discussed various facts of the case with the assessee's Chartered Accountants before making the assessments, there was no valid basis for the CIT to exercise jurisdiction under section 263 and to direct the Assessing Officer to make fresh assessments by going deeper in to the matter. CIT vs. Hindustan Marketing Advertising Co. Ltd. (2010) 46 DTR 109 (Delhi). Assessment Order was set aside by Commissioner on ground, that Assessing Officer had made Assessment without making proper enquiry. Held, that when Assessing Officer has specifically mentioned in the order that books of accounts alongwith Purchase/Sales, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted replies and thereafter allowed the expenditure on tools and dyes as revenue expenditure, it can not said that it was lack of enquiry and therefore, the assessment order passed by the AO can not be revised u/s. 263. CIT v. Sunbeam Auto Ltd. (2009) 31 DTR (Del) 1 (2009) 227 CTR (Del) 133. XVIII. There should be an incorrect assumption of facts or an incorrect application of law by Assessing Officer to bring order of Assessing Officer within category of its being erroneous under section 263 - To qualify an assessment order as an order being prejudicial to interest of revenue, order should cause lawful loss of tax to revenue - On facts stated under heading Assessment - Additions to income, order passed by Assessing Officer could not be said to be erroneous prejudicial to interest of revenue to bring case within parameters of section 263. Ashok Manilal Thakkar vs. Asstt. CIT (2005) 97 ITD 361/279 ITR 143/(2006) 99 TTJ 1262 (Ahd). 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 law that there must be a point of finality in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, claim was allowed by the Income tax Officer on being satisfied with the explanation of the assessee. This decision of the Income tax officer could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. (b) When exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have material on record to satisfy it in this regard. (c) if then an order is erroneous but not prejudicial to the interest of the revenue, then the power of suo moto revision cannot be exercised. Any and every erroneous order cannot be subject matter of revision because the second requirement must be fulfilled. XXIII. The judgment of Hon'ble Allahabad High Court in case of K.N. Agarwal Vs. C.I.T. 189 ITR 769 as well as decision of Allahabad High Court in case of C.I.T. vs. Lata Sunderlal 96 ITR 310 (All), the decision of the Bombay high court in case of C.I.T. Vs. Paul Brothers 216 ITR 548, the judgment of the Calcutta high cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue had vehemently relied upon the order passed by the revisional Commissioner. It was submitted that the order passed by the assessing officer was prejudicial to the interest of revenue and was erroneous. It was submitted despite reference the matter to the valuation, the assessing officer has decided the matter without waiting for the valuation report. Further it was submitted that the assessing officer has not examined the source of investment made in the immovable property as the same was intrinsically linked with the investment in shares and sundry creditors. 11. We have considered the rival contention of the parties and perused the material available on record, including the judgments cited at bar during the course of hearing by both the parties. Admittedly the revisional power under section 263 can be exercised by the revisional Commissioner within the parameters laid down by section 263. For the purpose of invoking the jurisdiction it is essential to demonstrate that the order passed by the assessing officer was erroneous and was prejudicial to the interest of revenue. Undoubtedly in the present case the assessment was was selected for 'limited scrutiny' for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or scrutiny. However, in revenue potential cases, it was further provided that 'Complete Scrutiny' could be conducted, if there was potential escapement of income above a prescribed monetary limit, subject to the approval of administrative Pr. CIT/CIT/Pr. DIT/DIT. 2. In order to ensure that maximum objectivity is maintained in converting a case falling under 'Limited Scrutiny' into a 'Complete Scrutiny' case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up 'Complete Scrutiny' in a case which was originally earmarked for 'Limited Scrutiny', the Assessing Officer ('AO') shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under 'Complete Scrutiny'. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable. 3. Further, while forming the reasonable view, the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r view the assessing officer had acted within the limits circumscribed by the limited scrutiny in accordance with the material available in is file after the last date of deciding the assessment. 16. In our view if the assessing officer during the course of assessment comes to the conclusion that some investment were made in the books of account, then the addition can be made under section 69 of the act but for that procedure as provided by the circulars, were required to be followed by the assessing officer. In our considered opinion once the order was passed based on the material available on record and investment in shares and subsequent allotment have been accepted by the assessing officer and additions were made on account of sundry creditors, then no fault can be found in the order passed by the assessing officer. 17. The assessing officer had noted in paragraph 4 that the assessee had made the investment in the fixed asset of hotel building by investing an amount of ₹ 2,59,84,300/- and thereafter had referred the matter to the valuation officer under section 142A of the income tax act on 14.12.2016. After referring the matter to the valuation cell, the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the act to the assessing officer and to the assessee within a period of six months from the date of receipt of the reference. The reference was made to the valuation officer on 14.12.2016 and till 5.10.2018, no report was either sent to the assessing officer to the assessee. 23. In the light of the above it can be's concluded that once the valuation report has not been sent by the valuation officer to the assessing officer/assessee, within the period stipulated by the act that alleged report cannot found basis of RECORD to invoke the judicial under section 263 by the revisional Commissioner. 24. In our considered opinion the revenue has failed to demonstrate that the order passed by the assessing officer was erroneous and prejudicial to the interests of the revenue. Under the provisions of the Act, the CIT may call for and examine the record of any proceeding this Act and pass an order only if the twin conditions are satisfied, namely, the order passed by the Assessing Officer is erroneous; and also prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (supra) has held that both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Officer is unsustainable in law. 25. A similar view has also been taken by the Hon'ble Apex Court in the case of CIT vs. Max India Ltd. (2007) 295 ITR 282 (supra), wherein it has been held as under: The phrase prejudicial to the interests of the Revenue in section 263 of the Income-tax Act, 1962, has to be read in conjunction with the expression erroneous order passed by the Assessing Officer, Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law. 26. In the matter ITO v. D.G. Housing Projects Ltd. 2012 (343) ITR 329 (Delhi), wherein it has been observed as under:- 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous, when a view has already been taken after inquiry. This power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry. 28. The principles that emerge out of the above cited decisions are that the twin requirement of the order being erroneous and prejudicial to the interests of revenue should be satisfied and that the CIT should invoke the powers u/s. 263 only after an enquiry by him to establish the twin conditions. 29. Further we are also the opinion that merely the assessing officer has formed an opinion which is not in line of thinking of the revisional Commissioner and there are two possible views, then also the revisional Commissioner cannot exercise the power for provision under section 263. For the above said purposes we rely upon the decision of the Bombay High Court in the matter of C.I.T. Vs. Gabriel India Ltd. 203 ITR 108 (Bom) has held that: (d) 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 a detailed explanation in that regard by a letter in writing. All these w ..... 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