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TMI Blog2016 (6) TMI 1450X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances will amount to arbitrary exercise power. It is well settled that when exercise of statutory power is dependent upon the exercise of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to examine whether the relevant objectives were available will amount to arbitrary exercise of power. ITO in his 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 were part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. This decision of the ITO could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion was invited to the show cause notice placed at PB 1 to 3 for assessment year 2010-11 and at PB 1-2 for assessment year 2011-12. 3. The ld. AR filed brief synopsis rebutting therein, all the objections raised by the ld. Pri. CIT. Taking first assessment year 2010-11, the ld. AR submitted that the first objection raised by the ld. Prin. CIT is regarding the expenses claimed under the head hire charges of machinery. He submitted that the ld. Pri. CIT has raised objection that cash expenses below Rs.20,000/- were incurred by the assessee and the AO had not enquired as to whom these payments were made and further the AO had not cross verified to confirm the genuineness of such payments. The ld. AR in this respect invited our attention to the order of the ld. Pri. CIT and invited our attention to the findings of the ld. CIT and submitted that the findings of the ld. Pri. CIT itself proves that Assessing Officer had examined this aspect as ld. CIT has made findings from the assessment records itself. He submitted that ld. CIT had observed that that some of vouchers pertaining to these expenses were placed on record and, therefore, it cannot be said that the AO did not examine thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. AR submitted that the allegation of the ld. Pri. CIT is that the AO had not examined the expenses booked under the head Labour Expenses and in this respect our attention was invited to para-2 on page 2 of the assessment order, wherein the AO had specifically mentioned about the fact of examining labour expenses and wherein after recording his findings he had made an addition of Rs.4,00,000/-. It was submitted that the above addition of Rs.4,00,000/- itself proves that the AO had made the addition after making enquiry and application of mind. It was further submitted that in the fresh assessment order, no such disallowance has been made and rather the profits of the assessee has been estimated by applying net profit rate. 7. Inviting our attention to the next allegation of the Pri. CIT regarding the purchase of two cars amounting to Rs.14.55 lacs., the ld. AR submitted that the cars were purchased from partners and this issue has been examined by the AO and in this respect our attention was invited to para 2.3 of the assessment order. It was submitted that the AO after finding that the ownership certificate was not in the name of the assessee, disallowed depreciation. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- and rest of three partners did make substantial withdrawals and therefore, the AO had not made additions keeping in view the entire facts. 9. Regarding last objection of the ld. CIT, the ld. AR submitted that the objection of the ld. Pri. CIT that the AO has not examined whether TDS has been deducted, while making payments to sub-contractor, namely, Aggarwal Associates of Mansa is also not correct and in this rspect our attention was invited to PB 66 to 79, where a copy of confirmation letters written by M/s. Aggarwal Associates was placed and wherein M/s. Aggarwal Associates had confirmed the receipt of payment and had also confirmed the fact of assessee having deducted TDS on such payments. 10. In view of the above facts and circumstances, it was argued that the AO had passed the order after examination of each and every details and, therefore, the order cannot be said to be erroneous or prejudicial to the interest of the revenue. The ld. AR placed his reliance on a number of case laws mentioned as below: i) CIT vs. Anil Kumar Sharma (2011) 335 ITR 83 (Del.) ii) Narain Singla vs. Pr. CIT, 62 Taxman.com. 255 (Chd.-Trib.) iii) CIT vs. Indo Germal Fabs, ITA No.248 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.53.95 lacs, the ld. AR submitted that A.O. did make enquiry in this respect and our attention was invited to query no.12 placed at PB-31 in reply the assessee filed and submitted details and in this respect our attention was invited to PB-34 where a copy of reply was placed. Our attention was also invited to and paper book 39-55 where copies of confirmed copies of accounts from unsecured loan holders was placed. 15. As regards the examination of capital accounts of partners the ld. AR submitted that complete balance sheet alongwith capital accounts of partners was available with A.O. Ld. AR also took us to PB 93 to 94 and invited our attention to withdrawals made by partners and submitted that only two partners had made withdrawals of Rs.60,000/- each whereas rest of three partners had made withdrawals of Rs.9,14,000/- Rs.5,86,000/- and Rs.2,60,000/- respectively and therefore the A.O. keeping in view the entire facts did not make any addition. 16. The ld. DR , on the other hand, heavily relied upn the order of the ld. Pri. CIT and submitted that the Assessing Officer did not examine the various issues raised by the ld. Commissioner in a proper manner and therefore, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to verify the genuineness of any such payments. the AO has even not enquired as to what kind of machinery had been supplied by such persons to whom the said payments have allegedly been made. In other words, the entire claim of cash payments to the tune of about Rs. 1.14 crores under this head has been accepted by the AO without making any verification, although such payments were prima facie and apparently without the support of proper evidence. 4. You have claimed expenses under the head Labour Expenses to the tune of rs. 7.15 crores in the current year which includes labour expenses of Rs. 25 lakhs for Ratlam Branch. All the payments have been made in cash based on self made vouchers. The GP rate of the assessee for the current year is 7.56% and NP rate is 2.44% which are quite low. In your case, since the accounts were not reliable, being prepared on the basis of all self made vouchers and all payments have been stated to be made in cash, and hence, the AO was duty bound to consider the rejection of books of accounts in accordance with Law. The AO has failed to do so and he has merely made an adhoc addition of Rs. 1,50,000/- to the total income without giving any basis f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t examined this aspect. The Hon ble Delhi High Court in the case of CIT vs. Anil Kumar Sharma, reported at 335 ITR 083 has held as under: 5. The Tribunal after examining the facts of the case observed that although it is not discernible from the assessment order whether the AO had applied his mind or not, but it was the prerogative of the AO to draft his order, and if he failed to record certain findings, the assessee could not be penalized therefore. The Tribunal further observed that what has to be ascertained is whether the AO had investigated the issue and applied his mind to the whole record. In this behalf it noted that the AO had asked the assessee to submit the purchase deed in respect of the purchase of land at Village Tughlakabad and that the assessee in response thereto had supplied requisite details and submitted a copy of the High Court's decision in relation to the award of compensation etc. The Tribunal, therefore, came to the conclusion that the complete details were filed before the AO and that he applied his mind to the relevant material and facts, although such application of mind is not discernible from the assessment order. The Tribunal held that the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The AO had called for explanation on this very item from the assessee and the assessee had furnished his explanation vide letter dt. 26th Sept., 2002. This fact is even taken note of by the CIT himself in para 3 of his order. This clearly shows that the AO had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes and tools is to be treated as revenue expenditure or not. It appears that since the AO was satisfied with the aforesaid explanation, he accepted the same. The CIT in his impugned order even accepts this. Thus, even the CIT conceded the position that the AO made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the CIT was that the AO should have made further inquiries rather than accepting the explanation. therefore, it cannot be said that it is a case of lack of inquiry'.-CIT Vs. Gabrial India Ltd. (1993) 114 CTR (Born) 81 : (1993) 203 ITR 108 (Born) relied on. 22. From the facts and circumstances of the cases as noted by the ld. CIT h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet alongwith complete annexures which is placed at PB 29 to 54 for the assessment year 2010-11 and PB 78 to 100 in respect of assessment year 2011-12. The detail of partners capital account is placed at PB 45 to 46 and 93 to 94 in respect of these two years. From the withdrawals made in these accounts, we find that three partners namely, Sh. Dharam Pal, Sh. Swaran Kumar and Sh. Bhim Sain had withdrawn considerable amount as withdrawals and the amount withdrawn ranges from Rs.2.30 lakhs to 14.58 lakhs. Only in case of Sh. Bharat Bhushan and Sh. Jiwan Kumar, the withdrawals were to the extent of Rs.60,000/- each in two years. The AO keeping in view the entire facts and circumstances had not considered the drawings made by partners to be on the lower side and, therefore, the order cannot be erroneous on this point also, as the ld. CIT is not permitted to replace his opinion with the opinion of the A.O. 25. As regards the allegation of the ld. CIT regarding non-disallowance of car expenses on which, the AO only disallowed depreciation, we find that in the assessment year 2010-11, the ld. CIT raised this issue, whereas in the assessment year 2011-12, the ld. CIT did not raise this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The power of suo motu revision under sub-section (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 execise power of revisions under this sub-section, viz., (i) the order is erroneous; and (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. One finds 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 AO in fixing the amount of valuation of the property. Similarly, erroneous judgment means one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order which is not in accordance with the law or which has been passed by the ITO without making any enquiry in undue haste. 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 realized or cannot be realized. 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. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise power. It is well settled that when exercise of statutory power is dependent upon the exercise of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to examine whether the relevant objectives were available will amount to arbitrary exercise of power. The ITO in his case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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