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TMI Blog2024 (11) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO was supposed to make enquiries/verification upon the aforesaid issues and set aside the assessment order. The ld. Counsel has demonstrated that all the factual discrepancies pointed out by the ld. Pr. CIT regarding lack of enquiry by the AO were, in fact, factually wrong. As per the provisions of section 263 of the Act, the ld. Pr. CIT was supposed to go through the said details and should have pointed out as to which of the fact or explanation needs what further enquiries. The words as he deems necessary , in our view, do not mean that the Ld. Pr. CIT is left with a choice either to make or not to make an enquiry. As per the relevant provisions of section 263 of the Act, it was incumbent upon the Ld. Pr. CIT to make or cause to make an enquiry. So far as the words as he deems necessary are concerned, the said words suggest that the enquiries which are necessary to form a view as to whether the order of the Assessing Officer is erroneous and prejudicial to the interest of Revenue? Once a point wise reply was given by the assessee, then a duty was cast upon the Ld. Pr. CIT to examine the reply of the assessee and form a prima-facie opinion as to whether the order of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the transportation business. During the course of scrutiny assessment, a summary ledger of all transportation charges was furnished by the assessee before the Assessing Officer (in short the AO ). He observed from the said records that the assessee had claimed an amount of Rs. 21,47,21,520/- as transportation expenses during the year under consideration. The Ld. Pr. CIT further noted that the assessee had deducted TDS of Rs. 2,08,282/- only in respect of the transportation charges paid amount of Rs. 20,82,820/- out of total transportation charges paid of Rs. 21,47,21,520/-. Ld. Pr. CIT observed that as per provision of Section 40(a)(ia) of the Act the assessee was supposed to deduct TDS in respect of the remaining transportation charges paid. The ld. Pr. CIT also observed that as per the records, the assessee had claimed to have paid an amount of Rs. 20,12,10,816/- as transportation charges, however, in the P L Account, the assessee had debited an amount of Rs. 21,47,21,520/- as transportation charges. He, therefore, observed that an excess deduction of transport expenses to the extent of Rs. 1,35,10,704/- had been claimed by the assessee. He further observed that the AO was supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid issues. Being aggrieved, assessee is now in appeal before us. 3. We have heard rival submissions and carefully perused the material available on record. The Ld. Counsel for the assessee before us referred to various documents including the queries raised by the AO and the replies thereto given by the assessee. The Ld. Counsel for the assessee in this respect has referred to letter dated 23.09.2021 annexed at page 83 of the paper book to submit that the assessee had furnished before the AO summary of transportation charges as per the format provided by the AO and had duly explained the amount of Rs. 21,47,21,520/- claimed as transportation expenses including Rs. 60,76,655/- as toll charges. The ld. Counsel for the assessee in this respect has referred to page 14 of the paper book. The ld. Counsel for the assessee has further referred to pages 22 to 24 of the additional paper book to submit that it was explained before the AO that a sum of Rs. 31,50,000/- was reversal of the payment from Harihar Yadav. It was explained that the total transport expenses appearing in the books of assessee in the ledger of transport charges for the year were at Rs. 22,39,48,175/- after deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 263(1) can be summarized in the following points: 1) The Commissioner may call for and examine the record of any proceeding under the Act; 2) If he considers that the order passed by the AO is (i) erroneous; and (ii) is prejudicial to the interest of Revenue; 3) He has to give an opportunity of hearing in this respect to the assessee; and 4) He has to make or cause to make such enquiry as he deems necessary; 5) He may pass such order thereon as the circumstances of the case justify including, (i) an order enhancing or, (ii) modifying the assessment or (iii) cancelling the assessment and directing a fresh assessment. 5. As per the provisions of section 263 as enumerated above, after getting the explanation from the assessee, the Ld. Pr. CIT was supposed to examine the contention of the assessee. Before passing an order of modifying, enhancing or cancelling the assessment, he was supposed either to himself make or cause to make such an enquiry as he deems necessary. The words as he deems necessary , in our view, do not mean that the Ld. Pr. CIT is left with a choice either to make or not to make an enquiry. As per the relevant provisions of section 263 of the Act, it was incumbent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s pointed out by the Ld. PCIT regarding lack of enquiries, were factually incorrect. The Ld. Counsel has demonstrated that all the points regarding which the Ld. PCIT has mentioned that the Assessing Officer should have made enquiry, were duly enquired into by the Assessing Officer. The observations of the Ld. PCIT, therefore, were a general observation and no specific observation has been made in respect of any of the details or evidence furnished by the assessee and as to why the ld. Pr. CIT was not satisfied about such details/replies furnished by the assessee. Simply because the ld. Pr. CIT felt that the Assessing Officer should have made further enquiries on the same issue or that the case was to be examined from some another angle, the same, in our view, cannot be a valid ground to set aside the assessment order. If such an action is allowed by the ld. Pr. CIT in revision jurisdiction, then there would be no end to litigation and there would not be any finality to the assessment. The Explanation 2 to Section 263(1) of the Act does not give unbridled powers to the ld. PCIT to simply set aside the assessment order by saying that the Assessing Officer was required to make furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) has laid down following ratio with regard to provisions of section 263 of the Act: There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue has to be read in conjunction with an 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 an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eventuate affected realization of lawful revenue either by the State has not been realized or it has gone beyond realization. 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 the order passed by the CIT it is perceptible that the said authority has not kept in view the requirement of s. 263 of the Act inasmuch as the order does not reflect any kind of satisfaction. As is manifest the said authority has been governed by a singular factor that the order of the AO is wrong. That may be so but that is not enough. What was the sequitur or consequence of such order qua prejudicial to the interest of the Revenue should have been focused upon. That having not been done, in our considered opinion, exercise of jurisdiction under s. 263 of the Act is totally erroneous and cannot withstand scrutiny. Hence, the Tribunal has correctly unsettled and dislodged the order of the CIT. [Emphasis supplied] 12. In the light of the provisions of section 263 of the Act and a settled position of law, powers u/s 263 of the Act can be exercised by the Pr. Commissioner/Commissioner on satisfaction of twin condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch enquiry as he deems necessary. It is only on fulfilment of these twin conditions that the CIT may pass an order exercising his power of revision. Minutely examined, the provisions of the section envisage that the CIT may call for the records and if he prima facie considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirements of the section are manifestly for a purpose. Merely because the CIT considers on examination of the record that the order has been erroneously passed so as to prejudice the interest of the Revenue will not suffice. The assessee must be called, his explanation sought for and examined by the CIT and thereafter if the CIT still feels that the order is erroneous and prejudicial to the interest of the Revenue, the CIT may pass revisional orders. If, on the other hand, the CIT is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law (vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial 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 Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not. 6.2. Further, the Coordinate Mumbai Bench of the Tribunal in the case of Narayan Tatu Rane v. ITO reported in [2016] 70 taxmann.com 227 (Mum. Trib.) has held that Explanation 2(a) to section 263 of the Act does not authorise or give unfettered power and to revise each and every order on the ground that the Assessing Officer should have made more enquiries and verifications. The relevant part of the order of the Tribunal is reproduced as under: 20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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