M/S. KALINGA MINING CORPORATION PVT. LTD.,CUTTACK vs. PRINCIPAL CIT, CUTTACK CHARGE, CUTTACK

O R D E R Per C.M.Garg,JM This is an appeal filed by the assessee against the order of the Pr. CIT(A), Cuttack under section 263 of the I.T.Act, 1961 for the assessment year 2014-15.

P a g e 1 | 7 K/2019 Asse ssment Year : 20 14- 15 found that in the profit and loss account for the year ending 31st March, 2014, the assessee has credited Rs.167,58,34,770/- under the head “ revenue from operations (gross)’ i.e. (gross sale of Rs.196,76,82,602 – less royalty of Rs.29,18,47,831). The ld Pr. CIT gathered from Form H1 prescribed to Indian Bureau of Mines that the assessee had effected total sale of 940,788.270 (MT) of iron ore for a sum of Rs.202,42,11,422/- and as such gross revenue from operation has been worked out to Rs.173,23, 63,591 i.e. (gross sale of Rs.202,42,11,422 – less royalty of Rs.29,18,47,831 ). From the above, Pr. CIT was opined that the assessee company had understated its revenue from operations to the extent of Rs.5,65,28,821 (Rs.173,23,63,591 – Rs.167,58,34,770). Hence, an amount of Rs.5,65,28,821/- was required to be added to the total income of the assessee but the AO has failed to bring such undisclosed receipts to tax, thereby, prima facie rendering his order erroneous and prejudicial to the interest of the revenue.

P a g e 2 | 7 K/2019 Asse ssment Year : 20 14- 15

“It is not necessary for the Commissioner to make further inquiries before canceling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income- tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is duty to ascertain the truth of the facts stated in the return which the circumstances of the case are such as to provoke an inquiry. 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 enquiry. 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.”

P a g e 3 | 7 K/2019 Asse ssment Year : 20 14- 15 Similar view was reiterated by their Lorodships of Hon’ble Delhi High Court in the case of Duggal & Co. vs. CIT [220 ITR 456].

“that it was not quite certain whether the tress sold in the previous year relevant to the assessment year were trees standing at the time of acquisition or trees which grew on roots and trunk existing on the date of acquisition or on roots and trunks of trees existing at the time of acquisition and cut subsequently. This was a matter which had to be investigated by the Income-tax Officer after calling upon the assessee to furnish relevant data. The Inspecting Assistant Commissioner had no such data before him in order to enable him to conclude that there was no cost of acquisition. It was also to be considered whether the spontaneous growth required any care or attention by way of protection from animals and the like and, if so, whether the assessee did not incur any cost in that regard. Any decision either way without considering these aspects would certainly be erroneous and any decision in favour of the assessee without considering these aspects would be prejudicial to the interests of the Revenue. The order passed by the Commissioner of Income-tax and the order passed by the Tribunal sustaining the same as a whole were valid.”

“that the words “prejudicial to the interests of the revenue’ in section 263 have not been defined but they must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. In the present case, it was obvious that the Income-tax Officer had committed an error in not making enquiry into the details as regards both the deductions and also that want of such enquiry had resulted in prejudice to the interests of the revenue. To this extent, the initiation of action under section 263 by the Commissioner was quite proper.”

P a g e 4 | 7 K/2019 Asse ssment Year : 20 14- 15

“Even assuming that the Income-tax Officer had called for the particulars, which were also furnished by the assessee, if the Income-tax Officer without probing into the matter further had allowed the claim of the assessee for weighted deduction and if the Commissioner on the basis of materials formed an opinion that the grant of allowance made by the officer was erroneous and not warranted by law, the jurisdiction of the Commissioner under section 263 of the Act was not ousted. The Commissioner may not have recorded his final conclusion, but the question for exercising the power of revision by the Commissioner is whether the order of the Assessing Officer can be regarded as erroneous and prejudicial to the interests of the Revenue. It may be erroneous in law or in fact. It may be erroneous in the sense that the Income-tax Officer had passed the order without properly conducting the inquiry in completion of the assessment and the order may also be erroneous when the expenditure allowed was against the provisions of law.”

“It is not necessary for the Commissioner to make further enquiries before canceling the assessment order of the Assessing Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Assessing Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. Unlike the civil court which is neutral to give a decision on the basis of evidence produced before it, an Assessing Officer is not only an adjudicator but is also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further enquiry. It is his duty to ascertain the 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. The word ‘erroneous’ in that section includes cases where there has been failure to make the necessary inquiries. It is incumbent on the Assessing Officer to investigate the facts stated in the return when circumstances make such an inquiry prudent and the word ‘erroneous’ in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an enquiry 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.

P a g e 5 | 7 K/2019 Asse ssment Year : 20 14- 15

In the instant case, the Assessing Officer failed to make any enquiry in regard to the allowability of the provision for gratuity. As such, the order was erroneous and prejudicial to the interests of the revenue. Therefore, the conditions precedent for assuming jurisdiction under section 263 did exist in the facts of the instant case.”0

Failure to make enquiry in such circumstances would make the assessment order erroneous.

Order pronounced on 28 /01/2020.