M/S DHARA DEALERS PVT LTD.,KOLKATA vs. DCIT, CIR.-13(1), KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘B’ BENCH, KOLKATA (Before Sri J. Sudhakar Reddy, Accountant Member & Sri Aby T. Varkey, Judicial Member) I.T.A. No. 523/Kol/2020 Assessment Year: 2015-16 M/s. Dhara Dealers Pvt. Ltd.............................................................................................Appellant [PAN: AAECD 0843 M] Vs. DCIT, Circle-13(1), Kolkata..........................................................................................Respondent

Appearances by: Sh. S.M. Surana, Adv., appeared on behalf of the Assessee. Sh. Mithilesh Kumar Jha, CIT(D/R), appeared on behalf of the Revenue. Date of concluding the hearing : May10th, 2021 Date of pronouncing the order : June 23rd, 2021 ORDER Per J. Sudhakar Reddy, AM: This is an appeal filed by the assessee directed against the order of the Learned Pr. Commissioner of Income Tax-5, Kolkata [hereinafter the “Pr. CIT”], passed u/s 263 of the Income Tax Act, 1961 (hereinafter the ‘Act’), dated 30.06.2020 for the Assessment Year 2015-16. 2. The facts of the case are brought out in the 263 order which is extracted for ready reference: “The assessee company filed its return of income disclosing total loss of Rs.2,04,09,188/- for AY 2015-16 on 29.09.2015 u/s 139(1) of the I.T. Act, 1961. 2. Related to the A.Y. under consideration the case was taken up for scrutiny as per CASS criteria enumerated below: (i) Low profit before interest and tax (PBIT) shown. (ii) Purchase of property reported in form 26QB.” 2.1. The AO passed an order u/s 143(3) of the Act dated 30.12.2017 determining the assessee’s income at the loss of ₹1,10,50,371/- after disallowing ₹93,58,816/- being loss incurred with regard to transaction with M/s. Ankit Metal & Power. The Pr. CIT issued a show cause notice u/s 263 of the Act dated 23.10.2019 proposing to revise the

2 I.T.A. No. 523/Kol/2020 Assessment Year: 2015-16 M/s. Dhara Dealers Pvt. Ltd. assessment order passed u/s 143(3) of the Act on 13.12.2017. The reason for proposing revision is at para-2 of the show cause notice. This is extracted for ready reference:

“In order to judge the merits of the order passed by the Assessing Officer, the assessment records were perused. The records available revealed that as per the audit objection the share difference value of Rs. 7,92,054/- were not at all examined by the Assessing Officer while passing the assessment order u/s 143(3) of the Income Tax Act, 1961.” 2.2. The assessee replied vide letter dated 26.11.2019. Para-3 of the letter reads as follows:

“3. Now regarding the difference in details in quantity submitted by the assessee and as per the Tax Audit Report, it is stated that the assessee had opening stock of 540500 number of equity shares in Pipava Defence. Out of which sold 286363 equity shares for Rs. 1.24.38,330/- in that year itself However due to typographical error the figure was taken at 2,37,628 equity shares and the mistake continued while taking the closing stock figure in that year which was taken at 302872 shares. The fact can be verified from the brokers note for the sale of 286363 shares which were issued by the broker in the F.Y. 2013-14. Not only that the shares so sold in that year is also reflected from the denial account for that year. The copy of the demat account as well as the broker ledgers account is enclosed herewith. The balance in the name of the broker tallies with the balance shown in the balance sheet. This is therefore evident that there was typing error of 48735 share in F.Y. 2013-14. This mistake was detected in F.Y. 2015-15. The actual sale in F.Y. 2014-15 in respect of the said shares was only 200000 lakh shares. Since however there was mistake committed in earlier year the same was set right by reducing the said shares from the stock. The demat account for the year shows sale of only 2 lakh shares during the year at the consideration shown in the details. The details of such sale was also filed in the course of assessment proceedings. The same was duly examined by (he AO and the issue was accepted. In any the issue is now verifiable from the submissions made above and your honour may verify the same from the details which are being filed herewith. If any further proof of mistake is required to be produced, we shall produce the same. We are also filing the certificate from the auditor with regard to this mistake. In view of the above the proceedings may please be dropped.” 2.3. After considering the reply of the assessee and examining the papers on record, ld. Pr. CIT at para-10 page-4 of his order held as follows:

a) The AO has not correctly appreciated the reason for differences in the value of the shares as pointed out in the show cause notice.

b) Enquiries were not conducted to the fullest extent to ascertain the details of losses sustained by the assessee on the sale of shares of M/s. Ankit Metal & Power.

c) Recording the source of the purchase of house property the AO issued notice u/s 133(6) of the Act to various parties from whom such advances were taken by the assessee company and the replies received were accepted by the AO, which shows non- application of mind

3 I.T.A. No. 523/Kol/2020 Assessment Year: 2015-16 M/s. Dhara Dealers Pvt. Ltd. d) The AO failed to establish the nexus between the loss incurred on the sale of shares of M/s. Ankit Metal & Power and the loans and advances received from various companies though the assessee company was making a loss. 2.4. The ld. Pr. CIT cancelled the order passed u/s 143(3) of the Act on 30.12.2017 by the AO and ordered de-novo assessment. Aggrieved, the assessee is in appeal before us. 3. The ld. Counsel for the assessee submits that the show cause notice was given based on an audit objection that there was share difference value of ₹7,92,054/-. While so, the ld. Pr. CIT has raised many other issues in the final order passed u/s 263 of the Act and concluded that the assessment was erroneous and prejudicial to the interest of the Revenue. 3.1. He submitted that the Pr. CIT cannot proceed on the basis of the audit objection without application of own mind,and that such action was bad in law.For this proposition he relied on the following case laws: a) Jeewanlal (1929) Ltd. vs. Addl.CIT, 108 ITR 407 Cal. b) CIT vs. Sohana Woollen Mills, 296 ITR 238 P&H. c) CIT vs. D.N. Dosani, 280 ITR 275 Guj. 3.2. He argued that the assessee explained the difference in share valuation of ₹7,92,054/- in his reply but the Pr. CIT without application of mind and without rejecting the explanation and without pointing out as to how prejudice is caused to the Revenue, cancelled the order passed u/s 143(3) of the Act which is legally not sustainable. 3.3. On the loss incurred on the sale of shares of M/s. Ankit Metal & Power,the ld. Counsel pointed out that the AO has conducted enquiries and disallowed the loss claimed on this transaction in the assessment order and hence it cannot be a ground for making revision and there is no prejudice caused to the Revenue. On the issue of loss and advances received for purchase of property, the ld. Counsel submitted that independent enquiries were conducted by the AO and after receiving the replies from the persons who had given loans and advances, the AO accepted the genuineness of the sources of purchase of property. He submitted that this is not a case of lack of enquiry

4 I.T.A. No. 523/Kol/2020 Assessment Year: 2015-16 M/s. Dhara Dealers Pvt. Ltd. nor a case where there is no non-application of mind by the AO. He submitted that on these grounds the reopening of assessment is bad in law.

“3. Now regarding the difference in details in quantity submitted by the assessee and as per the Tax Audit Report, it is stated that the assessee had opening stock of 540500 number of equity shares in Pipava Defence. Out of which sold 286363 equity shares for Rs. 1.24.38,330/- in that year itself However due to typographical error the figure was taken at 2,37,628 equity shares and the mistake continued while taking the closing stock figure in that year which was taken at 302872 shares. The fact can be verified from the brokers note for the sale of 286363 shares which were issued by the broker in the F.Y. 2013-14. Not only that the shares so sold in that year is also reflected from the denial account for that year. The copy of the demat account as well as the broker ledgers account is enclosed herewith. The balance in the name of the broker tallies with the balance shown in the balance sheet. This is therefore evident that there was typing error of 48735 share in F.Y. 2013-14. This mistake was detected in F.Y. 2015-15. The actual sale in F.Y. 2014-15 in respect of the said shares was only 200000 lakh shares. Since however there was mistake committed in earlier year the same was set right by reducing the said shares from the stock. The demat account for the year shows sale of only 2 lakh shares during the year at the consideration shown in the details. The details of such sale was also filed in the course of assessment proceedings.

5 I.T.A. No. 523/Kol/2020 Assessment Year: 2015-16 M/s. Dhara Dealers Pvt. Ltd. The same was duly examined by (he AO and the issue was accepted. In any the issue is now verifiable from the submissions made above and your honour may verify the same from the details which are being filed herewith. If any further proof of mistake is required to be produced, we shall produce the same. We are also filing the certificate from the auditor with regard to this mistake. In view of the above the proceedings may please be dropped.” 6.1. This Explanation is not doubted by Pr. CIT. When the Explanation is not rejected nor found fault with by the Pr. CIT, it cannot be said that there is an error in the order of the AO which is prejudicial to the interest of the Revenue.In our view, the assessee has properly explained the difference in value of shares. Just because Audit has raised an objection, the assessment order does not become erroneous to the extent it is prejudicial to the Revenue. 6.2. On the issue of loss sustained by the assessee on the sale of shares of M/s. Ankit Metal & Power, the AO had disallowed the loss and hence it cannot be a ground for making a revision u/s 263 of the Act. The disallowance of this loss was made on enquiry and this disallowance is not prejudicial to the interest of the Revenue. 6.3. On the issue of loans and advances taken by the assessee for purchase of property, the AO made independent enquiries by issuing notice u/s 133(6) of the Act and thereafter accepted the replies after examining them. The Pr. CIT has not pointed out as to what is the error committed by the AO in accepting the replies from various parties. Without pointing out any defects, it cannot be said that there is an error which caused prejudice to the interest of the Revenue. This is not a case of lack of enquiry or non-application of mind. The AO has made an enquiry and has taken a plausible view on the issues. 6.4. On these facts, the various Courts have laid down the following propositions of law:- 6.4.1. The Hon’ble Andhra Pradesh High Court in the case of Spectra Shares and Scrips Pvt. Ltd. V CIT (AP) 354 ITR 35 had considered a number of judgments on this issue of exercise of jurisdiction u/s 263 of the Act by the Principal Commissioner of Income Tax and culled the principles laid down in the judgments as below:

“24. In Malabar Industrial Co.Ltd. (2 Supra), the Supreme Court held that a bare reading of Sec.263 makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suomotu under it, is the order of the Income Tax Officer is erroneous in so far as it is prejudicial

6 I.T.A. No. 523/Kol/2020 Assessment Year: 2015-16 M/s. Dhara Dealers Pvt. Ltd. to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent – if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue – recourse cannot be had to Sec.263 (1) of the Act. It also held at pg-88 as follows: "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 Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. RampyarideviSaraogi v. CIT (1968) 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal V. CIT (1973) 88 ITR 323 (SC)". 25. In Max India Ltd. (3 Supra), reiterated the view in Malabar Industrial Co.Ltd. (2 Supra) and observed that 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 Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. On the facts of that case, Sec.80HHC(3) as it then stood was interpreted by the Assessing Officer but the Revenue contended that in view of the 2005 Amendment which is clarificatory and retrospective in nature, the view of the Assessing Officer was unsustainable in law and the Commissioner was correct in invoking Sec.263. But the Supreme Court rejected the said contention and held that when the Commissioner passed his order disagreeing with the view of the Assessing Officer, there were two views on the word "profits" in that section; that the said section was amended eleven times; that different views existed on the day when the Commissioner passed his order; that the mechanics of the section had become so complicated over the years that two views were inherently possible; and therefore, the subsequent amendment in 2005 even though retrospective will not attract the provision of Sec.263. 26. In Vikas Polymers (4 Supra), the Delhi High Court held that the power of suomotu revision exercisable by the Commissioner under the provisions of Sec.263 is supervisory in nature; that an "erroneous judgment" means one which is not in accordance with law; that if an Income Tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as "erroneous" by the Commissioner simply because, according to him, the order should have been written differently or more elaborately; that the section does not visualize the substitution of the judgment of the Commissioner for that of the Income Tax Officer, who passed the order unless the decision is not in accordance with the law; that to invoke suomotu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suomotu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision.

7 I.T.A. No. 523/Kol/2020 Assessment Year: 2015-16 M/s. Dhara Dealers Pvt. Ltd. 27. In Sunbeam Auto Ltd.( 5 Supra), the Delhi High Court held that the Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc.; that whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the 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. In that case, the Delhi High Court held that the Commissioner in the exercise of revisional power could not have objected to the finding of the Assessing Officer that expenditure on tools and dies by the assessee, a manufacturer of Car parts, is revenue expenditure where the said claim was allowed by the latter on being satisfied with the explanation of the assessee and where the same accounting practice followed by the assessee for number of years with the approval of the Income Tax Authorities. It held that the Assessing Officer had called for explanation on the very item from the assessee and the assessee had furnished its explanation. Merely because the Assessing Officer in his order did not make an elaborate discussion in that regard, his order cannot be termed as erroneous. The opinion of the Assessing Officer is one of the possible views and there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. 28. In Gabriel India Ltd. (6 Supra), the Bombay High Court held that a consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. It held that the Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted; that to do so is to divide one argument into two and multiply the litigation. It held that cases may be visualized where the Income Tax Officer while making an assessment examines the accounts, makes inquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the account or by making some estimate himself; that the Commissioner, on perusal of the record, may be of the opinion that the estimate made by the Officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer; but that would not vest the Commissioner with power to reexamine the accounts and determine the income himself at a higher figure; there must be material available on the record called for by the Commissioner to satisfy him prima facie that the order is both erroneous and prejudicial to the interests of the Revenue. Otherwise, it would amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh inquiry in matters which have already been concluded under law. 29. In M.S. Raju(15 Supra), this Court has held that the power of the Commissioner under Sec.263 (1) is not limited only to the material which was available before the Assessing Officer and, in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. 30. In Rampyari Devi Saraogi(21 Supra), the Commissioner in exercise of revisional powers cancelled assessee’s assessment for the years 1952-1953 to 1960-61 because he found that the income tax officer was not justified in accepting the initial capital, the gift received and sale of jewellery, the income from business etc., without any enquiry or evidence whatsoever . He

8 I.T.A. No. 523/Kol/2020 Assessment Year: 2015-16 M/s. Dhara Dealers Pvt. Ltd. directed the income tax officer to do fresh assessment after making proper enquiry and investigation in regard to the jurisdiction. The assessee complained before the Supreme Court that no fair or reasonable opportunity was given to her. The Supreme Court held that there was ample material to show that the income tax officer made the assessments in undue hurry; that he had passed a short stereo typed assessment order for each assessment year; that on the face of the record, the orders were pre-judicial to the interest of the Revenue; and no prejudice was caused to the assessee on account of failure of the Commissioner to indicate the results of the enquiry made by him, as she would have a full opportunity for showing to the income tax officer whether he had jurisdiction or not and whether the income tax assessed in the assessment years which were originally passed were correct or not" 31. From the above decisions, the following principles as to exercise of jurisdiction by the Commissioner u/s.263 of the Act can be culled out: a) The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue – recourse cannot be had to Sec.263 (1) of the Act. b) 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 Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. c) To invoke suomotu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suomotu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. e) The Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted f) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the 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. g) The power of the Commissioner under Sec.263 (1) is not Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment.

9 I.T.A. No. 523/Kol/2020 Assessment Year: 2015-16 M/s. Dhara Dealers Pvt. Ltd. 6.4.2. Now we examine the following judgments:-

DIRECTOR OF INCOME TAX vs. JYOTI FOUNDATION 357 ITR 388 (Delhi High Court) It was held that revisionary power u/s 263 is conferred on the Commissioner/Director of Income Tax when an order passed by the lower authority is erroneous and prejudicial to the interest of the Revenue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interest of the Revenue, but orders which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interest of the Revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. INCOME TAX OFFICER vs. DG HOUSING PROJECTS LTD343 ITR 329 (Delhi) Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. S. 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression "prejudicial to the interest of the Revenue" is of wide import and is not confined to merely loss of tax. The term "erroneous" means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word "erroneous" includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under s. 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. 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 s. 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. This distinction must be kept in mind by the CIT while exercising jurisdiction under s. 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

10 I.T.A. No. 523/Kol/2020 Assessment Year: 2015-16 M/s. Dhara Dealers Pvt. Ltd. wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It may be noticed that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. COMMISSIONER OF INCOME TAX vs. J. L. MORRISON (INDIA) LTD. 366 ITR As regard the submission on behalf of the Revenue that power under Section 263 of the Act can be exercised even in a case where the issue is debatable, it was held that the case of CIT vs. M. M. Khambhatwala was not applicable. The observation that the Commissioner can exercise power under Section 263 of the Act even in a case were the issue is debatable was a mere passing remark which is again contrary to the view taken by the Apex Court in thecase of Malabar Industrial Company Ltd. & Max India Ltd. If the Assessing Officer has taken a possible view, it cannot be said that the view taken by him is erroneous nor the order of the Assessing Officer in that case can be set aside in revision. It has to be shown unmistakably that the order of the Assessing Officer is unsustainable. Anything short of that would not clothe the CIT with jurisdiction to exercise power under Section 263 of the Act. CIT vs. M. M. Khambhatwala reported in 198 ITR 144; CIT vs. Ralson Industries Ltd. reported in 288 ITR 322 (SC), not applicable; Malabar Industrial Co. Ltd. v. CIT reported in 243 ITR 83, relied on. (Para 72) As regard the third question as to whether the assessment order was passed by the Assessing Officer without application of mind, it was held that the Court has to start with the presumption that the assessment order was regularly passed. There is evidence to show that the assessing officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under Section 142 (1) of the Act could not have been formulated. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under Clause (e) of Section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact that the order was passed by the assessing officer after due application of mind. Meerut Roller Flour Mills Pvt. Ltd. vs. C.I.T., ITA No. 116 /Coch/ 2012; CIT vs. Infosys Technologies Ltd., 341 ITR 293 (Karnataka); S.N. Mukherjee vs. Union of India, AIR 1990 SC 1984; A. A. Doshi vs. JCIT, 256 ITR 685; Hindusthan Tin Works Ltd. Vs. CIT, 275 ITR 43 (Del), distinguished. (Paras 90-92, 102) COMMISSIONER OF INCOME TAX vs. SOHANA WOOLLEN MILLS 296 ITR 238 (P&H HC) A reference to the provisions of s. 263 shows that jurisdiction thereunder can be exercised if the CIT finds that the order of the AO was erroneous and prejudicial to the interest of Revenue. Mere audit objection and merely because a different view could be taken, were not enough to

11 I.T.A. No. 523/Kol/2020 Assessment Year: 2015-16 M/s. Dhara Dealers Pvt. Ltd. say that the order of the AO was erroneous or prejudicial to the interest of the Revenue. The jurisdiction could be exercised if the CIT was satisfied that the basis for exercise of jurisdiction existed. No rigid rule could be laid down about the situation when the jurisdiction can be exercised. Whether satisfaction of the CIT for exercising jurisdiction was called for or not, has to be decided having regard to a given fact situation. In the present case, the Tribunal has held that the assessee had disclosed that out of sale consideration, a sum of Rs. 1 lakh was to be received for sale of permit. If that is so, there was no error in the view taken by the AO and no case was made out for invoking jurisdiction under s. 263. 7. Applying the propositions of law laid down in this various case laws to the facts of the case, we hold that the revision is bad in law. Hence the order passed by the Pr. CIT u/s 263 of the Act is quashed. 8. In the result, the appeal filed by the assessee is allowed. Kolkata, the 23rd June, 2021. Sd/- Sd/- [Aby T. Varkey] [J. Sudhakar Reddy] Judicial Member Accountant Member Dated: 23.06.2021 Bidhan (P.S.) Copy of the order forwarded to: 1. M/s. Dhara Dealers Pvt. Ltd., 102/1, N.S. Road, Radha Krishna Enclave, Hridaypur, Kolkata-700 127. 2. DCIT, Circle-13(1), Kolkata. 3. CIT(A)- 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. (sent through mail)