SAI ENTERPRISES,THANE vs. PR. CIT- 2 , THANE

IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI माननीय "ी सी. एन. "साद,"ाियक सद" एवं माननीय "ी मनोज कुमार अ"वाल ,लेखा सद" के सम"। BEFORE HON’BLE SHRI C.N. PRASAD, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ (िनधा"रण वष" / Assessment Year: 2014-15) Sai Enterprises Pr. CIT-2 2nd Floor, Rosa Vista Ashar I.T. Pak, “B” Wing बनाम/ 6th Floor, Wagle Indl. Estate Opp. Suraj Water Park Vs. Ghodbunder Road, Thane(W) Thane(E), Maharashtra. Maharashtra. "थायीलेखासं./जीआइआरसं./PAN/GIR No. AAEFS-0841-H (अपीलाथ"/Appellant) (""थ" / Respondent) : Assessee by : Shri Subodh Ratnaparkhi-Ld. AR Revenue by : Chaudhary Arun Kumar Singh - Ld.Sr.DR सुनवाई की तारीख/ : 20/08/2019 Date of Hearing घोषणा की तारीख / : 15/11/2019 Date of Pronouncement आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member): - 1.1 As per the provisions of Section 263 of Income Tax Act, 1961, the revenue authorities namely Pr. Commissioner of Income Tax / Commissioner of Income Tax is vested with the supervisory powers of suo-moto revision of any order passed by the Assessing Officer [AO]. For the said purpose, the appropriate authority may call for and examine 2 Sai Enterprises Assessment Year :2014-15 the record of any proceedings under the Act and may proceed to revise the same provided two conditions are satisfied-(i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the revenue. If one of the condition is absent i.e. 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 Section 263 of the Act as held by Hon’ble Supreme Court in Malabar Industrial Co. Ltd. V/s CIT [243 ITR 83 10/02/2000] & noted by Hon’ble Delhi High Court in CIT V/s Vikas Polymers [194 Taxman 57 16/08/2010]. The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. V/s CIT (supra) has held that 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 interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. The said principal has been reiterated by Hon’ble Court in its subsequent judgement titled as CIT V/s Max India Ltd. (295 ITR 282). Similar principal has been followed by jurisdictional High Court in Grasim Industries Ltd. V/s CIT (321 ITR 92).

3 Sai Enterprises Assessment Year :2014-15 1.2 The Hon’ble Delhi High Court, CIT V/s Vikas Polymers (supra), further observed that as regards the scope and ambit of the expression "erroneous", Hon’ble Bombay High Court in CIT vs. Gabriel India Ltd. [1993 203 ITR 108 (Bombay)], held with reference to Black's Law Dictionary that an "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" and thus it is clear that an order cannot be termed as "erroneous" unless it is not in accordance with law. 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. 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 law. 1.3 Further, any and every erroneous order cannot be the subject matter of revision because the second requirement also must be fulfilled. There must be material on record to show that tax which was lawfully exigible has not been imposed as held in Gabriel India Ltd. However, the expression "prejudicial to the interest of the revenue", as held by the Supreme Court in the Malabar Industrial Co. Ltd.'s case, is not an expression of art and is not defined in the Act and, therefore, must be understood in its ordinary meaning. It is of wide import and is not confined to the loss of tax as held in various judicial pronouncements. At the same time, the words "prejudicial to the interest of the revenue", as observed in Dawjee Dadabhoy and Co. vs. S.P. Jain, (1957) 311 ITR 4 Sai Enterprises Assessment Year :2014-15 872 (Calcutta), can only 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." Thus, the Commissioner's exercise of revisional jurisdiction under the provisions of Section 263 cannot be based on whims or caprice. It is trite law that it is a quasi-judicial power hedged in with limitation and not an unbridled and unchartered arbitrary power. The exercise of the power is limited to cases where the Commissioner on examining the records comes to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interest of the revenue and that fresh determination of the case is warranted. There must be material to justify the Commissioner's finding that the order of the assessment was erroneous insofar as it was prejudicial to the interest of the revenue. 1.4 The Hon’ble Delhi Court, in the cited decision, further observed that there is a fine though subtle distinction between "lack of inquiry" and "inadequate inquiry". It is only in cases of "lack of inquiry" that the Commissioner is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under the Act and passing orders thereon. In Gabriel India Ltd. (supra), it was expressly observed: - "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 all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi- judicial controversies as it must in other spheres of human activity [Parashuram Pottery Works Co. Ltd. vs. ITO, (1977) 106 ITR 1 (SC)].

5 Sai Enterprises Assessment Year :2014-15 It was further observed as under: - "From the aforesaid definitions as it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. 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 more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualized where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, 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. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. x x x x There must be some prima facie material on record to show that 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. 1.5 The Hon’ble Supreme Court in CIT V/s Amitabh Bachchan (69 Taxmann.com 170 11/05/2016) held that the power of appeal and revision is contained in Chapter XX of the Act which includes section 263 that confers suo motu power of revision in the Commissioner. The different shades of power conferred on different authorities under the Act has to be exercised within the areas specifically delineated by the Act and the exercise of power under one provision cannot trench upon the powers available under another provision of the Act. In this regard, it must be specifically noticed that against an order of assessment, so far as the revenue is concerned, the power conferred under the Act is to reopen the concluded assessment under section 147 and/or to revise the 6 Sai Enterprises Assessment Year :2014-15 assessment order under section 263. The scope of the power/jurisdiction under the different provisions of the Act would naturally be different. The power and jurisdiction of the revenue to deal with a concluded assessment, therefore, must be understood in the context of the provisions of the relevant sections. While doing so, it must also be borne in mind that the legislature had not vested in the revenue any specific power to question an order of assessment by means of an appeal. Regarding applicability of Section 263, what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the revenue is the basic pre- condition for exercise of jurisdiction under section 263. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the requirement cast by the section to give the assessee an opportunity of being heard. Further, there could be no doubt that so long as the view taken by the Assessing Officer is a possible view, the same ought not to be interfered with by the Commissioner under Section 263 merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. 1.6 The Hon’ble Bombay High Court in Moil Ltd. Vs. CIT [81 Taxmann.com 420] observed that if a query is raised during the assessment proceedings which was responded to by the assessee, the mere fact that the query was not dealt with in the assessment order then 7 Sai Enterprises Assessment Year :2014-15 it would not lead to a conclusion that no mind has been applied to it and the Assessing Officer is not expected to raise more queries, if he was satisfied about the admissibility of claim on the basis of the material and the details supplied. 1.7 An Explanation-2 has been inserted by Finance Act 2015 in Section 263 with effect from 01/06/2015 to declare that order shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if in the opinion of appropriate authority-(1) the order was passed without making inquiries or verifications which should have been made; (ii) the order is passed allowing any relief without inquiring into the claim; (iii) the order is not in accordance with any direction or instructions etc. issued by the Board u/s 119; or (iv) the order was not in accordance with binding judicial precedent. 2.1 Keeping in mind aforesaid principle, we find that the assessee before us, is under appeal challenging the validity of revisional jurisdiction exercised by Ld. Pr. Commissioner of Income Tax-2, Thane for Assessment Year 2014-15 vide order dated 19/03/2019. The grounds raised by the assessee read as under: - On the facts and in law,

1. The Learned Pr.CIT erred in holding the order framed by the assessing officer u/s 143(3) of the I.Tax Act on 03.12.2016 to be erroneous and prejudicial to the interest of the revenue as per Section 263 of the IT Act for the only reason that certain documents from the applicants case records were not available, ignoring that all information necessary for completion of assessment including books of accounts, bills, vouchers were produced before the Ld. AO in the asst. order and therefore, the assumption of jurisdiction by the Pr. CIT u/s 263 of the I.T. Act, 1961 was not valid and justified.

2. The learned Pr. CIT erred in setting aside the assessment framed u/s 143(3) of the I.Tax Act, 1961 on 03.12.2016, by relying upon the provisions of Sec. 263 of the I.Tax Act, 1961, without in any manner indicating as to how the assessment framed was erroneous and prejudicial to the interest of the revenue and therefore, the order u/s 263 dt. 19.03.2019 be held to be invalid and bad-in-law.

8 Sai Enterprises Assessment Year :2014-15 2.2 The assessment for year under consideration was framed by Ld. AO on 03/12/2016 accepting returned income of Rs.17.82 Crores e-filed by the assessee on 30/11/2014. The assessment order is a short order which note that notice u/s 142(1) dated 15/06/2016 was issued along with questionnaire which was responded to by the assessee and details were furnished. Another observation in the order is that books of account along with bills and vouchers were produced which were subjected to test check. 2.3 Subsequently, Ld. Pr.CIT, after perusal of case records, noted that the case was selected for scrutiny under CASS on certain parameters (10 in number) which have already been enumerated in the opening paragraph of impugned order. It was observed that reply with respect to questionnaire covering all the points was not submitted by the assessee and scrutiny assessment was completed on the basis of limited records only. It was, inter-alia, observed that complete detail of project wise profitability as per project completion method was not submitted and the same remained to be verified. Further the compliance of Section 43CA remained unverified. Since the WIP was converted into stock in trade, payment of Rs.25.30 Crores u/s 194C would require verification. Gross Profit rate was stated to be not as per industry average and further, correctness of sale of land and development rights remained unverified. Accordingly, the assessee was show-caused that the assessment order was erroneous as well as prejudicial to the interest of the revenue. 2.4 In response to show-cause notice, the assessee submitted that all the requisite documents, books of account, bills, vouchers, copies of 9 Sai Enterprises Assessment Year :2014-15 agreement as called for were duly submitted and Ld. AO had done verification on all the points before passing the assessment order u/s 143(3) and therefore the proceedings u/s 263 would not be warranted. 2.5 However, it was noted that no reply was submitted by the assessee in response to questionnaire issued on 15/06/2016. Another observation was that the order sheet of assessment proceedings was not maintained properly which would be vital evidence concerning the proceedings taken in relation to assessment, penalty, revisions, rectification etc. Apprehension was also raised that two submissions purported to be submitted by the assessee during assessment proceedings were neither inward in the office of DCIT, Circle-3, Thane nor were they produced at the time of assessment proceedings. Annexure-C was found to be unsigned. Keeping in view these factors, it was concluded that the assessment was completed without any enquiries or verifications which should have been done. The assessee failed to submit details at the time of assessment proceedings and Ld. AO failed to make inquiries on the issues mentioned in the questionnaire. Noticing the deeming fiction of Clause (a) of Explanation-2 to Section 263, the order was deemed to be erroneous as well as prejudicial to the interest of the revenue. Finally, the assessment order was set aside and a direction was issued to redo the assessment de-novo after affording adequate opportunity to the assessee. Aggrieved, the assessee is under appeal before us.

10 Sai Enterprises Assessment Year :2014-15 4. Upon perusal of notice u/s 142(1) dated 15/06/2016 issued to the assessee during the course of original assessment proceedings, it could be seen that a detailed questionnaire was issued to the assessee asking him to submit the requisite details / documents under various heads etc. The said details were furnished by the assessee in couple of replies which are placed on page nos. 23 to 117 of the paper book. In one of the replies, the assessee has, inter-alia, explained its nature of business, details of projects undertaken by the assessee, along with details of bank accounts. In another reply, the assessee filed several details which were called for by Ld.AO. These details would, inter-alia, include complete details of sundry creditors, party wise deposits and advances, details of loans & interest paid, party wise details of unsecured loans, party wise details of purchases, details of salary, addition to fixed assets, reconciliation of contract receipts, details of inventory held by the assessee, details of other income credited to Profit & Loss A/c, details of Land cost along with the copy of agreement, details of TDS deducted, sub-contract payments, details of sale / booking, sources of capital, details of expenses capitalized etc. Thereafter, the assessment was framed by Ld. AO on 03/12/2016. Prima facie, no other details have been called from the assessee at any stage after submission of two replies. Therefore, it is difficult to accept the fact that various details as filed by the assessee in two submissions skipped examination as well as verification by Ld.AO. At the same time, it would also raise a presumption in assessee’s favor that the details furnished by the assessee were found to be adequate as well as satisfactory and it was thought fit to frame the assessment on the basis of submissions.

11 Sai Enterprises Assessment Year :2014-15 5. Regarding assessee’s submissions, the observations of Ld. Pr.CIT are two-fold viz. Annexure-C was unsigned and the submissions were not shown to be inward in the office of Ld. AO. However, nothing on record would establish the fact that these submissions were not available in the case records and it is also not the allegations of Ld. Pr.CIT. Therefore, the aforesaid action u/s 263 could not be triggered only on the basis of mere apprehension / doubts. Another apprehension raised by Ld. Pr.CIT was the fact that order sheet entries were not properly maintained. However, we are not convinced with the reasoning / logic since the no fault could be found on the part of assessee with respect to maintenance of order sheet entries. The same was the responsibility of Ld. AO and the assessee could not be made to suffer and go through the entire exercise of assessment proceedings merely because there was certain lapse of this kind on the part of Ld. AO. Therefore, the exercise of jurisdiction on this basis could not be held to be justified.