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PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessee is directed against the order of ld. PCIT(A)-32, Mumbai dated 18.03.2019 passed under section 263 of Income Tax Act for Assessment Year 2014-15. The assessee has raised the following grounds of appeal:
1. BREACH OF THE PRINCIPLES OF NATURAL JUSTICE 1.1. The Learned Principal Commissioner of Income - tax - 32, Mumbai ["Ld. PCIT"], erred in framing the revision order u/s. 263 of the Income - tax Act, 1961 [“the Act"] by not giving proper, sufficient and effective opportunity of being heard to the Appellant. 1.2 It is submitted that in the facts and the circumstances of the case, and in law, the order is required to be held as bad and illegal in breach of the principles of natural justice, as well as non - application of mind to the facts and the contentions brought on record by the Appellant. WITHOUT PREJUDICE TO THE ABOVE Mum 2019-M/s Hi Rock Construction Co.
2. REVISION ILLEGAL 2.1 The Ld. PCIT erred in passing the order u/s. 263 of the Act, revising the assessment order passed by the A.O. u/s. 143 (3) of the Act. 2.2 It is submitted that in the facts and the circumstances of the case, and in law, the order is bad, illegal and void as necessary pre - conditions for initiating the revision proceeding as well as the completion thereof were not fulfilled. 2.3 Without prejudice to the generality of the above, the PCIT failed to appreciate that: (i) The assessment order framed was not "erroneous" within the meaning of section 263 of the Act; (ii) Even otherwise, there was no lack of investigation / inquiry and non - application of mind on the part of the A.O. while framing the assessment order; and (iii) In any case, the assessment order was not "prejudicial to the interest of the revenue" within the meaning of section 263 of the Act. WITHOUT FURTHER PREJUDICE TO THE ABOVE 3. Otherwise also, it is submitted that in the facts and the circumstances of the case, and in law, on merits also, no revision u/s. 263 of the Act was called for.
Facts in brief are that the assessee is a partnership firm and engaged in the business of Civil Contractor, filed its return of income for Assessment Year 2014-15 on 17.10.2014 declaring total income of Rs. 50,37,910/-. The case was selected for scrutiny. The Assessing Officer completed the assessment under section 143(3) on 30.11.2016. The Assessing Officer while passing the assessment order made disallowance of expenses of Rs. 1,00,000/-. The assessment order was revised by ld. PCIT vide its order dated 18.03.2019 passed under section Mum 2019-M/s Hi Rock Construction Co.
The ld. PCIT issued show-cause notice under section 263 on 20.11.2017 and 16.01.2019. In the show-cause notice dated 20.11.2017, the ld. PCIT noted that the case was selected through CASS for completing scrutiny to examine high ratio of refund of TDS, large increase of unsecured loan during the year and secured loan from person who has not filed their return of income, the assessee claimed high expenditure against the new capital added to work-in-progress or fixed assets.
Further, the interest from business was claimed at Rs. 1.29 crore whereas business of contract is not having borrowings. Such interest relates to money lending activity and is assessable under the head “Income from Other Sources”. Hence, disallowance of interest under section 36(1)(iii) should have been examined. The Assessing Officer has not examined the details which lead to under assessed and the order passed by Assessing Officer is erroneous and prejudicial to the interest of revenue.
Further, another show-cause notice dated 16.01.2019 was sent to the assessee on similar points as raised in the earlier show-cause notice dated 20.11.2017. The assessee filed its reply dated 28.01.2019. In the reply, the assessee stated that loans were taken for the purpose of business and were used for security deposit/deposits of tender wherever required and balance funds were deployed for advancing loan. It was further stated that interest of Rs. 1.29 crore pertaining to the business 3 Mum 2019-M/s Hi Rock Construction Co. expenditure were utilized for the business of contract. The explanation furnished by assessee was not accepted.
The ld. PCIT observed that assessee has turnover of Rs. 4.5 crore only for the Assessment Year under consideration. The assessee earned interest income of Rs. 13.49 crore and incurred interest expenses of Rs. 14.78 crore as claimed in the business expenses in Profit & Loss Account. From the Audit Report, the ld. PCIT further observed that in Schedule-10, the assessee described its business as civil contract while the assessee is engaged in money lending business. The money is not borrowed for the purpose of business, if it was so, the turnover of assessee would have been much more than the annual turnover shown by assessee. There must be a nexus between advancing of fund and business interest of the assessee. The ld. PCIT further observed that the assessee should have computed the income from money lending separately and should have claimed interest expenses. The assessee has borrowed fund of Rs. 128 crore as on 31.03.2014 is not used for contract business. Therefore, the interest can be allowed under section 36(1)(iii) only if the assessee proved that it was for the purpose of business, the facts makes it clear that assessee is engaged in the business of money lending. Hence, the assessment order dated 30.11.2016 was completed without considering and allowing the provisions of disallowance on interest claimed as per section 36(1)(iii). The ld. PCIT concluded that 4 ITA No. 4327 Mum 2019-M/s Hi Rock Construction Co. assessment order dated 30.11.2016 is erroneous and in so far it is prejudicial to the interest of revenue. The Assessing Officer has not taken into account the provisions of section 36(1)(iii) and claimed interest expenses which does not form part of business activity and the same relates to money lending activities assessable under the head “Income from Other Sources”. The ld. PCIT set-aside the assessment order to that extent and directed the Assessing Officer to pass fresh assessment order after allowing opportunity to the assessee. Aggrieved by the order of ld. PCIT, the assessee has filed the present appeal before this Tribunal.
Perusal of record reveals that there is delay of 28 days in filing the present appeal. The assessee filed an application for condonation of delay. The assessee is supported by the affidavit of partner of assessee namely Hitesh H. Dhoked. In the application, the applicant/assessee has stated that the impugned order was received on 28.03.2019 and the assessee was required to file appeal up to 27.05.2019. The appeal was filed on 24.06.2019, thus, there is delay of 28 days in filing the appeal.
The applicant in the affidavit has explained that the partners of assessee are laymen and are not convergent with the technicalities and procedure and delay occurred due to obtaining legal advice from their Chartered Accountant (C.A) and seeking expert advice of Senior Chartered Mum 2019-M/s Hi Rock Construction Co.
Accountant. It is stated that the delay is neither intentional nor deliberate.
The ld. AR of the assessee submits that the assessee has good case on merit and is likely to succeed. The ld. AR of the assessee further submits that the delay is neither intentional nor due to any negligence. The delay was due to bonafide reasons that the partners of assessee consulted with his regular C.A as well as Sr. C.A and advice to file appeal immediately.
On the other hand, the ld. DR for the revenue not opposed the application for condonation of delay so seriously. The ld. DR in all his fairness submits that the bench may consider the contents of the application for condonation of affidavit and may take the appropriate decision.
We have considered the submission of both the parties and perused the application for condonation of delay and the affidavit. Considering the fact that the assessee has explained that the delay is neither intentional nor deliberate and the delay occurred only in obtaining the legal advice from his regular C.A as well as from Sr. Consultant/C.A. Therefore, we find a sufficient cause for condoning the delay. Hence, the delay in filing the present appeal is condoned and the case was heard on merit.
On merit the ld. AR of the assessee submits that assessee is a partnership firm and engaged in the business of civil contractor. The main business activities of the assessee involves taking up contract/sub- 6 Mum 2019-M/s Hi Rock Construction Co. contract work for various projects relating to Municipal Corporation and big project like construction of Hospitals, Markets buildings, roads and drainage system etc. Due to business exigencies, the assessee is required to make a security deposit in the form of tender deposits, performance deposit with the Government Authorities for which the assessee required substantial amount of funds due to nature of civil contracts substantial business blocked by way of retention of money. Thus, the assessee is required to keep the money ready to meet such eventualities as and when arise. For the need of business, the assessee has to always keep substantial amount ready to meet the last minutes rushing to borrow the money, which is not always possible to arrange such money. The assessee always kept huge money purely out of business prudence and commercial exigencies. Thus, the assessee borrowed money in advance for various business performances. In case money is not immediately required, the assessee part such money as loans to fetch some interest instead of keeping such money ideal in current account as a part of money are kept in Fixed Deposits with Bank which are required to obtain a bank guarantee for civil contracts, therefore, earning of such interest and making payment of interest is a part of business activities of the assessee. During the assessment the issue was examined by the assessing officer. The assessing officer after full satisfaction allowed the interest expenses. 7 Mum 2019-M/s Hi Rock Construction Co.
The ld. AR of the assessee further submits that in three prior Assessment Years as Assessment Years 2011-13, 2012-13 & 2013-14 were scrutinized under the scrutiny assessment under section 143(3). In all three years, the Assessing Officer raised specific queries and raised issue regarding such loan received and disbursed. The assessee furnished requisite details and reply. In all three AYs, the net interest expenses were allowed after verification. The ld. AR of the assessee further submits that the balance-sheet showing the unsecured loan received and given are shown in balance-sheet filed at page no. 111 to 128 of Paper Book. The copy of assessment order for A.Y. 2011-12 is also placed on record. Similarly, for A.Y. 2012-13 balance-sheet showing amount of unsecured loan availed and given along with the net loan interest and interest earned on Fixed Deposits along with the questionnaires raised by Assessing Officer and assessment order is placed on record at page no. 144 to 151 of Paper Book. Similarly, the similar details for A.Y. 2013-14 are also placed on record from page no. 154 to 167.
For the year under consideration, the assessee maintained full and proper accounts on record. The accounts are audited; the Auditor after verification of the account and records certified the accounts as depicting true and correct view of the affairs of the assessee. The balance sheet showing the huge amount of unsecured loan is also 8 Mum 2019-M/s Hi Rock Construction Co. provided. The copy of Tax Audit Report, details of loans are paid along with the name, address and PAN Number of the persons were furnished and copy of which are placed on record at page no. 36 to 80 of Paper Book. 13. During the assessment, the Assessing Officer required the details vide notice dated 07.06.2016 under section 142(1). The copy of notice is placed at page no. 55 of the Paper Book. The Annexure containing the questions raised by the AO are also placed on record vide page no. 86 & 87 of the Paper Book. The assessee vide its reply dated 27.06.2016 furnished the complete details including the details of unsecured loan received and unsecured loan given. The Assessing Officer after examining the complete details furnished by assessee passed the assessment order. 14. The ld. PCIT issued show-cause notice dated 20.11.2017, after almost one year from the end of assessment order. In the show-cause notice, the ld. PCIT mentioned that “perusal of the record/details as scrutinized by Assessing Officer”. No new information or fact is mentioned. Simply it is a simple case that ld. PCIT entertains a different view from the view adopted by Assessing Officer on the basis of same material. The ld. AR of the assessee submits that when view adopted by Assessing Officer was in accordance with the view adopted in earlier Assessment Years and accepted the same. The revenue on the same set of fact cannot take 9 ITA No. 4327 Mum 2019-M/s Hi Rock Construction Co.
other view by changing the settled position which has been accepted in past. The ld. PCIT has not given any reason or basis on which he is of the opinion that the interest was assessable under the head “Income from Other Sources”. The ld. AR of the assessee would submit that even assuming that it was so assessable, the total deposit income would have been the same and there would be absolutely no change, difference in the gross total income will not change and accordingly otherwise no prejudice is caused.
The ld. AR further submits that after filing reply, no decision or outcome was intimated to the assessee. After passing of more than one order suddenly a fresh show-cause notice dated 16.01.2019 was received on the same grounds. The ld. PCIT neither discussing factual aspect raised by assessee nor the legal issues raised by assessee.
The ld. AR of the assessee finally submits that the order of assessment cannot be termed erroneous unless it is not in accordance with law.
Since, the Assessing Officer while accepting the contention of assessee has not discussed the issue in details while accepting the contention of assessee, the order cannot be termed as erroneous. When the Assessing Officer has adopted one of the possible view, the mere fact that on similar facts other alternative method would fetch more revenue or that PCIT is not in agreement with the view taken by Assessing Officer, Mum 2019-M/s Hi Rock Construction Co. would not render the assessment erroneous and prejudicial to the interest of revenue.
On first preposition of law that order is not erroneous, if the Assessing Officer has taken one of the possible view relied upon the decision of Hon’ble Bombay High Court in CIT vs. Gabriel India Ltd. [(1993) 203 ITR 108 (Bom)].
On second preposition of law that no revision, if Assessing Officer follow the course permissible, relied upon the decision of Malabar Industrial Co. Ltd. Vs. CIT [(2000) 243 ITR 83 (SC)], CIT vs. Max India Ltd. [(2007) 295 ITR 282 (SC)], Grasim Industry Ltd. Vs. CIT [(2010) 321 ITR 92 (Bom)], CIT vs. LIC Housing Finance Ltd. [(2014)
367 ITR 458 (Bom)], CIT vs. Kiran Hirji Shah [(2015) 56 taxmann.com 360(Bom)], Micro Inks Limited vs. CIT [(2018) 407 ITR 861 (Guj.)], Sunil Bhandari vs. ACIT [(2013) 141 ITD 10 (Jodhpur Trib.)] & CIT vs. DLF Ltd. [(2013) 350 ITR 555 (Del.)].
On third alternative preposition that no revision under section 263 is permissible, if Assessing Officer conducted proper enquiry and framed the assessment order. The ld. AR of the assessee relied upon the decisions of CIT vs. Nirav Modi [(2017) 390 ITR 292 (Bom)], CIT vs. Maharashtra Hybrid Seeds Co. Ltd. [(2019) 305 ITR 486 (Bom)], CIT vs. Sunbeam Auto Ltd. [(2011) 332 ITR 167 (Del)], CIT vs. Anil Kumar Sharma [(2011) 335 ITR 83 (Del.)], CIT vs. New Delhi Television Ltd. 11 Mum 2019-M/s Hi Rock Construction Co.
[(2014) 360 ITR 44 (Del.)], CIT vs. Vodafone Essar South Ltd. [(2013)
213 Taxman 184 (Del.)], Kamal Kumar Gupta vs. CIT [(2011) 142 TTJ 9 (Jaipur Trib.)], Anand Poddar vs. ACIT [(2013) 33 taxmann.com 367 (Guwahati Trib.)], DLF Commercial Developers Ltd. [(2014) 151 ITD 563 (Del. Trib)], Small Wonder Industries vs. CIT (ITA No. 2464/M/13), Metacaps Engineering & Mahendra Construction Co.
(J.V.) vs. CIT [(2017) 86 taxmann.com 128 (Mum Trib.). 20. In fourth Preposition that order is not erroneous even if the AO has not made elaborate discussion of issue in the assessment order. The ld. AR of the assessee relied upon the decisions of CIT vs. Reliance Communication Ltd. [(2016) 76 taxmann.com 226 (SC)], CIT vs. Gabriel India Ltd. [(1993) 203 ITR 108 (Bom)], CIT vs. Fine Jwellery (India) Ltd. [(2015) 372 ITR 303 (Bom)], MOIL Ltd. Vs. CIT [(2017)
396 ITR 244 (Bom)], CIT vs. Gera Developments (P) Ltd. [(2016) 387 ITR 691 (Bom)], Pr. CIT vs. Ramchandra Naidu [(2017) 85 taxmann.com 127 (Bom)], CIT vs. Goyal Private Family Specific Trust [(1998) 171 ITR 698 (All)], CIT vs. Mahendra Bansal [(2008) 297 ITR 99 (All)], CIT vs. Krishna Capbox P. Ltd. [(2015) 372 ITR 310 (All)], Spectra Shares & Scrips (P.) Ltd. Vs. CIT [(2013) 354 ITR 35 (AP)], PCIT vs. CLP India (P.) Ltd. [(2017) 85 taxmann.com 103 (Guj)], Mrs. Khatiza S. Oomerbhoy vs. ITO [(2006) 100 ITD 173 (Mum)], Reliance Gas Transportation Infrastructure Ltd. Vs. CIT [(2014) 160 TTJ 731 12 Mum 2019-M/s Hi Rock Construction Co.
(Mum Trib.)] & Lanco Kondapalli Power Ltd. Vs. JCIT [(2014) 33 ITR (T) 142 (Hyd. Trib.)]. 21. In fifth alternative submission, the ld. PCIT has to deal with all objection raised by assessee, it could not be said that the order is erroneous and prejudicial to the interest of revenue. The ld. AR of the assessee relied upon the decisions of J.P. Srivastava & Sons Ltd. Vs. CIT [(1978) 111 ITR 326 (All)], CIT vs. Bhagat Shyam & Co. [(1991)
188 ITR 608 (All)], Udaipur Mineral Development Syndicate vs. ITO [(1990) 35 ITD 172 (JP)], Orient (Goa) Ltd. Vs. ACIT [(1998) 66 ITD 479 (Pune)] & Pankaj Dhruve vs. ITO [(1996) 86 Taxman 121 (Ahd)
(Mag)].
On the other hand, the ld. DR for the revenue submits that the AO has neither examined the issue nor raised any query while passing the assessment order. The Assessment order is silent on the issues of availing loans and giving loans to various parties. The issue identified by ld. PCIT was not examined by AO. The annual turnover of assessee is only of Rs. 4.50 crore. The assessee earned interest income of Rs. 13.49 crore and incurred interest expenses of Rs. 14.78 crore. The difference of interest expenses was claimed by assessee as business expenses which are not within the parameter of business activities of the assessee. The assessee has shown its business activities from civil contracts, however, the financial transaction of assessee shown that the 13 Mum 2019-M/s Hi Rock Construction Co. assessee is engaged in money lending business. The case of assessee clearly false within Explanation (2) of section 263 of the Act as the order of AO is silent on the aforementioned ratio. The order passed by AO is erroneous and prejudicial to the interest of revenue. The appeal filed by assessee is liable to be dismissed.
We have considered the rival submission of both the parties and gone through the orders of authorities below. We have also deliberated on various case law relied by the ld. AR for the assessee. We have seen the assessment order passed under section 143(3) on 30.11.2016. The assessing officer while passing the assessment order made disallowance of expenses of Rs. 1,00,000/-. Admittedly, there is no discussion on the issue regarding the interest income and the expenditure claimed by the assessee against the said income. The ld. AR for the assessee vehemently argued that in three prior Assessment Years as Assessment Years 2011-13, 2012-13 & 2013-14, the returns were scrutinized under the scrutiny assessment under section 143(3). In all three years, the Assessing Officer raised specific queries and raised issue regarding such loan received and disbursed and allowed the similar relief to the assessee. Perusal of the copies of the paper book reveals that for AY 2011-12 the assessing officer vide notice under section 142(1) dated 31.07.2013 raised specific quarry about the details of unsecured loan vide question No.7 ( page 110-111 of PB). The assessee vide reply dated 14 ITA No. 4327 Mum 2019-M/s Hi Rock Construction Co.
26.09.2013 and 30.09.2013 filed reply and furnished the details of loan and advances, with address and PAN No. (page No. 119-120 of PB).
Similarly for AY 2012-13, the assessing officer vide notice under section 142(1) dated 10.11.2014 raised specific quarry about the details of unsecured loan vide question No.8 (page 140 to 142 of PB). The assessee vide reply dated 15.01.2015 filed reply and furnished the details of loan and advances (page no. 146 of PB). Again in A.Y. 2013- 14, the assessing officer vide notice under section 142(1) dated 15.07.2015 raised specific quarry about the details of unsecured loan vide question No. 9 (page 153 to 154 of PB). The assessee vide reply dated 10.09.2015 and furnished the details of loan and advances, confirmation of loan and party wise rate of interest (page No. 166-167 of PB). In all three AYs i.e. 2011-12, 2012-13, 2013-14, the Assessing Officer after seeking requisite details and reply with regard to unsecured loan and allowed the netting of interest in the assessment order passed under section 143(3) of the Act, copy of assessment orders are also placed on record.
For the year under consideration, the Assessing Officer raised specific query vide notice under section 142(1) dated 07.06.2016 as per question no.8 and required the details of creditors which are outstanding for more than two years, details of unsecured loan/sundry creditors along with proof of identity, genuineness of transaction and creditworthiness of the 15 Mum 2019-M/s Hi Rock Construction Co. persons, from whom the loan was taken, the details of TDS deducted and paid and copy of Form 26AS. The assessee vide reply dated 17.06.2016, 27.06.2016 and 21.07.2016 and again on 29.07.2016 furnished the reply. The assessee also furnished the list of unsecured loan received, list of unsecured loan given in the prescribed format as required by Assessing Officer along with other requisite details.
Though, there is no reference in the assessment order regarding the questions raised by Assessing Officer during the assessment and the reply furnished by assessee along with other requisite details required by him. The Assessing Officer accepted the explanation furnished by assessee. We have further noted that almost similar reply as furnished during the year under consideration in three prior Assessment Years.
We have noted that during the assessment, the assessee furnished full accounts. The books of account of assessee are duly audited as per the statutory provision. In the Profit & Loss Account, the assessee has shown net loan interest debited at Rs. 1,29,18,679/- and interest on FDR of Rs.20,17,394/- (page 4 of PB). Considering the above documentary evidences furnished by assessee in response to the queries raised by Assessing Officer, in our view, the Assessing Officer has taken one of the possible views, which has been consistently adopted in earlier three Assessment Years. Further, when the Assessing Officer has taken a possible view, the view taken by Assessing Officer cannot be branded as 16 Mum 2019-M/s Hi Rock Construction Co. erroneous and prejudicial to the interest of revenue. Merely debiting interest expenses, against the business income will not prejudice the interest of revenue in so far as this interest income is allowable under the head “Income from Other Sources”, meaning thereby there is no loss of revenue merely claiming interest income under the head “Income from Business” in place “Income from Other Sources”. So far as genuineness of interest expenditure was not doubted by ld. PCIT, the same was allowable under the head “Business Income” or “Income from Other Sources”. Only by claiming such interest income under one head will not prejudice the interest of revenue, though it may be branded as erroneous order. As per our considered view for invoking section 263, the twin condition are required to be satisfied i.e. order is erroneous and in so far as prejudicial to the interest of revenue. However, in the instant case, the condition with regard to interest of revenue being prejudice is not fulfilled. Mere erroneous order will not entitle the ld. PCIT to recourse the action under section 263 of the Act.
The Hon’ble Apex Court in case of Malabar Industries Co. Ltd. [243 ITR 83 (SC)] is invited. It would be appropriate to reproduced relevant part of the ratio of this leading case.
“In the reading of section 263 of the Act 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the CIT suo moto under it, is that the order of ITO is erroneous, so far as it is prejudicial to the interest of revenue. The CIT has to be satisfied twin conditions, namely (1), the order of Mum 2019-M/s Hi Rock Construction Co.
AO sought to be revised is erroneous and (2) it is prejudicial to the interest of revenue. If one of them is absent- if the order of ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue – recourse cannot be had to section 263 (1 ) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the AO, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of fact or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category falls orders passed without applying the principle of natural Justice or without application of mind. The ‘phrase prejudicial to the interest of revenue’ is not an expression of art and is not defined in the Act. Understood it is ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the act is to levy and collect tax in accordance with the provision of the act and this task is entrusted to the revenue. If due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of revenue. The phrase prejudicial to the interest of revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue. As a consequence of an order of AO, cannot be treated as prejudicial to the interest of revenue, for example, when an ITO, adopted one of the course 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 CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue. Unless the view taken by ITO is unsustainable in law.”
A reference may also be made to the decision of Hon’ble Jurisdictional High Court in case of CIT vs Gabrial India Ltd 203 ITR 108 (Bom), wherein it was held that “the power of suo moto revision under subsection (1) of section 263 of the Act is in the nature of supervisory direction and can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable l the CIT to exercise the power of revision under this sub section viz ( 1) the order should be erroneous and ( 2) by virtue of the order being erroneous 18 Mum 2019-M/s Hi Rock Construction Co.
prejudice must have been caused to the interest of the revenue. And order cannot be termed as erroneous unless it is not in accordance with law. If ITO. Act in accordance with law. Make certain assessment; the same cannot be branded as erroneous by the CIT simply because according to him, the order should have been written more celebratory. This section does not visualise a case of substitution of the judgement of the CIT for that of the ITO, who passed the order, unless the decision is held to be erroneous. This is may be visualised where the ITO while making the assessment examines the accounts, makes enquiries, applied his mind to the facts and circumstances of the case and determine the income either by accepting the accounts for by making some estimate himself. The CIT on perusal of records, may be of opinion that the estimate made by the officer concerned was on the lower side and left to the CIT, he would have estimated the income at a higher figure than one determine by the ITO. That would not vest the CIT with power to re-examine the accounts and determine the income himself at the higher figure. This is because ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous, simply because the CIT does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the CIT the order in question is prejudicial to the interest of revenue. But that by itself would not be enough to vest the CIT with the power to suo moto revision because the 1st requirement, namely that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interest of the revenue, then the power of suo moto revision cannot be exercised. And every erroneous order cannot be subject matter of revision because the 2nd requirement must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully eligible has not been imposed or that by the application of the relevant statue, on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed. When exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have material on record to satisfy in that regard. If the action of the authorities challenged before the court, it would be open to the courts to examine whether relevant objective factors were label from the records called for and examined by such authority”. 19 Mum 2019-M/s Hi Rock Construction Co.
The coordinate bench of ITAT, Mumbai in & 3200/M/2005 in case titled as M/s Khatiza S. Oomerbhoy Vs ITO dated 27th of the 2006, held as under “if the AO has raised quarries and the assessee has filed written submissions/explanation, merely because there is no elaborate discussions in the AO’s order, it cannot be said that such order became erroneous. No new material came to the notice of CIT and he made certain addition without any basis or material. The power vested in CIT under section 263 are extraordinary power and completed assessment proceeding cannot be reopened unless there is some cogent material to show that there is a total non-application of mind on the part of AO or that AO has committed any glaring mistake of fact or law.”
Further, the Hon’ble Delhi High Court in CIT Versus Anil Kumar Sharma (335 ITR 83 Delhi ) held as under:
“A.O. had examined every aspect and applied his mind on all facts before accepting the computation of income submitted by the assessee and passed the assessment order. It was the assessee’s contention that a specific reply had been submitted by the assessee with regard to the purchase of land at village Tugalkabad and the copy of the award passed by Hon’ble High Court in respect of this land was also submitted to the AO. The Tribunal after examining the fact of the case observed that although it is not discernible from the assessment order whether the assessing officer had applied his mind or not, it was the prerogative of the AO to draft his order, and if he failed to record certain finding the assessee could not be penalised therefore. The Tribunal further observed that what has to be ascertained is, whether assessing officer had investigated the issue and applied his mind to the whole record. In this behalf it is noted that AO had asked the assessee to submit the purchase date in respect of purchase of land at village Tugalkabad was and that assessee in response thereto had supplied requisite details and submitted a copy of high court decision in relation to the award of compensation, etc. The Tribunal therefore came to the conclusion that the complete detail filed before the AO and he applied his mind to the relevant 20 Mum 2019-M/s Hi Rock Construction Co. material and facts, although such application of mind is not discernible from the assessment order. The tribunal held that the Commissioner in proceedings under section 263 also had all these details and materials available before it, but had not able to point out defects conclusively in the said material, for arriving at a conclusion that particular income had escaped assessment on account of non-application of mind by the assessing officer. The Tribunal, therefore, allowed the appeal of the assessee and quashed the order of the Commissioner passed under section 263of the Act.”
In view of the aforesaid discussions, the assessment order passed by Assessing officer cannot be termed as prejudicial to the interest of revenue, though may be erroneous. Thus, in view of the decision of the Hon’ble Supreme in Malabar Industrial Co. Ltd. (supra), the twin conditions enunciated in section 263 are not simultaneously satisfied.
Therefore, the assessee succeeds on this ground itself. As the assessee succeeds on the one of the preposition of submissions placed by ld. AR for the assessee, the discussions on the other alternative submissions have become academic.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 18/12/2019.
Sd/- Sd/- R.C. SHARMA PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 18.12.2019 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4.The concerned CIT 5. DR “H” Bench, ITAT, Mumbai 6. Guard File 21 Mum 2019-M/s Hi Rock Construction Co.