HI-ROCK CONSTRUCTION CO.,MUMBAI vs. PR. CIT - 32 , MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER;

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:

ITA No. 4327 Mum 2019-M/s Hi Rock Construction Co.

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

ITA No. 4327 Mum 2019-M/s Hi Rock Construction Co.

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. 4. 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

ITA No. 4327 Mum 2019-M/s Hi Rock Construction Co.

expenditure were utilized for the business of contract. The explanation

furnished by assessee was not accepted. 5. 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. 6. 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

ITA No. 4327 Mum 2019-M/s Hi Rock Construction Co.

Accountant. It is stated that the delay is neither intentional nor

deliberate. 7. 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. 8. 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. 9. 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. 10. 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

ITA No. 4327 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

ITA No. 4327 Mum 2019-M/s Hi Rock Construction Co.

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. 12. 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

ITA No. 4327 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. 15. 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. 16. 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,

ITA No. 4327 Mum 2019-M/s Hi Rock Construction Co.

would not render the assessment erroneous and prejudicial to the interest

of revenue. 17. 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)]. 18. 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.)]. 19. 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

ITA No. 4327 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

ITA No. 4327 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)]. 22. 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

ITA No. 4327 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. 23. 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. 24. 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

ITA No. 4327 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. 25. 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

ITA No. 4327 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.

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

ITA No. 4327 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.”

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

ITA No. 4327 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

ITA No. 4327 Mum 2019-M/s Hi Rock Construction Co.

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.”

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

ITA No. 4327 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.” 30. 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.

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

ITA No. 4327 Mum 2019-M/s Hi Rock Construction Co.

BY ORDER,

Dy./Asst. Registrar ITAT, Mumbai