M/S. TOPGRAIN MANAGEMENT PVT. LTD.,KOLKATA vs. PRINCIPAL CIT - 1, KOLKATA , KOLKATA

In response to the said notice Shri B. K. Nema, Advocate and AIR of the assessee attended. He was heard. The written submission furnished on 07.03.2018 is as follows:

1. 1. It is respectfully submitted that the order passed u/s 143(3) of I.T. Act 1961 by Dy. Commissioner of Income Tax, Circle-1(2), Kolkata on 14/10/2015 for Asstt. Year 2013-14 determining total income at Rs.44,36,820/- is neither erroneous nor prejudicial to the interest of revenue. In view of above no proceedings u/s 263 of I.T. Act 1961 ought to have been initiated in the case of assessee.

Considering the submission made hereinabove it is humbly submitted that there is no mistake in the assessment framed and there is no under assessment of income at Rs.10,10,686/- as observed in notice issued u/s 263 of I.T. Act 1961. The order passed by A.O being neither erroneous nor prejudicial to the interest of revenue no order u/s 263 of I.T. Act 1961 in respect to same can be passed.

I have considered the facts and circumstances of the case as well as the submission of the assessee. At the outset, the assessee has strongly objected to the proceedings u/s 263 stating that the impugned assessment order was neither erroneous nor prejudicial to interest of revenue. It is the contention of the assessee that the building on which excess depreciation of Rs.10,10,666686/- was claimed, was used for its activity of business of ware housing. Furthermore that the building was part of the block of assets of opening WDV of Rs.1,1,06,861/-, hence statutory allowance u/s 32 could not M/s Top Grain Management Pvt. Ltd. Vs. PCIT-1, Kol. Page 4 be denied. It was explained that Ware housing income of Rs.3,60,21/- from a partnership firm SRBH Technology for' storing of their Wheat bags was received during the year. From the records, it is seen that assessee had nowhere clarified its activity of ware housing business. The portion of building on which depreciation has been claimed is admittedly utilized for storing of agriculture produce, while no depreciation was claimed on leased out portion. Needless to say, the task of any taxing authority is to ensure bringing to tax the correct income / or as in the case disallow any incorrect claims on a/c of error of facts or law. AO did not also verify the source of rental income. It was incumbent upon the AO to apply his mind and make necessary enquires by calling for documents to his satisfaction. This is not a case of AO taking one possible view point as contended when facts of the matter are either clear or when assessee had not discharged its onus of substantiating its claim. 6 Hon'ble Delhi High Court in the case of GEE VEE Enterprise vs. Addl.CIT reported in 99 ITR 375, 386 (Del) has held that the CIT may consider the order of the Assessing Officer to be erroneous not only if it contain some apparent error of reasoning or of law or of fact on the face of it but also because the Assessing Officer has failed to make enquiries which are called for in the circumstances of the case and it is an order which simply accepted what the assessee has stated in his return of income on the said issue. It is not necessary for the CIT to make further enquiries before cancelling the assessment order. The Commissioner can regard the order erroneous on the ground that the Assessing Officer should have made further enquiries. 7 Hon'ble Karnataka High Court in the case of Thalibai F. Jain vs. ITO 101 ITR 1, 6 (Karn) has held that where no enquiries made by the Assessing Officer on the relevant issue, assessment must be held to be prejudicial to the interests of the revenue and what is prejudicial to the interest of the revenue must be held to be erroneous though the converse may not always be true. 8 Hon'ble Supreme Court in the case of Malabar Industrial Co. Pvt. Ltd vs. CIT reported in (2000) 243 ITR 83, 87-88(SC) affirming the Hon'ble Kerala High Court decision (198 ITR 611) has held that the phrase "Prejudicial to the Interests of the Revenue" is of wide import and is not confined to only loss of taxes. If the A.O has accepted the claim of the assessee without any enquiries then such assessment order passed by the A.O. was held to be erroneous. 9 In this regard it is mentioned that mere non enquiry would also render a particular order passed by lower authority as erroneous and prejudicial to the interests of Revenue. This position has been clearly confirmed by Hon'ble Supreme Court in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 & Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). The reasoning for this proposition has been explained by Hon'hle Delhi High Court in the case of Gee Vee Enterprise v. Addl. CIT [1975] 99 ITR 375 in the following para:- "It is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The M/s Top Grain Management Pvt. Ltd. Vs. PCIT-1, Kol. Page 5 Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of civil court. The statements made in the pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which come before it. The Income- tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not be made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. " 10 Further to this it is noticed that there is no appeal right available to the Revenue from the order of assessment passed by Assessing Officer and i.e. why revisionary powers have been given to the Commissioner and such power were held to be of wide amplitude by the Hon'ble Supreme Court in the case of CIT v. Shree Manjunathesware Packing Products & Camphor Works [1998], 231 ITR 53/96 Taxman 1. Therefore, normally when Assessing Officer has not made any enquiry on a particular issue, then such order in view of the above detailed discussion has to be construed as erroneous and prejudicial to the interest of Revenue and therefore, the impugned assessment order is erroneous and prejudicial to the interest of Revenue as Assessing Officer has failed to make any enquiry. 11 Having regard to the facts and circumstances of the case and in the light of the aforesaid decisions of Hon'ble Supreme Court and Hon'ble High Court, I hold that the impugned assessment order dated 14.10.2015 passed by the A.O. is erroneous in so far as it is prejudicial to the interests of the revenue. I further hold, after giving the assessee an opportunity of being heard, that the impugned assessment order dated 14.10.2015 is liable to set-aside. Therefore, I set aside the said assessment order directing the AO to re-frame the assessment after considering the aforesaid observations, Hon'ble Supreme Court and Hon'ble High Courts decisions and as per law.

In the result, the assessment order u/s 143(3) dated 14.10.2015 for AY 2013-14 is set-aside to the file of the Assessing Officer with a direction to pass a fresh assessment order limited to the aforesaid observations, as per law and after giving an opportunity of being heard to the assessee.”