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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri S.S.Godara & Dr. A.L. Saini
O R D E R
PER S.S.Godara, Judicial Member:
- This assessee’s appeal for assessment year 2012-13 arises against the Principal Commissioner of Income Tax-14, Kolkata’s order dated 20.03.2017 directing the Assessing Officer to frame afresh assessment after setting aside the regular one framed dated 23.03.2015 in exercising revision jurisdiction vested u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). We have heard Shri Miraj D Shah learned authorized representative for assessee and Shri P.K.Srihari, CIT/DR appearing at Revenue’s behest. Case file perused.
It transpires during the course of hearing that the assessee’s pleading challenge correctness of the PCIT’s order revising the regular assessment in issue framed by the Assessing Officer on 06.07.2016 with directions to frame Sheth Commercial Co. Vs. Pr. citi-14,Kol. Page 2 the same afresh whilst exercising revision jurisdiction vested u/s 263 of the Act. We start with the basic relevant facts. This assessee is a firm / exporter and trader of jute / jute products and hedging in US dollar, commodities. It filed its return for the impugned assessment year on 25.09.2012 declaring total income of ₹81,49,930/-. The Assessing Officer initiated u/s.1 48 proceedings by issuing his notice dated 26.02.2016. He then framed the assessment / re-assessment in the issue on 06.07.2016 accepting the taxpayer’s revised return seeking the withdraw sec. 35(1)(c) deduction of donation made to M/s Herbicure Healthcare Bio-herbal Research Foundation, Kolkata to the tune of ₹60 lac.
Case file suggests that the PCIT then termed the above assessment / re-assessment to be erroneous causing prejudice to interest of the Revenue exigible to exercise of revision jurisdiction u/s 263 of the Act. He issued his show-cause notice dated 15.02.2017 to the following effect:- “(i) It appears from the record that during the financial year 2011-12 relevant to the assessment year 2012-13 the assessee was engaged in the business of Exporter and Trader of Jute/Jute Products and hedging US dollar, commodities. It also appears from the record that “loss in US $ trading” amounting to Rs.35,59,347/- was claimed as business expenses by debiting the same in the Profit & Loss A/c and the same has been allowed in the assessment. The assessee had incurred loss on foreign exchange derivatives transactions due to extreme volatility in the foreign exchange market. The loss incurred by the assessee of Rs.35,59,347/- on forward foreign exchange contracts being not incidental to jute export business requires to be treated as inadmissible deduction for allowing to be set off with income of the regular business as loss in foreign exchange was speculative in nature. (ii) “Loss on dealing commodities” of Rs.60,98,446/- was claimed as business expenses by debiting the same in the Profit & Loss A/c. No separate accounts in respect of this business have been furnished by the assessee. Hence, no purchase and sales of commodities were passed through the Profit & Loss A/c. So, transaction in commodities were made by the assessee without delivery basis. since, the transactions of commodities was made ‘without delivery’ basis, loss on dealing commodities is nothing but ‘speculation loss’. Loss from speculative transactions can only be set off against speculative income. (iii) Donation of Rs.60,00,000/-had been given to Herbicure Healthcare Bio-herbal Research Foundation, Kolkata and it was allowed in the assessment. During the curse of assessment proceeding, no enquiry or verification in this regard have been made by the AO. Moreover, the approval granted to the foundation has been retrospectively withdrawn by CBDT.”
The assessee filed its reply dated 08.03.2017. The PCIT has then directed the Assessing Officer to frame afresh assessment as follows:-
Sheth Commercial Co. Vs. Pr. citi-14,Kol. Page 3 “4. A show cause letter dated 15.02.2017 was issued and case was fixed for hearing on 23.02.2017. In response, the assessee submitted letter dated 22.02.2017 seeking adjournment for 15 days. Considering his prayer date of hearing was further fixed on 28.02.2017. But assessee submitted further adjournment petition on 27.02.2017 seeking date of hearing after 13.03.2017. Hearing was further refixed on 02.03.2017 but none appeared. The case was finally refixed on 08.03.2017. Shri DK Paramanandka, FCA and A/R of the assessee appeared and filed written submission on 08.03.2017. The main contention of the as is reproduced below:- i) The first issue relates to loss in US dollar trading for Rs.35,59,347/- and the second issue relates to loss in commodity for Rs.60,98,446/-. Booth the issues are arising from the same transactions i.e. the export of jute business of assessee. In view of the same a combined submission is being made with respect to the same. ii) Loss of Rs.35,59,347/- was incurred on US dollar Loss. This loss was incurred with respect to the forex hedging transactions done in order to cover the risks of US dollar movement which was arising from the export business of the assessee. The contract notes in support of the forex contract which were entered on the MCX Stock Exchange Ltd. and NESE Stock Exchange through a SEBI registered broker Ms. Sundhi Securities and Finance Ltd. is enclose herein and marked as annexure-A and B. iii) The loss of Rs.60,98,446/- was incurred on US Dollar Loss & Jute hedging with respect to the Forex/Jute Price fluctuation hedging transactions done in order to cover the risk of US dollar / Jute Price movement arising out of export business. The contract notes in support of the forex contracts which were entered on the MCX Stock Exchange and FMC Exchange through a SEBI Registered Broker Ms Mansarovar Capital Markets Private Limited and Mahakaleshwar Trade Commodities Private Limited is enclosed herein and market as annexure C & D. iv) The assessee is an exporter of jute products and during the year the assessee exported a sums of Rs.28,43,63,239/- worth of goods to various countries including Tanzania, Japan, Kenya, Spain, Uganda etc. The details of export done with name of importer, value of shipment and other details are enclosed herein marked as annexure-E. v) The assessee had participated in a tender for supply of jute products in Tanzania and the Tender participation date was 25/05/2011 and the Tender was allotted to the assessee on 20/06/2011 and 25/06/2011. The copy of the Tender and Tender allotment is enclosed herein marked as annexure F. vi) The assessee was supplying Jute products and the period of supply would take 3-9 months and during this period the value of jute and dollar were bound to fluctuate. The assessee with an intention to hedge itself from the fluctuation of the price of jute and US dollar entered into future contracts for covering the price fluctuation risks. vii) It is well settled that the transactions which were entered with an intention to hedge against price fluctuations were not to be treated as speculative transactions. Thus in principal wee object that the classification of the loss of Rs.35,59,347/- and Rs.60,98,446/- could not be classified as speculative loss. The same was for the purpose of hedging and thus the AO was correct in allowing the deduction for the same in the assessment order. viii) In respect of point no 3 of the show cause notice, the AR has stated that the assessment made u/s.143(3) on 23.03.2015 for the said assessment year was reassessed u/s. 148/143(3) of the Act dated 06.07.22016 in which donation of Rs.60,00,000/- was added back.”
I have carefully examined the assessment record and submissions made by the assessee. The impugned assessment order dated 23.03.2015 has been passed Sheth Commercial Co. Vs. Pr. citi-14,Kol. Page 4 without making relevant enquiry or verification regarding the foreign exchange loss of Rs.35,59,347/- and loss on dealing commodities of Rs.60,98,446/-. The claim of the assessee is that the foreign exchange loss is due to hedging transactions done in order to cover the risk of US dollar movement to protect the export business of the assessee. Similarly, the loss of Rs.60,98,446/- is also attributed to hedging in jute produce. However, these details have not been called for or examined by the assessing officer. The validity of the claim of the assessee has not been examined by the AO and no enquiry has been made. Since the AO failed to make necessary enquiries and allowed the claim without examination, the assessment order is erroneous and prejudicial to the interest of the revenue. Having regard to the facts and circumstances of the case the impugned assessment order for AY 2012-13 u/s 143(3) dated 23.03.2015 is deemed to be erroneous in so far as it is prejudicial to the interest of the revenue.
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 son the ground that the Assessing Officer should have made further enquiries.
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 interest 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.
Hon'ble Supreme Court in the case of Malabar Industrial Co. (P) 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 AO has accepted the claim of the assessee without any enquiries then such assessment order passed by the AO was held to be erroneous.
The Assessing Officer failed to make relevant enquiry in this case. He has failed to examine the documents and papers relating to the assessment year 2012-13.
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 interest of revenue. This position has been clearly confirmed by Hon'ble Supreme Court in the case of Rampyari Devi Sarogi 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'ble Delhi High Court in the case of GEE VEE Enterprise Vs. Addl.CIT (1975) 99 ITR 375 in the following para: ‘It is not necessary for the Commissioner to make further inquires before cancelling the assessment order of the Income Tax Officer. The Commissioner can regard the order as erroneous on the ground that tin 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 reasons 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 neut5ral. It simply gives decision on the basis of the pleading and evidences 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 A.Y.2012-13 Sheth Commercial Co. Vs. Pr. citi-14,Kol. Page 5 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 sec. 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.’ 11. 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 haves 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 Vs. 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.
12. It may be further noticed, that in order to provide clarity on the issue of ‘erroneous in so far as it is prejudicial to the interest of revenue’. A NEW Explanation has been inserted to clarify that an order passed by the Assessing Officer shall be deemed to be erroneous sin so far as it is prejudicial to the interest of revenue, if, in the opinion of the Principal Commissioner or Commissioner- a) The order is passed without making inquiries or verification which should have been made; b) The order is passed allowing any relief without inquiring into the claim; c) The order has not been made in accordance with any order, direction or instruction issue by the Board under section 119; or d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
13. 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 Courts and in accordance with the amendment made in Sec. 263 of the Act with effect from 01.06.2015, I hold that the impugned assessment order dated 23.03.2015 passed by the AO is erroneous and prejudicial to the interest of revenue.
In view of the above, the assessment order u/s. 143(3) dated 23.03.2015 for the assessment year 2012-13 in this case is considered as erroneous in so far as it is prejudicial to the interest of revenue with reference to the specific issues. The Assessment order u/s. 143(3) dated 23,.03.2015 made by the AO is accordingly set aside with the direction to make fresh assessment after considering the facts and submissions made by the A/R of the assessee in respect of the above specific issues raised after giving opportunity to the assessee and in accordance with law.” All this leaves the assessee aggrieved.
5. We have given our thoughtful consideration to rival contentions against and in support of PCIT’s order directing the Assessing Officer to frame afresh assessment whilst exercising u/s 263 revision jurisdiction. There is hardly any ITA No.1406/Kol/2017 A.Y.2012-13 Sheth Commercial Co. Vs. Pr. citi-14,Kol. Page 6 dispute of above the settled legal proposition as per Malabar Industrial Co. (P) Ltd. Vs. CIT (2000) 243 ITR 83 (SC) that an assessment or re-assessment; whatever the case may be, has to be both erroneous as well as prejudicial to the interest of the Revenue simultaneously before the CIT exercises his sec. 263 revision jurisdiction. Their lordship reiterate the same very principles in (2017) 395 ITR 1 (SC) CIT vs. Quality Steel Suppliers Complex that if the Assessing Officer has taken one of the two possible views in framing the assessment or re-assessment in issue, the CIT’s action taking recourse to revision jurisdiction is not sustainable. We notice in this backdrop of the settled legal proposition that the CIT has directed the Assessing Officer to frame afresh assessment as per sec. 263 amendment carried out in the act with effect from 01.06.2015. There is further no quarrel that his show-cause notice comprising of three reasons and last one dropped in the PCIT’s order under challenge since the taxpayer had itself filed revised return (supra); makes it clear that the impugned assessment / re-assessment was erroneous causing prejudiced to the interest of the Revenue on the ground that the loss in US dollar trading amounting to ₹35,59,347/- claimed as business expenditure as well as commodity loss of ₹60,98,446/- amounted to speculation loss liable to be set off only against speculative income than business income. He had made it clear in other words and it was not a case of no enquiry or inadequate enquiry by the Assessing Officer but an instance of his having wrongfully accepted the loss claims under the latter head. Hon'ble Delhi high court in ITO vs. D.G. Housing Project Ltd. (2012) 343 ITR 329 (Del) holds that in case the CIT comes to the conclusion that Assessing Officer concerned has not taken a right decision in assessment as per law, he has to come to the conclusion himself and decided as to whether the assessment or re-assessment in question is erroneous or not in revision proceedings. Their lordship makes it clear as under:- “10. Revenue does not haves any right to appeal t the first appellate authority against an order passed by the Assessing Officer. Section263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of ITA No.1406/Kol/2017 A.Y.2012-13 Sheth Commercial Co. Vs. Pr. citi-14,Kol. Page 7 the Revenue. The expression, prejudicial to the interest of the Revenue” is of wide import and is not confined to merely loss of tax. The term, “Erroneous” means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law.
The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word “erroneous” includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits.
Delhi High Court in Gee Vee Enterprises vs. Additional Commission of Income- Tax, Delhi-I & Ors. (1975) 99 ITR 375, has observed as under:- ‘The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted 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 comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He ITA Nos. 139 to 141/Rjt/16 [M/s Panchnath Enterprise vs. Pr. CIT] A.Y 2006- 07 to 2008-09 – 10 – 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. The meaning to be given to the word “erroneous” in section 263 emerges out of this context. 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 inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.”
In the said judgment, Delhi High Court had referred to earlier decisions of the Supreme Court in Rampyari Devi Sarogi vs. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal vs. CIT (1973) 88 ITR, wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. After reference to these two decisions, the Delhi High Court observed:- ‘These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income- tax Officer. The Commissioner can regard the order as erroneous son 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.’ 14. The aforesaid observations haves to be understood in the factual background and matrix involved in the said two cases before the Supreme Court. In the said cases, the Assessing Officer had not conducted any enquiry or examined evidence whatsoever. There was total absence of enquiry or verification. These cases have to be distinguished from other cases (i) where there is enquiry but the findings are incorrect/erroneous’; and (ii) where there is failure to make proper or full verification or enquiry.
Sheth Commercial Co. Vs. Pr. citi-14,Kol. Page 8 15. In the case of Commissioner of Income Tax vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del), Delhi High Court was considering the aspect, when there is no proper or full verification, and it was held as under:- ‘We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income- tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue 139 to 141/Rjt/16 [M/s. Panchnath Enterprise vs. Pr.CIT] A/.Y. 2006-07 to 2008-09-11- Expenditure. Learned counsel for the assessee s right in his submission that one has to keep in mind the distinction between “lack of inquiry” and inadequate inquiry”. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of “lack of inquiry” that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113): ‘... From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is, erroneous in so far as it is prejudicial to the interests of the Revenue”. It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub- section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. 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 accept 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 an set at rest judicial and quasi- judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10).... From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an ITA No.1406/Kol/2017 A.Y.2012-13 Sheth Commercial Co. Vs. Pr. citi-14,Kol. Page 9 Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the v Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise 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 visualised where the Income-tax Offic4er while making an assessment examines the accounts, makes enquiries, applies hiss 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 a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. ... There must be some prima facie material on record to show that ITA No.s 139 to 141/Rjt/16 [M/s Panchnath Enterprise vs. Pr.CIT] A.Y. 2006-07 to 2008-09 – 12- 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.... We, may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case has made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be, “”erroneous” simply because in his order he did not make an elaborate discussion in that regard.”
Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. IN cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the ITA No.1406/Kol/2017 A.Y.2012-13 Sheth Commercial Co. Vs. Pr. citi-14,Kol. Page 10 Assessing Officer to conduct further enquiries without a finding that the order is erroneous/. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.
This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged “inadequate investigation”, it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time ITA Nos. 139 to 141/Rjt/16 [M/s Panchnath Enterprise vs. Pr. CIT] A.Y. 2006-07 to 2008-08 -13 – When the order in question was passed by the Assessing Officer but also the recorded as it stands at the time of examination by the CIT [see CIT Vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.
It is init hi context that the Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase “Prejudicial to the interest of 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 interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue.
In the present case, the findings recorded by the Tribunal are correct at the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that “order passed by the Assessing Officer may be erroneous”. The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He