DEVANG GANDHI,NAVI MUMBAI vs. PR CIT CEN 4, MUMBAI

O R D E R Per P K Bansal, Vice-President:

These appeals have been filed by the assessee against two separate orders of the Principal CIT, both dated 28.03.2016, passed u/s 263 of the Income Act, 1961, for assessment years 2007-08 and 2009-10 by taking the following common grounds of appeal:

“1) On the fact and circumstances of the case as well as in Law, the v Learned Principal CIT has erred in passing Revision Order u/s.263 of the Income Tax Act, 1961 for the assessment order u/s. 143(3) r.w.s 153A of the Act passed by the Learned Assessing Officer after making adequate enquiries and application of mind, without considering the facts and circumstances of the case.

2) On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in considering the order passed u/s. 143(3) r.w.s 153A of the Income Tax Act, 1961 by the Learned Assessing officer is erroneous and prejudicial to the interest of the revenue, without appreciating the facts and circumstances of the case.

3) On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in setting aside Assessment order passed by the Learned Assessing Officer and directing him to make fresh assessment, without appreciating the facts and circumstances of the case.

4) On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in giving direction to the Learned Assessing Officer to verify the facts on the issue which was already verified by the Learned Assessing Officer during the course of assessment proceedings, without appreciating the facts and circumstances of the case.

5) On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in considering the explanation 2 to section 263 as retrospective being in the nature of clarification, without appreciating the facts and circumstances of the case.

6) The appellant craves leave to add, amend, alter or delete the said ground of appeal.”

Accordingly, he issued show cause notice to the assessee dated 15.03.2016, which read as under:

1.1] On an examination of the records for A.Y. 2007-08, it is noticed that the assessment proceedings were completed u/s. 153A r.w.s. 143(3) of the I.T. Act vide order dated 28.02.2014, determining total income of Rs 47,87,600/-. On perusal of records, it is seen that during the year under consideration the assessee had introduced capital amounting to Rs 20,00,000/- in the firm M/'s. Dev Steels.

1.2] A perusal of the records and the assessment order, shows that the AO has not obtained any details about the source of funds which has been introduced as capital in the firm. The AO did not carry out any such basic requisite enquiries in order to find out the source of funds and it is clear that there is a failure on the part of the AO to examine the issue of the unexplained cash credit with respect to the capital of Rs.20,00,000/- introduced in the firm by the assessee, This has rendered the impugned assessment order passed u/s 153A r.w. Section 143(3) of the I.T. Act, erroneous and prejudicial to the interests of revenue in terms of explanation 2 to section 263 of the ! T Act.

I.3] In view of the above, you are requested to show cause as to why, the said assessment order should not be revised u/s 263 of the I.T. Act 1961. The date-of hearing is fixed for this purpose on 23.03.2016. You are requested to /appear personally or through authorized representative on the said date at II.30 AM in my office chamber [Room No 663, Aayakar Bhawan].

Similar show cause notice was issued in A.Y. 2009-10 except the change in figure of ` 25 lacs for the introduction of capital in place of ` 20 lacs in addition to the determination of the total income at ` 56,46,390/- in place of ` 47,87,600/-.

The assessee has also filed copy of balance sheet of M/s. Dev Steel in which the assessee capital accounts and current account is duly reflected. Capital account shows ` 20 lacs, copy of which is placed at pages 22 and 23 of the paper-book. Thus, we find that the assessee has filed all these before the Assessing Officer. IT is apparent that it is not a case where the Assessing Officer has not made due inquiry in respect of capital introduced by the assessee in the firm. Rather the Assessing Officer has made inquiry and in reply thereto the assessee has submitted copies of the details. It is not a case of lack of inquiry. It may be a case of inadequate inquiry. Thus, it cannot be said that there is an error in the order of the Assessing Officer. In our opinion, the assessee cannot direct the Assessing Officer as to what should to included by him in the assessment order. We noted that the Hon'ble Jurisdictional High Court in the case of CIT vs. Gabriel India Ltd. 203 ITR 108 in this regard held as under: -

"Held, that the Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were 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. This decision of the Income-tax Officer could not be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That was not permissible. The Tribunal was justified in setting aside the order passed by the Commissioner of Income-tax under section 263."

Similar view has been taken by the Hon’ble Allahabad High Court in the case of CIT vs. Mahender Kumar Bansal, 297 ITR 0099 in which respectfully following the decision in the case of CIT vs. Goyal Private Family Specific Trust, 171 ITR 698 (Alld.) has held under para no.12 as under :-

“As held by this Court in the case of Goyal Private Family Specific Trust (supra,) we are of the considered opinion that merely because the ITO had not written lengthy order, it would not establish that the Assessment Order passed under section 143(3)/148 of the Act is erroneous and prejudicial to the interest of the Revenue without bringing on record specific instances, which in the present case, the CIT has failed to do.”

A perusal of the order passed by the CIT indicated that the assessment order passed by the Assessing Officer was cancelled on the ground that the Assessing Officer has not made proper enquiry and verification in respect of the issue as discussed above. This, in our considered opinion, cannot be sufficient ground for cancelling the assessment. While making the assessment order, it is the satisfaction of the Assessing Officer who made the enquiry and it should be touchstone of assessment order passed by him. No cogent material or evidence was brought to our knowledge by the Ld. DR which may prove that view taken by the Assessing Officer in the case of the assessee was unsustainable in law. Therefore, we are of the view that the order passed by the CIT is illegal and without jurisdiction. If the order passed by the CIT is sustained then this will permit the illegality to continue and the subsequent action is carried out on the illegal order is also illegal per se.

“The details of sub-contractors examined by the AO as per the directions of CIT in revision proceedings, inter alia, include the names of these sub-contractors, their permanent account numbers, their permanent addresses, amount given to them, name of work entrusted to them, nature of such work and statements recorded by the AO, etc. These details reveal that during the course of examination under s. 131, no question was put to many of these sub-contractors as to the variation in their signatures. Similarly, no question was put to them for the reasons of discounting with the Shroff. It is the stand of the assessee right from the beginning that all these sub-contractors were mainly working for the assessee and they did not have any office set up and since they were working for the assessee, they have used assessee’s address for correspondence, especially with the Government for timely communication. These persons are eligible under s. 44AD to file their returns under presumptive scheme of taxation. All these persons were produced before the AO in revision proceedings and no question was put to them though their statements on oath were recorded. All these persons have confirmed in revision proceedings that the money was not returned by them to any person and was used for their personal benefit. The payments were made to these persons by banking channels and tax was deducted at source in accordance with law. The assessee has also given complete details with respect to labour expenses called for in assessment proceedings. These details were duly verified by the AO with the books and records. No adverse observation was made by the AO and hence, no addition was made in the regular assessment. The AO has also randomly selected two labourers and examined them and their statements were recorded under s.

263. The CIT has not stopped merely by issuance of notice under s.

were thoroughly checked and examined by the Tribunal and it arrived at a factual finding that there was no illegality committed by the assessee in entrusting the work to sub-contractors nor there was any illegality in making all due payments to them. The Tribunal has also given specific finding to the effect that there was no evidence on record that these contractors were related to the assessee or were associates or sister concerns of the assessee. The Tribunal has also given finding that the Revenue has not discharged the onus that the payments to sub-contractors were not genuine. Thus the Tribunal has come to the conclusion that no disallowances can be made merely on the basis of suspicion, howsoever strong may it be, and the suspicion cannot take the place of actuality. AO has taken a particular view on the basis of evidence produced before him. On the basis of the said material and materials which were collected by the CIT in revisional proceedings, the CIT has taken a different view. However, in the revisional proceedings under s. 263, it is not open for the CIT to take such a different view. No substantial questions of law arise out of the order of the Tribunal and hence, the appeal filed by the Revenue deserves to be dismissed. – CIT vs. Arvind Jewellers (2002) 177 CTR (Guj) 546 : (2003) 259 ITR 502 (Guj) and Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) relied on).” In our opinion, the impugned case is duly covered by this decision also.

“The phrase “prejudicial to the interests of the Revenue” in section 263 of the Income-tax Act, 1961, has to be read in conjunction with the expression “erroneous” order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law.”

“The Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc. Whether there was application of mind before allowing the expenditure in question has to be seen. 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 Income-tax Act, 1961, 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. An order cannot be termed erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, it cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. Section 263 does not visualise a case of substitution of the judgement of the Commissioner for that of the Income-tax Officer who passed the order unless the decision is held to be erroneous. Where the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion such a conclusion cannot be found 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 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. The assessee was a manufacturer of car parts. Its return for the assessment year 2001-02 was taken up for scrutiny and assessment was completed. In revisional proceedings, the solitary objection of the Commissioner was that the expenditure on tools and dyes aggregating to Rs. 10 56,69,367/- was allowed as revenue expenditure without a detailed investigation. After considering all the materials furnished by the assessee the Commissioner took the view that the accounting practice followed by the assessee to debit the entire cost of tools and dyes in the year of installation was not correct and he remitted the case to the Assessing officer for re-examination. The Tribunal allowed the claim of the assessee. On appeal: Held, dismissing the appeal, (i) that the Assessing Officer allowed the claim on being satisfied with the explanation of the assessee. Such decision of the Assessing Officer could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. The Assessing Officer had called for explanation on the very item from the assessee and the assessee had furnished its explanation. This fact was conceded by the Commissioner himself in his order. This showed that the Assessing Officer had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes and tools was to be treated as revenue expenditure or not. Therefore, it could not be said that it was a case of lack of inquiry. The accounting practice followed for a number of years had the approval of the income-tax authorities. Even for future assessment years, the very same accounting practice was accepted. (ii) That the dyes were components of the machines. They needed constant replacement, as their life was not more than a year. The assessee also explained that since the parts were manufactures for the automobile industry, which had to work on complete accuracy at high speed for a longer period, replacement of the parts at short intervals become imperative to retain the accuracy. Neither with the replacement of tools and dyes to new asset comes into existence nor was their benefit of enduring nature. They did not even enhance the life of the existing machine of which the tools and dyes were only parts. Therefore, the view taken by the Assessing Officer was one of the possible views and the assessment order passed by him could not be held to be prejudicial to the interests of the revenue. The opinion of the Assessing Officer in treating the expenditure as revenue expenditure was plausible and thus there was no material before the Commissioner to vary that opinion and ask for fresh inquiry.”

Order pronounced in the open court on 27th day of November, 2017.