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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI G.D. AGRAWAL, HON’BLE & SHRI SUDHANSHU SRIVASTAVA
ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: This appeal has been preferred by the assessee against the order dated 13/03/2013 passed by the Ld. Commissioner of Income Tax (Central)-III, New Delhi for AY 2007-08.
The facts of the case are that the original return of income was filed on 31/07/2007 declaring an income of Rs. 8,35,640/-.
Subsequently, action u/s 132 of the Income Tax Act, 1961 was taken in the Dawat Group of Cases including the assessee on 10/02/2009.
Notice u/s 153A was issued for AY 2007-08 being one of the six assessment years preceding the assessment year relevant to the previous year in which the search was conducted. In response to the said notice u/s 153A, the assessee filed the return of his income declaring income at Rs. 8,35,640/-. The returned income of the assessee was accepted u/s 153A of the Income Tax Act, 1961 vide assessment order dated 30/12/2010. Subsequently, the Ld. Commissioner of Income Tax (Central)-III, New Delhi issued a show cause notice dated 29/01/2013 u/s 263 of the Income Tax on the ground that in the case of LT Foods Pvt. Ltd., the Flagship Company of Dawat Group, special audit u/s 142(2A) was conducted in which the special auditor had pointed out that during the financial year 2006-07, relevant to the AY 2007-08, the assessee held 14.57% shares of LT Foods Ltd. and that during this period M/s LT Foods Ltd. was not a company in which the public were substantially interested.
The Show Cause Notice stated that as per the special auditor’s report, during AY 2007-08, LT Foods Ltd. had advanced a loan of Rs. 1,74,000/- to the assessee on various dates and the assessee was required to show cause as to why this amount of Rs. 1,74,000/- should not be deemed as dividend u/s 22(2)(e) of the Income Tax Act. In response the assessee submitted that the amount of Rs. 1,74,000/- was neither an advance nor a loan to the assessee shareholder but was simply an imprest to meet the day to day business expenditure of the company. It was submitted that the assessee was the President of the Punjab Operations of the Company and the cash of the Company was given to the President i.e. the assessee for its safe custody and the said cash is returned to the Company as and when so needed by the Company. It was also submitted that these transactions were done in the normal course of business for the purpose administration of business affairs of the Company and accordingly, did not qualify to be treated as deemed dividend. However, the Ld. CIT did not accept the assessee’s contention and held that it was not disputed that the assessee was the beneficial shareholder in LT Foods Ltd. holding more than 10% of the voting power. The Ld. CIT opined that it was also not disputed that advances had been received by the assessee from LT Foods Ltd. The Ld. CIT was of the opinion that the AO had not made any enquiry on the issue of applicability of the provisions of Sec. 2(22)(e) of the Act and hence it was a clear case of lack of enquiry and that the failure on the part of the AO to make the necessary enquiries had made the assessment order both erroneous as well as prejudicial to the interest of the Revenue. The issue was restored to the file of the AO to decide the issue afresh.
Aggrieved the assessee is now in appeal before the ITAT and has raised the following grounds of appeal:
That the notice issued under section 263 of the Income Tax Act, 1961 and the order passed under that section are illegal, bad in law and without jurisdiction.
2. That the order under section 263 of the Income Tax Act, 1961 is bad in law and without jurisdiction as the CIT has failed to appreciate that no incriminating material was found during the course of search as such the Assessing Officer has no jurisdiction to add amount of Rs. 1,74,000/- as deemed dividend under section 2(22)(e) while filing assessment under section 153A. 3. That the Commission of Income Tax has in view of the facts and circumstances of the case, has erred in law and on facts in holding that the Assessment Order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the revenue, on the Page 4 of Ashok Arora ground that the special audit report in the case of L T Foods Limited is not considered by the Assessing Officer, Whereas the said report of the Special Auditor was given much after the completion of Assessment in the case of the Appellant.
4. That the Commissioner of Income Tax has in view of the facts and circumstances of the case has failed to appreciate that special audit report was obtained in the case of L T Foods Limited and not in the case of assessee. Hence it cannot be said that it has been ignored by the Assessing Officer or it is the part of the record of assessee.
5. That without prejudice the Commissioner of Income Tax has in view of the facts and circumstances of the case has failed to appropriate that the report of the special auditors had exceeded its term of reference and as such the Assessing Officer could not have taken cognizance of such a report even if it would have been received before the completion of assessment.
6. That in view of the facts and circumstances of the case the order of the Commissioner of Income Tax is unjust, illegal and bad in law because the amount given by the company for safe custody to its director / senior employees is neither a loan nor an advance and as such the provisions of section 2(22)(e) are not applicable.
7. That the Commissioner of Income Tax has ignored the fact that keeping of cash with the Director / Senior Employees is a normal business practice being followed for the last many years and the Assessing Officer could not have made the addition based on the principal of consistency. Page 5 of Ashok Arora
8. That the order passed by Assessing Officer under section 153A/143(3) is neither erroneous nor prejudicial to the interest of revenue and as such the order passed Commissioner of Income Tax under section 263 in cancelling the assessment to the extent of issue of deemed dividend is illegal and bad in law.
9. That without prejudice the Commissioner of Income Tax has failed to appreciate that a detailed questionnaire was issued to the assessee during the course of assessment and a question with reference to loans /dividend was specifically asked and as such it cannot be a case of lack of enquiry. That the Commissioner of Income Tax failed to appreciate the 10. fact that the view taken by the Assessing Officer is a possible view and as such there is no legal infirmity in the order and is beyond the purview of section 263. That all the facts and circumstances of the case and the 11. material available on record have not been properly considered by the Commissioner of Income Tax while passing the order under section 263. The impugned order is illegal, arbitrary and bad in law. That the appellant craves leave to add, amend, alter and / or 12. modify the grounds of appeal of the said appeal.
The Ld. AR submitted that the special audit report was obtained in the case of LT Foods Ltd. and not in the case of the assessee and hence the Ld. CIT was wrong in concluding that it was ignored by the AO since it was never a part of the record of the assessee. It was also submitted that the report of the special auditor was received much after the completion of the assessment of the assessee and hence it was impossible for the AO to have considered the same.
The Ld. AR also submitted that the amount given by a Company for the safe custody of cash to its Directors or senior employees is neither a loan nor an advance so as to come within the purview of Sec. 2(22)(e) of the Act. It was further submitted that keeping of such cash with the Director was a normal business practice followed by the Company for many years. The Ld. AR also submitted that during the course of assessment proceedings a detailed questionnaire was issued to the assessee and a question with the reference loans/dividend was specifically asked and, therefore, it cannot be a case of lack of enquiry. The Ld. AR drew our attention to pages 25 & 26 of the Paper Book which contained a copy of questionnaire dated 18/08/2010, wherein the relevant question appears at Sl. No.
He also drew attention to page 28 of the PB, wherein at Sl. No. 18 the details of loans have been provided to the AO during the assessment proceedings. The Ld. AR submitted that in view of his submissions the impugned order u/s 263 was not at all maintainable and was hence liable to be quashed. He also drew our attention to pages 62 & 63 of the PB which is a copy of the account of Mr. Ashok Arora in the books of LT Foods Ltd. to highlight the point that cash was paid into the custody of the assessee for safe-keeping as well as withdrawn from his custody regularly depending on the business necessities. It was also emphasized that no incriminating material was found during the course of search and the returned income was accepted in the order passed u/s 153A of the Act and on that count also, the proceedings u/s 263 of the Act were not legally tenable.
The Ld. CIT (DR), in response, defended the impugned order and submitted that 263 proceedings had been initiated legally in the case of the assessee and the impugned loan/advance clearly attracted the provisions of section 2(22)(e) of the Act and since there was an evident lack of enquiry on part of the AO, the findings of the Ld. CIT ought to be upheld.
We have heard the rival submissions and perused the records.
The provisions of section 263 read as under:
"263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the Page 8 of Ashok Arora interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.”
It will be expedient to reiterate the governing principles laid down by the Hon’ble Courts with regard to the exercise of power by the Commissioner under the provisions of Section 263 of the Act. The power of suo moto revision exercisable by the Commissioner is undoubtedly supervisory in nature. The opening words of Section 263 empower the Commissioner to call for and examine the record of any proceedings under the Act. A bare reading of Section 263 also makes it clear that the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the revenue.
If one of them is absent - if the order of the Assessing Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but it is prejudicial to the revenue - recourse cannot be had to Section 263(1) of the Act [See Malabar Industrial Co.
Ltd. vs. CIT, (2000) 243 ITR 83 (SC)].
As regards the scope and ambit of the expression "erroneous", a Division Bench of the Hon’ble Bombay High Court in CIT vs. Gabriel India Ltd., (1993) 203 ITR 108 (Bombay), held with reference to Black's Law Dictionary that an "erroneous judgment" means "one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles" and thus it is clear that an order cannot be terms as "erroneous" unless it is not in accordance with law. If Assessing Officer acting in accordance with law makes a certain assessment, the same cannot be branded as "erroneous" by the Commissioner simply because, according to him, the order should have been written differently or more elaborately. The Section does not visualize the substitution of the judgment of the Commissioner for that of the Assessing Officer, who passed the order unless the decision is not in accordance with law. Then again, any and every erroneous order cannot be the subject matter of revision because the second requirement also must be fulfilled. There must be material on record to show that tax which was lawfully exigible has not been imposed [See Gabriel India Ltd. (supra)].
However, the expression "prejudicial to the interest of the revenue", as held by the Hon’ble Supreme Court in the Malabar Industrial Co. Ltd.'s case, is not an expression of art and is not defined in the Act and, therefore, must be understood in its ordinary meaning. It is of wide import and is not confined to the loss of tax [see Dawjee Dadabhoy & Co.
(supra), CIT vs. T. Narayana Pai (1975) 98 ITR 422 (KAR), CIT vs. Gabriel India Ltd. (supra) and CIT vs. Smt. Minalben S.
Parikh, (1995) 215 ITR 81 (Guj)].
At the same time, the words "prejudicial to the interest of the revenue", as observed in Dawjee Dadabhoy and Co. vs. S.P. Jain, (1957) 311 ITR 872 (Calcutta), can only mean that "the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized." Thus, the Commissioner's exercise of revisional jurisdiction under the provisions of Section 263 cannot be based on whims or caprice. It is trite law that it is a quasi judicial power hedged in with limitation and not an unbridled and unchartered arbitrary power. The exercise of the power is limited to cases where the Commissioner on examining the records comes to the conclusion that the earlier finding of the AO was erroneous and prejudicial to the interest of the revenue and that a fresh determination of the case is warranted. There must be material to justify the Commissioner's finding that the order of the assessment was erroneous insofar as it was prejudicial to the interest of the revenue.
It is also trite that there is a fine, though subtle distinction, between "lack of inquiry" and "inadequate inquiry". It is only in cases of "lack of inquiry" that the Commissioner is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under the Act and passing orders thereon. In Gabriel India Ltd. (supra), it was expressly observed:-
"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-accepted 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 and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity [see Parashuram Pottery Works Co. Ltd. vs. ITO, (1977) 106 ITR 1 (SC)].” It was further observed as under:- "From the aforesaid definitions as it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize 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 visualized where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his 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 Page 13 of Ashok Arora because the Income-tax Officer has exercised the quasi- judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. x x x x 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.”
From the above it is clear that in the ultimate analysis it is a pre- requisite that the Commissioner must give reasons to justify the exercise of suo moto revisional powers by him to re-open a concluded assessment. A bare reiteration by him that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interest of the revenue, will not suffice. The exercise of the power being quasi- judicial in nature, the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the order of the Income- tax Officer was not only erroneous but was prejudicial to the interest of the revenue. Thus, while the AO is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo moto revisional powers unless supported by adequate reasons for doing so.
The Hon’ble Madras High Court held in the case of CIT v Valliammal (D.) (1998) 230 ITR 695 (Mad) that assessment order made after considering all fact and information cannot be revised.
Where the assessee had furnished the requisite information and the Assessing Officer had completed the assessment after considering and the facts but the commissioner revised the assessment order on the ground that the Assessing Officer had not made proper enquiries, the Tribunal was held justified in reversing the order of the commissioner and restoring that of the assessing officer.
Commissioner cannot re-examine accounts and substitute his judgment for that of the Assessing Officer. An order cannot be termed as erroneous unless it is not in accordance with law. If assessing officer makes assessment in accordance with law, the same cannot be branded as erroneous by the commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the commissioner for that of the Assessing Officer unless the decision is held to be erroneous. Cases may be visualized where the Assessing Officer examines the accounts, makes enquires, applies his mind to the facts and circumstances of the case and determines the income either by making the accounts or by making some estimates himself. The commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer was on lower side and, left to the commissioner, he would have estimated the income at a higher figure that the one determined by the Assessing Officer. That would not vest the Commissioner with the power to re-examine the accounts and determine the income himself at a higher figure. Further in the case of Infosys Technologies V JCIT (Asst) (2006) 286 ITR (AT) 211, the Bangalore Bench of the ITAT held that where the A.O as examined and considered and issue, though not mentioned in the assessment order, it cannot be said that the order passed was erroneous. In CIT v Gabriel India Ltd. (1993)
203 ITR 108 (Bom), the Hon’ble Bombay High Court held that once the Assessing Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion, such a conclusion cannot be considered erroneous simply because the commissioner does not feel satisfied with the conclusion. It may be that in the opinion of the commissioner, the order in question is prejudicial to the interests of the revenue. But that by itself would not be enough to vest the commissioner with the powers of suo motu revision because the first requirement, namely, that the order is erroneous, is lacking.
13. The Hon’ble Delhi High Court in CIT vs. Sunbeam Auto Ltd 332 ITR 167 (Del) has opined in Para 17 of its order as under:-
“17. 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 expenditure. Learned counsel for the assessee is 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.” 14. In the instant appeal before us, it is not the Department’s case that no information regarding the loan/advance was called for by the AO. That relevant details and documents were furnished by the assessee during the assessment proceedings and forms part of the reord. Hence, no inference can be drawn that the AO has not examined the issue although he has not expressed it in as many terms as may be considered appropriate by his superior authority and even if the same is found to be inadequate the same cannot be a ground for revision. It is clear that an order cannot be termed as erroneous unless it is not in accordance with law. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the AO. Therefore, it cannot be held that in the instant case the AO’s order was erroneous and prejudicial to the interest of the revenue within the terms of section 263 of the Act.
Once the issue of loan/advance was considered and examined by the Assessing Officer, Ld. Commissioner cannot set aside the order without recording a contrary finding. This will be contrary to Section 263 of the Act. Therefore, in view of the factual matrix of the case and respectfully following the ratio of the various judicial pronouncements as discussed above, we are of the considered opinion that the impugned action of the Ld. CIT u/s 263 of the Act was patently illegal and is liable to be quashed. The proceedings u/s 263 of the Act are accordingly quashed.
In the result, the appeal of the assessee is allowed.