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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ NEW DELHI
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
This appeal has been preferred by the assessee against the order dated 26/3/2012 passed u/s 263 of the Income Tax Act, 1961 (hereinafter called ‘the Act’) by the Ld. CIT-Central-1, New Delhi for Assessment Year 2003-04.
2. The show-cause notice dated 10/8/2011 issued u/s 263 of the Income Tax Act, 1961 is reproduced below:- Assessment year 2003-04
“F.No. CIT( Central)-l/2011-12/ DATED: 10.08.2011
To, The Principal Officer, M/s Shree Kaila Devi Real Estate Ltd., 1918, Dampier Nagar, Mathura (U.P.) Sub.:-Revision of order u/s 263 of the Income Tax Act in the case of M/s Shree Kaila Devi Real Estate Ltd. - Assessment Year 2003-04 - Regarding – It has been noticed during the course of examination of assessment records of your case for the Assessment Year 2003-04 that in your case, the assessment was completed u/s 153C /143(3) of the Income Tax Act, 1961 at an income of Rs.49,500/- on 30.12.2010.
2. It is seen from the assessment record of A.Y. 2003- 04, that an amount of Rs. 1,79,00,000/- has been received as share capital from the various parties, in this regard, you have filed the details of fresh capital received during the year. In your reply dated 26.11.2010, copies' of Form No. 2 as per Company Act, 1956 for allotment of shares, copies of application for allotment of shares made by the applicants have also been enclosed. After going through, the details and documents submitted by you before the AO, 1 find that genuineness of the transactions for share capital introduced during the year and creditworthiness of the applicant are not proved by these documents. Neither the AO has made any further effort to investigate the genuineness or creditworthiness of the applicant, The AO has accepted the investment to share capital paid during the year without proper evidence. Therefore, his order dated-- 13.12.2010 passed u/s 153C r.w.s. 143(3) is erroneous and prejudicial to the interest of the revenue to the extent of fresh capital amounting to Rs. 1,79,00,000/- introduced during the year. Hence, you are required to explain why action u/s 263 of the income Tax Act, 1961 may not be taken in your case for A.Y. 2003-04.
Assessment year 2003-04
You are hereby given an opportunity to state your objections, if any, to the proposed action either personally or through an authorized representative on 18.08.2011 at 2.30 P.M. in my office Room NO. 338, 3rd Floor, A.R.A. Centre, Jhndewalan Extension, New Delhi failing which the case will be decided on merits. Sd/-
3. The observations and findings of the ld. CIT in the impugned order are in Paras 1 to 7 and the relevant portions thereof are being reproduced for a ready reference as under:-
“On verification of the assessment records for the year under consideration it was observed that the assessee company had received sum of Rs.1,79,00,000/- by way of share application money. In this regard the assessee had produced details viz. Form No. 2 filed with the Registrar of Company and share application money forms received from the parties concerned. However it is also seen from the record that the AO has not carried out any further investigation as to the genuineness of such transactions as well as credit worthiness of the parties investing in such shares. Since the AO has not carried proper inquires in the matter his order is erroneous in so far as it is prejudicial to the interest of the revenue and consequently notice u/s 263 was sent to the party to show cause as to why the action u/s 263 should not be taken, in view of the above.
It is pertinent to note that at the time of verification of record it was also found that a CD was received from the investigating wing Delhi containing the list of several beneficiaries who had taken accommodation entries from different entry operators. On perusal of the said list it was also found that the assessee was also one of the Assessment year 2003-04
beneficiary of such entry operation and that the assessee company had obtained sum total of Rs.85,00,000/- from such entry providers. This fact could have been fund out by the AO had he carried out the proper investigation during the course of assessment. Since the same is not done his order is erroneous in so far as it is prejudicial to the interest of the revenue. Accordingly the assessee was asked to show cause as to why the provisions of section 263 should not be invoked. XXXXX 3. I have gone through the contention of the assessee as also perused the judgements relied upon and do not find any merit in the assessee’s case. It is not in dispute that the AO has merely taken the documents on records as were submitted during the course of assessment proceedings and has mechanically accepted them as true and correct without there being any further inquiries caused as to the genuineness of the creditors. From the fact as has been stated earlier that during the course of some search it was also found that the assessee company was a beneficiary "of various entry providers who had acknowledged the said fact that they were the entry providers only and had not actually subscribed to any such shares. It was in these circumstances that had the AO investigated the issue at with regards to genuineness of the transactions the position would have been difference and therefore by not making the proper inquiries the order of the AO is erroneous and since the amount which should have been brought to tax the same is also prejudicial to the interest of the revenue.
XXXXXXX 5.Thus from the facts of the case as has been appreciated it is clear that the assessing officer has completed the assessment without application of mind as also without carrying out proper inquiries in the matter of share application received the same is not only erroneous but is also prejudicial to the interest of the revenue. XXXX Assessment year 2003-04
6. Thus it is clear that order which has been passed accepting the material requires further scrutiny and AO having not done so the order is erroneous in so far as it is prejudicial to the interest of the revenue. Further it is also a fact that in the instant case the information is received that the assessee company was also a beneficiary of hawala entry racket where the parties from whom the assessee has claimed to have received share application money had admitted having merely given entries and not the actual amount as has been claimed there is all the more reason to invoke the provisions of section 263 of the Act.
XXXXX 7.Thus considering the facts of the case, I am satisfied that the order passed by "the AO is erroneous in so far as it is prejudicial to the interest of the revenue and hence the same is set aside and the AO is directed to verify in details of the cash credit received by the assessee company in terms of share application money should be properly scrutinized after giving proper and due opportunity to the assessee of being heard.”
In the revised grounds of appeal, the assessee has taken as many as five grounds of appeal but the main effective ground is Ground No. 4 which reads as under:
“The Ld. CIT has erred in ignoring that the order of the assessing officer passed under section 153C r.w.s. 143(3) of the Income tax Act, 1961 was unsustainable in the eyes of law for not meeting the requirements of section 153C of the Income tax Act and has further erred in giving the directions to the assessing officer to carry out enquiries/ assessment of income beyond the scope of assessments u/s 153C/153A of the Income tax Act, 1961.”
Assessment year 2003-04
The Ld. AR submitted that the Ld. CIT has not made any mention of CD in the show cause notice issued on 08/10/2011.
It was submitted that all the allegations made by the Ld. CIT are vague and wholly based on assumptions and presumptions. He submitted that the assessee had submitted all the relevant documents during the course of assessment proceedings evidencing the genuineness of transaction and the Ld. CIT has not been able to find any fault with the same. He also submitted that the reference to CD is absolutely vague. The Ld. CIT never confronted the assessee with the so called evidence and nor was the assesseee even made aware as to who the supposed entry operators were and what evidence against the assessee was provided by them. He submitted that it is judicially settled that the CIT cannot act on assumptions and presumptions while assuming jurisdiction u/s 263. He is bound to establish that the assessment is erroneous and prejudicial to the interest of revenue. The Ld. AR submitted that the department has not been able to give the copy of evidence against the assessee, if any, contained in the so called CD in spite of specific request having been made. It was also submitted that the attention of Ld. CIT was drawn to various rulings for various propositions of law in reply to the show cause notice but he has not considered any of Assessment year 2003-04 the rulings cited before him. In light of the facts and the settled law, it was submitted that the appeal of the assessee be allowed.
The Ld. DR, in response, submitted that the impugned order had been passed after due consideration of the facts of the case and that the Department had a specific information about accommodation entries having been received by the assessee.
Therefore, if the AO had not examined the issue with the consideration and enquiry that was called for, the order would be erroneous and prejudicial to the interests of the revenue. It was submitted that the impugned order be upheld.
We have heard the rival submissions and perused the records. The provisions of section 263 are 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 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.”
Assessment year 2003-04
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 Assessment year 2003-04 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)]. Assessment year 2003-04
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 Assessment year 2003-04 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 because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with Assessment year 2003-04 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 Assessment year 2003-04 Commissioner not to exercise his suo moto revisional powers unless supported by adequate reasons for doing so.
In the instant appeal before us, it is not the Department’s case that no information regarding the share application money was called for by the AO. That relevant details and documents were furnished by the assessee during the assessment proceedings has been acknowledged by the Ld. CIT in the impugned order also. Hence, no inference can be drawn that the AO has not examined the issue although he has not expressed it 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. 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- Assessment year 2003-04 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 year 2003-04 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.
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 Assessment year 2003-04 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.”
In the instant appeal before us, the AO has conducted an enquiry. However, he has not launched a lengthy discussion on the issue of share capital but that does not lead to an inference that there has been a lack of enquiry on his part on the issue. It is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an AO, 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 Assessment year 2003-04 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 share capital was considered and examined by the Assessing Officer, Ld. Commissioner cannot set aside the order without recording 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 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.
Order pronounced in the Open Court on 30th May, 2016.