KERALA STATE FINANCIAL ENTERPRISES LIMITED,THRISSUR vs. DCIT CIRCLE 1(1) & TPS THRISSUR, THRISSUR

The only issue arising in the instant appeal is the maintainability of the revision whereby the assessee’s assessment stands set aside for consideration by the Assessing Officer (AO) inasmuch as it was not so earlier qua the deductibility of guarantee commission, claimed in the sum of Rs.4493.87 lakhs, in view of section 40(a)(iib) of the Act. Section 40 is a non obstante clause, overriding sections 30 to 38 of the Act, enlisting the amounts not deductible in computing income u/c. IV-D of (AY : 2017-18) Kerala State Financial Enterprises Ltd. v. DCIT, Circle - 1(1) & TPS the Act. Section 40(a)(iib) refers to an amount levied on a state government undertaking, as the assessee, by the state government, or otherwise appropriated by it there-from, directly or indirectly. There is no whisper of the claim for the said sum in the impugned assessment, nor was any query in its respect shown to be raised during assessment proceedings by Shri Harikrishnanunny, the ld. counsel for the assessee; there being in fact no claim to that effect before us. There has clearly been no examination of the same in assessment, even as the said claim is apparently covered by the said provision.

It may at this stage be relevant to visit the law in the matter, i.e., insofar as it relates to absence or lack of inquiry in the matter, which at heart is the charge by the revisionary authority in the instant case. Non-application of mind, as explained by the Apex Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC), is one of the ingredients that renders an order as erroneous and prejudicial to the interest of the Revenue. Absence or lack of enquiry is an attribute, a manifestation, of this non-application, so that an order imbued therewith would be liable to revision. This represents trite law, case law on which is legion, since co-opted on the Statute itself vide Explanation 2(a) to s. 263(1). As explained therein, where the AO accepts the assessee’s version in absence of any supporting material and without making any enquiry, his order would be erroneous and exercise of jurisdiction u/s. 263(1) justified. As an example, it, citing it’s earlier decisions in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC), held that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the AO accepting the same would be subject to sec. 263. The decision by the Hon’ble High Court, reported at [1992] 198 ITR 611 (Ker), holding the assessment as without application of mind, was, accordingly, affirmed. In Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Del), again with reference to judicial precedents, it stands (AY : 2017-18) Kerala State Financial Enterprises Ltd. v. DCIT, Circle - 1(1) & TPS explained that the order of the AO becomes erroneous on a failure to make enquiry where the circumstances call for it. This is not because there is anything wrong in the order if all the facts stated therein are assumed to be correct. However, the AO is not only an adjudicator but also an investigator and, therefore, cannot remain passive in the face of a return which is apparently in order but calls for further enquiry. 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 enquiry. In Toyota Motor Corporation v. CIT [2008] 306 ITR 52 (SC), confirming the decision by the Hon'ble High Court reported at [2008] 306 ITR 49 (Del), it was explained that the Tribunal could not have substituted it’s own reasons which were required to be recorded by the AO, and ought to have remanded the matter to the latter. Sure, there must thus be circumstances which would make the enquiry prudent, and not de hors the same, even as explained in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom), the same being an objective fact which must be satisfied on the basis of the material on record. This in fact is captured by the words: ‘which should have been made’ occurring in Explanation 2(a) to s. 263(1) with reference to any inquiry or verification by the AO.

We find no scope for interference in view of the clear law and the facts of the case and, accordingly, decline to; the revisionary authority having only remitted the matter back for his consideration qua the said claim, in accordance with law, to the assessing authority. We decide accordingly.