JYOTI RANJAN ROY,KOLKATA vs. C.I.T KOLKATA - XVII,KOLKATA, KOLKATA

Jyoti Ranjan Roy -vs.- C.I.T., Kol-XVII, Kolkata Kolkata [PAN : ADLPR 2179 P]] (Respondent) (Appellant) For the Appellant : Shri T.K.Chakraborty, A.R. For the Respondent : Shri G.Mallikarjun, CIT, DR Date of Hearing : 27.06.2016. Date of Pronouncement : 01.07.2016. ORDER

Per M.Balaganesh, AM

Jyoti Ranjan Roy A.Yr.2008-09 6. The ld. CIT ignoring the submissions of the assessee resorted to pass an order u/s 263 revising the assessment framed for the Asst Year 2008-09 u/s 143(3) dated 31.12.2010 by treating the order of ld. AO as erroneous and prejudicial to the interests of the revenue. According to ld. CIT , the issue was not properly examined by the ld. AO during assessment proceedings. He set aside the assessment with the direction to examine the above issue afresh in the light of the decisions taken by the appellate authorities on the said issue for Asst Years 1999-2000 and 2005-06.

1. That, on the facts and in the circumstances of the case, the assumption of Jurisdiction U/s 263 of the I.T. Act, 1961 by the Ld. CI.T. is wrong as the assessment order passed by the Assessing Officer (A.O.) dated 31.12.2010 U/S 144 is neither erroneous nor prejudicial to the interest of revenue.

2. That, the action of the Ld. CI.T. U/s 263 of the I.T. Act in setting aside the assessment for the Asst. year 2008 - 2009 is totally unjustified as the issue relating to carried forward advance amounting to Rs. 2,88,21,596/- was considered by the A.O. in Asst. years 1999 - 2000 and 2005 - 2006 .

3. That the Ld. CI.T. while assuming jurisdiction U/s 263 of the I.T. Act appears to have not examined the records available to the Department even after pointing out the above fact of consideration of advances by the appellant through written submission .

4. The appellant also craves leave to adduce additional grounds and / or to amend or alter or withdraw any of the foregoing grounds before or at the time of hearing of the appeal.”

31.3.2005 (AY 2005-06) Rs. 3,01,71,816 31.3.2006 (AY 2006-07) Rs. 2,89,30,431 31.3.2007 (AY 2007-08) Rs. 2,88,97,095 31.3.2008 (AY 2008-09) Rs. 2,88,21,596

Jyoti Ranjan Roy A.Yr.2008-09 It was further stated that the final left over advance received for construction activity amounting to Rs. 50,75,641/- has been duly taxed by the ld. AO in Asst Year 2005-06 vide order passed u/s 143(3) dated 24.12.2007. He also placed the copies of various balance sheets commencing from Asst Years 1999-2000 to 2005-06 to show that the advances have been gradually decreasing over the years. He also placed on record the copies of various scrutiny assessment orders to prove his contentions that the advances received has been taxed on piecemeal basis based on estimation of net profits in earlier years. It was argued that since the entire advance relatable to construction activity had been already taxed in the earlier years , there is nothing left out of the same to be taxed in Asst Year 2008-09 and hence the order passed by the ld. AO cannot be treated as prejudicial to the interests of the revenue. Moreover, the ld.AO had duly appreciated all the facts on record while passing the exparte order u/s 144 of the Act and hence the same has to be construed of having taken one possible view by the ld. AO which cannot be the subject matter of revision u/s 263 of the Act. He also argued that the ld. CIT had never stated in his revision order as to how the order passed by the ld. AO is erroneous in so far as it is prejudicial to the interests of the revenue within the meaning of section 263 of the Act. It was also argued that if in the opinion of the ld. CIT , the ld.AO had not made any enquiry on the impugned issue , then it is for the ld. CIT to make adequate enquiries to arrive at a primafacie conclusion by pointing out the error in the order of the ld. AO and the prejudice that is caused to the revenue due to enquiry. In the instant case, the ld. CIT had absolutely not made any enquiry and had simply directed the ld. AO to make fishing or roving enquiry in order to find out whether the order contains any error and whether it is prejudicial to the interests of the revenue. In support of his arguments, he placed reliance on the following decisions :-

Malabar Industrial Co. Ltd vs CIT reported in (2000) 243 ITR 83 (SC) CIT vs Gabriel India Ltd reported in (1993) 203 ITR 108 (Bom)

Jyoti Ranjan Roy A.Yr.2008-09 9. In response to this, the ld. DR argued that the assessment was framed u/s 144 of the Act due to non-cooperation from the side of the assessee during assessment proceedings and hence the ld. AO could not have the occasion to go into the facts stated by the ld. AR now that the advance received had already been taxed in the earlier years based on the tribunal orders for the earlier years. From the bare perusal of the assessment order, it could be seen that the ld. AO had confined himself to the addition towards undisclosed investment in mutual fund to the tune of Rs. 7,38,548/- based on certain information available on records and did not look into other issues as there was no co- operation from the assessee and assessment was framed u/s 144 of the Act. The ld. CIT had not directed the ld. AO to make an addition towards advance received. He had simply stated that the issue of advance received be examined in the light of the facts stated by the assessee and in the light of earlier tribunal decisions in assessee’s own case. Hence no prejudice or harm is caused to the assessee by this direction and accordingly argued that the ld. CIT had rightly invoked his revisionary jurisdiction u/s 263 of the Act.

Jyoti Ranjan Roy A.Yr.2008-09 responsibility to the ld. AO. This action, in our opinion, is not in accordance with the provisions of section 263 (1) of the Act. For the sake of convenience, the same is reproduced hereinbelow:- “263. (1) The Commissioner may call for and examine the record of any pro0ceeding under this Act, and if he considers that any order passed therein by the [ Assessing ] Officer is erroneo8us in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being head 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.”

11.1. We find that the above provisions are very clear that the ld. CIT had to make enquiry if he deems necessary on examination of the records. Based on such enquiry alone, he could arrive at a prima facie conclusion by pinpointing the error in the order of the ld. AO. He need not finally conclude the issue based on his enquiry. We hold that the ld. CIT cannot delegate the powers to ld. AO to verify whether the order is erroneous or prejudicial to the interests of the revenue. In the instant case, the assessee had duly replied to the show cause notice by stating that the advances received remaining in the balance sheet had already been taxed in the earlier years commencing from Asst Years 1999-2000 to 2005-06 as per the directions of the tribunal vide order dated 25.1.2008 (supra). If the ld. CIT had any reservation on the said submissions, he should have conducted further enquiry on the matter to find out the error, if any, in the order passed by the ld. AO. We find that the mandate of section 263(1) of the Act has been missed out by the ld. CIT.

11.2. We find that the assessee had placed various orders on record to prove that the advances received were already taxed in earlier years in piecemeal basis. We find that out of the advances received, Rs. 21,50,825/- , Rs. 48,86,847/-, Rs. 11,11,817/- , Rs. 5,06,066/- , Rs. 5,66,952/- were taxed in Asst Years 1999-2000 to 2003-04 respectively and Rs. 50,75,641/- was taxed in Asst Year 2005-06 in scrutiny proceedings. We find that merely because no adjustment entries were passed by the assessee in his books by 6

Jyoti Ranjan Roy A.Yr.2008-09 transferring the advances received to its income, it could be seen beyond doubt that no concealment of income towards advance received has been made thereon. Hence the action of the assessee and consequential order passed by the ld. AO for Asst Year 2008- 09 cannot be treated as prejudicial to the interests of the revenue. We hold that the ld. CIT had only tried to initiate proceedings with a view to start fishing and roving enquires in matters or orders which are already concluded.

11.3. We find that the entire revision proceedings had been triggered merely on the basis that the advances received were remaining outstanding in the balance sheet as on 31.3.2008. This might at best could be construed only as an error committed by the assessee in his books. But that does not make the order of the ld. AO erroneous. In these circumstances, it could only be inferred that the ld. AO had taken one of the possible views by duly appreciating the contentions of the assessee that the advance received had already been taxed in the earlier years and he had rightly not brought the same to tax in the assessment even though the same is framed u/s 144 of the Act. 11.4. We find that the reliance placed on the following decisions by the ld. AR are well founded:-

Malabar Industrial Co. LTd vs CIT reported in (2000) 243 ITR 83 (SC) “A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, 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 interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous, In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and 7

Jyoti Ranjan Roy A.Yr.2008-09 is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the 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 interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.”

CIT vs Gabriel India Ltd reported in (1993) 203 ITR 108 (Bom) The power of suo motu revision under sub-section (1) of. section 263 of the Income-tax Act, 1961, is in the nature of supervisory jurisdiction and can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise the power of revision under this sub-section. Viz., i) the order should be erroneous and (ii) by virtue of the order being erroneous prejudice must have been caused to the. interests of the Revenue. 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 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 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 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 estimates 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 higher figure 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. This 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 termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case 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 power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interests of the Revenue, then the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject matter of revision because the second requirement. must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully 8

Jyoti Ranjan Roy A.Yr.2008-09 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. When exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority (see pp, 1140, E, H, 115A-F', 116D,E) . 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. 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. “

11.5. In view of the aforesaid findings and the ratio laid down in the aforesaid judicial precedents, we have no hesitation to hold in the facts and circumstances of the case that the order passed by the ld. AO is neither erroneous nor prejudicial to the interests of the revenue. Accordingly, the order passed by the ld. CIT u/s 263 of the Act is hereby quashed and the grounds raised by the assessee are allowed.

12. In the result, the appeal of the assessee is allowed.

Order pronounced in the Court on 01.07.2016.