Loading judgment…
No AI summary yet for this case.
Before: SHRI INTURI RAMA RAO & SMT. BEENA PILLAI
1 ITA No. 2080/Del/2013
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH:‘A’ NEW DELHI
BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER & SMT. BEENA PILLAI, JUDICIAL MEMBER
I.T.A .No. 2080/Del/2013 (ASSESSMENT YEAR-2008-09) Beena Jain, vs CIT, 24-26, Kalindi Colony, Meerut. Transport Nagar, Meerut. ACXPJ6992K Appellant by Sh. Deepak Kapoor, Adv. Respondent by Sh. Ravi Jain, CIT DR
Date of Hearing 23.09.2015 Date of Pronouncement 30.09.2015
ORDER PER BEENA PILLAI, JUDICIAL MEMBER: This is an appeal filed by the assessee against the order of the Commissioner of Income Tax, Meerut u/s 263 of the Income Tax Act, 1961 dated 25.03.2013 for A.Y. 2008-09 on the following revised grounds of appeal, filed on 28/05/2015, which are as below: 1. “BECAUSE on the facts & in the circumstances of the case and in law the impugned order dated 25.03.2013 passed by the ld. CIT, Meerut u/s 263 of the Income Tax Act, 1961 (the Act) is wrong and bad in law inasmuch as the assessment order dated 10.12.2010 passed by the ld. AO u/s 143(3) of the Act was not erroneous and prejudicial to the interest of the revenue.
2 ITA No. 2080/Del/2013
BECAUSE on the facts and in the circumstances of the case and in law the impugned order dated 25.03.2013 passed by the ld. CIT, Meerut u/s 263 of the Act is wrong and bad in law as much as the ld. CIT did not give reasonable opportunity to the assessee to represent the case and completed the proceedings by passing impugned order. 3. BECAUSE it is a settled legal position that if the ground on which order is passed by the CIT is not specified in the notice u/s 263, such an order cannot be sustained. The impugned order is passed mainly for; (i) Non –Maintenance of stock register (ii) Low net profit (iii) Rejection of books of account u/s 145(3) (iv) Failure to prove sundry creditors and unsecured loans etc. These grounds were not even mentioned in the Show Cause Notice dated 12.2.2013. The Show Cause Notice dated 12.02.2013 issued by the ld. CIT did not raise the issue of additions on account of entire Sundry Creditors and Unsecured Loans nor was the assessee confronted with this aspect of the matter. If the assessee had been confronted with this issue, it could have explained the position before the ld. CIT that all the sundry creditors and Unsecured Loans are fully explainable. The ld. CIT cannot travel beyond the show cause notice. 4. BECAUSE the impugned order contains contradictory and incorrect facts which clearly shows that the impugned order is passed mechanically without any application of mind and the same deserves to be quashed. 5. BECAUSE on facts and in law and on grounds taken and basis adopted, the addition of Rs. 48,23,008/- u/s 68 on account of entire unsecured loan as per the personal set of the assessee (including opening balance of Rs. 37,02,605/-) is unjustified and illegal. The assessee filed the documents/proof (Confirmation Certificates, ITR, Bank A/c etc.) for the loan of Rs. 10,00,000/- raised during the year in the personal set. These documents were filed during the assessment proceedings u/s 143(3) and also during revision proceedings u/s 263. The assessee had duly explained the identity/genuineness/creditworthiness of all the unsecured
3 ITA No. 2080/Del/2013
loans received during the year and had fully discharged the onus as required u/s 68 of the Act. The ld. CIT has made addition u/s 68 for total loans outstanding as on 31.03.2008 which includes loan of Rs. 37,02,605/- taken by the assessee in earlier years. The addition of Rs. 48,23,008/- is therefore, illegal, unjustified and deserves to be deleted in full. 6. BECAUSE on the facts and in law and on grounds taken and basis adopted, the addition of Rs. 35,93,265/- u/s 68 on account of entire unsecured loan as per the business set of the assessee (including opening balance of Rs. 21,91,271/-) is unjustified and illegal. The assessee filed the documents/proof (Confirmation Certificates, ITR, Bank A/c etc.) for the loan of Rs. 18,74,000/- raised during the year in the business set. These documents were filed during the assessment proceedings u/s 143(3) and also during revision proceedings u/s 263. The assessee had duly explained the identity/genuineness/creditworthiness of all the unsecured loans received during the year and had fully discharged the onus as required u/s 68 of the Act. The ld. CIT has made addition u/s 68 for total loans outstanding as on 31.03.2008 which includes loan of Rs. 21,91,271/- taken by the assessee in earlier years. The addition of Rs. 35,93,265/- is therefore illegal, unjustified and deserves to be deleted in full. 7. BECAUSE on the facts and in law and on grounds taken and basis adopted, the addition of Rs. 5,90,39,946/- on account of sundry creditors is totally wrong, unjustified and illegal. During the assessment proceedings, the assessee duly filed the confirmed copy of accounts of creditors as required by the ld. AO and also produced books of accounts along with purchase invoices and vouchers. The ld. AO duly accepted the creditors after examining the records. The ld. CIT did not conduct any enquiry, did not even examine the purchase bills, accounts of the creditors (with opening balances). Therefore, on facts and in law and on ground taken and basis adopted, the addition of Rs. 5,90,39,946/- is totally wrong, unjustified and illegal.
4 ITA No. 2080/Del/2013
The same deserves to be deleted in too. 8. That the assessee craves leave to add, amend, alter or withdraw any of the ground of appeal on or before the date of hearing.”
Brief facts of the case are that the assessee is the proprietor of M/s Arihant Prakashan. The business of the assessee is publication of books for competitive examinations. The assessee has been filing Income Tax Return regularly for last many years. For the assessment year 2008-09, the assessee filed original return u/s 139(1) declaring total income at Rs. 31,47,931/-. The case of the assessee was marked for scrutiny and the assessment was completed by the ld. ACIT, Circle (1) Meerut(the A.O), at total income of Rs. 32,62,590/- u/s 143(3) of the Income Tax Act, 1961 (“the Act”) vide order dated 10.12.2010. 3. During the assessment proceedings, the assessee produced the books of accounts and vouchers which were examined by the ld. AO. Further during the assessment proceedings, the assessee duly filed the confirmation copy of account of sundry creditors and also filed all the necessary documents in support of unsecured loan raised by the assessee during the relevant previous year. The ld. AO raised queries in respect of sundry creditors, unsecured loan and increase in the capital by the assessee. The assessment order was passed u/s 143(3) and the ld. AO observed as under: “The assessee company is engaged in the business of printing and publication of books for competitive examinations. The results declared by the assessee have been examined and verified on test check basis from the books of accounts and bank statements and
5 ITA No. 2080/Del/2013
various other details and documents submitted by the assessee from time to time”. 4. The Ld. AO made addition, in respect of vehicle running and maintenance expenses which was claimed as business expenses by the assessee as well as addition u/s.43B was made in respect of the unpaid service tax liability. 5. Subsequently the ld. CIT, Meerut initiated proceedings u/s 263 of the Income Tax Act vide notice dated 12/02/2013. By the said notice, the ld. CIT raised certain queries. The ld. CIT on examination of assessment records had opined that the assessment order has been passed without proper enquiry in view of the following points: a) From the perusal of balance sheet and its annexure, it appears that during the year the assessee has introduced new capital of Rs. 20,99,000/- but source of capital (has not been verified) by the AO. b) The assessee has filed personal balance sheet for the ending year 31.03.2008 in which capital shown Rs. 1,03,64,190/-. The assessee has also filed balance sheet for the year ending on 31.03.2007 in which capital was Rs. 76,56,659/-. Thus, capital has been increased to Rs. 27,07,531/-. The source has not been verified by the AO. c) During the year, the assessee has paid cartage to M/s Eastern Carrier and M/s Gati Ltd. Rs. 53,696/- & Rs. 2,62,424/- respectively on different dates, but TDS has not been deducted thereon. Therefore, the same amount should be disallowed u/s 40(a)(ia). d) During the year, the assessee has paid freight to M/s Delhi M.P. Road Carrier to Rs. 55,971/- but TDS has not been deducted on the same amount. Therefore, the same shall be disallowed u/s 40(a)(ia).
6 ITA No. 2080/Del/2013
The ld. CIT ultimately concluded the grounds of addition in the following manner:
S.No. Point/ground as per Notice u/s 263 dated Treatment/Conclusion in 12.02.2012 order u/s 263 dated 25.03.2013 a. From the perusal of balance sheet and its Vide para 5 of the annexure, it appears that during the year the Impugned order the ld. CIT assessee has introduced new capital of Rs. added entire sum of loan 20,99,000/- but source of capital (has not liability of Rs. 48.23 lacs been verified) by the AO (including opening balances of Rs. 37.02 lac) appearing in the personal set without affording any opportunity to the assessee whatsoever b. The assessee has filed personal balance sheet Vide para 6 of the for the year ending 31.03.2008 in which impugned order the ld. CIT capital shown Rs. 1,03,64,190/-. The directed AO to verify. After assessee has also filed balance sheet for the verification, the ld. AO year ending on 31.03.2007 in which capital made no addition vide order was Rs. 76,56,659/-. Thus, capital has been u/s 143(3)/263 dated increased to Rs. 27,07,531/- the source has 24.02.2014. not been verified by the AO. c. During the year, the assessee has paid Vide para 7 of the cartage to M/s Eastern Carrier and M/s Gati impugned order the ld. CIT Ltd. Rs. 53,696/- & Rs. 2,62,424/- directed the AO to verify. respectively on different dated, but TDS has After verification, the ld. AO not been deducted on the same. Therefore, made no addition vide order the same amount should be disallowed u/s u/s 143(3)/263 dated 40(a)(ia). 24.02.2014. d. During the year, the assessee has paid freight Vide para 7 of the to M/s Delhi M.P. Road Carrier to Rs. Impugned order the ld. CIT 55,971/- but TDS has not been deducted on directed the AO to verify. the same amount. Therefore, the same shall After verification, the ld. AO be disallowed u/s 40(a)(ia). made no addition vide order u/s 143(3)/263 dated 24.02.2014. e. Sundry Creditors and Unsecured Loans have Vide para 8 of the not been confirmed by the AO by issue of Impugned order the ld. CIT notice u/s 133(6). AO simply accepted the herself added entire confirmation filed by the assessee. Unsecured Loan in business set Rs. 35.93 lacs (including opening balances of Rs. 21.91 lac) & Sundry
7 ITA No. 2080/Del/2013
Creditor Rs. 5.90 crore (including opening balances) without conducting any enquiry u/s 133(6) and without affording any opportunity to the assessee whatsoever.
The Ld.CIT passed the order u/s.263 by holding that the order passed by the ld.AO is erroneous as well as prejudicial to the interest of the Revenue for the purpose of sec.263. 8. Accordingly, the ld. AO passed an order on 21/02/2014 u/s 263 r.w.s. 143(3) of the Act giving effect to the order of the Ld. CIT. As per the directions of the ld. CIT, the AO verified the personal balance sheet for the year ending 31/03/2008 of the appellant in which capital was shown amounting to Rs. 1,03,64,190/-. He also verified the balance sheet for the year ending 31/03/2007 in which a capital amounting to Rs. 76,56,659/- was shown. The AO on verification in respect of issues at points ‘b, c, and d’ in para 5 above, accepted the explanation and the evidences furnished by the assessee, and held that no addition is warranted on these points. The ld. Assessing Officer after giving effect to the order of the ld. CIT passed u/s 263 computed the total income of the appellant as under: Income assessed as per assessment u/s 143(3) Dated 10.12.2010 Rs. 3262590/- Add: i) Addition on account of unsecured loans in Set of personal balance sheet Rs. 4823008/- ii) Addition on account of unsecured loans Rs. 3593265/- iii) Addition on account of sundry creditors Rs. 59039946/-
8 ITA No. 2080/Del/2013
Total Income Rs. 70718809/- Or Rs. 70718810/-
The Ld.AO however made addition in respect of the loan liability amounting to Rs.48.23 lacs, unsecured loan amounting to Rs.38.23 lacs and sundry creditors amounting to Rs.5.9crs, as per the order passed by the Ld. CIT u/s.263 of the Act. 10. Aggrieved by the order of the ld. CIT passed u/s 263, vide order dated 12/02/2012 the assessee is in appeal before us. The limited issue required to be adjudicated in this appeal is whether or not the Ld.CIT was justified in exercising revision powers u/s.263 of the Act, on the facts and circumstances of this case. The assessment year involved 2008-09. 11. Subsequent to the finalization of the assessment u/s.143(3), the Ld.CIT sought to revise the subject assessment. In the assessment has been sought to be revised on the ground that the assessment order has been passed without proper enquiry on the points raised in paragraph 6 above. 12. The Ld. AR submitted that in respect of addition of loan liability amounting to Rs.48.23 lacs, unsecured loan amounting to Rs.38.23 lacs and sundry creditors amounting to Rs.5.9crs, as per the order passed by the Ld. CIT u/s.263 of the Act is bad in law in as much as the assessment order passed u/s.143(3), dated 10.12.2010 was not erroneous and prejudicial to the interest of the Revenue. The ld. AR submitted that the details
9 ITA No. 2080/Del/2013
regarding the loan and the confirmations were filed before the Ld.AO and it was verified by the Ld.AO. 13. The ld.AR pointed out that in the assessment order passed on 21.02.2014, passed in pursuance to the order u/s.263 of the Act, the ld.AO has not made any additions on any of the points at ‘b, c and d’ mentioned in para 6 above. The ld. AR further pointed out that the ld. AO while passing the assessment order in pursuance to order u/s.263 of the Act, has made only those additions which has been made by the Ld.CIT vide order dated 25.03.2013. 14. The Ld. AR strenuously contended that the ld.CIT rejected the books of accounts at the assessee u/s 145(3) of the Act without affording due opportunity of hearing for the assessee. It is contended by the ld.AR that no show cause was issued to the assessee in this respect. The ld.AR submitted that ld.AO had accepted the books of accounts.
The Ld. DR supports the orders of the authorities below. 16. We have perused the assessment records and the orders passed by the authorities below. On careful consideration of the submissions, we note that the ld.CIT pointed out five issues in the notice dated 12.02.2013 issued u/s.263 of the Act(as reproduced in para 4 hereinabove). We shall deal with the additions made by the ld. CIT as under;
a) From the perusal of balance sheet and its annexure, it appears that during the year the assessee has introduced
10 ITA No. 2080/Del/2013
new capital of Rs. 20,99,000/- but source of capital (has not been verified) by the AO. b) Sundry Creditors and Unsecured Loans have not been confirmed by the AO by issue of notice u/s 133(6). AO simply accepted the confirmation filed by the assessee.
During the year under consideration, the capital of the assessee in the books of M/s. Arihant Prakashan increased from Rs.64,65,601.07/- to Rs.98,00584.05/-. The same is verifiable from the audited balance sheet. It is very much evident that the assessee has introduced capital amounting to Rs.20,99,000/- during the year under consideration. The Ld.DR confirms from the assessment records that the assessee had filed all the details and confirmations of the unsecured loans raised by the assessee in the personal balance sheet. Further it has been proved from the books of accounts that the assessee issued cheques to the account of M/s. Arihant Prakashan. However the Ld.CIT in the order passed u/s.263 records at para 5 that the details of the accounts were not filed at the time of assessment. It is further noticed that the ld. CIT has excerpted wrong figures from the submissions made by the assessee. 18. It is observed by us that the Ld.CIT did not provided opportunity of being heard to the assessee, which is paramount and mandatory requirement of the Act, prior to invoking the provision of Sec. 145(3). The CIT rejected books of accounts by pointing out that the business results could not be ascertained or verified in the absence stock register and other relevant records to support the
11 ITA No. 2080/Del/2013
same. The deficiencies as noted by the CIT cannot be held inclusive until and unless the assessee is provided due opportunity of being heard to explain her stand. Further it is noticed that the show cause notice issued u/s.263 of the Act does not contain these ground relating to rejection of books of accounts and lower net profit. The Ld.CIT has travelled beyond the issues raised in the notice issued u/s.263 of the Act. Hence, on the basis of foregoing discussions we are inclined to hold that the Ld.CIT rejected books of accounts of the assessee in a unjustified manner is not only against the scheme of the Act but also violative to the principles of natural justice. On careful consideration, we note that the CIT invoked section 145(3) with following observation and conclusion,
“ The regular books of account, as such are not properly maintained, provisions of section 145(3) of the I.T.Act, 1961 are thus invoked rejecting the same since accounts are not properly maintained and are not verifiable.”
It is also pertinent to note that while passing order u/s 263 read with section 143(3) of the Act on 21.02.2014, the ld.AO has not made any addition in regard to any of the points raised by the CIT in the notice u/s 263 of the Act. Per contra the assessing officer made two additions viz. first addition on account of unsecured loans and sundry creditors. We are of the considered view of that the impugned revision order is contrary to the scheme of law as stipulated u/s 263 of the Act because the CIT proceeded to issue notice by pointing out five
12 ITA No. 2080/Del/2013
issues as reproduced hereinabove. However we notice in the impugned order passed u/s 263 of the Act, the CIT directed the ld.AO to make inquiry not only on four points but also enhanced the scope of inquiry for estimation of net profit at the of the assessee which were not mentioned in the notice u/s 263 of the Act. On perusal of the order passed u/s.263, we further observed a lot of factual mistakes, contradictions and infirmities in the order which are as under; S.No. Facts by CIT Contradiction/Correct Facts i) 1. Para 5 page 5 of order Vide para 2(b) of ‘While asked, it was notice u/s 263 admitted that no The assessee has filed balance sheet of personal balance sheet for personal set was ever the ending year 31.03.08 filed by the assessee in which cap shown Rs. either along with the 1,03,64,190/- return of income or The assessee also filed B/S thereafter’ for the year ending on 31.03.07 in which cap was 76,56,659/- ii) Personal set Balance Sheets on page 58-59 which were filed both during assessment proceedings and proceedings u/s 263 • Correct table on page 58 2. Para 5 page 6 of Order • • Details of In each of the account unsecured loan year starting from Akash Jain 2007-08. wrong facts have been • observed by the ld. CIT. This table is • wrong There is no Vipin Kr. • Most of the Jain The CIT is wrong in observations relate to recording the facts relating documentary support to lenders.
13 ITA No. 2080/Del/2013
etc. for opening balance in accounts of lenders. • Page 81 GTI of Parul is 3. Para 8 page 9 of the order; 2.63 lac. • • Total Income 1.64 lac In case of Parul Jain, the loan of Rs. Tax Paid 3498 • Source of loan of Rs. 5 4,66,275/- has been shown whose total lac is clearly bank income below taxable overdraft limit showing tax payable as nil 4. Para 8 page 9 of order: Facts are totally wrong. In case of Payal Jain See para 83-86 : Loan of the total sum advanced Rs. 4 lac received from to the assessee is Payal. Rs. 3 lac was taken 947660/-…. and repaid. 5. Para 8 page 10 of At page 11 para 3 of the order: Impugned order: Despite repeated The ld. CIT observes ‘the requests being given to books of the assessee had furnish and produce been thoroughly verified the books of accounts, during the course of the no books of accounts proceedings u/s 263 were produced 6. Para 8 page 10 of See para 14 and 27 of impugned order: written submissions Neither during the during assessment course of the proceedings. The list as proceedings before the well as confirmed copy of AO nor in the account were filed. proceedings u/s 263 See para 2.8 page 55 of the assessee has paper book filed in appeal furnished any reply of notice u/s 263. confirmation from Both list and confirmations sundry creditors. were filed in 263 proceedings also. [para 2(e) of notice u/s 263] 7. Para 8 page 11 of Page 454 of PB filed in order: appeal:
14 ITA No. 2080/Del/2013
The assessee has The turnover is Rs. 17.05 shown turnover of Rs. cores 20,39,25,524 on which Last year Net Profit it has declared NP of Rs. 21.72 lac Rs. 33,40,720/- Current Year Net Profit Rs. 33.40 lac • no such query regarding 8. Para 8 page 11 of order • observations stock, lower NP in notice regarding stock u/s 263 • no register, lower NP etc. show cause for • Rejection of books rejection of books • the AO accepted books of u/s 145(3) accounts • At para 8 page 10 of 9. Para 2(e) of notice u/s 263 order the ld. CIT Sundry creditors and observes that no unsecured loans have confirmation from any not been confirmed by creditors filed. • Ld. CIT doesn’t hereself the AO by issue of notice u/s 133(6). AO issue notice u/s 133(6) has simply accepted and directly adds entire the confirmation filed sundry creditors by the assessee including opening balance.
We had called for the assessment records and the Ld.DR confirms that all the details in respect of the loans along with confirmations necessary for the purposes of verification, details regarding the sundry creditors etc., were available before the Ld.AO at the time of assessment. From the questionnaire raised by the ld.AO it further appears that specific queries have been raised by the Ld.AO in respect of loan liability, unsecured loans and sundry creditors and the assessee has filed all the details as
15 ITA No. 2080/Del/2013
sought for by the ld.AO. The ld.AO has verified the same at the time of assessment. 21. In the present case, the following legal precedents are relevant:
(a) Malabar Industrial Co. Ltd. Vs. CIT [2000] 243 ITR 83 (SC).
It was, inter alia, laid down in this case that the prerequisite for the exercise of jurisdiction by the CIT under section 263 is that the order of the ITO is erroneous in so far as it is prejudicial to the interests of Revenue. The CIT has to be satisfied of twin conditions, namely :
(a) The order of the AO sought to be revised is erroneous, and
(b) It is prejudicial to the interests of the Revenue.
If one of them is absent – if the order of the ITO 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.
It was further held that the provisions of section 263 cannot be invoked to correct each and every type of mistake or error committed by the AO.
(b) CIT Vs Max India Ltd [2007] 295 ITR 282 (SC) : 213 CTR 266 (SC)
16 ITA No. 2080/Del/2013
It was held in this case that where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order, prejudicial to the interests of the Revenue.
(c) Gupta International Vs ITO [2010] 2 ITR (Trib) 428 (Del)
It was, inter alia, held in this case that when an issue had been raised and a proper reply to it was given, then it could not be presumed that the issue had been dealt with in haste or without making any enquiry.
(d) CIT Vs. Development Credit Bank Ltd. [2010] 323 ITR 206 (Bom.)
In this case, the CIT passed an order under section 263(1) of the Act, setting aside the assessment order passed by the AO and directing de novo enquiry on two issues. The Tribunal noted that all the details had been considered by the AO while passing the assessment order under section 143(3) of the Act. The Tribunal held that the CIT was not justified in exercising the suo motu power of revision under section 263.
On further appeal, the High Court, dismissing the appeal, held that there was no basis or justification for the CIT to invoke the provisions of section 263. The AO after making an enquiry and eliciting a response from the assessee, came to the conclusion that the assessee was entitled to
17 ITA No. 2080/Del/2013
depreciation on the value of securities held on the trade account. The CIT should not have treated this finding to be erroneous or prejudicial to the interests of the Revenue. The observation of the CIT that the AO had arrived at a finding without conducting an enquiry was erroneous, since an enquiry was specifically held with reference to which a disclosure of details was called for by the AO and furnished by the asseseee. The Tribunal was, therefore, justified in holding that recourse to the powers under section 263 was not warranted in the facts and circumstances of the case.
(e) CIT Vs. Design and Automation Engineers (Bombay) P. Ltd. [2010] 323 ITR 632 (Bom.).
Pursuant to filing the return, the assessee, engaged in the business of exporting garments as well as sales in the domestic market, was asked to file the details and to explain the reasons for increase in the expenses. An explanation was filed by the assessee which was accepted by the Assessing Officer and deduction was allowed u/s. 80HHC of the Act. Thereafter, a notice under section 263 was issued by the Commissioner on the ground that the assessment order under section 143(3) of the Act was erroneous as the assessee was entitled to only proportionate deduction under section 80HHC(3) of the Act. The Commissioner held that while allowing deduction
18 ITA No. 2080/Del/2013
under section 80HHC of the Act, the Assessing Officer had not followed the provision of section 80HHC(3) of the Act, the deduction allowed was higher than what was allowable and recalculated the deduction under section 80HHC of the Act.
On appeal, the Tribunal set aside the order passed by the Commissioner holding that the view taken by the Assessing Officer was a possible view and therefore, it could not be concluded that the order of the Assessing Officer was erroneous and was prejudicial to the interest of the Revenue and that the condition precedent for invoking jurisdiction under section 263 of the Act did not exist.
On further appeal to the High Court, dismissing the appeal, held that it could not be said that the Assessing Officer had not applied his mind while granting deduction under section 80HHC of the Act as regards the net profit earned by the assessee pertaining to its export business. The Tribunal was right in holding that the view taken by the Assessing Officer was a possible view and that the condition precedent for invoking jurisdiction under section 263 by the Commissioner did not exist. The Tribunal was justified in upsetting the order passed by the Commissioner under section 263 of the Act.
19 ITA No. 2080/Del/2013
(f) CIT Vs. Smt.Minalben S. Parikh [1995] 215 ITR 81 (Guj.)
It was held in this case that two conditions are required to be satisfied before the CIT can exercise powers under section 263 of the Act, viz :
(a) The order of the AO must be found to be erroneous, and
(b) The order of the AO must also be found to be prejudicial to the interests of the Revenue.
Unless both the conditions are satisfied, the CIT does not get jurisdiction to pass an order under section 263, revising the assessment order. It is not necessary that every order which is found to be erroneous is also prejudicial to the interests of the Revenue.
It was also held that the CIT had not considered whether the order of the AO was prejudicial to the interests of the Revenue. The Tribunal was right in coming to the conclusion that if the order of the CIT was allowed to stand, it would result in double taxation which was contrary to the scheme of the Act and was not the purpose of exercise of powers under section 263 of the Act.
20 ITA No. 2080/Del/2013
Therefore, the Tribunal was right in law in setting aside the order of the CIT, under section 263 of the Act.
(g) CIT Vs. Arvind Jewellers [2003] 259 ITR 502 (Guj) : [2002] 124 Taxman 615 (Guj.) It was held in this case that the provisions of section 263 cannot be invoked to correct each and every type of mistake or error committed by the AO.
In the instant case, it was the finding of fact given by the Tribunal that the assessee had produced relevant material and offered explanation in pursuance of the notices under section 142(1), as well as section 143(2) and after considering those materials and explanation, the ITO had come to a definite conclusion. The CIT did not agree with the conclusion reached by the ITO. Section 263 did not empower him to take action on these facts to arrive at the conclusion that the order passed by the ITO was erroneous and prejudicial to the interests of the Revenue. Since the material was there on record and said material was considered by the ITO and a particular view was taken, the mere fact that different view could be taken, should not be the basis for an action under section 263 and it could not be held to be justified.
In this case, the Hon. High Court relied upon the judgment of the Supreme Court, in the case of Malabar Industrial Co. Ltd. Vs. CIT [2000] 243 ITR 83 (SC).
21 ITA No. 2080/Del/2013
(h) Ramakant Singh Vs CIT [2011] 8 ITR (Trib) 403 (Patna)
It was held in this case that the Questionnaire issued by the AO covered all the points raised by the CIT in his show- cause notice and in the order passed under section 263, and on all these points reply along with necessary details and evidence was furnished by the assessee before the AO, during the course of the assessment proceedings and hence it had to be accepted that the AO had applied his mind on all these issues.
It was further held that even if such enquiry was inadequate in the opinion of the CIT, this did not give power to the CIT to pass order under section 263, merely because he had a different opinion on the matter.
It was, accordingly, held that order of the CIT under section 263 was not sustainable.
(i) Jamnadas T. Mehta Vs. ITO [2002] 257 ITR (AT) 90 (Pune) (TM).
It was held in this case that the ambit of interference under section 263 is not to set aside merely unfavorable orders and bring to tax some more money to the treasury. The section is not enacted to get a sheer escapement of revenue which is taken care of in other provisions of the Act. Prejudice that is contemplated under section 263 is the prejudice to the income-
22 ITA No. 2080/Del/2013
tax administration as a whole. Section 263 is to be invoked not as a jurisdictional corrective or as a review of a subordinate’s order in exercise of the supervisory power, but it is to be invoked and employed only for setting right distortions and prejudices to the revenue, which is a unique conception, which is to be understood in the context of and in the interests of the Revenue administration.
It was also held that where two views are possible and the AO has taken one view, with which the CIT does not agree, it cannot be treated as an erroneous order, prejudicial to the interests of the Revenue, unless the view taken by the AO is unsustainable in law.
It is evident from the order of the Assessing Officer that he has considered all detailed particulars filed before him. The same is verifiable from the questionnaire issued by the ld. AO at the time of assessment. The Ld.AO has dealt with and verified all the details in respect of the issues raised in the notice issued by the ld.CIT u/s.263 of the Act. We therefore reject the submission of the Revenue that the order of the Ld.AO is erroneous or prejudicial to the interest of the Revenue or have been passed without application of mind only because in the assessment order the ld.AO has not made elaborate discussion in that regard. It is evident that the ld.CIT has set aside the order of the ld.AO only on the ground that the view taken by the ld.AO was not agreeable to him. In our considered opinion, it cannot be said that the ld.AO has not applied
23 ITA No. 2080/Del/2013
his mind at the time of assessment. The view taken by the ld.AO was a possible view and that the condition precedent for invoking jurisdiction under section 263 by the Commissioner of Income-tax did not exist in the facts of the present case.
22.1 Hon’ble Bombay High Court in the case of CIT vs. Gabriel India Ltd.,(1993) 203 ITR 108 has held as under;
“ 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
24 ITA No. 2080/Del/2013
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 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.” 23. In view of the above reasoning and findings, we are inclined to follow the decision of CIT v. Gabriel India Ltd. [1993] 203 ITR 108, we are of the considered opinion that the provisions of section 263 of the Act, could not be invoked in respect of the aforesaid issue, because the same had been considered by the AO in the assessment order for the AY 2008-09.
25 ITA No. 2080/Del/2013
We therefore quash and set-aside the order /s.263 of the Act, dated 25.03.2013 passed by the Ld.CIT, Merrut as the same is not valid and sustainable.
In the result, the appeal filed by the assessee is thereby allowed.
The order is pronounced in the open court on 30/09/2015
Sd/- Sd/- (INTURI RAMA RAO) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 30.09.2015 *Kavita, P.S.