Income Tax Appellate Tribunal - Mumbai
Shree Bhagwati Enterprises, Navi ... vs Pr Cit 28, Navi Mumbai on 7 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " E" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI N.K. PRADHAN, AM
ITA No.525/Mum/2016
(A.Y:2012-13)
Shree Bhagawati Enterprises Principal Commissioner of
A1701/1702 Shreeji Heights, Income Tax- 28
Palm Beach R D Sec-46A Vs. Tower No. 6, 3rd Floor, R. No. 4
Nerul Navi Mumbai-400706 Vashi Rly Stn Complex, Vashi
P AN No. ABGFS6057G Navi Mumbai-400703
Appellant .. Respondent
Assessee by .. Shri Subodh Ratnaparkhi, AR
Revenue by .. Shri K. Ravi Kiran, DR
Date of hearing .. 18-05-2017
Date of pronouncement .. 07-07-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the revision order passed u/s 263 of the Income Tax Act, 1961 (hereinafter 'the Act') by PCIT-28, Mumbai, No. Pr. CIT-28/263/03/2015-16 dated 15-12-2015. The Original Assessment was framed by DCIT-28(3), Mumbai for the A.Y. 2012-13 vide order dated 11-03-2015 u/s 143(3) of the Act.
2. The only issue in this appeal of assessee is against the revision order passed by PCIT under section 263 of the Act revising the assessment framed by AO under section 143(3) of the Act. For this assessee has raised the following three grounds: -
"1. The learned Pr. CIT erred in holding the order framed by the assessing officer under section 143 (3) of the I. Tax Act on 11.03.2015 to be erroneous and prejudicial to the interest of revenue and accordingly the assumption of jurisdiction by the Pr.
ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 CIT u/s 263 of the IT Act 1961 was not valid and justified.
2. The learned Pr. CIT erred setting aside to the file of the assessing officer, the issue of verification of certain purchases debited to profit and loss account, holding the assessing officer to have failed in examining and verifying such purchases, not appreciating that the assessing officer had verified the purchases and had accepted the same only after due enquiry and verification of details called for and therefore the order u/s 263 setting aside this issue to the file of the assessing officer was not justified.
3. The learned Pr. CIT erred in setting aside to the file of the assessing officer, the issue of advances of Rs.2. 18 Cr received from 27 customers as booking advances for proposed sale of flats/shops holding that the project being completed, the revenue in respect of these units should have been disclosed in the year under appeal as income, not appreciating that receipt of booking advances without any sale agreement or handing over possession of the constructed units would not lead to income chargeable to tax in the hands of the appellant and ignoring that except in case of 3 parties all other proposed transactions stood subsequently cancelled."
2. The PCIT on perusal of the assessment records issue show cause notice under section 263 of the Act vide dated 27-10-2015 and notice that the assessment order is erroneous as well as prejudicial to the interest of the Revenue as follows: -
Page 2 of 22ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 "i. on perusal of case records, it is observed that assessee had made payment of major purchases after filing of the return of income. For example, assessee had purchased cements from two parties without paying them for the amount of more than Rs 2.5 crore. The AO had overlooked this issue while assessing the income for the year.
ii. It is also observed that assessee had debited expense for purchase of plot of Rs. 19.05 crores in the P&L account whereas the project started 3 years back. There is no evidence on record to show that how this claim is made this year and how payment for purchase of land was outstanding since beginning.
iii. It is further observed from the records that the project was completed during the year and there were unsold flats of Rs. 34. 05 crores. However, from the records it is not ascertainable as to whether the profits on these flats were shown or not during the year. Apart from this, assessee had received advance booking amount of Rs.2. 18 crores against 27 flats and shops, which meant that sale of flats were made upto this year but sale deed was not made. Since the project has been completed this year, these booked flats should have been taken to the sales and profit due should have been offered for taxation, which apparently has not been examined by the AO."
3. In regard to the issue of verification of purchase, the PCIT noted that the assessee was making payment for purchase after ten months or one year which is not normal in the business practice. Further, according to him the project was substantially complete and expenses related to Page 3 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 cement etc were claimed. According to him, there is abnormality and AO has not properly examined this purchase even though assessee has not made payments within a reasonable period on two to three months i.e. credit period. The PCIT considering the amended provisions directed to the AO for verifying the issue of projects and for this he directed as under: -
"Since as per amended provisions of Section 263 (Explanation 2), if the order is passed without making enquiry or verification which should have been made, the order passed by the Assessing Officer shall be deemed to be erroneous in as far as it is prejudicial to the interest of the revenue. In this case, none of the supplier was examined and verified by the Assessing Officer after obtaining details from the assessee even when the payments to these suppliers were after abnormally long delay. Therefore, in exercise of powers u/s 263, I consider the Assessing Officer's order on the issue of purchase verification erroneous and prejudicial to the interest of revenue and, accordingly, I set aside this issue to the file of Assessing Officer with a direction to examine all the purchases above Rs. 1 lakh where payments were not made within three months by the assessee with regard to the genuineness and business purpose of such purchases."
4. In regard to the issue of unsold flats despite the fact that the assessee received advances of Rs. 2.18 crore against 27 flats and project was complete but the same was not disclosed as income in the return of income and he directed the AO to make required enquiries and he setting aside by observing in Para 9.1 and 9.2 as under: -
Page 4 of 22ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 "9.1 I have carefully considered the assessment records and assessee's submissions. Assessee has claimed substantial number of unsold flats and taken the same as stock even when assessee has received booking advance of Rs.2.18 crores against 27 flats. It is not in dispute that the project was completed by the end of this year and therefore, as per accounting standard AS9, the revenue in respect of flats booked should have been disclosed as sale. Assessing Officer did not examine this aspect at all and, therefore, as per the amended provisions of section 263, assessment order passed by the Assessing Officer on this aspect is erroneous and prejudicial to the interest of revenue. Once the project is completed and sale price is determined by way of booking, there is no basis or reason for not disclosing revenue on such completed project. In the absence of Assessing Officer making any enquiry in this regard, I, in exercise of powers u/s 263, set aside this issue to the file of Assessing Officer with a direction to re-examine this aspect and consider flats booked as sale if the sale price is determined in view of the fact that project is completed and as per Mercantile System AS-9, Revenue is to be recognized.
9.2 Assessee also relied upon certain judicial decisions which are prior to amendment to the provisions of section 263. With the introduction Page 5 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 of Explanation 2 to section 263, the scope of this section is widened and accordingly the decisions relied by the assessee are no longer relevant when lack of enquiry is sufficient to deem an assessment order erroneous Undoubtedly on both the issues set-aside, Assessing Officer did not make required enquiries and as such order passed is deemed to be erroneous in as much as prejudicial to the interest of revenue. Accordingly, the decisions relied upon by assessee are not relevant now, hence, not discussed in detail."
Aggrieved, against the directions of PCIT setting aside of the assessment order and directing the AO to reframed the assessment. In view of the revision order passed under section 263 of the Act by PCIT, assessee came in appeal before Tribunal.
5. Before us, the learned Counsel for the assessee Subodh Ratnaparkhi argued on behalf of assessee. He first of all argued that the assessee is a partnership firm engaged in the business of developing a real estate project Bhagwati heritage at Navi Mumbai. The Ld counsel drew our attention to the AO's questionnaire issued dated 02-12-2014, he particularly referred to question No. 8, 10 and 17 which reads as under: -.
"8. Give details of creditors in following format Name & Opening Debit Credit Closing address balance Balance
10. Please give details of parties from whom cumulative purchase of Rs. 10 lakh or more was Page 6 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 made in FY under consideration in following format.
Name and address Amount of Nature of goods
purchase purchased
17. Please give details of purchase party in following format.
Name of party TIN Amount of Whether name is
purchase reflected in Hawala
list displayed in
website of Sales Tax
Department,
Maharashtra
6. This questionnaire was replied by assessee and the learned Counsel for the assessee drew our attention to page 19 and 20 of the assessee's paper book wherein letter dated 16-02-2015 of the assessee addressed to the AO whereby the details of sundry creditors, details of cumulative purchase of 10 lakhs or more and details of purchase party with the TIN No. is provided at item No. 10,12 and 19 as under: -
"10. Details of sundry creditors of more than Rs. 10 lakh in the prescribed format.
12. Details of cumulative purchases of Rs. 10 lakhs or more.
19. Details of purchase party with TIN No."
7. The learned Counsel for the assessee stated that the complete details of sundry creditors more than Rs. 1 lakh was provided to the AO at pages 21 to 24 which was filed before the AO including the details of purchase party wise. The learned Counsel for the assessee in view of these details stated that even the purchase of small amount to the extend Rs. 3,069/- from Sagar Electricals filed before the AO what to talk about Page 7 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 the purchase of 1 lakh or 10 lakhs. The learned Counsel also drew our attention to page 34 of the assessee's paper book wherein the details of sundry creditors is more than 1 lakhs is enclosed and the details of subsequent payments also there. In view of these, the learned Counsel for the assessee stated that even the subsequent payment to the Sundry Creditors/parties exceeding Rs. 1 lakh were produced in the shape of ledger account of these parties for the subsequent assessment years reflecting the payment made through banking channels. Further, copy of statement giving details of subsequent payment to Sundry Creditors exceeding Rs. 1lakh per party and the ledger account of these parties was also produced before the AO. He explained that the AO has examined this issue in detail in the course of assessment proceedings and could not find anything adverse in the details furnished/produced and accordingly, he has not taken any adverse view on the matter. Further, the payments are by banking channels to these purchase party after end of these previous year would not automatically mean that any adverse view of the transaction is to be compulsorily taken.
8. In regard to the issue of unsold flats the assessee stated that the construction of the entire project was complete as on 31-03-2012 and occupation certificate was also obtained. The assessee filed the details of project undertaken and completed as under: -
M/S SHREE BHAGAWATI ENTERPRISES Asst. Year: 2012-13 ANNEXURE-8 DETAILS OF PROJECT UNDERTAKEN Sr. Particulars No.
(i) Area of Land (Sq. ft.) 112445 Sq. Ft.
(ii) Exact address of Plot Bhagwati Heritage, Plot No. 29,30,31,32,47,48,49 & 52 Sector 21, Kamothe, Navi Mumbai-410209
(iii) No. of Wings/ Towers 10 Wings (A to J)
(iv) No. of floors in each wings/ 13 Floor per towers Towers
(v) No. of flats/ units on each floor 2 Flats of each wing/tower
(vi) Date of Commencement of 07.11.2007 construction Page 8 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3
(vii) Date of receipt of 31.03.2012 O.C/completion certificate of the project
(viii) No. floor/tower erected as on (13 floor) 31-03- (13 Floor) 31- 31-03-2013 2011 03-2012
(ix) Extent of completion of project Completed as on 31/08/2013
(x) Saleable Area in the in sq. ft.
with separate details as under
Residential Space 105584 Sq. ft.
Commercial Space 6861 Sq. ft.
Parking Space 250 Parking Slot
9. He argued that Revenue in respect to Flats or shops which were sold was recognized by crediting the sale value of the Flats to the profit and loss account of the assessee. He explained that as on 31-03-2012 the flats and shops totaling to 127 Nos. of units were constructed but remained unsold. The details of such unsold Flats/ shops forming part of closing stock as on 31-03-2012 is recorded by the assessee under schedule G to the audited financial statement/audited accounts.
According to schedule G, area of 1,52,612 square feet of Flats/ shops in various buildings were unsold and the value of the same was adopted at the rate of Rs. 2231/- per square feet and which was adopted and disclosed as closing stock, which comes to Rs.34,04,75,141/-. The learned Counsel for the assessee drew our attention to the balance sheet which is enclose at pages 118 of the assessee's paper book and it is disclosed in closing stock at Rs. 34,04,75,141/-. The learned Counsel for the assessee stated that the profit in respect to unsold Flats/Shops cannot be recognized unless the said units are actually sold. He argued that the PCIT in his show cause notice mentioned that it is not ascertainable as to whether profit on this unsold flat was shown or not in the year under consideration. In reply to the learned Counsel for the assessee stated that in the year under consideration no profit has been offered in respect to these 127 units as the same remained unsold but profit on unsold flat was offered in the year of sale in subsequent years. It was explained that as per advance of Rs. 2.18 crore received from 27 customers, which is disclosed in schedule E of the audited accounts, it Page 9 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 was stated that corresponding sales are booked after receiving advances but it was sold in the subsequent assessment year and the customers entering into registered agreement for purchase of such units and for making final payment because in the year under consideration received only part of the total consideration and full consideration was received against registration of unit. In the absence of the customer entering into registered agreement, Revenue was not recognized in regard to concerned unit because the same has not been sold and only advance was received that also part of the sale consideration. It was stated that Revenue is recognized not on completion of construction but on sale of particular unit as and when consideration received by assessee. The assessee also submitted the details on sales of various units, as available in stock as on 31-03-2012 as sold in subsequent assessment years which is includes in assessee's paper book pages 25 to 31 including name and address of the customer, Flats/Shops sold and amount of sale consideration. It was argued that the profit arising at the sale of units is offered to tax in respect of assessment years on sale basis. The assessee also filed copies of assessment order for AY 2013- 14 and 2014-15 in assessee's paper book at pages 136 to 145 wherein the subsequent sale, the amount of advance received on account of these 27 flats, is disclosed. The assessee also submitted statement giving details of booking advances as on 31-03-2012 along with ledger account of customers who have cancelled the allotments, booking cancellation letter and bank statement reflecting the payments returned to these customers through banking channels, which is enclosed at pages 146 to 234 of assessee's paper book. He argued that these complete details were available before the AO and AO on the basis of the fact that the actual sale of these flats in respect to these 27 customers, from who advances of Rs. 2.18 crore is received by assessee, taken a view that this is to be assessed in the year of completion of sale. Admittedly, according to the learned Counsel for the assessee has disclosed the sale consideration from these 27 customers in subsequent Page 10 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 assessment years 2013-14 and 2014-15 for which he filed copies of assessment orders.
10. In view of these facts and circumstances, learned Counsel for the assessee argued that in both the cases the revision order under section 263 of the Act by the PCIT is without any reason and hence, require to be quashed. Furthermore, the learned Counsel for the assessee argued that even amendment carried out by the Finance Act 2015 with effect from 01- 04-2015 by newly inserting explanation 2(a) to the section 263 of the Act. He argued that Mumbai Tribunal in Shri Narayan Rane vs. ITO (2016) (70 taxmannn.com 227 (Mumbai-Trib.) has considered the issue in detail and finally held that the same as prospective and not retrospective.
11. On the other hand, the learned CIT DR, Shri K. Ravi Kiran relied on the order of PCIT. He argued that after amendment and by insertion of explanation 2(a) to section 263 of the Act by the Finance Act 2015 with effect from 01-06-2015, the revision order of PCIT is as per law.
12. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that, on the first issue regarding verification of purchases, the assessee during the course of assessment proceedings filed details of sundry creditors along with details of purchases. The AO in view of these details subsequently asked for details of payment to sundry creditors outstanding as on 31-03-2012 exceeding Rs. 1 lacks per party with evidence of payment subsequently. The Assessee filed statements giving details of subsequent payments to the sundry creditors exceeding Rs. 1 lacks and also produced copies of ledger accounts of these parties for subsequent assessment years wherein the payment received from assessee through banking channels is reflected. As regard to the query of the AO that the assessee has received credits on account of purchased from parties, it was explained that the assessee group including the partners independently is developing various projects in which substantial purchases were made Page 11 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 and therefore having good business relations with these parties and due to that is availing credit facility. In view of these facts, the AO examined the aspect in detail in the course of assessment proceedings and did not find any anomaly in the details furnished before him and accordingly has not taken any adverse view of the matter. We find that the complete details were examined by the AO during the course of assessment proceedings and now CIT through this revision order want to re-examine this issue, which according to us is not permissible u/s 263 of the Act.
13. In regard to the second issue of unsold flats it was explained during the course of assessment proceedings that the construction of the entire project was completed during the year 2012-13 i.e. the year under consideration and assessee has recognized the revenue in respect of flats/ shops sold by crediting the sale value to the profit and loss account. We find that as on 31-03-2012 flats and shops totaling to 127 units were remained unsold and details of such unsold flats forming part of closing stock was recorded under schedule G to the audit financial statement of the assessee. We find from the facts of the case that this statement reveals that 1,52,611/- sq. ft of area for flats/ shops in various buildings remain unsold and the value of the same @ Rs. 2,231/- per sq. ft was disclosed in the total value of closing stock determined at Rs. 34,04,75,141/- and this amount also appears in balance sheet as closing stock of flats/ shops at Kamothe. The assessee is following project completing method of accounting and is recognizing the revenue as and when the flats are sold and offer the same for taxation. As regards to advance of Rs. 2.18 crores received from 27 customers as per schedule E of the audited finance statements are concerned, the requisite sales are booked in the subsequent assessment years on the basis of customers entering into register agreement for purchase of such units. It was explained before us that only part of total sale consideration is received in this year i.e. the advance or earnest money for purchase of flat by the prospective buyer and full consideration is received only in Page 12 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 subsequent years. And in subsequent years this sale is reflected as revenue by crediting the same to the P&L Account. The assessee has filed complete statements and details of sale of various units as on 31- 03-2012 in subsequent years and the same has been examined by the AO. These details are now filed before us at pages 146 to 234 of the assessee's paper book. The assessee before us also filed copies of assessment orders passed u/s 143(3) of the Act for AYs 2013-14 and 2014-15, during which years the assessee has disclosed the sale consideration of these flats when actually these were sold. We find that on merits as well as on the issued at the matter was examined by the AO during the course of assessment proceedings, the revision proceeding initiated by the CIT(A) u/s 263 of the Act and revision order passed is not as per the provision of law.
14. Learned Counsel for the assessee relied on the decision of Hon'ble Supreme Court in the case of CIT vs. MAX India Ltd. (2007) 295 ITR 282 (SC) wherein it is held that where two views are possible and the AO has taken one of the possible view, with which CIT does not agree, it cannot be treated as erroneous order so as to prejudicial to the interest of Revenue. Hon'ble Supreme Court has also considered the decision of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC) and held as under:
"1. In our view at the relevant time two views were possible on the word 'profits' in the proviso to section 80 HHC (3). It is true that vide2005 amendment the law has been clarified with retrospective effect by insertion of the word 'loss' in the new proviso. We express no opinion on the scope of the said amendment of 2005. Suffice it to state that in this particular case when the order of the Commissioner was passed under section 263 of the Income-tax Act two views on the said word 'profits' existed. In our view the matter is squarely Page 13 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 covered by the judgment of this Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 as also by the judgment of the Calcutta High Court in the case of Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229 at 243.
2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase "prejudicial to the interest of the revenue"
under section 263 has to be read in conjunction with the expression "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 interest of the revenue. For example, when the 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 interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. According to the learned Additional Solicitor General on interpretation of the provision of section 80HHC(3) as it then stood the view taken by the Assessing Officer was unsustainable in law and therefore the Commissioner was right in invoking section 263 of the Income-tax Act. In this connection he has further submitted that in fact 2005 amendment which is clarificatory and retrospective in nature itself indicates that the view taken by the Assessing Officer at the relevant time was unsustainable in law. We find no merit in the said contentions. Firstly, Page 14 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 it is not in dispute when the Order of the Commissioner was passed there were two views on the word 'profit' in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated 5-3-1997 in purported exercise of his powers under section 263 of the Income-tax Act."
15. Similarly, the learned Counsel also relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Gabrial India Ltd. (1993) 203 ITR 108 (Bom), wherein it is held that order sought to be revised must be erroneous and also prejudicial to the interest of the revenue. According to Hon'ble High court section 263 of the Act does not visualize substitution of judgment of CIT for that of the AO unless the decision is held to be erroneous. Hon'ble High Court held as under: -
"13. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 there must be material before the Commissioner to consider that the order passed by the ITO was erroneous insofar as it is prejudicial to the interests of the revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the ITO without making any enquiry in undue haste. We have also held as to what is prejudicial to Page 15 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 the interests of the revenue. An order can be said to be prejudicial to the interests of the revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that 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. Our aforesaid conclusion gets full support from a decision of Sabyasachi Mukharji, J. (as his Lordship then was) in Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229 (Cal.). In our opinion, any other view in the matter will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. As already stated, it is a quasi-judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, undoubtedly, Page 16 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 it is an administrative act, but on examination 'to consider' or in other words, to form an opinion that the particular order is erroneous insofar as it is prejudicial to the interests of the revenue, is a quasi- judicial act because on this consideration or opinion the whole machinery of re-examination and reconsideration of an order of assessment, which has already been concluded and controversy which has been set at rest, is set again in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from the records called for by the Commissioner.
14. We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot 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 ITO to re-examine the matter that, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Page 17 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 Commissioner only after coming to the conclusion that the earlier finding of the ITO was erroneous and prejudicial to the interests of the revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal."
16. Further, the learned Counsel for the assessee has also relied on the decision of the co-ordinate Bench of Mumbai, ITAT in the case of Narayan Tatu Rane vs. ITO (2016) 70 taxmann.com 227 (Mumbai-Trib.), wherein the issue of retrospectivity of explanation 2(a) to section 263 of the Act, the newly inserted explanation by the Finance Act, 2015 w.e.f 01.06.2015 is held to be retrospective and also held that the newly inserted explanation does not authorize or give unfettered powers to CIT to revisit each and every order, and if his opinion the same has been passed without making enquiries or verification which should have been made without the holding the same as erroneous so as to cause prejudice to the interest of revenue. The Tribunal held as under: -
"19. The law interpreted by the High Courts makes it clear that the Ld Pr. CIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the Page 18 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon'ble Delhi High Court, referred above. If that be the case, then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon'ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 that there must be a point of finality in all legal proceedings and the stale issues should not be reactivated beyond a particular stage and the 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.
20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our Page 19 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.
21. In the instant case, as noticed earlier, the AO has accepted the explanations of the assessee, since there is no fool proof evidence to link the assessee with the document and M/s RNS Infrastructure Ltd, from whose hands it was seized, also did not implicate the assessee. Thus, the assessee has been expected to prove a negative fact, which is humanely not possible. No other Page 20 of 22 ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3 corroborative material was available with the department to show that the explanations given by the assessee were wrong or incorrect. Under these set of facts, the AO appears to have been satisfied with the explanations given by the assessee and did not make any addition. We have noticed that the Hon'ble Supreme Court has held in the case of Central Bureau of Investigation (supra) that the entries in the books of account by themselves are not sufficient to charge any person with liability. Hence, in our view, it cannot be held that the assessing officer did not carry out enquiry or verification which should have been done, since the facts and circumstances of the case and the incriminating document was not considered to be strong by the AO to implicate the assessee. Thus, we are of the view that the assessing officer has taken a plausible view in the facts and circumstances of the case. Even though the Ld Pr. CIT has drawn certain adverse inferences from the document, yet it can seen that they are debatable in nature. Further, as noticed earlier, the Ld Pr. CIT has not brought any material on record by making enquiries or verifications to substantiate his inferences. He has also not shown that the view taken by him is not sustainable in law. Thus, we are of the view that the Ld Pr. CIT has passed the impugned revision orders only to carry out fishing and roving enquiries with the objective of substituting his views with that of the AO. Hence we are of the view that the Ld Pr. CIT was not justified was not correct in law in holding that the impugned assessment orders were erroneous."Page 21 of 22
ITA No . 52 5 / Mu m/ 2 01 6 Shree Bhagawati Enterprises A . Y: 1 2- 1 3
17. In view of the above facts and circumstances of the case and precedence cited above, we are of the view that the revision order passed by CIT u/s 263 of the Act is without any basis and void. Accordingly, we quash the revision order and allow this appeal of assessee.
18. In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 07-07-2017.
Sd/- Sd/-
(N.K. PRADHAN) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 07-07-2017
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The PCIT, Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. //True Copy//
BY ORDER,
Assistant Registrar
ITAT, MUMBAI
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