Income Tax Appellate Tribunal - Delhi
Bhushan Steel Ltd., New Delhi vs Assessee on 30 March, 2015
ITA No. 1641 to 1646/Del/2014
AY: 2006-07 to 2010-11
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `A' NEW DELHI
BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
I.T.A.No.1641/Del/2014
Assessment Year : 2006-07
I.T.A.No.1642/Del/2014
Assessment Year : 2007-08
I.T.A.No.1643/Del/2014
Assessment Year : 2008-09
I.T.A.No.1644/Del/2014
Assessment Year : 2008-09
I.T.A.No.1645/Del/2014
Assessment Year : 2009-10
I.T.A.No.1646/Del/2014
Assessment Year : 2010-11
Bhushan Steel Ltd., vs Asstt.Commissioner of Income Tax,
st
1 Floor, F-Block, Central Circle-13,
International Trade Tower, New Delhi.
Nehru Place,
New Delhi.
(Appellant) (Respondent)
Appellant by: S/Shri Ashwani Kumar, CA, Aditya Kumar, CA
Respondent by : Smt. A. Misra, CIT DR
Date of Hearing: 22.1.2015
Date of pronouncement:
1
ITA No. 1641 to 1646/Del/2014
AY: 2006-07 to 2010-11
ORDER
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
The above captioned appeals have been preferred by the assessee against the order of CIT(A), Central-I, New Delhi dated 20.02.2014 pertaining to AY 2006-07, 2007-08, and 2008-09, and order dated 18.2.2014 for AY 2008-09, 2009-10 and 2010-11 passed u/s 263 of the Income Tax Act, 1961. The assessee has raised similar grounds in all these appeals except calculation of alleged bogus expenses. The grounds raised by the assessee in ITA No.1641/Del/2014 read as under:-
"1. That the order dated 20-02-2014 passed u/s 263 of the Income-tax Act, 1961 passed by the Ld Commissioner of Income-Tax, Central-I, New Delhi is against law and facts on the file in as much as she was not justified:-
a) to set aside the order dated 29-12-2011 passed u/s 153A r.w.s. 143(3) of the Income-tax Act, 1961 passed by the Ld. Asstt Commissioner of Income-tax, Central Circle -13, New Delhi on the ground that the same is allegedly erroneous and prejudicial to the interests of the Revenue;
b) to set aside the assessment order dated 29-12-2011 in as much as the twin conditions as laid out in Section 263 of the Income-tax Act, 1961 were not fulfilled;
c) to direct the Assessing Officer to examine the taxability of the amount of Rs. 20,19,7341- on account of alleged bogus expenses booked without appreciating the factual position and the detailed submissions made on behalf of the Appellant Company."2
ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11
2. We may also point out that the grounds in other five appeals are also similarly worded except date of assessment order and quantum of alleged bogus expenses.
3. Briefly stated the grounds giving rise to these appeals are that a search operation u/s 1342(1) of the Act was conducted on 3.3.2010 on Bhushan Steel Group of cases. The premises of M/s Bhushan Steel Ltd. were covered along with other companies of this group. Subsequently, the assessment orders were passed u/s 143(3) r/w section 153A of the Act on 29.12.2011 for AY 2004-05 to AY 2008-09 for AY 2009-10 and AY 2010-11 on 1.5.2013 in the case of M/s Bhushan Steel Ltd. whereas assessment order in the case of M/s Bhushan Energy Ltd. was passed u/s 143(3) r/w section 153A of the Act on 27.12.2011 for AY 2004-05 to AY 2010-11. During the course of search action, it has been noticed that the assessee company was involved in inflating some of the expenses using various parties which were not genuine and thereby reducing the tax liability of the assessee company. These companies were M/s Elegant Security Services Pvt. Ltd., M/s Dependable Transport Pvt. Ltd., M/s Terrific Steel Pvt. Ltd. and Ms/ Stylish Construction Pvt. Ltd. which had provided such entries to the assessee company for AY 2006-07 to 2010-11. A survey action was also conducted on the premises of these companies along with other Bhushan Steel Group of cases and it had been established by Investigation Wing that these parties were not doing any genuine business activities and have been 3 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 used by the assessee company for inflating its expenses for reducing its tax liability. The DDIT(Inv) had also highlighted these facts and findings in the appraisal report prepared in pursuance to the search operation.
4. Subsequently, the CIT issued notice u/s 263 of the Act to M/s Bhushan Steel Ltd. on 24.1.2011 for AY 2006-07 to 2008-09 and to M/s Bhushan Energy Ltd. on 20.1.2014 for AY 2008-09 to 2010-11. After allowing due opportunity of hearing, the CIT passed impugned orders and held that the order passed by the AO is erroneous and prejudicial to the interest of revenue and he set aside the same directing the AO to examine the taxability of alleged bogus expenses amounting to Rs.20,19,734 for AY 2006-07, Rs.1,65,45,383 for AY 2007-08, Rs. 3,06,37,162 for AY 2008-09 in the cases of M/s Bhushan Steel Ltd. and alleged bogus expenses of Rs.62,33,456 for AY 2008-09, Rs.1,08,49,113 for AY 2009-10 and Rs.2,56,60,607 for AY 2010-11 in the cases of Bhushan Energy Ltd.
5. Being aggrieved by the above orders of the CIT(A) passed u/s 263 of the Act quashing the earlier assessment order passed u/s 143(3) r/w Section 153A of the Act in the respective assessment years, the assessee has preferred these appeals with similarly worded grounds reproduced hereinabove.
6. We have heard arguments of both the sides and carefully perused the relevant material placed on record. Ld. counsel of the assessee submitted that a search was conducted on 3.3.2010 on Bhushan Steel Group Company. In 4 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 pursuance to search operation, the assessment proceedings were concluded by framing assessment u/s 143(3) r/w 153A of the Act. Ld. Counsel of the assessee further submitted that no specific question was raised by the AO about the expenses claimed by the assessee in the P&L account and statement of accounts filed along with return of income. Ld. AR further pointed out that under scheme of reassessment u/s 153A of the Act, no addition could have been made beyond incriminating material where the assessment was completed before search operation. Ld. Counsel fairly accepted that this plea was not raised before the CIT(A) during the course of proceedings u/s 263 of the Act. Ld. Counsel of the assessee vehemently contended that all the accounts and details were filed before the AO and the same were also filed before the CIT(A) during the proceedings u/s 263 of the Act. Ld. Counsel also contended that both the conditions viz. "erroneous" and "prejudicial to the interest of revenue" have to be fulfilled and in this case the order of the AO may be erroneous but the same cannot be said to be prejudicial to the interest of revenue as the parties who have received amount of claimed expenses are also tax payees and they have paid due tax to the department on these receipts and therefore the expenses claimed by the assessee company and offered to tax by the recipient company become revenue neutral and, therefore, it cannot be said that the order of the AO was prejudicial to the interest of revenue.
5 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11
7. Placing reliance on the decision of Hon'b le Supreme Court in the case of Gee Vee Enterprises vs ACIT(1975) 99 ITR 375 (SC), ld. Counsel submitted that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, the ITO should have made further inquiries before accepting the statement made by the assessee in his return but merely on the basis that some more inquiry was to be conducted, the assessment order cannot be held as erroneous and prejudicial to the interest of revenue. Ld. Counsel further placing reliance on the decisions of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs Anil Kumar Sinha (2011) 335 ITR 83 (Del) submitted there is a distinction between "lack of inquiry" and "inadequate inquiry", if there was any inquiry even inadequate, that would not itself give right or occasion to the Commissioner to pass order u/s 263 of the Act merely because he has different opinion in the matter. Ld. Counsel further placing reliance on the decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs Hindustan Marketing & Advertising Co. Ltd. [2012] 341 ITR 180(Del) submitted that the revisional powers of the Commissioner u/s 263 of the Act are limited and when assessment has been framed after inquiry and there is no error in the order, then the order cannot be revised on the ground that inquiry should have been more detailed or elaborate. Finally, ld. Counsel of the assessee prayed that the impugned order of the CIT and all subsequent proceedings in pursuance thereto may kindly be quashed. 6 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11
8. Replying to the above, ld. DR placing reliance on the recent decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs v. Nagesh Knitwers P. Ltd and others (2012) 345 ITR 135 (Del) submitted that when the AO has allowed claim of the assessee in a slipshod manner without conducting any inquiry, then in the case of no inquiry, the assessment order is not only erroneous but also prejudicial to the interest of revenue. Ld. DR further pointed out that the order of assessment has to be a speaking order and when the fact of others' view has not been mentioned and the claim of expenses pressed by the assessee has been allowed without making any inquiry, then the order must be held as erroneous and prejudicial to the interest of revenue. Ld. DR further submitted that Hon'ble Jurisdictional High Court has also considered ratio of earlier decisions viz. decisions of Hon'ble Apex Court in the case of Rampyari Devi Sarogi vs CIT (1968) 67 ITR 84(SC), Tara Devi Aggarwal vs CIT (1973) 88 ITR 323 (SC) and the decision in the case of Malabar Industrial Company Ltd vs .CIT, 243 ITR 83 (SC) and decisions of Hon'ble Jurisdictional High Court of Delhi in the case of Gee Vee Enterprises vs ACIT (supra) while passing the order in favour of the revenue in the case of CIT vs Nagesh Knitwears Pvt. Ltd. (supra).
9. Ld. counsel of the assessee also submitted rejoinder to the above submissions and contentions of the ld. DR and submitted that in the case of Realest Builders and Services Ltd. (2008) 307 ITR 202 (SC) submitted that if 7 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 the AO comes to the conclusion that there is under estimation of profits, then he must give facts and figures in that regard and demonstrate that the impugned method of accounting adopted by the assessee results in under-estimation of profits. Otherwise the presumption would be that the entire exercise is revenue neutral. Ld. Counsel reiterating its earlier argument submitted that when the payments have been made by the assessee to the respective service provider companies and the same receipts were also taxed in the hands of recipient/payee companies, then the whole exercise is revenue neutral and in this situation, the assessment orders passed u/s 153 r/w section 143 cannot be considered to be erroneous or prejudicial to the interest of revenue, therefore, the same deserves to be quashed.
10. On careful consideration of above rival submissions and vigilant perusal and consideration of ratio of the decisions and legal propositions relied by both the parties, at the very outset, we note that on perusal of the relevant assessment orders passed on 29.12.2011 for AY 2006-07 to 2008-09 in the case of M/s Bhushan Steel Ltd. and assessment orders passed on 27.12.2011 for AY 2007- 08 to 2010-11 in the case of Bhushan Energy Ltd., we clearly observe that the AO has not pointed out any query or doubt about the claim of expenses submitted by the assessee pertaining to the expenses booked against the aforementioned four companies during assessment proceedings for AY 2006-07 to 2008-09 and about the expenses booked against M/s Stylish Construction Pvt. 8 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 Ltd. for AY 2008-09 to AY 2010-11 in the assessment orders of Bhushan Energy Pvt. Ltd. On specific query from the Bench, ld. Counsel of the assessee submitted that there were proceedings of reassessment u/s 143(3) r/w section 153 of the Act, therefore, the AO could not have made any addition out of ambit of incriminating material found during the course of search, however, the ld. Counsel fairly accepted that the AO had not raised any query and has not made any inquiry in regard to alleged expenses booked by the assessee in the respective assessment years against alleged companies.
11. Under these facts and circumstances, we respectfully hold that the benefit of the decisions of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs Hindustan Marketing & Advertising Co. (supra) and decision of CIT vs Anil Kumar Sharma (supra) is not available for the assessee because these were the cases of "inadequate inquiry" whereas the present case is clearly of lack of inquiry. Per contra, we respectfully note that the case of the revenue is squarely covered by the decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs Nagesh Knitwears Pvt. Ltd. & Others (supra) and by the landmark decision of Hon'ble High Court of Delhi in the case of Gee Vee Enterprises (supra).
12. In the case of Gee Vee Enterprises speaking for High Court of Delhi their lordships made a clear distinction between the cases of "inadequate inquiry"
and "lack of inquiry" by also considering the ratio of the decision of Hon'ble 9 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 Apex Court in the case of Rampyari Devi Sarogi vs CIT (supra) and Tara Devi Aggarwal vs CIT (supra) and held that it is incumbent upon the ITO to further investigate the facts stated in the return when circumstances would make such an inquiry prudent with the word "erroneous" in Section 263 includes failure to make such an inquiry. It was further held that the order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are asummed to be correct.
The relevant operative part of this decision reads as under:-
"In Rampyari DJvi Saraogi v. Commissioner of Income
-tax, the Income-tax Officer accepted the return of the assessee in respect of the initial capital, the gift received and the sale of jewellery, the income from business, etc., without any inquiry or evidence whatsoever. For this reason the Commissioner held the order to be erroneous. In revision, he cancelled the order and ordered the Income- tax Officer to make a fresh assessment. In his order the Commissioner had used certain new grounds which had not been disclosed to the assessee in the notice given to him to show cause why the order of the Income-tax Officer should not be revised. But, apart from these new grounds, the Supreme Court observed at page 88 of the report that:
"There was ample material to show that the Income-tax Officer made the assessments in undue hurry ... the assessee made a declaration giving the facts regarding initial capital, the ornaments and presents received at the time of marriage, other gifts received from her father-in-law, etc., which should have put any Income-tax Officer on his guard. But the Income tax Officer without making any inquiries to satisfy himself passed the assessment order.... A short stereo-typed assessment order was made for each assessment year ... No evidence whatsoever was produced in respect of the money- lending business done ... No names were given as to the parties to whom the loans were advanced ...."10
ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 In Tara Devi Aggarwal v. Commissioner of Income-tax also the Income-tax officer, Howrah, while remarking that the source of income of the assessee was income from speculation and interest on investments stated that neither the assessee was able to produce the details and vouchers of the speculative transactions made during the accounting year nor was there evidence regarding the interest received by the assessee from different parties on her investments. Notwithstanding these defects the Income Tax Officer did not investigate into the various sources but assessed the assessee on a total income of Rs. 9,037. The inquiries made by the Commissioner revealed that the assessee did not reside or carry on business at the address given in the return. The Commissioner was also of the view that the Income-tax Officer was not justified in accepting the initial capital, the sale of ornaments, the income from business, the investments etc., without any inquiry or evidence whatsoever and that the order of assessment was erroneous and prejudicial to the interests of the revenue. The High Court held that there were materials to justify the Commissioner's finding that the order of assessment was erroneous in so far as it was prejudicial to the interests of the revenue. Shri Sharma tried to distinguish this decision on the ground that the address of the assessee in that case was given incorrectly. The decision of the High Court and that of the Supreme Court were not, however, based on that ground at all. On the contrary, the Supreme Court followed their previous decision in Rampyari Devi's case and upheld the decision of the High Court precisely on the same grounds. These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return.
The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply 11 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word" erroneous" in section 263 emerges out of this context. It is because it is incumbent on the. Income-tax Officer to further investigate the facts stated in' the return when circumstances would make such an inquiry prudent that the word" erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct."
13. In the case of CIT vs Nagesh Knitwears Hon'ble Delhi High Court after considering the ratio of its earlier decisions including its decision in the case of ITO vs DG Housing Projects Ltd. 345 ITR 153 held as under:-
"36. As far as Section 263 is concerned, we have examined the said Section in depth and detail in ITO Vs. D G Housing Projects Ltd. decided on 1 st March, 2012, in ITA No. 179/2011 and observed as under:-ITA No. 591/2008 and connected matters 28 "10. Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression „prejudicial to the interest of the Revenue‟ is of wide import and is not confined to merely loss of tax. The term „erroneous‟ means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. 11. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is 12 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word „erroneous‟ includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. 12. Delhi High Court in Gee Vee Enterprises v. Additional Commission of Income-Tax, Delhi-I, (1975) 99 ITR 375, has observed as under:- "The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income- tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of ITA No. 591/2008 and connected matters 29 a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct." 13. In the said judgment, Delhi High Court had referred to earlier decisions of the Supreme Court in Rampyari Devi Sarogiv. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal v. CIT (1973) 88 ITR 323 (SC), wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. After reference to these two decisions, the Delhi High Court observed:- "These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the 13 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return." 14. The aforesaid observations have to be understood in the factual background and matrix involved in the said two cases before the Supreme Court. In the said cases, the Assessing Officer had not conducted any enquiry or examined evidence whatsoever. There was total absence of enquiry or verification. These cases have to be distinguished from other cases (i) where there is enquiry but the findings ITA No. 591/2008 and connected matters 30 are incorrect/erroneous; and (ii) where there is failure to make proper or full verification or enquiry. 15. In the case of Commissioner of Income Tax v. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del), Delhi High Court was considering the aspect, when there is no proper or full verification, and it was held as under:- "We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action 14 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113):ITA No. 591/2008 and connected matters 31 "... From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is „erroneous in so far as it is prejudicial to the interests of the Revenue‟. It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in subsection (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page
10) ... From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately.
This section does not 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 Incometax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the ITA No. 591/2008 and connected matters 32 income either by accepting the accounts or by making some estimate himself. 15 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion ... 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 ... We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. 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 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 Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be „erroneous‟ simply because in his order he did not make an elaborate discussion in that regard." " 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings ITA No. 591/2008 and connected matters 33 recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the 16 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the ITA No. 591/2008 and connected matters 34 Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 17 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11
18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase „prejudicial to the interest of 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 interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue."
14. In view of foregoing discussions, we are inclined to hold that the present case is squarely covered in favour of the revenue by the decisions of Hon'ble Jurisdictional High Court of Delhi in the case of Gee Vee Enterprises vs ACIT (supra) and CIT vs Nagesh Knitwears P. Ltd. (supra) as in the present case, the AO did not raise any query or make any inquiry pertaining to the claim of expenses submitted by the assessee in its books and statements of accounts submitted along with return and this is a clear case of "lack of inquiry". We may also point out that if the AO fails to conduct the said investigation, he commits the error and the word "erroneous" includes failure to make inquiry. In such cases, the order becomes erroneous because necessary inquiry or verification has not been made and not because a wrong order has been passed on merits. We further hold that if from the detailed investigation conducted by 18 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 the Investigation Wing of the department, it is revealed that the bogus expenses have been claimed by the assessee with the intention to reduce its tax liability, then the order is also prejudicial to the interest of revenue. The argument of the ld. Counsel of the assessee about revenue neutrality is not applicable to the facts and circumstances of the present case.
15. In the case of ITO vs Ch. Atchaiah (1996) 218 ITR 239(SC), speaking for Hon'ble Apex Court their lordships held as follows:-
"In our opinion, the contention urged by Dr. Gauri Shankar merits acceptance. We are of the opinion that under the present Act, the Income Tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By "right person", we mean the person who is liable to be taxed, according to law, with respect to a particular income. The expression "wrong person" is obviously used as the opposite of the expression "right person". Merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. This is so irrespective of the fact which course is more beneficial to the Revenue. In our opinion, the language of the relevant provisions of the present Act is quite clear and unambiguous. Section 183 shows that where Parliament intended to provide an option, it provided so expressly. Where a person is taxed wrongfully, he is no doubt entitled to be relieved of it in accordance with law, but that is a different matter altogether. The person lawfully liable to be taxed can claim no immunity because the Assessing Officer (Income Tax Officer) has taxed the said income in the hands of another person contrary to law."19
ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11
16. Therefore, it is well-settled principle that the Revenue authorities are duty bound to tax right person and right person alone. By "right person" is meant the person who is liable to be taxed, according to law, with respect to a particular income. The meaning of "wrong person" is obviously used as the opposite of the expression "right person". In our humble understanding, the ratio of this decision clarifies that merely because of a wrong person is taxed with respect to a particular income, the AO is not precluded from taxing the right person with respect to that income. Same is the case here when assessee company made a bogus claim of expenditure then the assessee cannot avail immunity from tax liability by stating that the impugned amount of expenditure claim has been taxed in the hands of respective payee companies.
17. Thus, we reach to a logical conclusion that the CIT(A) was quite justified and within the ambit of the jurisdiction available to him u/s 263 of the Act and, therefore, we are of the view that the CIT(A) invoked provisions of section 263 of the Act in a judicious and proper manner and we are unable to see any ambiguity, perversity or any other valid reason to interfere with the same. Hence, sole ground of the assessee in all six appeals being devoid of merits is dismissed.
20 ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11
18. In the result, the appeals of the assessee are dismissed.
Order pronounced in the open court on 30.3.2015.
Sd/- Sd/-
(PRAMOD KUMAR) (CHANDRAMOHAN GARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
DT. 30th March, 2015
'GS'
Copy forwarded to:-
1. Appellant
2. Respondent
3. C.I.T.(A)
4. C.I.T. 5. DR
By Order
Asstt. Registrar
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