Income Tax Appellate Tribunal - Jaipur
Kishore Madnani, Kota vs Assessee on 17 January, 2014
1
IN THE INCOME TAX APPELLATE TRIBUNAL
JAIPUR BENCH, JAIPUR
(BEFORE SHRI HARI OM MARATHA AND SHRI N.K. SAINI)
ITA No. 508/JP/2013
Assessment year : 2005-06
PAN: ACFPN 8855 Q
Shri Kishore Madnani vs. The CIT
S/o N.D. Madnani Kota
128, Civil Lines, Kota
(Appellant) (Respondent)
Assessee by : Shri Sarvan Kumar Gupta
Department by: Shri A.K. Khandelwal
Date of Hearing: 17-01-2014
Date of Pronouncement: 31 -01-2014
ORDER
PER HARI OM MARATHA, JM:-
This appeal of the assessee for the assessment year 2005-06 is directed against the order of the ld. CIT dated 07-03-2013 passed u/s 263 of the I.T. Act, 1961 ('the Act' for short).
2.1 Briefly stated, the facts of the case are that the assessment for assessment year 2005-06 was completed u/s 143(3) read with Section 147 of the Act on 27-09-2010 at a total income of Rs. 3,4,820/- against returned income of Rs. 1,48,700/-.` 2 2.2 The ld. CIT on the basis of a letter dated 12-10-2011 received from ITO, Ward- 2,(1), Kota , proposing the action u/s 263 of the Act on two points by the ld. CIT that the assessment order is not only erroneous but also prejudicial to the interest of the Revenue. These points are as under:-
''1. During the course of assessment proceedings, the AO did not duly verify all the credit and debit entries appearing in the saving bank account of the assessee.
2. The AO did not examine properly, cost of improvement for Rs. 4,59,000/- shown by the assessee and accepted the same as it was. As per sale deed of the property, there is word mentioned in 'plot' has been sold which is mentioned specifically in the sale deed while the AO accepted this property as house as stated by the assessee.
The para 3 of this appellate order of the ld CIT is extracted as under:
''On receipt of proposal u/s 263 of the I.T. Act, 1961 from the Income Tax Officer, Ward- 2(1),Kota a show cause notice u/s 263 vide this office letter No. CIT/KTA/ITO(Tech.)/2012-13/2535 dated 02-01-2013 was issued through Registered A.D. post fixing the case for hearing on 16-01-2013 From the above narration of the ld. CIT order, it becomes veritably clear that the ld. CIT simply show caused the assessee vide letter dated 02-01-2013 after receipt of the proposal from the ITO Ward- 2(1), Kota. He did not apply his mind to see whatever proposal had been proposed to him, he himself should have been satisfied that the proposed action is really false u/s 263 of the Act or not. The facts of the case is that assessee is a small and 3 petty civil contractor and carrying contractor ship business as was done in earlier years. (CIT page 4). Actually on the basis of an information received in the office of the ITO that the assessee has sold a plot to Shri Vimal Kumar Jain S/o Shri Chittar Mal Jain, 1-213, Talwandi Kota and Shri Ghanshyam Prasad Garg S/o Shri Moti Lal Garg, Village Lakheri, Tehsil, Indragarh, Distt. Bundi on 6-09-2004 for a consideration of Rs. 13,41,000/-. But the Sub-Registrar has taken the value of this property for the purpose of stamp duty u/s 50C of the Act at Rs. 16,38,872/-.As per the, ITO, the assessee did not offer income for taxation and therefore, action u/s 148 of the Act read with Section 147 was initiated.
2.3 Against this show cause, the assessee made detailed submission which are incorporated in the order itself. Similar objections have been raised before us also. Therefore, for ready reference, we incorporate entire written submission filed by the assessee before us as under:-
1. Action u/s 263 on the Proposal of the Assessing Officer itself to the ld. CIT is invalid:
At the very outset it is submitted that the proceeding or action u/s 263 in the present case itself invalid. Because as per the order of ld. CIT. It is very clear that the action u/s 263 in the present case has been taken on the proposal of the AO of the same ward on the very issues in the proposal letter. He has not made any amendments on the issues. Thus, the action u/s 263 has not been taken by the ld. CIT Suo Moto. The action u/s 263 can only be taken by the CIT when he has found any error in the assessment order. The AO itself can not propose to take any action u/s 263 for the assessment made by the his predecessor. At the worst he can take action u/s 147/148 only after recording satisfaction or reasons. And in law no where it has been provided that if the AO has found any erroneous and prejudicial in the assessment order he may propose the CIT to take action u/s 263. Hence the Action taken by the ld. CIT on the proposal of AO itself is invalid and liable to be quashed.
How an Assessing officer itself can says its own order erroneous and prejudicial to 4 the interest of the revenue. Kindly refer Jheendu Ram v/s CIT 130 TTJ 82(Luck.) and Rajeev Arora v/s CIT 135 TTJ 01(Jp).
2. Action of the CIT is invalid and without jurisdiction: Further it is submitted the action and direction of the ld. CIT is without jurisdiction and invalid on the facts and legal position because the ld. CIT has right or jurisdiction of revision u/s 263 only when the order of the AO(i) is erroneous in so far as (ii) it is prejudicial to the interests of the revenue. S. 263 provides as under
"263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment."
And on perusal of the order of the ld. AO as well as the order of the ld. CIT itself it is very clearly proved that the order of the AO has neither erroneous nor prejudicial to the interests of the revenue. Because the ld. AO during the course of assessment proceeding has asked or made inquiry regarding the various issues including these issues vide reasons recoded (PB8) and its query replied by the assessee through letters and details(PB9-38) as required by the AO) with various details and information as per those letters. And the AO did examine all these details, record and discussion with the A/R and assessee, after that the AO had taken a possible view being a quasi judicial authority.
He completed the assessment at Rs. 3,44,812/-. While making the assessment he had made addition of Capital of Rs.1,79,872/- and trading addition of Rs. 16,240/- vide assessment order dt. 27.09.2010(PB 5-7).
Thus in the light of the settled legal position the CIT cannot be said to be justified in holding that if the necessary inquiry were not done by the AO the order becomes erroneous and automatically, it shall also be prejudicial to the interest of the revenue. The ld. CIT has not gone in to the merit of the assessee's case or argument or contentions, if so than how it can be said or found out whether any prejudice in fact has been caused to revenue or not by lack of inquiry on the part of the AO. If no loss of revenue is caused and the result remains the same even after conduct the inquiry. It is very settled principal and legal position by various courts or judgments that it will be wrong to say that merely because proper enquiry was not conduct, the assessment would become prejudicial also. It was incumbent upon the CIT to have shown as to how the order was prejudicial to the interest of the Revenue. In the present case the appellant has furnished a detailed reply (PB 39-
43) to the show cause notice by making the reference to the facts of the case. Despite that the CIT did not proved or bring any material or circumstantial evidence on record that the claims of the assessee on these issues are not genuine, bogus, not verifiable, not correct. He has not decided merit of the case whether any addition or disallowances was called for or not. He was only of the view that the AO has not 5 made deep or proper inquiry on the issue. He has only stated that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Hence the conclusion of the CIT that the order is prejudicial to the interest of the Revenue is not a matter of subjective satisfaction of the CIT. He, therefore ought to have found out this on the basis of Objective material after assessing the contention raised by the assessee in its reply to the show cause notice. He, however failed to do so and reached a conclusion that the order was prejudicial with a view that the present AO shall undertake that exercise after the assessment has been setaside for his consideration. Such a view or action is not well founded in the law or by various Hon'ble courts. Kindly refer direct decisions in case of Smt. Leela Choudhary v/s CIT 289 ITR 226(Gau.) also refer, Saw Pipes Ltd v/s Add. CIT 94 TTJ 1036(Del) Also refer Malabar Industrial Co. Ltd. v/s CIT 159 CTR(1)(SC), CIT v/s Rayn Silk Mills 221 ITR 155(Guj.) Same view has been expressed in the case of Kamal Kumar Gupta v/s CIT 142 TTJ 9(Jp) wherein it has been held that "assessee was asked by the AO to file the details of trade creditors which are shown in the name of agriculturalist. In the reply, assessee filed written submission enclosing the list of creditors. Thus, the AO made the inquiry and it is not a case of lack of inquiry but can be case of insufficient enquiry. CIT was not justified in passing the order u/s 263." In the present case also is the same position. And also followed in the case of Sh. Gyan Chand Jain v/s CIT 50 TW 109(Jp).
3. No fix formula or limit or extent of Inquiry: Thus, here it is not the case of the CIT that no inquiry or examine has been made by the AO on these issues. The AO has made the inquiry as above, when the reopening was itself on the very same issue. No one (AO) can read the mind of other person(CIT) while doing the work on its sprite and cannot guess the expectation or manner of his superior authority. Here the meaning is that non making of an enquiry may render the subject assessment erroneous, however the process of making enquiries may be endless. For someone, some enquiries may be sufficient (here AO), however, the same may be insufficient for the other(CIT). There is no straight jacket formula to make inquiry in the assessment proceedings. What is required is that the AO should frame the assessment in accordance with the provisions of the Act, as interpreted and in the light of the relevant judicial pronouncements, as available on the date of framing the assessment or material available before him. The AO being a quasi-judicial authority can also take support from one set of the decisions, if there, in case is a diversions of opinion. He can't be directed to make an assessment in a particular manner, as specifically prohibited by S. 119.
In case of Chorma Business Ltd v/s DCIT 82 TTJ 540(Cal) it has been held that "AO before making the assessment, having called for details and having discussed the matter with the A/R of the assessee, such an order cannot be called erroneous and prejudicial to the interest of the Revenue only because the AO made a brief assessment order without discussing such details therein. Further, the CIT also did not give any finding as to whether the share transaction loss claimed by the assessee was bogus or not genuine but merely stated that the transaction could have been verified by the contract notes from the brokers, challan etc. Revision order of the CIT Set Aside. Also refer Subrata Kumar Nag v/s CIT 127 TTJ 238(Kol), Rajiv Arora v/s CIT (Supra).
64. NO requirement of deep investigation: Thus, on the perusal of the order of the CIT it is very clear that he was of the view that the AO must have made deep investigation and in the case of Arvind Bhartiya Vidhyalaya Samiti v/s ITO 94 TTJ 614(Jp). Where in held that Deep investigation is outside of the preview of assessment procedure". And also held there is no case laws which say for deep investigations Because there is no limit of deep investigation. Also refer Gaberial India Ltd. 203 ITR 108 (Bom). That is why Hon'ble SC held in Malabar Fisheries Industries Ltd. 243 ITR 82 (SC) that in each and every type of mistake/ error cannot be made a basis to invoke Sec.263. The case laws available on the subject on this aspect, are distinguishable in as much as those were the cases where no inquiries at all (or very minor reflecting from a short assessment order), which is not at all a case here. Also refer Gyan Chand Gupta V/s CIT 135 TTJ 01(Jp) In CIT v/s Jain Construction 257 CTR 336(Raj. ) It has been held that Revision u/s 263--Order erroneous and prejudicial to interest of revenue--CIT issued a notice u/s 263 to assessee on ground that assessment order of AO passed u/s 143 (3) was an order erroneous and prejudicial to interest of revenue-- Tribunal allowed appeal of assessee--Held, safeguard provided to assessee in section 263 is that mere erroneous orders are not revisable but revisional authority has to further establish with material on record that such erroneous order is also prejudicial to interest of revenue--Twin conditions of assessment order being erroneous and it also being prejudicial to interest of revenue, keeps initial burden on Commissioner, who invokes such jurisdiction--Premise for invoking revisional jurisdiction on the ground that the Assessing Authority made insufficient enquiry or improper enquiry and failed to verify closing stocks in record of assessee, before passing assessment order, falls flat by a bare perusal of assessment order itself--Thus, Tribunal was justified in holding that Commissioner was in error in invoking revisional jurisdiction u/s 263--Mere alleged insufficiency of enquiry in opinion of Commissioner by Assessing Authority, could not permit him to invoke revisional jurisdiction u/s 263-- Therefore, essential twin conditions for invoking revisional jurisdiction, were not satisfied
5. On perusal of the order in the present case the ld. CIT has taken action u/s 263 only on the assumption and presumption that the no verifications has been made by the AO on the issues and not verified. Kindly refer CIT v/s Paras Cotton Co. 288 ITR 211(Raj.) where held that CIT could not have acted on mere assumption. Mere suspicion cannot take place of proof and the order of CIT u/s 263 cannot be sustained. In CIT vs Anupam Charitable Trust 164 ITR 129 (Raj) also It is held that to proceed u/s 263 on mere suspicion is not permissible.
6.1 Reliance is also place upon the decision of on Rishi Kumar Gupta V/s CIT (2004) 90 TTJ (Agra-Trib) 645, wherein it has been held that, "In the instant case we have seen that it is not a case of no enquiry, but a case of proper enquiry, which is a matter of subjectivity. It is not the commissioner to decide that up to what extent enquiry is to be made, but in fact, it is the assessing officer to decide the matter and to draw inferences. Once the, 7 assessing officer has drawn inference after making enquiry, the commissioner does not have any jurisdiction u/s 263 to cancel the assessment order. Endless enquiry is not possible and the enquiry is to be closed at some stage. It is for the assessing officer to decide to end the enquiry the commissioner cannot transgress the jurisdiction under section 263 by mentioning that no proper enquiry was made. Hence, we cancel the order passed by commissioner u/s 263 of IT Act."
6.2 In C IT V/s Girdhari Lal 258 ITR 331(Raj.) it has been held, "When the Assessing Officer after going through the material on record and after considering the explanation of the assessee, made some additions and rejected the books of accounts, it could not be said that he had not applied his mind. It is not always necessary that every assessee in the line of business should have the same rate of profit. The tribunal was correct in canceling the order under sec 263 of Income Tax Act." Also refer CIT v/s Ganpat Ram Bishnoi 296 ITR 292(Raj.) 6.3 In Haryana State Co-Op Supplier & marketing Federation Ltd. V/s Dy. CIT (2004) 90 ITD 551 (CHD-Trib). In Hycron India V/s Asstt. CIT (2004) 82 TTJ (Jod-Trib) 450, the order passed u/s 263 was not valid as, on the facts of the case, the Assessing officer has made due enquiries, for allowing interest income as business income and after application of mind the assessment order was passed. Same cannot be termed as erroneous and prejudicial order. Since after obtaining requisite information & detailed evidence, the assessing officer had accepted that there were no unexplained investments & gifts received by assessee were genuine, therefore, assessment order cannot be said to be erroneous & prejudicial to the interest of Revenue.- Vide Shri Mukesh Kumar Jain V/s ITO (2000) 13 DTC 793 (Jab-Trib), National Plastic & Allied Plastic & Allied Industries V/s Deputy CIT (2000) 18 DTC 315 (Mum-Trib) (2000) 67 TTJ (Mum-Trib) 824, CIT V/s Smt. Nirmala Anand (2000) 16 DTC 538, (Del-HC) (2000) 245 ITR 836 (Del.).
6.4 In Baljees v/s Asstt. CIT (2005) 3 (II) ITCL, 38 (CHD. 'B'-Trib) (2004) 85 TTJ (CHD-Trib) 543, assessment of the assessee restaurant was made by assessing officer after issuing detailed questionnaire, examination of the books of accounts, Vouchers, detail of opening & closing stock and comparison of gross profit rate with earlier years. However, the commissioner invoked on the ground that the assessment was completed in undue Haste & without conducting proper enquiries with regard to the cost of raw materials & sales as per menu and other relevant factors for proper assessment. The assessee argued that it was necessary for assuming jurisdiction that there should be a proper and valid reason and the conclusion of the commissioner should be based on the facts. It was submitted that in the instant case the commissioner had not come to a definite conclusion as to how the order passed by the Assessing officer were erroneous and prejudicial to the interest of the revenue. It was vehemently argued that the entire approach of the commissioner was faculty & cryptic and on that basis, no order u/s sec 263 could have been passed. It was held that the power of commissioner u/s 263 is quasi-judicial in the character & the commissioner, has not to record his subjective satisfaction but to come to a conclusion that the order passed by the Assessing Officer was erroneous & prejudicial to the interest of the revenue. Thus as the assessment has been made after relevant enquiries same could not be cancelled u/s
263. The revisional order, therefore, was set aside.
86.5 In the Shivam Leasing & Finance Ltd. V/s ITO (1993) 117 Taxation 49 (Del-Trib), the commissioner initiated proceeding on the allegation that the assessing officer finalized assessment with undue haste and without enquiring into the Assessee's shareholding. The decision of the commissioner was based on suspicion because papers appeared new to him. It was held that the paper appeared fresh to the commissioner of the facts that the paper did not bear the tick marks of the assessing officer did not look into the papers and he did not apply his mind but ignored the entire evidence and accepted the assessee plea. Other than the suspicion of the commissioner that the assessing officer did not make proper enquiry, there was no evidence brought on records to show that any of the shareholders, assuming that the amount could be added as income of the assessee, were bogus in nature or the benamidars of some other persons. Suspicion cannot be the basis to invoke the powers vested in the commissioner under section 263.
6.6 In the case of Commissioner of Income Tax V/s Anil Kumar sharma 335 ITR 83, " Revision- Erroneous and Prejudicial order- lack of proper enquiry- CIT came to the conclusion that the issue relating to taxability of compensation received by the assessee was not examined by the AO and held that the order of AO is erroneous and prejudicial to the interest of the revenue- Tribunal has arrived at a conclusive finding that through the assessment order does not patently indicate that issue of the taxability of the compensation has been considered by the AO, the record shows that the AO has applied his mind-Thus, it is not a case of lack of enquiry even if the enquiry was inadequate and the CIT was not justified in passing the order under section 263- findings of the Tribunal quashing the order of the CIT passed under Section 263 do not warrant any inference- CIT V/s Sunbeam Auto Ltd. (2009) 227 CTR (Del) 133: (2009) 31 DTR (Del) 1 followed".
7. The fundamental principles which emerge from the catena of judicial pronouncements may be summarized as under :
(i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. Both the conditions must be fulfilled:
(ii) Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous, that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice for the requirement or order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interest of the revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view under with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under the law.9
(vi) If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under section 263, is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer.
(vii) The Assessing Officer exercise quasi-judicial power vested in him and if he exercise such power in accordance with law and arrives as a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion.
(viii) The CIT, before exercising his jurisdiction under section 263 , must have material on record to arrive at a satisfaction.
(ix) If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation be a letter in writing and Assessing Officer allowed the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
Kindly refer The Lake Palace Hotels & Motels Pvt Ltd v/s The CIT Udaipur 48 TW 181(Jd).
8. On Merit our Submissions are as under which has also been filed before the ld. CIT: Regarding first issue on account of verification of debit credit entries in saving bank account: It is submitted that during the course of assessment proceeding the assessee has submitted that the copy of bank account(PB 10-11) and the entries in this account has been explained to the AO. And on perusal of the bank account it is very clear that there is no much entries in this bank account and nor any entries in this bank account from which it is revealed or arises any undisclosed income. For example in the credit side on Ist April there is opening balance of Rs. 1,82,259/- out of these balance the assessee has made withdrawals in small amounts on various dates till 25.06.2004. On 28/06 there is deposit/credit of Rs. 18,000/- through Cheque, on 02/08 there is credit of half yearly interest of Rs. 2076/- on 07/08 deposit/credit of Rs. 18,000/- through Cheque and Rs. 1,00,000/- deposit/credit of Rs. 18,000/- through Cheque which was received on account of sale of plot. On 27/08 there is deposit/credit of Rs. 12,950/-through Cheque. On 09/09 there is deposit/credit of Rs. 12,41,000/- through pay order No. 897661 which was received on account of sale of plot and these two big entries are cross verified from the sale deed itself(PB20) . And there after also some small entries by cheque and there is only one entries of Rs. 45,000/- in cash deposit in full bank account and other entries by cheque were on account of business transaction. Thus on perusal of bank account the debit and credit entries are itself verifiable and explanatory and there is no abnormal entries. Hence how it can be said that the AO has not verified the bank entries. The ld. CIT has not provided a single instance that which entries are not verified and there born out any undisclosed income. If so than how it can be said that order of the ld. AO was being erroneous and prejudicial to the interest of the revenue.
Regarding cost of improvement for Rs. 4,95,000/- shown by the assessee and status of land as plot or house: In this regard it is submitted that as in this matter the case was reopened due to the difference in cost between the sale consideration and value determined by the stamp duty officer. In the computation 10 of total income filed with the return the assessee has declared the Short Term Capital Loss at Rs. 1,18,000/- by giving the calculation(PB 1-3). In the course of assessment proceeding the point regarding cost of improvement has been duly examined by the AO which is clearly proved from the record itself because the AO has demanded the proof of cost of improvement of Rs. 4,95,000/- in response thereto the assessee had filed the bills and voucher of the expenses(PB 35-38) containing the fill details to the AO and after examining these details the AO has accepted the same.
Regarding the nature of property as plot or house it is submitted that the ld. AO (who has proposed the action u/s 263) as well the ld. CIT both proceeded on misconception of facts and without going through the facts and records. Because in the assessment order the AO has neither stated plot nor stated house he stated only property except in the reasons recorded. Further it is submitted that originally the assessee had purchased a house from the Raj. Housing Board Kota and thereafter he made improvement in this house. The purchaser has broken this house for new construction and now it was in the shape of plot. This has been clearly mentioned in the sale deed. On perusal of the all pages of sale deed itself(PB18). It is clearly mentioned almost on every pages that house sold(at present it is in the shape of plot). Thus, the assessee has sold the house not plot and it is also clear form the purchase deed itself (PB32-34) and the registrar of stamp duty has also valued the property as house. And the ld. AO (who has proposed the action u/s 263) as well the ld. CIT both have misguided their self despite the record available. If so than how it can be said that order of the ld. AO was being erroneous and prejudicial to the interest of the revenue.
During the Asstt. proceeding the same has been explained to AO also and he himself was satisfied. Thereby no inference has been made by AO.
It is submitted that when all the details submitted by assessee and AO framed the asstt order thereon, reliance is placed on a case of High Court of Gujarat 21 Taxman. Comm. 64 (Guj) Commissioner of I. Tax V/s Amit Corporation it has been held " When during course of framing of assessment, Assessing Officer had access to all records of assessee and after perusing said records, he framed assessment, said assessment could not be re -opened in exercise of revision power under section 263 for making further inquires .'' Reference has been made to the decision of Hon'ble Allahabad High Court in the case of Anil Bulk Carriers (P) Ltd. vs. CIT (2005) 194 CTR (All.) 226 : (2005) 276 ITR 625 (All.).
It is further submitted that on the perusal of Assessment Order your good self would find that there is an addition of Rs. 1,79,872/- has been made in the income of assessee on account of Capital Gain and assessee has not preferred any appeal for that addition. Thus it cannot be said he had not applied his mind in making assessment of income of Assessee.
The reliance is placed on decision of Rajasthan High Court ,In the case of Commissioner of Wealth tax vs. Girdhari lal 258 ITR 331 It is held :
11"When the Assessing officer after going through the material on record and after considering the explanation of the assessee, made some additions and rejected the books of accounts, it could not be said that he had not applied his mind. It is not necessary that the every assessee in the line of business should be the same rate of profit."
When the assessing officer had considered all the relevant material on record, it was basically a question of facts and it could not be interfered with unless the finding of the Tribunal was found perverse. Considering the material on record, it could be said that finding of the Tribunal was perverse.
Therefore, the Tribunal was correct in cancelling the order under section
263."
It is submitted that department can assume jurisdiction under section 263 of Income tax Act if twin conditions of the order being erroneous and prejudicial to the interest of the revenue are satisfied.If the view taken by the A.O. is one of the possible views then learned CIT cannot assume jurisdiction. For this purpose reliance has been placed on the followings decisions:
1. Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC)
2. CIT VS MAX INDIA LTD.(2007)213 CTR 266(SC) It is further submitted that proceedings under s. 263 cannot be taken on the ground that the AO has not made sufficient enquiry. The learned CIT can assume jurisdiction if there has been lack of enquiry. In the instant case, the enquiry has been made, though the enquiry may not be sufficient in the opinion of the learned CIT. The reliance is placed upon the decision of Hon'ble Delhi High Court in the case of CIT v. Hindustan Marketing & Advertising Co. Ltd. [2010] 46 DTR (Del.) 109. The attention is drawn towards the decision of Hon'ble jurisdictional High Court in the case of CIT v. Trustees Anupam Charitable Trust [1987] 65 CTR (Raj.) 30 : [1987] 167 ITR 129 (Raj.) Thus it is clear that Assessing Officer has made enquiry but sufficiency of enquiry can be depend upon from person to person. The AO cannot remain passive in the face of a return which is apparently in order but calls for further enquiry. It is the duty of the AO to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an enquiry. The word 'erroneous' includes the failure to make enquiry. It is submitted that the AO made the enquiry and it is not a case of lack of enquiry. The Hon'ble Delhi High Court in the case of CIT v. Vikas Polymers [2010] 236 CTR (Del.) 476 : [2010] 47 DTR (Del.) 348 had an occasion to consider the passing of order under s. 263 of the Act by the learned CIT when the AO made an enquiry and the assessee filed the reply. The Hon'ble Delhi High Court held that assumption of jurisdiction under s. 263 of the Act by learned CIT is not warranted. It will be useful to reproduce the head note from this decision:12
"Provisions of s. 263 when read as a composite whole make it incumbent upon the CIT before exercising revisional powers to : (i) call for and examine the record, and (ii) give the assessee and opportunity of being heard and thereafter to make or cause to be made such enquiry as he deems necessary. It is only on fulfillment of these twin conditions that the CIT may pass an order exercising his power of revision. Minutely examined, the provisions of the section envisage that the CIT may call for the records and if he prima facie considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirements of the section are manifestly for a purpose. Merely because the CIT considers on examination of the record that the order has been erroneously passed so as to prejudice the interest of the Revenue will not suffice. The assessee must be called, his explanation sought for and examined by the CIT and thereafter if the CIT still feels that the order is erroneous and prejudicial to the interest of the Revenue, the CIT may pass revisional orders. If, on the other hand, the CIT is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the Revenue, he may choose not to exercise his power of revision. This is for the reason that if a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, but neither the query nor the answer was reflected in the assessment order, this would not by itself lead to the conclusion that the order of the AO called for interference and revision. In the instant case, for example, the CIT has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment, assuming it to be so, this does not justify the conclusion arrived at by the CIT that the AO had shirked his responsibility of examining and investigating the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the CIT was duly reflected in the respective assessments of the partners who were income- tax assessee and the unsecured loan taken from SC (P) Ltd. was duly reflected in the assessment order of the said chit fund which was also an assessee. Merely on the basis that the AO has not examined the cash credits of the partners or deposits from SC (P) Ltd., CIT was not justified in invoking his suomotu powers, especially where the assessee had explained that the capital investment made by the partners, which had been called into question by the CIT was duly reflected in the respective assessments of the partners and the unsecured loan taken from the SC (P) Ltd. was duly reflected in the assessment order of the said person."
The reliance is placed in the order of the Hon'ble Delhi High Court in the case of CIT v. Anil Kumar Sharma [2010] 38 DTR (Delhi) 305 : [2011] 335 ITR 83 (Delhi) has held that jurisdiction under s. 263 cannot be assumed if enquiry is inadequate as per opinion of the learned CIT. It will be useful to reproduce the held portion:
"Held, dismissing the appeal that presents case would not be one of 'lack of enquiry' even if the enquiry was termed inadequate. The Tribunal found that complete details were filed before the AO and that he applied his mind to the relevant material and facts, although such application of mind was not discernible from the assessment order. The Tribunal held that the CIT in proceedings under s.13
263 also had all these details and material available before him, but had not been able to point out defects conclusively in the material, for arriving at a conclusion that particular income had escaped assessment on account of non-application of mind by the AO. The Tribunal was right and the order of revision was not valid."
The reliance is also placed in the order of the Hon'ble ITAT Agra Bench in the case of Rishi Kumar Gupta v. CIT [2004] 90 TTJ (Agra) 645 has held that CIT was not justified in setting aside the assessment on the ground that AO had failed to make "Proper enquiry". It is for the AO and not for the CIT to decide upto what extent enquiry is to be made. It will be useful to reproduce the held portion of the case:
"Held that when the AO proceeded to make the assessment order, he was fully aware of those documents, which were found during the course of survey and for his satisfaction he required the assessee to produce books of account, bills, vouchers, details of the students and other explanations. It is not a case of no enquiry, but a case of no proper enquiry. According to CIT's notice as well as order under s. 263, the AO has conducted enquiries, but he failed to conduct proper enquiries. The use of word "proper enquiries" is a matter of subjectivity. It is for the AO to decide what enquiry and upto what extent he would like to conduct the enquiry and not the CIT. It is not the CIT to decide that upto what extent, enquiry is to be made, but in fact, it is the AO to decide the matter and to draw inferences. Once the AO has drawn inference after making enquiry, the CIT does not have any jurisdiction under s. 263 to cancel the assessment order. Endless enquiry is not possible and the enquiry has to be closed at some stage. It is for the AO to decide to end the enquiry. The CIT cannot transgress the jurisdiction under s. 263 is cancelled. Relied on Hindustan Marketing & Advertising Co. Ltd. vs. ITO (1989) 28 ITD 231 (Del), Ashok Kumar Parasramka vs. Asstt. CIT (1998) 61 TTJ (Cal) 156: (1998) 65 ITD 1 (Cal) and Progressive Services Ltd. Vs. ITO (1991) 40 TTJ (cal) 595.
The reliance is also placed in the order of the Hon'ble High Court of Bombay in the case of CIT v. Gabrial India Ltd. [1993] 71 TAXMAN 585 (BOM.). It will be useful to reproduce the held portion of the case:
Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1973-74 - Assessee claimed a sum of Rs. 99,326 described 'as plant relay out expenses' as revenue expenditure and ITO, after making enquiries in regard to nature of said expenditure and considering explanation furnished by assessee in that regard, allowed assessee's claim - Subsequently, Commissioner, exercising powers under section 263, cancelled order of the ITO observing that order of ITO did not contain discussion in regard to allow ability of claim for deduction which indicated non-application of mind and that claim of assessee required examination as to whether expenditure in question was a revenue or capital expenditure and directed ITO to make a fresh assessment on lines indicated by him - Whether under section 263 substitution of the judgment of the Commissioner for that of the ITO is permissible - Held, no - Whether ITO's conclusion can be termed as erroneous simply because Commissioner does not agree with his conclusion - Held, no - Whether ITO's order could be held to be 'erroneous' simply because in his order 14 he did not make an elaborate discussion - Held, no - Whether provisions of section 263 were applicable to instant case and Commissioner was justified in setting aside assessment order - Held, no However the ld. CIT has not applied his mind on these submissions and passed the order which is illegal and bad in law as per very settled legal positions as above.
9. Hence in view of the above submission the order of the CIT may kindly be Set-aside or direction of the CIT u/s 263 may kindly be quashed.'' 2.4 On the other hand, the ld. DR supported the order of the ld. CIT .
2.5 After considering the rival submissions of both the parties, we have found that this order deserves to be set aside not only facts but also on legal provisions. Before, we give our reasons in support of the above findings, we would like to discuss the scheme of revisionary jurisdiction vested to the ld.
CIT u/s 263 of the Act as under:-
2. The subject of 'revision under section 263' has been vastly examined and analyzed by various Courts including that of Hon'ble Apex Court. The revisional power conferred on the CIT vide section 263 is of vide amplitude. It enables the CIT to call for and examine the records of any proceeding under the Act. It empowers the CIT to make or cause to be made such an enquiry as he deems necessary in order to find out if any order passed by Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The only limitation on his powers is that he must have some material(s) which would enable him to form a prima facie opinion that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue. Once he comes to the above conclusion on the basis of the 'material' that the order of the Assessing Officer is erroneous and also prejudicial to the interests of the Revenue, the CIT is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the assessment or he may modify the assessment. He is also empowered to cancel the assessment and direct to frame a fresh assessment. He is empowered to take recourse to any of the three courses indicated in section 263. So, it is clear that the CIT does not have unfettered and unchequred discretion to revise an order. The CIT is required to exercise revisional power within the bounds of the law and has to satisfy the need of fairness in administrative action and fair play with due respect to the principle of audi alteram partem as envisaged in the Constitution of India as well as in section 263. An order can be treated as 'erroneous' if it was passed in utter ignorance or in violation of any law; or passed without taking into 15 consideration all the relevant facts or by taking into consideration irrelevant facts. The 'prejudice' that is contemplated under section 263 is the prejudice to the Income Tax administration as a whole. The revision has to be done for the purpose of setting right distortions and prejudices caused to the Revenue in the above context. The fundamental principles which emerge from the several cases regarding the powers of the CIT under section 263 may be summarized below:
(i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interests of the revenue. Both the conditions must be fulfilled.
(ii) Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous, that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect
application of law will suffice for the requirement or
order being erroneous.
(iv) If the order is passed without application of mind, such
order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the
interest of the revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view under with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under the law.
(vi) If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under section 263, is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer.
(vii) The Assessing Officer exercise quasi-judicial power vested in him and if he exercise such power in accordance with law and arrives as a conclusion, such conclusion cannot 16 be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion.
(viii) The CIT, before exercising his jurisdiction under section 263, must have material on record to arrive at a satisfaction.
(ix) If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation be a letter in writing and the Assessing Officer allowed the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
2.6 Adverting to the facts of the case, we are afraid that the AO himself can find his order as erroneous and prejudicial to the interest of the Revenue and can make such proposal to the ld. CIT u/s the Act. The power of revision as discussed above widely vests in Commissioner who may call and examine the record of any proceeding under the Act and if he considers that any order passed therein by the AO is erroneous and prejudicial to the interest of the Revenue. He may after giving the assessee an particular opportunity of being heard or after making any such enquiry revise that order. Therefore, it is very clear from the provision of Section 263 of the Act that the AO has to examine the record himself to come to a conclusion that the order is erroneous and prejudicial to the interest of the Revenue. There is no such procedure laid under this Section wherein the AO himself can propose the order to file u/s 263 of the Act. This action of the AO is unwarranted and not legal. On the basis of such proposal, the ld. CIT cannot take action as he has 17 taken in this regard. The decision of ITAT Lucknow Bench in the case of Jheenu Ram vs. CIT, 130 TTJ (Luck) and ITAT Jaipur Bench in the case of Rajeev Arora vs. CIT 135 TTJ 01 (JP.) are relevant. The ratio decidendie of the above two orders is that the AO cannot propose his own order by treating it as erroneous and prejudicial to the interest of Revenue for getting it revised by the ld. Commissioner u/s 263 of the Act. This procedure is unknown to the Income Tax. Accordingly, on this very basis, the appellate order is struck down and quashed.
2.7 On merits also, this is a case of reopening and during reopening both the issues raised by the AO himself have been duly verified by him. The assessee has clearly explained the debit and credit entries as discussed in the written submission and also explained the cost of improvement shown by the assessee and the status of the land etc. Therefore, this is not a case of no verification or no proper verification. The verification done by the AO is also to be treated as proper unless some specific instruction or prescription of a particular section of the Act has not been carried out by the AO or else the AO has not conducted enquiry as demanded by law. In our considered opinion, this is not such a case. The twin conditions of Section 263 as discussed above in detail are not found to co-exist. Therefore, we set aside the appellate order dated 07-03-2013 passed by the ld. CIT and allow the appeal of the assessee .
183.0 In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 31-01-2014.
Sd/- Sd/-
(.N.K. SAINI) (HARI OM MARATHA)
ACCOUNTANT MEMBER JUDICIAL MEMEBR
Jaipur
Dated: 31st JAN 2014
*Mishra
Copy forwarded to:- By Order
1. Shri Kishore Madnani, Kota
2. The ld. CIT, Kota
3. The ld. CIT
4. The DR
5. The Guard File (IT No.508/JP/13)
A.R. ITAT: JAIPUR
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