TaxTMI 
TaxTMI 
2003 (5) TMI 221
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.... about the income of the assessee. On the basis of Inspector's Report dt. 10th June, 1998, the notices under s.. 148 of the Act were served on the assessee for all the years on 2nd July, 1998. The assessee challenged the issue of notice under s. 148 on the ground that the income had already been declared under VDIS 1997 and, therefore, the AO has no jurisdiction to issue notice under s. 148 of the Act in any of the assessment years. However, the AO did not find any substance in the submissions of the assessee and, therefore, proceeded to make assessment under s. 143(3)/147 of the Act. 3. During the course of assessment proceedings, the AO examined various submissions of the assessee. He even called for the information from Hindustan Petrolium Corporation Ltd. (HPCL) regarding purchase and sales of the assessee with HPCL as well as the commission earned by the assessee from HPCL. After perusing the documents on record as well as the information received from HPCL, the AO vide his order dt. 22nd Feb., 2001, made certain additions on account of low gross profit, disallowances out of telephone expenses, vehicle expenses and miscellaneous expenses. The AO also made addition on accoun....
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....ed by the assessee nor the issue of deduction on such loans. He also noted that though the AO has made disallowances out of vehicle expenses for non business user, he did not proportionately disallow the depreciation on such vehicle. He, therefore, issued a show cause notice on 9th Sept., 2002, as to why the assessment order passed by the AO for all the four years may not be set aside under s. 263 of the Act. As there was no compliance of the show cause notice nor any written submissions were made, the CIT passed order under s. 263 of the Act on 3rd Feb., 2003, (after the order was passed by the CIT(A) setting aside some issues for reconsideration by the AO and directing the addition/disallowances of certain amounts in different years. While doing so, the CIT observed that "the AO has not conducted any enquiries which he ought to have conducted as an AO. Non application of mind by the AO is also clear from the facts discussed above. It has been held by the Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del), that the CIT can regard the order as erroneous on the ground that in the circumstances of the case the ITO sho....
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....here were certain fresh credits in the asst. yr. 1997-98. The CIT held that as the AO had not examined this issue, his order was erroneous in so far as prejudicial to the interest of the Revenue. He, therefore, directed the AO to examine this issue afresh. (iii) In asst. yr. 1994-95, the AO has disallowed a part of vehicle expenses for non-business use but he did not disallow the depreciation on such vehicle proportionately. The AO's order was, therefore, erroneous in so far as prejudicial to the interest of the Revenue. The CIT, therefore, directed the AO to disallow the depreciation on the vehicle proportionately. (iv) There is discrepancy in the purchase account from HPCL, inasmuch as, the figure of purchases disclosed by the assessee and the figures supplied by the HPCL are quite different. Even the AO had asked the assessee to reconcile these figures. The assessee failed to offer any explanation for the asst. yr. 1994-95 though he had filed some explanation for other years. The assessee did not produce any books of account to support the figure claimed by him in the profit and loss account. Under these circumstances, the AO was bound to adopt the figure supplied by HPCL.....
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.... Act rather the s. 144 of the Act. He stated that even if the CIT was correct in observing that the assessment orders should have been passed under s. 144 of the Act rather than under s. 143(3) of the Act, no prejudice is caused to the Revenue. As the findings of the AO were not prejudicial to the interest of the Revenue, the assumption of jurisdiction under s. 263 of the Act on this issue was illegal. He therefore, argued that modification from order under s. 143(3) to s. 144 of the Act was, of no effect. 10. Learned counsel further argued that it is settled law that if the order of the AO has been subject-matter of adjudication by the appellate authorities and such authorities have adjudicated a particular issue, the CIT has no power to assume jurisdiction under s. 263 of the Act on those issues because the order of the AO stands merged into the order of the appellate authority. The reliance was placed on the decision of Hon'ble jurisdictional High Court (Full Bench) in the case of CIT vs. K.L. Rajput (1987) 59 CTR (MP)(FB) 65 : (1987) 164 ITR 197 (MP)(FB). The Hon'ble Court held that the CIT was not justified in setting aside the entire order of assessment passed by the AO in....
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....entioned that he was sustaining the disallowance of 20 per cent of the total expenditure. He was, therefore, alive to this issue. The CIT has, therefore, wrongly assumed jurisdiction under s. 263 of the Act on this issue. Similarly when the AO wanted to verify the purchases made by the assessee, he also called information from the HPCL. The information was not submitted by the HPCL. The AO, thereafter issued a letter to the assessee to reconcile the same. Certain reconciliations were furnished by the assessee. The AO was satisfied from such reconciliation and vide p. 7 of his order he observed that after verification, it has been found that the assessee has correctly disclosed the purchases and commission. This again indicated two things. Firstly, the AO applied his mind and made proper investigation. He had also considered the information supplied by the HPCL. Secondly, this issue was also adjudicated by the CIT(A). 11. As mentioned earlier, after examining the purchases and sales disclosed by the assessee, the AO was of the opinion that there have been certain under-valuation of closing stock. He, therefore, rejected the books of account and applied a particular G.P. rate. Suc....
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....of CIT vs. Ratlam Coal Ash Co. (1987) 65 CTR (MP) 305 : (1987) 171 ITR 141 (MP) wherein the Hon'ble Court has held that where the ITO has completed the assessment after considering all the facts, the CIT could not assume jurisdiction under s. 263 of the Act. Learned counsel also relied on the decision of Tribunal Special Bench in the case of Babu Lal Grandson Family Trust vs. ITO (1989) 31 ITD 52 (Del)(SB). The Hon'ble Bench has held that even where the AO should have written a more detailed order but for want of it, it would not become erroneous or prejudicial to the interest of the Revenue. The CIT was not justified in initiating action on the basis of mere guess work possibility or suspicion under s. 263 of the Act. While relying on the decision of Hon'ble Munbai Bench of the Tribunal in the case of Patel Cotton Co. Ltd. vs. Asstt. CIT (1998) 64 ITD 273 (Mumbai), the learned counsel staled that where two views are possible in a case, mere fact that the AO adopted one view would not render his view erroneous though it might be prejudicial to the interest of Revenue. He further relied on the decision of Pune Bench of the Tribunal in the case of Fateh Chand Raj Mal Jain vs. IAC (19....
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....of mind or non-examination of a particular issue has rendered the assessment order passed by the AO as erroneous and prejudicial to the interest of the Revenue. The CIT had, therefore, correctly assumed jurisdiction under s. 263 of the Act. He pleaded that the order under s. 263 of the Act passed by the CIT deserves to be upheld. 14. We have considered the rival submissions. Sec. 263(1) of the Act, the powers under which have been assumed by the CIT reads as under: "The CIT may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO 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." 15. The reading of the above provisions makes it very clear that for assuming jurisdiction under the said section, the CIT has to satisfy himself that the order passed by the AO ....
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....ent nature like the nature of accounts maintained by the Trust. Neither the papers on the record nor any other material which was before the ITO or the CIT suggested such a course of enquiry nor arouse any suspicion. May be that the ITO should have written a more detailed order but for want of it, it would not become erroneous or prejudicial to the interests of the Revenue. The CIT was not justified in initiating action on the basis of mere guess work, possibilities or suspicion under s. 263." 17. The Bombay Bench of the Tribunal in the case of Patel Cotton Co. Ltd. also considered the scope of the provisions of s. 263 of the Act. Hon'ble Bench observed as under: "Admittedly, when there are two views possible in a case, then mere fact that the AO has taken one view would not render his order as erroneous though it may be prejudicial to the interests of Revenue. For exercising powers under s. 263, two conditions must be satisfied. Firstly, the order sought to be revised must be erroneous and secondly by reason of the said order there must be prejudice caused to the Revenue. In this case it may be that a prejudice is caused to the Revenue by adopting a view favourable to the as....
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.... sheet filed at the time of disclosure of income under VDIS 1997. The entire documents in this regard including the certificate issued by the CIT was on the record of the AO. Under these circumstances, there was no need of making further investigation on this issue. The AO has accepted the genuineness of the loans and interest thereon on the basis of records and, therefore, it cannot be said to be a case of non-application of mind. On this ground itself, the assumption of jurisdiction under s. 263 cannot be justified. 20. It is also settled law that the powers of the CIT under s. 263 will not extend to the issues adjudicated by the CIT(A) in his orders. In the instant case, the order of the CIT(A) had been passed earlier than the order of the CIT. Hon'ble jurisdictional High Court in the case of K.L. Rajput has considered this issue. While adjudicating this issue, the Hon'ble Court held as under: "The doctrine of merger applies to income-tax proceedings but the extent of its application depends on the scope and subject-matter of the appeal and the decision rendered by the appellate authority. Where an appeal has been preferred by the assessee to the AAC from an order of asses....
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....PCL were raised before the CIT(A) as well as the disallowance out of vehicle expenses were agitated before the CIT(A). A question may arise as to whether the precise issue should have been adjudicated by the appellate authority. Admittedly, the issue of trading addition was before 'the CIT(A). Such trading addition was made by the AO by rejecting the books of account and applying the proviso to s. 145 of the Act. The purchases also form part of the trading account. Thus, the CIT(A) while disposing of the appeal has adjudicated this issue and, therefore, in view of the legal position mentioned earlier, the CIT cannot assume jurisdiction under s. 263 on this issue. Actually, the scope of the word "issue" which the subject-matter of appeal before the appellate authority had been considered by various Benches of the Tribunal. The Allahabad Bench of the Tribunal in the case of Sahara India Mutual Benefit Co. Ltd. vs. Asstt. CIT (2002) 74 TTJ (All) 67 at 72 has held as under. "So far as the doctrine of merger even after the amendment of the provisions of s. 263 is concerned, once any of the aspects of an issue is the subject-matter of appeal before the CIT(A), then it is the 'issue' a....