TaxTMI 
TaxTMI 
2010 (9) TMI 351
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....ssee. Feeling aggrieved by this order, the assessee preferred the appeal before the Income-Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") in which the assessee has succeeded as the order passed by the Commissioner under Section 263 of the Act has been set aside by the Tribunal vide impugned judgment dated 28.2.2007. The order of the Tribunal is the subject-matter of the present appeal preferred under Section 260-A of the Act by the Commissioner of Income-Tax. 2. One of the issues on which the Commissioner exercised his revisionary powers under Section 263 of the Act, pertains to the claim of deduction by the assessee under Section 80HHC of the Act. The assessee had claimed a deduction under this provision amounting to Rs.32,25,486/-. However, in spite of various opportunities given by the AO the assessee did not furnish the particulars/documents and took the plea that it had lost the books of accounts. The required information was not given. The AO disallowed the entire claim of deduction under Section 80HHC of the Act. The Commissioner in his orders passed under Section 263 of the Act opined that non-supply of the information was deliberate non-compliance on....
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....and there was not even an office note in this behalf which could justify the omission to consider these important facts. The Commissioner went to the extent of observing that the AO was satisfied with making a flimsy addition disallowing a claim of Rs.17,38,106/- debited under the head "selling & distributing expenses" and in further holding that the deduction under Section 80 HHC was unwarranted. These additions were sustained at the appeal stage by the CIT(A) which accepted the plea of the assessee. The AO had not made third party inquiries as a result of which he had passed a very weak order. The Commissioner, thus, referring to the judgment of the Supreme Court in the case of Malabar Industrial Co. Ltd. vs. Commissioner of Income-Tax, 243 ITR 83 (SC) and Allahabad High Court in Jugdish Kumar Gulati vs. Commissioner of Income-Tax, 269 ITR 71 set aside the order of the AO with the direction to pass fresh assessment order de novo after giving adequate opportunity to the assessee to represent his case and after making requisite inquiries from the other Government agencies. 4. The Tribunal went into each of the issues which were highlighted by the Commissioner in his order observ....
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.... in the order is prejudicial to the Revenue. Both these conditions are to be satisfied simultaneously and the connotation of both these expressions was explained by the Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income-Tax (supra) in the following manner:- "The phrase "prejudicial to the interest of the 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 the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this court that where as sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejud....
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....ut any error in his order. The Commissioner has to specifically demonstrate that the order of the AO is erroneous. The power of revision is not meant to be exercised for the purpose of directing the AO to hold another investigation without describing as to how the order of the AO is erroneous. From this it also follows that where the assessment order has been passed by the AO after taking into account the assessee's submissions and documents furnished by him and no material whatsoever has been brought on record by the Commissioner which showed that there was any discrepancy or falsity in evidences furnished by the assessee, the order of the AO cannot be set aside for making deep inquiry only on the presumption and assumption that something new may come out. For making a valid order under Section 263 it is essential that the Commissioner has to record an express finding to the effect that order passed by the AO is erroneous which has caused loss to the Revenue. Furthermore, where acting in accordance with law the AO frames certain assessment order, same cannot be branded as erroneous simply because according to the Commissioner, the order should be written more elaborately. Al....
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....us as well as prejudicial to the interests of the Revenue. In the instant case, the Commissioner had recorded such a finding and with reference to some of the items he positively found that the orders were erroneous and prejudicial to the interests of the Revenue. But, in our opinion, there is nothing in section 263 of the Act to show that the Commissioner of Income-tax should in all cases record his final conclusion on the points in controversy before him. The above position of law is well-settled by the decision of Gujarat High Court in the case of Addl. C IT v. Mukur Corporation [1978] 111 ITR 312, wherein the Gujarat High Court held as under (page 325): "Now, even on this question, we find that there is nothing in section 263(1) to show that before passing the final order under that section, the Commissioner must necessarily and in all cases record final conclusions above the points in controversy before him. As already noted by us above, we would have expected him to record final conclusions, which he thought proper if he was to settle the assessment finally but since he has not settled the assessment finally, and has preferred to direct the Income-tax Officer to make an or....
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....f the Court:- "Section 33B contemplates a notice to the assessee. In response to the notice the assessee may show to the Commissioner that the order sought to be revised is not prejudicial to the interests of the revenue. In that event, the Commissioner would have no jurisdiction to take any further action. He would be competent to take action only if he rejects the plea of the assessee. It thus becomes necessary for the Commissioner to examine the merits of the objection raised by the assessee. He cannot delegate that power to the Income-tax Officer by setting aside the assessment order and directing him to make a fresh assessment after taking into consideration the objection of the assessee. Now, in the instant case, the assessee claimed that a sum of rupees one lakh was not taxable. The Commissioner should have examined that plea on merits. He could take the action that he did only if he rejected the plea of the assessee. It must not be forgotten that under section 33B the Commissioner can himself modify or enhance the assessment and that he can only do if he considers and decides on merits the objection raised by the assessee. We are, therefore, of opinion that without go....
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....d party enquiries, as a result of which he has passed a very weak order, which ignored the major issues involved, and left the assessee to benefit from its own non-compliance." 13. Thus, according to the Commissioner proper exercise was not done while making the assessment; deeper inquiries were not made; major issues involved were ignored and a weak order was passed. There is not a whisper as to how this order was prejudicial to the interest of the Revenue. 14. That apart, we find that the approach of the Tribunal in discarding the observation of the Commissioner about not making proper inquiries in respect of the said four issues are also justified and without blemish. 15. First comment of the Commissioner was in respect of finished goods in the closing stock. The Commissioner found that these were to the tune of Rs.5.28 crores. According to the Commissioner, when the total turnover of the assessee was Rs.6.13 crores, the AO should have satisfied himself by calling for more details as to how there was closing stock of such a magnitude of Rs. 5.28 crores. Thus, the Commissioner has not doubted the statement of finished goods in the closing stock furnished by the assessee.....
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....9, the Supreme Court further observed as under: "Even though the assessee company was following the mercantile system of accounting and had made entries in the books regarding enhanced charges for the supply made to the consumers, no real income had accrued to the assessee company in respect of those enhanced charges. The Tribunal had rightly held that the claim at the increased rates as made by the assessee company on the basis of which necessary entries were made, represented only hypothetical Income, and the amounts in question brought to tax by the Income-Tax Officer did not represent income which had really accrued to the assessee company during the relevant previous year." 17. Coming to the claim under Section 80HHC of the Act, we are again inclined to agree with the Tribunal that it was totally uncalled for on the part of the Commissioner to say that the AO did not make requisite inquiries because of the simple reason that the AO had, in fact, declined and rejected this claim of the assessee. If the AO himself disallowed the deduction claimed by the assessee on this account under Section 80 HHC of the Act, we fail to understand what further inquiries were needed by the....