TaxTMI 
TaxTMI 
2009 (10) TMI 601
X X X X Extracts X X X X
X X X X Extracts X X X X
....elevant records. The relevant provisions of section 263 of the Income-tax Act can be gainfully reproduced 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 insofar 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. Explanation.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....here can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests 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 the order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. For example, if the Assessing Officer has adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing 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 Assessing Officer is unsustainable in law." 4. We now deal with issues addr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ears. Further, the said concern was having financial difficulties. Even if notional income was treated as receivable from them, balance has to be allowed as irrecoverable under section 24(x). 6.2 We have carefully considered the issue. We find that it is the case of the assessee that rental value of Rs. 42,000 was returned by the assessee in earlier years and the same was accepted by the revenue. Under such circumstances, in our opinion, the order of the Assessing Officer cannot be said to be erroneous if he follows the same as there is no change in the facts or law in the present assessment year. In this regard, we draw support from the decision of this Tribunal in Pathy Cine Enterprises (P.) Ltd. v. ITO [IT Appeal Nos. 1249 & 1250 (Mad.) of 2004] for assessment years 2000-01 & 2002-03. In this case, vide order dated 17-3-2006 following was observed :- "In our opinion, when the nature of business and the method of accounting has been the same, the order of the Assessing Officer on the lines as followed in earlier years cannot be said to be erroneous. It is true that there is no res judicata in the income-tax proceedings but there has to be a semblance of consistency. Furt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....licable. The learned CIT finally concluded that,- "As many new issues have cropped after enquiry, the Assessing Officer is directed to examine in detail all the issues relating to agricultural income and taxability of non-agricultural portion of income and computation of capital gains if any on the sale of agricultural estate and shade trees." 7.3 We have heard both the counsels and perused the relevant records. The learned counsel of the assessee submitted that the order of the learned CIT under section 263 on this issue is clearly in violation of CBDT Circular No. 5. It was further claimed that assessee had incurred loans and, therefore, it should be deemed to have paid tax on the agricultural income. We note that the learned CIT has already observed that the agricultural income includes sale of land and trees. The assessee has accepted this mistake. Hence, the final direction of the CIT to examine in detail all the issues relating to agricultural income and taxability of non-agricultural portion of income and computation of capital gains, if any, cannot be said to be improper. 8. Expenditure on Leasehold Property :- 8.1 On this issue, the learned CIT noted that asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ltd. v. Dy. CIT [2004] 266 ITR 521. Consequently, the deduction of Rs. 12,76,334 has been wrongly allowed because of inaccurate furnishing of details. The learned CIT further held that with regard to deduction under section 80-IB on the profits of Special Chemicals Division, all the sales are to the group company, viz., SPIC Limited. Whether the provisions of section 80-IB(13) read with section 80-IA(9)(a) relating to group company transactions, its pricing, allocation of expenses and other eligibility conditions have not at all been looked into as no details were furnished by the assessee. The learned CIT concluded that both these issues are also sent back to the Assessing Officer for de novo consideration and re-determination and computation of both the deductions. 9.3 We have heard both the counsels and perused the relevant records. In this regard, the assessee has submitted that,- "in computing the relief under section 80HHC whether relief under section 80-IB should be deducted or not is a debatable one, on which two views are possible. In view of conflicting views, the issue was referred to Special Bench which was decided in the year 2007. Hence, this issue is not amena....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4 since many years. Can they be recognised as revenues? In agriculture business, miscellaneous expenses of Rs. 1.88 crores have been incurred on Aquaculture and Marine Account and Rs. 2.77 crores for interest amortisation. No notes or information is available. Why interest expenditure has gone up? Have the borrowals been made for earning tax-free or exempt income?" 10.2 Hence, the learned CIT concluded that,- "In all these and many other crucial issues, no information has been given by the assessee. Hence, the Assessing Officer had no opportunity to look into them and examine. Therefore, the entire assessment is set aside for de novo consideration and arrive at true and correct profits of the assessee as per Income-tax Act for the year under consideration." 10.3 In this regard, it is the submission of the assessee that the learned CIT has merely expressed suspicion and surmises regarding Profit & Loss Account. Accounts have been audited and admitted in the regular assessment and the order of the learned CIT is in the nature of a roving enquiry calling for second assessment without pointing out any error. Such directions are not permissible in an order of Revision under sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the interest of revenue administration. Such a power cannot in any manner be equated to or regarded as approaching in any way the appellate jurisdiction or even the ordinary revisional jurisdiction conferred on the Commissioner under section 264." 10.6 Further, the Hon'ble Calcutta High Court in the case of Jai Kumar Kankaria v. CIT [2001] 251 ITR 707 had held that,- "The term 'erroneous' will be looked into from the facts and circumstances and the materials which were placed before the Assessing Officer at the time of assessment. There is no scope under section 263 to reopen an assessment on subsequent event nor any new material." 10.7 We also find that Hon'ble Apex Court in the case of CIT v. G.M. Mittal Stainless Steel (P.) Ltd. [2003] 263 ITR 255 had held that,- "The power of the Commissioner under section 263 had to be exercised on the basis of the material that was available to him when he exercised the power. The satisfaction of the CIT under section 263 must be one which is objectively justifiable and cannot be the mere ipse dixit of the Commissioner." 10.8 In the background of aforesaid discussion and precedents, we hold that the learned CIT's direction....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent to the ALV fixed by Corporation of Chennai. Therefore, the Assessing Officer is directed to examine this issue from all angles. Keeping in view the provisions of sections 23 and 24 of the Income-tax Act and arrive at the correct ALV of Adyar House and recompute the income from the house property after allowing correct amount of Municipal Tax paid." 12.3 In appeal against such order, the assessee filed written submissions and contended in para II under the head "Property at Adyar" which reads as under:- "The property was let out to MCC Finance for annual rent of Rs. 42,000. This amount has been assessed in the assessee's hands for all the years. Further, MCC Finance was having financial difficulties. Even if the notional income is treated as receivable from them, the balance amount has to be allowed as irrecoverable under section 24(x). Hence, the rental income assessed is proper and not erroneous." Whereas, the ld. DR relied upon the order of the ld. CIT and pleaded that nowhere in response to notice under section 263, the assessee took any plea that, this amount is being assessed in earlier years. So, this is a new plea having been raised, whereas, various Hon'ble Sup....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Hon'ble Delhi High Court, in the case of CIT v. R. Dalmia [1987] 163 ITR 517 has held that "The municipal valuation can be taken as the annual letting value of the property" and in the Appendix III, enclosed with the judgment, has opined as under : "We have also been referred to the judgment of the Supreme Court in Mrs. Sheila Kaushih v. CIT [1981] 131 ITR 435 wherein it was held that the annual value had to be determined under the Income-tax Act on the basis of the standard rent and if it was not done, then the assessment was erroneous. We may point out that this holds true only till the amendment made subsequently in the provisions of sections 22 and 23 of the Income-tax Act, 1961. As the present case is an old case arising under the Indian Income-tax Act, 1922, the judgment would have full force and accordingly the standard rent would determine the annual value for the purposes of the income-tax. Similarly, the Supreme Court has held in Dewan Daulat Rai Kapoor v. New Delhi Municipal Corporation [1980] 122 ITR 700 that the valuation for the purposes of the Municipal Act has also to be based on the self-same standard rent. This means that the Supreme Court by two separate judgm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ancial year 2000-01 in respect of various divisions. Subsequently, they enclosed the reconciliation statement together with division-wise profit and loss account etc. and further submitted as under :- "From the working sheet annexed you may find that there has been an increase in the operating profit by Rs 1.08 crores. Also there was considerable reduction of Rs. 1.01 crores in cost of expenditure for self-consumption. There was dip in non-cash expenses like depreciation & miscellaneous expenses written off during the year to the extent of Rs 1.54 crores. In toto we had ended up with an increase of Rs. 3.63 crores in cash profit for the year. Incidentally, there has also been an increase in the administration expenses to the extent of Rs. 4.43 crores mainly attributable to freight outwards and increase in interest cost of Rs. 11 45 crores, which has eaten away the operating profits. The increase in interest cost is attributable to increase in secured loans. Decrease in profit to the extent of Rs. 12.57 crores has been compensated by an increase in profit on sale of shares amounting to Rs. 10 crores, thereby reducing the decease in profit to Rs. 2.57 crores." 13.1 The ld. CIT ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x has merely expressed suspicion and surmises regarding profit and loss. The accounts have been audited and accepted in the regular assessment and the order of the CIT is in the nature of roving enquiry calling for second assessment without pointing any error. Such direction are not permissible in an order of revision under section 263. (1) The assessee relied on the following decisions for the proposition if the two views are possible; revision under section 263 is not permissible Malabar Industrial Co. Ltd. v. CIT - 243 ITR 83 (SC), CIT v. Mepco Industries Ltd. 294 ITR 121 (Mad.) (2) The Commissioner of Income-tax cannot pass an order requiring the Assessing Officer to carry out roving enquiry based on suspicion and surmises. Smt. Zubi Kochar v. Asstt. CIT 112 TTJ 297 (Delhi), Bajaj Auto Employee's Welfare Fund v. ITO 27 TTJ 64 (Pune), Jhulelal Land Development Corpn. v. Dy. CIT 56 ITD 293 (Mum.), Indexco International v. Dy. CIT 88 ITD 293 (Mum.). (3) Part of the order of the CIT which is not tenable for the reasons stated above, can be set aside while another part which is amenable to revision under section 263 can be sustained. Chennai Tribunal Order in the case of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Hon'ble Madras High Court in the case of Express Newspapers (P.) Ltd. v. CIT [2002] 255 ITR 137 has held as under :- "The Commissioner has the discretion to set aside the assessment in whole or in part. The exercise of that discretion is not to be ordinarily interfered with unless the facts show that the exorcise of the discretion itself is required to be characterized as arbitrary." Similarly, the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 has opined as under :- "...............He accepted the entry in the statement of account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous was irresistible. The High Court had rightly held that the exercise of jurisdiction by the Commissioner under section 263(2) was justified." Yet, in the case of CIT v. Kohinoor Tobacco Products (P.) Ltd. [1998] 234 ITR 557, the Hon'ble Madhya Pradesh High Court has held as under :- ".....This failure on the part of the Assessing Officer to make necessary enquiry rendered the assessment erroneous and also prejudicia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry renders the order erroneous and prejudicial to the interest of the Revenue and record, as referred to in the relevant provisions, means the record available at the time of examination by the ld. Commissioner, therefore, in view of the precedents relied upon and the decisions as held above, the action of the ld. CIT is liable to be sustained. Accordingly, in view of the facts, circumstances and the discussions held in the light of the above precedents cited, it is held that invoking of provisions of section 263 by the ld. Commissioner in setting aside the matter to the Assessing Officer to be decided afresh in view of the direction issued, in relation to reconciliation of profits is correct and, therefore, his order in this regard is upheld. 14. As regards, the issue relatable to relief under section 80HHC/80-IB is concerned, it is seen that at para 9.4 from line 6, following observations has been made by the ld. A.M in the proposed order : "........However, as regards computation of relief under section 80HHC and 80-IB, with reference to provisions of section 80-IA(9) are concerned, we are in agreement with the view that the issue was debatable. Hence, Special Bench of Tri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 263 of the Act issued a show-cause notice to the assessee as he found the assessment order to be erroneous and prejudicial to the interests of revenue on several grounds. Out of the several grounds, the difference between the Members is in respect of two grounds which I proceed to discuss one-by-one. Property at Adyar House 3. This property was let out by the assessee on a monthly rental of Rs. 3,500 and hence the sum of Rs. 42,000 was offered for tax. The annual value fixed by the Corporation of this property was Rs. 2,04,968 for the purpose of levy of property tax. It was observed by the CIT that the property was let out to a group concern viz., MCC Finance Ltd. Therefore, the rental received by the assessee was not determined on arm's length basis. According to him, the minimum ALV that could be adopted was Rs. 2,04,968. Accordingly, he directed the Assessing Officer to examine this issue from all angles, keeping in view the provisions of sections 23 & 24 of the Act. 4. The ld. A.M. upheld the contention of the assessee on the ground that the value of Rs. 42,000 was accepted by the revenue in the earlier years. Relying on the decision of the Chennai Bench of the Tribu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ars the valuation of Rs. 42,000 has been accepted by the revenue authorities, the same being in violation of law, such an error cannot be permitted to be perpetuated. Therefore, on the issue of determination of ALV of Adyar Property I am in agreement with the view taken by the ld. J.M. So far as the claim of loss under section 24 is concerned, the said issue is not before me and as a Third Member I cannot enlarge the scope of the matter beyond what is referred to the Third Member. In any case, while setting aside the matter, the CIT has given appropriate directions to the Assessing Officer to examine the issue from all angles keeping in view the provisions of sections 23 & 24 and hence, no further adjudication on this point is required. Reconciliation of Profits 8. In the show-cause notice issued under section 263 of the Act, the CIT requested the assessee to explain that in spite of additional extraordinary income of more than Rs. 8 crores, why the total income has come down especially when compared to the immediate previous year. The assessee explained that there was increase in the operating profit by Rs. 1.08 crores and also there was considerable reduction of Rs. 1.01 cr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the argument of the ld. counsel about fishing and roving enquiries by stating that the CIT had raised specific issues which were not considered by the Assessing Officer. The order was set aside for the determination of correct income of the assessee and which proposition cannot be disputed by anyone. The ld. D.R. relied on the judgments of the Supreme Court in the case of Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 and in the case of CIT v. Shree Manjunathesware Packing Products & Camphor Works [1998] 231 ITR 53 (SC). 11. I have duly considered the rival contentions and the material on record. The perception of the CIT that the profit is low prompted him to issue show-cause notice to the assessee. Profit before taxation of the company as a whole for the year under consideration is Rs. 3,303.42 lakhs as compared to Rs. 3,561.15 lakhs for the immediate preceding year. Thus, there is a fall in profits by Rs. 257.73 lakhs. On the other hand, the total revenue has increased from Rs. 1,93,946.48 lakhs to Rs. 2,19,195.88 lakhs. The report of the directors mentions that barring a couple of divisions, the overall performance was good. The directors also considered it to be a notabl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Assessing Officer never felt the necessity to call for division-wise profit and loss account and balance sheet. However, the CIT called for such separate accounts and wants the Assessing Officer to examine them in detail. I fail to understand as to where is the error in the assessment order. Is it an error not to conduct any enquiry into the accounts the way the CIT wants it? In my opinion, the answer to this question has to be NO in block letters. In the case of CIT v. Kanda Rice Mills [1989] 178 ITR 446 the Punjab & Haryana High Court held that mere observation by the CIT in his order that these were the points which deserved consideration, was beyond the provisions of section 263. In the instant case also, the CIT wants the Assessing Officer to make the assessment in a particular manner. Madras High Court, in the case of CIT v. Sakthi Charities [2000] 110 Taxman 451 held that the power of revision is not meant to be exercised for the purpose of directing the Assessing Officer to hold another investigation when the order of the officer is not found to be erroneous. And it is in this context that the Bombay High Court held in the case of Gabriel India Ltd. (supra) that in the gar....