TaxTMI 
TaxTMI 
2012 (12) TMI 195
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.... to the following parties: Name of the party Commission paid (Rs.) R.K. Marketing Service 99,59,139 Vijay Mining Pvt. Ltd. 99,59,139 Lakshmi Mines & Minerals 2,03,895 B. Bhagyalakshmi 1,99,10,281 K. Annapurna 18,56,501 Total 4,18,80,995 4. The assessee only furnished confirmation letters from the parties concerned. However, not furnished any details regarding the services rendered by these parties. According to the CIT, the Assessing Officer accepted these payments as incurred towards carrying on the business of the assessee and he has not enquired into the genuineness of the commission payment with reference to the services rendered by these parties. Being so, the CIT was of the opinion that the order of the Assessing Officer is erroneous and prejudicial to the interest of revenue and accordingly after giving adequate opportunity of hearing to the assessee, he directed the Assessing Officer to disallow the payments. Thereby the income of the assessee was determined at Rs. 10,29,55,322. Against this the assessee is in appeal before us. 5. The learned AR submitted that the present Appeal is filed against the order under Section 263 of ....
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....d an order under Section 263 on 27.03.2012 disallowing the commission payment of Rs. 4,18,80,995. 7. The AR submitted that the impugned order passed by the learned Commissioner of Income Tax is against the basic tenets of provisions of Section 263 of Income Tax Act, 1961 on the following aspects of law governing the facts of the case:- (a) The assessment order passed cannot be termed as "erroneous" inasmuch as the Assessing Officer has passed the order after application of his mind on the very same issue, after considering all the information, explanation filed. The Commissioner of Income Tax cannot substitute his own views on the issue in exercise of the jurisdiction under Section 263 of Income Tax Act, 1961. Reliance in this regard is placed on the following decisions : 1. CIT v. Smt. D. Valliammal [1998] 230 ITR 695 (Mad); 2. CIT v. Ratlam Coal Ash Co. [1988] 171 ITR 141; 3. Ashoke Kumar Parasramka v. Asstt. CIT [1998] 65 ITD 1 (Cal); 4. CIT v. Mehrotra Brothers [2004] 270 ITR 157 (MP); 5. CIT v. Parameshwar Bohra [2004] 267 ITR 698; 6. Paul Mathews & Sons v. CIT [2003] 26....
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....p; CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167; 3. CIT v. Gabriel India Ltd. [1993] 203 ITR 108 8. The AR submitted that in Gabriel India Ltd., case (supra), law on this aspect was discussed in the following manner (page 113) : "From reading of sub-section (1) of section 263, it is clear that the power of suo moto 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 by sub-sect ion (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 ca n 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 jurisdi....
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....e 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." 9. The learned AR submitted that in the instant case, the learned Assessing Officer called for explanation on the very same issue vide questionnaires dated 22.06.2009, 12.10.2009 and 16.10.2009 from the Assessee and the Assessee had furnished his explanation vide letters dated 26.10.2009 and on various other dates. This clearly shows that the Assessing Officer has undertaken the exercise of examining as to whether commission expenditure was incurred by the Assessee or not. On being satisfied with the explanation furnished by the Assessee, he accepted the same. The learned Commissioner of Income Tax....
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....uggest that the assessment order was erroneous and prejudicial to the interests of revenue. Therefore, the jurisdiction under Section 263 of Income Tax Act, 1961 cannot be assumed. Reliance in this regard is placed on the decision of Hon'ble Income-tax Appellate Tribunal - Chennai Bench in the case of IClCI Bank Ltd. v. Jt. CIT [2009] 309 ITR (AT) 235 (Chennai). 13. The AR submitted that that the learned Assessing Officer after duly considering the explanation and information filed in response to the questionnaire on the issue, on being satisfied with such explanation chose not to make any further enquiry. Endless enquiry is not possible and it is for the learned Assessing Officer to decide when to end the enquiry. The learned CIT cannot transgress the jurisdiction under Section 263 of I.T. Act, 1961 by mentioning that no proper enquiry was made. Reliance in this regard is placed on the decision of Hon'ble Agra Bench of ITAT in the case of Rishi Kumar Gupta v. CIT [2004] 90 TTJ 645. 14. The learned AR submitted that, without prejudice to the above, on the merits of the issue, the Assessee respectfully submits that payment of commission was made wholly and exclusively for the ....
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.... commission agents. (d) The Assessing Officer had not called for the partywise list of customers introduced by the alleged commission agents. (e) The Assessing Officer had not called for specific tonnage details of sales effected through each of the commission agent. (f) The Assessing Officer had not called for documentary evidence in support of services rendered by the alleged commission agents. (g) The Assessing Officer had not called for the basis of calculation of commission in respect of each of the alleged commission agent. (h) The Assessing Officer had not satisfied himself with the expertise of the above agents in providing similar services to parties other than the assessee firm. 17. The DR further submitted that for A.Y. 2008-09 on enquiry it was found that this expenditure is not genuine and on this basis the CIT took up the case for revision for this assessment year. According to the DR the record means all the information and evidence available before the CIT after conclusion of assessment by the Assessing Officer. For this purpose, he relied on the judgement of Supreme Court in the case of CIT v. Manjunatheswar Packing P....
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....exercise revision jurisdictional u/s 263 if he is satisfied that the order of the assessing officer sought to be revised is (i)erroneous; and also (ii) prejudicial to the interests of the revenue. The word 'erroneous' has not been defined in the Income Tax Act. It has been however defined at page 562 in Black's Law Dictionary (seventh Edition) thus'; 'erroneous, adj. Involving error, deviating from the law'. The word 'error' has been defined at the same page in the same dictionary thus: 'error No. 1 : A psychological state that does not conform to Objective reality; a brief that what is false is true or that what is true is false'. At page 649/650 in P. Ramanatha Aiyer's Law Lexicon Reprint 2002, the word 'error' has been defined to mean- 'Error: A mistaken judgement or deviation from the truth in matters of fact, and from the law in matters of judgement 'error' is a fault in judgement, or in the process or proceeding to judgement or in the execution upon the same, in a Court of Record; which in the Civil Law is called a Nullityie" (termes de la ley). Something incorrectly done through ignorance or inadvertence S.99 CPC and S.215 Cr.PC. 'Error, Fault, Error res....
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....quiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under Section 143(3) of the Income-tax Act. In other words, the Assessing Officer was statutorily required to make th....
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....rovision 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 the orders passed without applying the principles of natural justice or without application of mind. In our humble view, arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under Section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under Section 263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness ....
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....ater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge." 24. Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. of India Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judgments on which reliance was placed by the learned Counsel for the assessee also points to the same direction. They have held that orders, which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of revenue is bound to suffer. If without discussing the nature of ....
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.... examination or enquiry or verification or objective consideration of the claim made by the assessee. The Assessing Officer has completely omitted to examine the issues in question from consideration and made the assessment in an arbitrary manner. His order is a completely non-speaking order. In our view, it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order considering the issues raised by the CIT. In our view, the assessee should have no grievance in the action of learned Commissioner in exercising the jurisdiction u/s. 263 of the IT Act. 27. It was however contended by the learned Counsel that the Assessing Officer had taken a possible view in accepting the return of the assessee with reference to expenditure and hence, the Commissioner was not justified in assuming the revisional jurisdiction under Section 263. We have given our thoughtful consideration to the aforesaid submissions. As already stated earlier, an order becomes erroneous because inquiries, which ought to have been made on the facts of the cas....
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....or in favour of the assessee / revenue, without making proper inquiries and without proper examination of the claim made by the assessee in the light of the applicable law. As already stated earlier, we are not able to appreciate on what material was placed before the Assessing Officer at the assessment stage to take such a view. The assessee has also not been able to lead enough evidence to show to us that any inquiry was made by the Assessing Officer in this regard. Therefore mere allegation that the Assessing Officer has taken a view in the matter will not put the matter beyond the purview of Section 263 unless the view so taken by the Assessing Officer is a judicial view consciously based upon proper inquiries and appreciation of all the relevant factual and legal aspects of the case. The judicial view taken by the Assessing Officer may perhaps place the matter outside the purview of Section 263 unless it is shown that the view so taken by the Assessing Officer contains some apparent error of reasoning or of law or of fact on the face of it. 29. The learned Counsel has strongly relied upon the following observations made in the case of Malabar Industrial Co. Ltd. (supra) and....
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.... to "adopt" a course permissible in law nor "take" a view where two or more views are possible. In other words, it is the Assessing Officer who has to adopt a permissible course of law or take a view where two or more views are possible. It is difficult to comprehend as to how the Assessing Officer can be attributed to have "adopted" a permissible course of law or "taken" a view where two or more views are possible when the order passed by him does not speak in that behalf. We cannot assume, in order to provide legitimacy to the assessment order, that the Assessing Officer has adopted a permissible course of law or taken a possible view where his order does not say so. The submissions made by the learned Counsel, if accepted, would require us to form, substitute and read our view in the order of the Assessing Officer when the Assessing Officer himself has not taken a view. It could have been a different position if the Assessing Officer had "adopted" or "taken" a view after analysing the facts and deciding the matter in the light of the applicable law. However, in the case before us, the Assessing Officer has not at all examined as to whether only one view was possible or two or mo....
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....ssessing Officer and thus be amenable to revision under Section 263. In this case before us, the assessment order passed by the Assessing Officer lacks judicial strength to stand. It is not a case where the order is short but is not supported by judicial strength. It is in this view of the matter that we feel that the learned Commissioner has correctly exercised his revisional jurisdiction under Section 263. 33. In our opinion, the Assessing Officer has been entrusted the role of an investigator, prosecutor as well as adjudicator under the scheme of the Income-tax Act. If he commits an error while discharging the aforesaid roles and consequently passes an erroneous order causing prejudice either to the assessee or to the State Exchequer or to both, the order so passed by him is liable to be corrected. As mentioned earlier, the assessee can have the prejudice caused to him corrected by filing an appeal; as also by filing a revision application under Section 264. But the State Exchequer has no right of appeal against the orders of the Assessing Officer. Section 263 has therefore been enacted to empower the Commissioner to correct an erroneous order-passed by the Assessing Officer ....