TaxTMI 
TaxTMI 
2012 (11) TMI 1071
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....ork of construction of roads. For asst. yr. 2006-07, return of income was filed by the assessee on 31st Oct., 2006 declaring total income of Rs. 67,83,280 and revised return was filed on 2nd Nov., 2006, only two days thereafter, declaring the total income at marginally higher figure of Rs. 70,20,830. Initially, the return was processed under section 143(1) of the Act on 25th May, 2007, however, a notice under section 143(2) of the Act was issued by the assessing authority on 18th Oct., 2007 for holding enquiry and scrutiny in the assessment records for passing the assessment order under the provisions of s. 1.43(3) of the Act, which order was passed by the assessing authority in the present case on 28th March, 2008 after due enquiry and assessing the total income of assessee at Rs. 80,18,813 making some addition in the returned income of the assessee and thus raising demand of additional tax and interest. 4. The assessee appears to have preferred an appeal against the said assessment order before the CIT(A), who passed the appellate order on 6th Aug., 2009, however, the said appellate order has not been placed on record by the Revenue in the present appeal before this Court. 5. T....
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....he revisional authority has to further establish with the material on record that such erroneous order is also prejudicial to the interest of Revenue. The twin conditions of assessment order being erroneous and it also being prejudicial to the interest of Revenue, keeps the initial burden on the Revenue itself, namely, the CIT, who invokes such jurisdiction. From the following legal precedents, it would be clear that such powers are not allowed likely to be invoked for the fall of hat as it were, and merely because the revisional authority is of different opinion on the given set of facts or on the ground that assessing authority did not hold a sufficient enquiry during the course of assessment proceedings unless the aforesaid twin conditions for invoking the said jurisdiction under s. 263 are satisfied. 11. The following legal precedents throw ample light for aforesaid legal position. 12. In the case of CIT v Max India Ltd. [2007] 295 ITR 282 , the Hon'ble Apex Court has held as under : "3. According to the learned Addl. Solicitor General on interpretation of the provisions of section 80HHC(3) as it then stood the view taken by the AO was unsustainable in law and therefore ....
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.... that the condition precedent for invoking jurisdiction under section 263 by the CIT did not exist. The Tribunal was justified in upsetting the order passed by the CIT under section 263 of the Act." 15. In the case of Gabrial India Ltd. (supra), the Bombay High Court has held as under : 'The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the CIT to exercise power of revision under this sub-section, viz., (i) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions 'erroneous', 'erroneous assessment' and 'erroneous judgment' have been defined in Black's Law Dictionary. According to definition, 'erroneous' means 'involving error; deviating from the law' 'erroneous assessment' refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its natu....
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....cation of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. As observed in Dawjee Dadabhoy & Co. v. S.P. Jain [1957] 31 ITR 872 (Cal.), at p. 881, 'the words 'prejudicial to the interests of the Revenue' have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realized. It can mean nothing else'. The aforesaid observations were also applied by the Gujarat High Court in Addl. CIT v. Mukur Corporation [1978] 111 ITR 312 (Guj.). We are of the opinion that the aforesaid interpretation given by the Calcutta High Court to the expression 'prejudicial to the interests of the Revenue' is the correct interpretation. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the Court it would be open to the Courts to examine whether ....
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....to the interests of the Revenue unless the view taken by the ITO is unsustainable in law. Held, that the finding of fact by the Tribunal was that the assessee had produced relevant material and offered explanations in pursuance of the notices issued under section 142(1) as well as section 143(2) of the Act and after considering the material and exemptions, the ITO had come to a definite conclusion. Since the material was there on record and the said material was considered by the ITO and a particular view was taken, the mere fact that different view can be taken should not be the basis for an action under section 263. The order of revision was not justified." 17. In the case of CIT v. Ganpat Ram Bishnoi [2008] 296 ITR 292, this Court has held as under : "From the record of the proceedings, in the present case, no presumption that can be drawn is that the AO had not applied its mind to the various aspects of the matter, in such circumstances, without even prima facie laying foundation for holding that assessment order is erroneous and prejudicial to interest in any matter merely on specious ground that the AO was required to make an enquiry, cannot be held to be satisfied the tes....
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....ppealed against and had merged in the order of the CTT(A), which was made on 31st Jan., 1984, prior to the making of the revisional order, The order was not valid and was liable to be quashed." 19. Turning to the facts of the present case, it appears that the learned CIT invoked the revisional jurisdiction under section 263 of the Act on grounds like that the assessee did not disclose any closing stock or work-in-progress in the trading account, that AO has failed to verify the monthly expenditure on different items so as to arrive at correct quantum of closing stock or work-in-progress; the assessee has failed to declare any closing stock, raw material and/or work-in-progress, no verification was made by the assessing authority with reference to the materials and labour charges vis-a-vis completion/part of different contracts. 20. It is found appropriate to reproduce the relevant extract of the order of learned CIT, as reproduced by the learned Tribunal in its impugned order, for the purposes of ready reference : "8. In respect of issue stated at para P-5 of this office show-cause notice under s. 263, dt. 6th March, 2009, it is submitted by the assessee before me that the AO re....
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....r to the next year. Likewise, it is also observed from the TDS certificates placed on records that M/s Cairns Energy India (P) Ltd., PWD, Barmer and PWD, Jalore paid a sum of Rs. 7,41,896, Rs. 2,10,559 and Rs. 21,36,082 on 29th March, 2006 and 31st March, 2006, respectively. As mentioned above, no verifications were made with reference to closing stock of materials /closing work-in-progress. In any event, these facts suggest that the contracts continued and therefore, the assessee had certain quantum of closing stock of materials/closing work-in-progress. The AO also failed to verify the purchases made and wages incurred in the month of March, 2006 to ascertain the closing stock of materials as also work-in-progress. All the above facts goes to prove that the assessment was made in undue hurry and without making any enquiries. The point to be noted here is that there is apparent and substantial suppression of closing stock and had the AO substituted the correct figure of closing stock/work-in-progress, he-would have ended up with a much more addition than the addition made by him after rejecting the books of account and applying a particular net profit rate. I have already discusse....
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.... The accounts of the assessee are audited and the report in Form Nos. 3CB and 3CD are enclosed with the return. The assessee has furnished the comparative gross profit/net profit chart for last four years as following : Asst. yr. Turnover GP GP (%) NP (%) 2002-03 5,27,32,870 53,36,566 10.12% 2.08% 2003-04 4,37,62,856 53,74,078 12.21% 1.03% 2004-05 4,50,07,549 54,98,488 12.22% 0.89% 2005-06 5,48,46,737 65,25,761 11.90% 0.84% 2006-07 14,01,79,045 1,71,15,840 12.21% 4.83%/5% From the perusal of the above chart, it reveals that the GP rate disclosed in the year under consideration is 12.21 per cent out of the total receipts of Rs. 14,01,79,045 which is better in comparison to just immediate preceding year i.e. 2005-06 but it is lower in comparison to asst. yr. 2004-05. Where gross profit percentage of 12.22 per cent was declared in asst. yr. 2004-05 at the gross receipts of Rs. 4,50,07,549." 22. The assessing authority had duly noted the auditor's comments in nis audit report and had noted these very objections or deficiencies in the record maintained by the assessee, viz. non-maintenance of day-to-day stock register, which the learned CIT fo....
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.... record of any proceeding under this Act, and if he considers that any order passed therein by the AO 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 he 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 AO shall include- (i) an order of assessment made by the Asstt. CIT or Dy. CIT or the ITO on the basis of directions issued by the Jt. CIT under section 144A. (ii) an order made by the Jt. CIT in exercise of the powers or in the performance of the functions of an AO conferred on or assigned to, him under the orders or directions issued by the Board or by the Chief CIT or Director General or CIT authorised by the Board in this behalf under section 120; (b) 'record' shall include and shall be dee....
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.... by holding as under: "3. The assessee, a registered partnership firm, filed return for the asst. yr. 1993-94 in respect of accounting period of 1992-93 declaring income of Rs. 17,980. On account of certain discrepancies noticed in the books of account, the assessing authority viz., the ITO, Barmer, invoking the provisions of section 145 of the Act of 1961, applied a net profit rate of 12.5 per cent on receipts of Rs. 76,12,688. He further allowed deduction by way of depreciation, interest and salary to partners to the extent of Rs. 8,67,691. As a result of this deduction, the assessable income was calculated as Rs. 83,895. The CIT, Jodhpur, on perusal of the assessment record, found that the order of the assessing authority is erroneous as it is prejudicial to the interest of the Revenue inasmuch as a result of deduction by way of depreciation, interest and salary to the partners, the net profit in assessee's case came down to the rate of 1.10 per cent In his opinion, the said net rate was extremely low. He, therefore, invoked the provisions of section 263 of the Act of 1961 and issued a notice to the assessee. The CIT held that while taking the net profit rate of 12.5 per ce....