TaxTMI 
TaxTMI 
2009 (7) TMI 1254
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....roceeding and that due verifications had also been made by him in respect of all the issues under consideration. 3. On the facts and in the circumstances of the case, the learned CIT also failed to note that all the points raised by him in the notice issued by him for the proceeding under s. 263 of the Act, had also been duly explained before him during the course of the proceeding under s. 263 before him. 4. On the facts and in the circumstances of the case and in law, the learned CIT erred in holding that the assessment order passed by the AO was erroneous insofar as it was prejudicial to the interest of Revenue and in that view in passing an order under s. 263 of the Act, setting aside the assessment order and directing to make further enquiry. 5. The appellant craves leave to amend, alter, modify, revise, add to abridge or rescind any or all of the above grounds." 3. The issue involved is against the invoking of the provisions of s. 263 of the IT Act, 1961 by the CIT, Siliguri by which the order passed by the AO was held to be erroneous and prejudicial to the interest of the Revenue and the same was set aside with a direction to make inquiries on the issue and pass ....
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....by self-vouchers only and that the register containing the daily attendance of the labour and the rate of the daily wages was not produced before the AO). Rs. 8,346 (ii) Disallowance of fuel charges @ 10% on account of personal use. Rs. 1,12,220 (iii) Disallowance of carrying charges @ 1% of the total expenses. Rs. 71,339 (on the basis that the said expenses were in cash and they were supported by self-vouchers only) The assessee filed appeal against this order of the AO before the CIT(A). The CIT(A) granted certain reliefs vide his order dt. 6th Dec., 2007. Regarding labour expenses disallowed @ 1 per cent by the AO; the CIT(A) granted full relief after verification. The CIT(A) also granted full relief in respect of disallowances from the fuel charges, after detailed examination of the bills and vouchers and the ledger copy submitted before him. The CIT(A) partially allowed the relief from disallowance from carrying charges paid to C.S. Bohra where TDS was deducted. The AO disallowed Rs. 71,339 and the CIT(A) sustained only Rs. 26,399. This order of the CIT(A) has been asserted by the Department as well as by the assessee. 6. In the show....
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....e bare reading of the section makes it clear that the exercise of jurisdiction by the CIT is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT before invoking the provisions has to satisfy himself about the existence of the following two conditions : (1) The order of the AO sought to be revised is erroneous. (2) It is prejudicial to the interest of the Revenue. 8. If any condition of them is absent then the CIT cannot take recourse under s. 263 of the IT Act, 1961. The erroneous order does not mean a wrong order and also does not mean an order by which the CIT is unable to agree. An erroneous order would be an order which suffered from a patent lack of jurisdiction, the error must be with reference to the jurisdiction. The provisions cannot be invoked to correct each and every type of mistake or error committed by the AO. Similarly prejudicial to the interest of the Revenue would mean an order which is against the interest of the revenue collection. However, every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, when the AO adopts ....
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.... 2003-04. I have received the said amount in full later on.' ' Shri Keshol Gurang : Rs. 1,77,400 (copy enclosed at p. 40 of the paper book) 'It is to inform you that I have received Rs. 1,77,400............ only from V.B. Construction (P) Ltd. outstanding payment of 2003-04 for the supply of Bazri, boulder and sand.' ' Shri Shankar Lamichani : Rs. 2,00,000 (copy enclosed at p. 43 of the paper book) 'I am informing you that as per my books for the year 2003-04, I have supplied sand and Bazri to M/s V.B. Construction. I have received the payment of Rs. 2,00,000 from V.B. Construction.' In connection to the above it is submitted by the assessee as also submitted in its reply to the notice under s. 133(6) that the said sundry creditors were petty, illiterate suppliers of river bed materials, i.e. Bazri, boulder and sand at the site where the contract work of the assessee was going on. Further the fact that the AO has recorded the statements of the sundry creditors under s. 133(6) of the Act is proof of the process of detailed investigation followed by the AO. An analysis of the statements of the sundry creditors whic....
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.... possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law. Reference is again made to the decision of the Delhi High Court in the case of CIT vs. Ashish Rajpal (2009) 23 DTR (Del)266, wherein it was held that 'It would be important to remind one than while the supervisory power of CIT is wide, it cannot be invoked to substitute the view of the AO'. 5.1.4 However, it is further mentioned here that the AO in spite of having conducted full enquiries into the said issue has not made a specific mention of the same in his assessment order. It is hereby mentioned that the AO while framing his assessment order under s. 143(3) of the Act has however noted down only those areas where certain irregularities were observed by him. There was no mention of each and every investigation carried out by him. The learned CIT has while making the said allegation taken recourse to the fact that the AO has in particular not made any reference to the said statements of the creditors. In connection to the aforesaid it is submitted that the absence ....
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....g the officer to hold another investigation when the order of the AO is not found to be erroneous. For making a valid order under s. 263(1), it is essential that the CIT records an express finding of fact that the order sought to be revised, is erroneous as well as prejudicial to the interest of the Revenue'. Thus it is concluded that in view of the various detailed examination process followed by the AO as detailed above such an allegation of the CIT is totally against the natural principles of law. 5.2 The second point raised by the CIT is regarding the cash payments made by the assessee. The CIT has raised the following objections with relation to the following cash expenses. The submission of the assessee issue-wise with regard to each of the said expenses is submitted herewith as follows : (i) Land and building : Rs. 8,93,337 The learned CIT has alleged that the source of the above payment remained unverified by the AO. In connection to the above it is firstly submitted by the assessee that the above land and building account is a capital account of the assessee. It is neither claimed as a stock-in-trade nor as expenditure by the assessee. Thus any non-verif....
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....ccount was duly explained. The account was detailed as under : Opening balance as on 1-4-2003 Rs. 4,11,862 Add : Additions during the year (i) Labour (paid in cash) Rs. 3,37,780 (ii) Marble (paid in cheque) Rs, 57,000 (iii) Glass (paid in cheque) Rs. 36,500 (iv) Building materials (paid in cheque) Rs. 50,195 Rs. 4,81,475 Rs. 8,93,337 On the basis of the above it is thus submitted on merits that out of the total of Rs. 8,93,337; Rs. 4,11,862 was the brought forward balance from the previous year. Also, other than the labour payments in cash (which is separately discussed by the assessee), all the other payments were made by cheque. Thus the action of the AO whereby no addition on the said account was made by him was based on his correct appraisal of the facts of the case of the assessee and was thus just and fair and no revision proceedings by the CIT on the said issue are justified. (ii) Travelling and conveyance expenses : Rs. 2,21,183 The learned CIT has again alleged that the above....
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.... seen at p. 12 of the paper book. The said account was duly furnished by the assessee on 20th Feb., 2006 again noted by the AO in his order sheet (at p. 12 of the paper book). Further, additional details and information regarding the carrying charges were filed during the assessment proceedings and can be evidenced at pp. 60 and 62 of the paper book. It was duly submitted as also stated in the reply to the show-cause notice stated that the said carrying charges were paid to various truck owners, the details of which were all filed before the AO and were examined by him. The details filed showed the truck numbers and also the details of the materials carried to the site. Thus in view of the above it is submitted that after examining the said account in detail as stated above the AO in his assessment order at para 5, p. 2, arrived at the conclusion that the carrying charges of Rs. 71,33,910 were inflated and unreasonable. Further it is submitted that the matter was taken up in appeal before the learned CIT(A) where after detailed examination and verification of the information submitted by the assessee, the learned CIT(A) had, vide his order dt. 6th Dec., 2007, held th....
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...., 1988, was again amended by the Finance Act, 1989, with retrospective effect from 1st June, 1988, to the effect that where any order referred to in the sub-section and passed by the AO had been the subject-matter of any appeal (filed on or before or after the 1st day of June, 1988), the powers of the CIT under the sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. The consequence of the amendment made with retrospective effect is that the powers under s. 263 of the CIT shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal'. Following the above order it was again held by the apex Court in the case of CIT vs. Alagendran Finance Ltd. (2007) 211 CTR (SC) 69: (2007) 293 ITR 1(SC) that 'Expln. (c) appended to sub-s. (1) of s. 263 of the IT Act, 1961, which deals with the power of the CIT in revision is clear and unambiguous, as in terms thereof the doctrine of merger applies only in respect of such items which were the subject-matter of appeal and not in respect of those which were not'. Also it was held in the cas....
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.... (v) Labour expenses : Rs. 15,44,900 Once again the learned CIT has pointed out to the labour charges paid in cash. The learned CIT has alleged that the total labour payment was to the tune of Rs. 15,44,900 as submitted by the assessee himself and thus the disallowance by the AO should be of Rs. 15,449 @ 1 per cent instead of Rs. 8,346 as added back by the AO. It is once again submitted that the matter was taken up in appeal before the learned CIT(A) wherein full relief was granted to the assessee at p. 2 of the order on this count inasmuch as it was submitted by the assessee that the said payment was on account of salary payment only and there was no inclusion of wages in it. The break-up of the salary and the salary register was also produced by the assessee before the CIT(A), all of which was duly verified by the CIT(A) and found to be correct. Thus this matter also stands covered by the order of the learned CIT(A). Further it is also submitted that the assessee had in its reply to the show-cause notice clearly explained the above labour expenses stating that the same included the salary payments of Rs. 5,25,600 to various staff and the balance amount of Rs. 10,19,300 w....
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....f his questionnaire dt. 19th Oct., 2006 (at p. 55 of the paper book). The details of the same were produced before the AO and are reproduced as below as also submitted by the assessee in its response to the show cause under s. 263 : Details of sub-contract and TDS Sub-contract : Payments TDS ' M.K. Agrawal & Co. (sister concern) Rs. 80,20,075 Rs. 87,175 ' Nakul Ch. Paul Rs. 23,76,135 Rs. 26,135 ' Ram Chandra Saha Rs. 16,65,570 Rs. 18,320 Rs. 1,20,61,780 Rs. 1,31,630 Carrying charges : ' Vohra Brothers Rs. 44,93,975 Rs. 49,475 Audit and other fees : ' P.C. Maskara (Chartered accountant) Rs. 32,000 Rs. 1,640 Rs. 1,65,87,755 Rs. 1,82,745 From the above details it is amply clear that all the TDS paid was relatable to the payments made by the assessee and the allegation of the CIT that proper verification was not carried out by the AO is totally baseless and based purely on assumptions and suspicions. The learned CIT has sought to making ro....
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....n the case of Malabar Industrial Co. Ltd. vs. CIT (supra) wherein the apex Court held that an incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous. (2) The Madhya Pradesh High Court in the case of CIT vs. Deepak Kumar Garg (2007) 212 CTR (MP) 152: (2008) 299 ITR 435(MP) held that for want of time semblance enquiry made and that too in slip shod manner and accepted the version of assessee without proper enquiry shall make an order erroneous and prejudicial to the interest of the Revenue. He also relied on Delhi High Court decision in the case of Duggal & Co. vs. CIT (1994) 122 CTR (Del) 171: (1996) 220 ITR 456(Del) and decision of Madhya Pradesh High Court in the case of CIT vs. Ratlam Coal Ash Co. (1987) 65 CTR (MP) 305: (1988) 171 ITR 141(MP). Finally, he pleaded to dismiss the appeal of the assessee. 10. After hearing both the sides and going through the various case laws relied upon, we hold as under. 11. The CIT has mentioned in his order that the AO has passed an order in haste without making any inquiry on the issues. In this connection, we hold that the case was selected on a scrutiny on 12th J....
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....he head "Travelling and conveyance expenses" we find that necessary details were submitted which is evident from p. 60 of the paper book and after verification the AO did not make any addition on this account. Similarly in the case of carrying charges the AO asked the details which is evident from p. 12 of the paper book. The assessee furnished the information and details in this regard during the assessment proceedings which are evident from pp. 60 and 62 of the paper book and after the examination the AO arrived at a conclusion and made the addition @ 1 per cent of the total expenses at Rs. 71,339 against which the assessee filed an appeal before the CIT(A) and after verification the addition has been reduced to Rs. 26,399. Thus this issue has not only been examined by the AO but also by the CIT(A) and after the verification the CIT(A) granted partial relief to the assessee. Thus this issue cannot be made a basis for invoking the revisionary power by the CIT. Similarly in respect of the labour expenses, after verification, the AO made certain additions and in the appeal the CIT(A) had deleted the addition after verification. As far as the site Peditar expenses are concerned, we f....
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.... but is prejudicial to the Revenue-recourse cannot be had to s. 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the AO, 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' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the ITO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequen....
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.... in loss of revenue which was prejudicial to the interests of the Revenue. In the absence of any such finding, the Tribunal was right in setting aside the order of the CIT. Even on the merits, on the point that inter-unit loss was not adjusted against the profit for the purpose of allowing deduction under s. 80-IA of the Act, there are two views possible; one in favour of the Revenue and the other in favour of the assessee. The CIT was not justified in invoking the jurisdiction under s. 263". ' CIT vs. Pathy Cine Enterprises (supra) : It was held that "it was clear that what was not prejudicial to the Revenue for two decades could not be construed as prejudicial to the Revenue for the assessment year in question merely because the lessee happened to be one of the directors of the assessee-company, as it was well-settled that the phrase 'prejudicial to the Revenue' must be read in conjunction with an erroneous order. In any event, when there were sufficient materials to support the claim of the assessee to treat the income derived from the hiring of air conditioners as business income for over two decades, the CIT had no authority to invoke the revisionary juris....