TaxTMI 
TaxTMI 
2009 (7) TMI 1254
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....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 a speaking order based on the merits of the case. 4. ....
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.... 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-cause notice issued under s. 263 of the IT Act by the CIT, the main issues raised a....
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....t 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 one of the two courses permissible in law and it has resulted in a loss of revenue where two views are possible and the AO has taken one view with whi....
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....,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 which is quoted as above, clearly shows that the creditors have in fact, specifically in black and white, confirmed that the said amounts were due to them from the assessee for the supply of materials made for the year under appeal, being the....
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.... 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 of a specific mention or finding by the AO in his assessment order should not be misunderstood to be a failure on the part of the AO to conduct the required enquiries. Placing reliance on certain judicial decisions which absolutely deal with the same i....
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....s 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-verification or failure on the part of the AO in investigating in the said matter would not result in any loss to revenue. As pointed out earlier, for an order to be revised under s. 263 of the Act, the order sought to be set aside has to fulfil the twin conditions that ....
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....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 expense which was made in cash was unverified by the AO. In connection to the above allegation of the learned CIT that the AO had failed to verify the said expenses it is pointed out that the assessee had furnished full details about the said expenditure which can be evidenced at p. 60 of the paper book. It was duly explained by the asses....
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....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 that out of the total sum of Rs. 71,33,910; Rs. 44,93,975 was paid to Shri C.S. Vohra and since the TDS on the same had been deducted and also the P&L a/c of the party had been produced and verified, the deduction on account of the same was to be deducted. However on the balance Rs. 26,39,935, which is the matter of concern before the CIT in his proceedings under s.....
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....ers 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 case of CIT vs. Span International (2004) 270 ITR 538(All) that 'Revision'Doctrine of merger'Amendment in s. 263(1)'Effect'CIT can revise matters not considered and decided in appeal filed by assessee to CIT(A)'IT Act, 1961, s. 263(1), Expln (c)'. (iv) Site Peditar expenses : Rs. 36,21,359 The learned CIT has once again alleged that the said expenses which were made in c....
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....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 was paid to C. Prakash and Pawan Goel specifically and was not on account of temporary casual labour as alleged by the CIT. All the said salary payments were routed through the staff register which was all produced before the CIT(A) and was duly verified and found to be correct. 5.3 The third point raised by the CIT in his show-cause notice under s. 263 of the Act is regarding the genuineness of the sub-contracts b....
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....andra 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 roving enquiries which do not find any place in the provisions of s. 263 of the Act. (iii) Lastly the CIT has in a very unreasonable manner and without any basis whatsoever alleged that the AO has failed to scrutinize the payments made to persons specified in s. 40A(2)(b) as laid out and specified in the Annex. III of Form No. 3CD. It is submitted by the assessee that in the absence of anything to the contrary this allegation of the CIT has no basis whatsoever. The director's remuneration and salary as pa....
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....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 Jan., 2005 fixing the hearing on 20th Jan., 2005. The order was passed on 13th Dec., 2006. Thus there was a time of two years for investigation of the case. The details on the order sheet are placed in the paper book at pp. 8 to 17. We find that the questionnaire has been issued and that too under the direction of the Addl. CIT which is evident from p. 9 of the paper book which is a note sheet dt. 19th Jan., 2005. The various notings in the note sheets show that the assessee has produced the books of account, bills and vouchers which have been verif....
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....n @ 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 find that the AO made a specific query in his questionnaire dt. 19th Oct., 2006 which is evident from page No. 53 of the paper book. After the verification the AO made same addition and this issue cannot be made a basis to invoke the revisionary powers under s. 263 of the IT Act. 13. The third issue raised in the show-cause notice regarding the genuineness of the sub-contracts being not verified by the AO, we find that the amount was paid and the AO in his questionnaire dt. 19th Oct., 2006 has specifically made a query in this regard which is evident....
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....enue' 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 consequence of an order of the AO, cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law." ' CIT vs. Clough Engineering Ltd. (supra) : In the said case revision by CIT was sought on the ground of failure ....
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....hat 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 jurisdiction under s. 263". ' Infosys Technologies Ltd. vs. Jt. CIT (supra) : "Once the matter has been examined and considered, the fact that it is not mentioned in the assessment order does not render the assessment order erroneous insofar as prejudicial to the interest of the Revenue. The power of revision is not meant to be exercised for the purpose of directing 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 ord....