TaxTMI 
TaxTMI 
2010 (8) TMI 988
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.... interest of Revenue. 2. That without prejudice to the above challenge against illegal assumption of jurisdiction by the learned CIT under s. 263, the conclusion of the learned CIT that the AO did not investigate the various issues and acted without proper application of mind is not correct in the facts and circumstances of the case as the material on record of the assessment sufficiently and satisfactorily shows that there was proper and due enquiry in which the appellant co-operated and filed reply. The impugned order passed by the learned CIT under s. 263 deserves to be set aside and the order of assessment passed by the learned AO under s. 143(3), which is cancelled by the impugned order, be restored, as amended by the order of rectification passed under s. 154. 3. The appellant craves leave to add, alter, modify, vary or otherwise amend the grounds of appeal before the appeal is finally disposed of." 2. Assessment in the present case was framed vide order dt. 24th Dec., 2007 passed under s. 143(3) of the Act wherein an addition of Rs. 34,14,936 was made on agreed basis. 3. According to show-cause notice dt. 2nd March, 2010, for invoking s. 263,....
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....oneous or prejudicial to the interest of Revenue. The copy of order passed by the AO under s. 154 was also submitted. 6. So far as it relates to addition made in respect of fixed assets amounting to Rs. 97,37,726.99 the following table was submitted:- S. No. Particulars Amount Date of purchase 1. Computer 1,11,300.00 25.01.2005 2. Furniture and fixtures 1,380 29.05.2004 3. Machinery 3,53,600.00 28.03.2005 4. Machinery 4,00,000.00 10.04.2004 5. Machinery 4,60,896.00 08.05.2004 6. Machinery 4,60,896.00 08.05.2004 7. Machinery 2,29,218.00 31.01.2005 8. Machinery 2,32,728.99 13.05.2004 9. Machinery 2,38,980.00 25.02.2005 10. Machinery 9,85,928.00 08.02.2005 11. Machinery 10,92,000.00 18.02.2005 12. Machinery 1,50,800.00 25.02.2005 13. Machinery 35,000.00 27.04.2004 14. Machinery 18,65,000.00 24.02.2005 15. Machinery 3,12,000.00 19.02.2005 16. Machinery 12,48,000.00 05.06.2004 17. Machinery 15,60,000.00 13.02.2005 Total 97,37,726.99 7. It was ....
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....d. Learned CIT, after going through the submissions of the assessee, has observed that the AO has not properly investigated the issues before passing the assessment order. According to the learned CIT, the AO should have made cross-verifications of the reply/facts submitted by the assessee during the course of assessment proceedings before coming to a logical conclusion/finding instead of being satisfied with the information filed by the assessee. Learned CIT has made reference to various judicial pronouncements according to which if submissions of the assessee are accepted by the AO without application of mind, that will make the order passed by the AO as erroneous and prejudicial to the interest of Revenue and learned CIT has referred to following judicial pronouncements to support such contention:- (i) CIT vs. South India Shipping Corporation Ltd. (1998) 147 CTR (Mad) 433 : (1998) 233 ITR 546 (Mad); (ii) Gee Vee Enterprises vs. Addl. CIT and Ors. 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del); (iii) Addl. CIT vs. Mukur Corporation (1978) 111 ITR 312 (Guj); (iv) Duggal and Co. vs. CIT (1994) 122 CTR (Del) 171 : (1996) 220 ITR 456 (Del). 11. It ....
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....e AO has described the total of 25 vouchers in a table described at p. 2 of the assessment order wherein the aggregate of 25 items has been worked out at Rs. 17,62,253.50. 13. Similarly, it is observed by the AO that he has verified the labour and purchase charges which have been shown to be incurred at different sites. Those expenses were also test checked and it was found that the twenty three vouchers aggregating to Rs. 8,98,555 were not verifiable, the details of which have also been tabulated by the AO at pp. 2 and 3 of the assessment order. Further, the AO has observed that the bills and vouchers in respect of machinery hire charges were also examined and it was found that 17 vouchers aggregating to Rs. 7,54,128 were not verifiable and these vouchers have also been tabulated at p. 3 of the assessment order and aggregate of these three items being a sum of Rs. 34,14,936 was agreed to be added to the income of the assessee by the counsel of the assessee and the same was added to the returned income of the assessee of Rs. 49,93,780 and, in this manner, the total taxable income of the assessee was computed at Rs. 84,08,716 against returned income of Rs. 49,93,780. 14. Learn....
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....per page 58 of the paper book which read as under:- "Purchase Accounts Group Summary 1st April, 2004 to 31st March, 2005 Particulars Closing balance Debit Credit Bitumen account 20,36,907.00 Bitumen purchase agst. 3B (2.5%) 2,59,94,004.81 Bricks account 36,050.00 Burning oil 97,44,128.00 Diesel account 41,59,692.48 Dust 20,39,310.00 LDO account 2,28,010.00 LDO purchase agst. 3B (2.5%) 16,77,52.00 Raw material others 1,14,30,656.00 RBM 1,96,98,619.25 Rodi account 13,07,04,297.73 Grand Total 20,77,49,195.27 18. He submitted that these were the broad heads for which raw material was purchased and other details were filed of the "broad heads" as per pp. 58 to 100 of the paper book. He submitted that in respect of (sic) item bill number, party's name, etc. have been given. He submitted that Rodi account formed part of the purchase of raw material. He submitted that vide letter submitted on 29th Jan., 2007, copy of which is placed at pp. 12 and....
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....e entire raw material purchased by the assessee was to the tune of Rs. 20,77,49,195, the details of which were duly submitted to the AO and it is also not the case of CIT that any particular voucher other than those specified by the AO was remained to be verified by the AO in respect of which he has computed the figure at Rs. 1,94,66,944. 25. He submitted that donation was also added by the AO in the order passed under s. 154 much prior to the invocation of s. 263, therefore, that issue also cannot be made as basis for invoking s. 263 and on that account also the assessment order passed by the AO cannot be said to be either erroneous or prejudicial to the interest of Revenue. 26. Similarly, he pleaded that for the fixed assets, the AO in his query not only asked the details, but also asked the query that whether the same were put to use during the year under consideration or not and reply was given to him that those were put to use during the course of financial year and, thus, being satisfied from that query, the AO did not make any addition. 27. Further, learned Authorized Representative pleaded that learned CIT did not examine the merits of assessee's objection hims....
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....CTR (MP) 305 : (1988) 171 ITR 141 (MP); (ix) Decisions of Tribunal, New Delhi, in the case of Chiranjiv Sharma, Prop., Shiv Shakti Automobiles, dt. 8th May, 2008 and in the case of Sanjay Kumar Jain, dt. 22nd Jan., 2010. 29. Thus, it was pleaded by learned Authorized Representative that order of CIT passed under s. 263 should be quashed as the order passed by the AO was neither erroneous nor prejudicial to the interest of Revenue. 30. On the other hand, learned Departmental Representative relied upon the order passed by learned CIT. He pleaded that the AO failed to make inquiries and relying on the decision relied upon by CIT, it was pleaded by him that it was clearly a case where CIT was justified in invoking the provisions of s. 263 of the Act. 31. We have carefully considered the rival submissions in the light of the material placed before us. The first ground on which learned CIT has invoked power under s. 263 is that during the course of assessment proceedings expenses relating to raw material purchases to the tune of Rs. 1,94,66,944 were left to be verified. As against that it is the contention of the assessee that details of purchases amounting to Rs. 20,77....
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....not brought specific material on record to show that how the AO did not verify the raw material purchased to the tune of Rs. 1,94,66,944. 35. The AO is vested with the power to make the assessment as per the provisions of the statute. Normally, the AO while initiating the assessment proceedings will call for the required details to enable him to complete the assessment. In the present case, according to such normal procedure the AO has called for the necessary details from the assessee by issuing questionnaires to the assessee. The assessee had produced the books of account and other details which, as per the assessment order, were verified and the AO has identified certain vouchers which could not be verified and substantiated by the assessee. The AO has made the addition with respect to those vouchers for which the assessee had agreed. Apparently, there is no infirmity or erroneousness in the said order of the AO as the assessment appears to be framed as per the normal procedure adopted by the Department. 36. Sec. 263 empowers the CIT for revision of the orders in a case where after calling for and examining the record of any proceedings under the Act, he considers that any....
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....that the assessment order passed by the AO was erroneous. What has been done by learned CIT is that he has simply cancelled the assessment order passed by the AO to be made afresh after giving the assessee a reasonable opportunity of hearing. Therefore, it is not a case where assessment order is based on an incorrect assumption of facts. It is not even the case of learned CIT that assessment order is based on an incorrect application of law. Thus, on both accounts, the order of AO cannot be said to be erroneous. The AO, in the assessment order, has identified the vouchers which could not be substantiated by the assessee and the details of those vouchers are mentioned in the assessment order itself on the basis of which the additions have been made by the AO. If learned CIT was of the opinion that the identification by the AO of the vouchers which could not be substantiated by the assessee was incorrect, then only the case of the assessee could fall under the first factor i.e., incorrect assumption of facts. In that case learned CIT was required to pinpoint the vouchers which were not identified by the AO and which, according to the CIT, were unverifiable. This having not been done ....
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....r is able to demonstrate that there was any lawful loss of revenue when the AO framed the assessment. 40. In view of above discussion, so far as it relates to the issue regarding invocation of power under s. 263 with regard to non-verification of raw material purchases to the tune of Rs. 1,94,66,944, we hold that the power has wrongly been exercised by CIT under s. 263. 41. Now, coming to the issue relating to donation of Rs. 13,000, it is observed that the said mistake was rectified by the AO much prior even to the show-cause notice issued by learned CIT. The said mistake was rectified by the AO vide order passed under s. 154 dt. 22nd May, 2008 whereas the show-cause notice issued by the CIT is dt. 2nd March, 2010. Thus, the said ground cannot be said to be subject-matter of s. 263 as the said issue was not existing on the date when CIT has initiated the proceedings under s. 263. 42. So far as it relates to the observations of learned CIT with regard to claim of depreciation, which according to learned CIT was allowed without verifying the fact that whether the machinery was put to use during the whole of the year or not, it is observed that the AO had raised specific que....