TaxTMI 
TaxTMI 
2016 (2) TMI 429
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....he assessing officer and that the penalty proceedings were dropped after due application of mind. 4. The learned CIT erred in holding that the issue needs fresh examination at the end of the assessing officer and setting aside the matter to the file of the assessing officer with a direction to re-examine the issue. 5. The learned CIT erred in making following observations which are contrary to the facts of the case and in law: ... though the assessee has taken shelter of judicial pronouncements, but has not filed any appeal against the working of the Assessing Officer, which means the working of the assessee was not as per section 14A of the Act read with Rule 8D of the I.T Rules, 1962... ... had the case not been selected for scrutiny, it could have escaped the addition, which clearly suggest that the assessee has furnished inaccurate particulars of income in the return filed for A. Y. 2009 -10 ... ... The Assessing Officer has dropped the proceedings simply accepting the submission of the assessee, without discussing the merit and legality of the issue involved ... ... It is further seen that the assessee has not preferred any....
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....the return of income filed. The Commissioner was of the view that the order dropping penalty for concealment by the Assessing Officer was without discussing the merit and legality of the issue involved. The Commissioner after considering the reply of the assessee was of the view that where the case was selected to examine the disallowance under section 14A of the Act and after disallowing sum of Rs. 36,57,823/- under section 14A of the Act, the Assessing Officer should have levied penalty for furnishing of inaccurate particulars of income. The Commissioner further stated that the order passed by the Assessing Officer was erroneous in so far as it was prejudicial to the interest of Revenue and in his view, the issue needs fresh examination at the end of the Assessing Officer and hence, the matter was setaside to the file of Assessing Officer with direction to re-examine the issue. Vide para 4 at page 5 of the order passed under section 263 of the Act, the Commissioner refers to an order dated 25.10.2011 for assessment year 2009- 10 and was of the view that the same needs to be set-aside for de novo examination of the facts. While concluding the order, the Commissioner setaside the o....
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....r passed by the Assessing Officer is both erroneous and prejudicial to the interest of Revenue. An erroneous order which has resulted in the order being prejudicial to the interest of Revenue can be looked into by the Commissioner, while exercising the jurisdictional power to review the orders of the subordinate authorities. The Hon'ble Supreme Court in Malabar Industrial Co. Ltd. Vs. CIT, (2000) 243 ITR 83 (SC) held as under:- "There can be no doubt that the provision 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 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 High Court of Calcutta in Dawjee Dadabhoy and Co. v. S. P. Jain [19....
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....igh Court in Gee Vee Enterprises Vs. Addl.CIT & Others, (1975) 99 ITR 375 (Del) held as under:- "The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Incometax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to^ ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an i....
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....r stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity." 15. The Hon'ble Delhi High Court in ITO Vs. DG Housing Projects Ltd. (2012) 343 ITR 329 (Delhi) while referring to the decision of Hon'ble Bombay High Court in CIT Vs. Gabriel India Ltd. (supra) observed as under:- "From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estim....
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....ssessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined, and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 17. This distinction must be kept in mind by the CIT while exercising jurisdiction under section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passe....
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....he interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not." 17. The Hon'ble Guwahati High Court in B & A Plantation & Industries Ltd. & Another Vs.CIT & Others (2007) 290 ITR 395 (Gau) while elaborating on the powers of the Commissioner while exercising the jurisdiction under section 263 of the Act, had held that it was not open to the Commissioner to consider the order of Assessing Officer as erroneous merely because in his view, certain amount of bonus should have been disallowed. Where the Commissioner had not applied his independent mind to come to the conclusion that the assessment needs to be revised, there was no merit in the order passed by the Commissioner and the same was set-aside and quashed. The Hon'ble High Court held as under:- "Two cir....
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....not open to exercise of suo motu revisional powers under s. 263. If an authority which has the power to assess, makes an assessment and commits a mistake or allows a deduction which ought not to have been allowed, such a mistake, unless it goes to the root of the making of the assessment order, cannot be revised under s. 263. This power cannot be exercised as a jurisdictionally corrective power or as a review of the orders passed by subordinate authorities. This power under s. 263 can be invoked only for the purpose of correcting such wrongs, which have taken place because of non-application of law or for a wholly incorrect application of law and when such application or non-application of law causes prejudice to the Revenue" 19. Where there is a finding of fact and as apparent from the record of proceeding that the Assessing Officer had framed the assessment after due application of mind and holding enquiries, merely because, the Commissioner is of the view that no enquiries and / or non-sufficient enquiries had been conducted by the Assessing Officer, does not empower the Commissioner to exercise the jurisdiction under section 263 of the Act. It is the record of proceedings fr....
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....icial to the interest of revenue. The Hon'ble Apex Court (supra) further held that where the Assessing Officer had adopted one of the courses permissible and available to him, which in turn, had resulted in loss to the Revenue, cannot make the order prejudicial to the interest of Revenue. In case, where the Commissioner gives his finding that the view taken by the Assessing Officer is un-sustainable in law and therefore, the order is erroneous, which in turn, was prejudicial to the interest of Revenue, then the exercise of power by the Commissioner under section 263 of the Act is to be upheld. 21. Now, coming to the facts of the present case, the assessment was completed under section 143(3) of the Act, under which the disallowance was made by the Assessing Officer under section 14A of the Act read with Rule 8D of the Rules at Rs. 40,92,835/-, as against suo-moto disallowance made by the assessee of Rs. 4,35,012. In respect of the aforesaid addition, the Assessing Officer had issued a notice for levy of penalty under section 271(1)(c) of the Act. However, after considering the submissions filed by the assessee during penalty proceedings, the Assessing Officer dropped the said pr....