TaxTMI 
TaxTMI 
2004 (6) TMI 624
X X X X Extracts X X X X
X X X X Extracts X X X X
.... facts and circumstances of the case, the learned CIT has erred in cancelling the assessment framed by the Assessing Officer (AO) under section 263 of the Act. 4. On the facts and circumstances of the case, the learned CIT has erred in holding that the assessment order framed by the Assessing Officer is erroneous and prejudicial to the interests of revenue on account of the various issues stated in the order despite the fact that complete details and explanations along with the certificate from the auditor authorized under the law were filed and available on record. 5. That the assessment order has been cancelled by the learned CIT by indulging in surmises and conjecture. 6. The assessee craves leave to add, amend or alter any of the grounds of appeal." 3. At the time of hearing, the ld. counsel for the assessee did not press ground No. 2. Hence, the same is rejected as not pressed. 4. The facts concerning this matter are that the assessee who was deriving income from proprietary concern, namely, M/s. Bishan Sarup Ram Kishan, income from house property and income from other sources etc. filed return declaring income of Rs. 2,50,670. The return was f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce was to be treated as export income when it does not have any co-relation with the exports. (v) The assessee claimed net interest paid at Rs. 2.3 crores without showing any interest received separately and claimed deduction under section 80HHC on the net amount without considering that the interest received has to be treated as 'income from other sources' not eligible for deduction under section 80HHC. (vi) Sundry debtors were shown at Rs. 6.39 crores. Most of them were loans on which no interest was shown while on the other hand substantial interest has been paid. There is no evidence on record to show that the interest-free loans advanced were for any business purposes. Therefore, the interest proportionate should have been disallowed at the time of assessment. (vii) Damaged stock/loss of Rs. 32,34,716 was claimed in the P&L account but no evidence was filed or considered at the time of assessment before allowing the same. (viii) In the proprietary business of M/s. R.K. Agency, TDS certificate from State Bank of Mysore was filed claiming TDS of Rs. 57,643 on interest credited at Rs. 5,76,428 but no such interest income was shown eith....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt proceeds are received within the prescribed time. No such details were filed or examined at the time of assessment. Similarly the interest income received and the sale proceeds of special import licences were not derived from exports and therefore were not entitled for deduction under section 80HHC and should have been considered as income from other sources but this was not examined before passing the assessment. Similarly the other issues though relevant for making proper assessment were not examined. This has resulted in an erroneous assessment order. If these issues had been examined as per the provisions of the Act, the computation of income would have been substantially much higher than what has been computed. This has resulted in the assessment order passed as prejudicial to the interest of revenue. Since the assessment order passed under consideration is erroneous as well as prejudicial to the interest of revenue, this assessment order dated 26-3-2002 for assessment year 1999-2000 passed by the then ITO Ward 20(4) is accordingly cancelled to be made afresh after giving due opportunity of being heard to the assessee." 7. Shri Ved Jain appearing before me submitted deta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing Officer in relation to certain items and, therefore, the learned CIT had no option but to cancel the assessment which was made in exercise of the revisionary powers available to the learned CIT. 10. In reply, the learned counsel for the assessee submitted that the CIT does not have absolute power to revise every order of the Assessing Officer and in order to invoke the jurisdiction under section 263, he has to show that there was legal error on the part of the Assessing Officer in making the assessment order and further that the order made by him was prejudicial to the interest of the Revenue. He also pointed out that the CIT cannot exercise the power under section 263 for making fishing enquiry into the matters concluded at the stage of the Assessing Officer after examining the record. He further made detailed submissions on each aspect and emphatically submitted that the order of the Assessing Officer was neither erroneous nor prejudicial to the interest of the Revenue. In support of his arguments, he placed reliance on the following decisions:- 1. CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom). 2. CIT v. Demoh Co-operative Marketing Society Ltd. [198....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Manzoor Haque 172 ITR 676 it has been held that revisional order setting aside the assessment order on the alleged ground that no inquiry into the genuineness of the gift was made is not justified and the Tribunal was correct in quashing the order passed under section 263. The other case law on this point is CIT v. Smt. Sunita Bachani 184 ITR 121 (Del.). In the case of CIT v. Stellar Investment Ltd. 192 ITR 287 (Del.) the CIT's order to set aside the assessment order on the alleged ground that the inquiry with regard to the genuineness of the subscriber to the share capital was held to be not proper because it was not prejudicial to the interest of Revenue. b. Claim of loss of Rs. 81.2 lakhs on account of soyabean - The learned counsel has pointed out that the assessee made all the purchases from the Government i.e., from FCI and all sales were export sales. According to him, the Assessing Officer examined this issue threadbare and after taking into consideration the fact that there cannot be any understatement in the purchase or understatement of the sales etc., the Assessing Officer allowed the claim. It is, therefore, seen that the loss of 3103 quintals is almost 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iction under section 263 to direct the Assessing Officer to examine the deductibility of interest. g. Loss of Rs. 32,34,716 - The assessee claimed this loss in the profit & loss account. As per page 73 of the paper book, the total claim of damaged stock was Rs. 1,35,70,018 against which a claim of Rs. 98,37,702 was received by the assessee and a further sum of Rs. 4,97,600 was receivable. Thus, it appears that the Assessing Officer has examined these details also for allowing the claim of the assessee. h. Claim of TDS - On page 2 of the paper book, the assessee has given computation of income under the head 'income from business'. In the balance sheet of M/s. R.K. Agencies under the head FDR, interest income has been added at Rs. 1,60,703. According to the learned counsel for the assessee, this interest accrued to the assessee during the year on the FDR in the name of M/s. R.K. Agencies with the State Bank of Mysore and this income has been credited in the capital account of the assessee with M/s. R.K. Agencies as is apparent on perusal of page 44 of the paper book. i. Unclaimed prizes - Amount of Rs. 1.36 crores - According to the learned counsel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acts or new versions which they present as to what should be the inference either of the facts disclosed or the weight of circumstances. According to the Hon'ble Mr. Justice Raghuveer J., if this is permitted, litigation would have no end "except when legal ingenuity is exhausted". To do so, is ".... to divide one argument into two and to multiply the litigation". 16. The contention of the learned counsel for the assessee that on merits the assessment order cannot be treated to be erroneous or prejudicial to the interest of the Revenue is therefore not bereft of force. I have also considered various decisions to which specific reference was made by the learned counsel. 17. In the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom.), the assessee-company had claimed deduction of a sum of Rs. 99,326 described as "plant re-lay-out expenses". The Assessing Officer, after making queries, accepted the explanation of the assessee and allowed the deduction claimed by it. The CIT issued notice under section 263 stating that the order of ITO was erroneous and prejudicial to the interest of the Revenue insofar as it related to allowance of deduction of the amount of Rs. 99,32....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... This is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself would not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interests of the Revenue, then the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute, on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed. When exercise of statutory power is dependent upon the existence of certai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the particular fact which the CIT has directed the Assessing Officer to consider the same. The power of revision is not meant to be exercised for the purpose of directing the Assessing Officer to hold another investigation when the order of the Assessing Officer was found not to be erroneous." 21. The case of the present assessee is that of an assessee having 100 per cent export and, therefore, his income is exempted from export business. 22. In the case of Garden Silk Mills Ltd. v. CIT [1996] 221 ITR 861 , following observations have been made by the Hon'ble Gujarat High Court:- "It is a settled law that the CIT has to establish both the factors that the order is erroneous as well as prejudicial to the interest of Revenue. In this case neither of the conditions has been fulfilled. The order is neither erroneous nor prejudicial. It is to be further added that the assessee being 100 per cent exporter, any addition in the business income is not going to affect its final taxability as in this year income from export is eligible for deduction under section 80HHC fully. As such, the order of the Assessing Officer cannot be called prejudicial to the interest of Revenue....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of law, arose from the order of the Tribunal. The Delhi Bench of the Tribunal has held in the case of Joy Commercial Co. Ltd. (supra) that it is necessary for the CIT to state in which manner he considered that the order of the ITO was erroneous and prejudicial to the interest of the Revenue and should also state the basis for arriving at such conclusion. In the absence of specific finding by the learned CIT, the assessment order cannot be construed to be erroneous and prejudicial to the interest of the Revenue. The Madras High Court has held in the case of CIT v. Smt. D. Valliammal (1997) 140 CTR (Mad.) 433 : (1998) 230 ITR 695 (Mad.) that the CIT cannot be set aside an assessment order under section 263 of the Act on the ground that verification of accounts was needed. The Mumbai Bench of the Tribunal has held in the case of Andhra Valley Power Supply Co. Ltd. v. Dy. CIT (1995) 53 TTJ (Bom.) 647 : (1995) 55 JTD 24 (Del.) that the CIT's action under section 263 must resemble that of a surgeon's knife and he cannot open the assessment wide and direct the Assessing Officer to consider everything afresh. The Supreme Court has held in the case of Malabar Industrial Co. Ltd. ....