TaxTMI 
TaxTMI 
TaxTMI 
2018 (4) TMI 393
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....t aside the issue to the Assessing Officer to be decided afresh. 3. Now the assessee is in appeal before the ITAT by taking following grounds of appeal: "1. On the facts and in the circumstances of the case and in law, Ld. Commissioner of Income Tax (CIT) erred in passing order u/s 263 of the Income Tax Act, 1961 (the Act), when the assessment for the impugned assessment year had already been concluded by Assessing officer (AO), u/s 143(3) of the Act, after seeking explanations and making all the enquiries necessary for the completion of assessment. Appellant prays order so passed u/s 263 may please be held as bad in law. Without prejudice to ground no.1: 2. On the facts and in the circumstances of the case and in law, Ld. CIT erred in directing the AO to examine the issue of computation of remuneration to the working partners by noting that partners remuneration has been classified in 3 different ways in Audit report, P&L A/c and computation of total income. The appellant prays that so far as remuneration claimed in computation is in parity with provisions of Partnership deed, the same cannot be objected. 3. On the facts and in circumstances of the case and in law, Ld.....
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.... issue involved in the appeal is passing order U/s 263 of the Act by the Pr.CIT, Alwar. 5. While pleading on behalf of the assessee, the ld AR has submitted as under: Brief facts of the case are that this is the first year of business of the appellant assessee who is formed as partnership firm during the year under appeal having sole object of doing business of royalty collection in terms of the contract awarded by the Mining department, Government of Rajasthan for collection of royalty in Bayana Tehsil and Roopwas Tehsil. The assessee has installed 36 check-posts as per terms of the contract at different places of the areas in the abovementioned Tehsil for the collection of Royalty. The return of income was filed declaring total income at Rs. 2,99,820/-. Thereafter the case of assessee was selected for scrutiny under CASS which was limited to examine Large Other Expenses as claimed in Profit & Loss Account (AO Page 1 Para 1). Various query letters / notices were issued by the Ld. AO from time to time and after due enquiries and verifications into the matter, the assessment was completed u/s 143(3) of the Act vide dated 24.03.2014 wherein certain disallowances to the extent of R....
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....ent, state of Rajasthan. As per the partnership deed dt. 1/4/2010,the the assessee firm constituted of total 17 partners who all had contributed towards the capital of the firm totaling to Rs. 2,74,05,000/-. During the course of assessment proceedings, complete books of accounts of the assessee including bills & vouchers were produced for examination which is clearly apparent from the letter of assessee dated 11.03.2014, point No. 14 (APB-105) which stood examined by Ld. AO on test check basis. Further, other details as and when called for by the Ld. AO were submitted by the assessee from time to time including ledger account of major expenses such as: i) Crane and JCB way expense, ii) Remuneration to partners, iii) Interest to partners, iv) Royalty Installment payment. Apart from the above there were various minor expenses also, ledger accounts pertaining to which were also submitted during the course of assessment proceedings, which is apparent from the letter dated 11.03.2014, point No. 7, filed before the Ld. AO (APB-106). Besides this assessee also filed confirmations / affidavits of parties who provided unsecured loans to assessee - Point No. 5 (APB-105). Further, at....
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....vidences pertaining to the source of share capital were filed during the course of assessment proceedings. Not only this, even the source in the hands of contributors of this capital i.e. partners, was also explained by submitting the copies of their income tax returns alongwith balance sheet, capital account, details of sundry debtors and investments., all of which were scrutinized / verified by the Ld. AO. However, the Ld. CIT has held that the source of capital contributions in the hands of partners has not been satisfactorily explained. While holding so, the Ld. CIT has alleged that the copies of income tax returns of the partners including the balance sheet, capital account etc. are not sufficient evidences to prove the source of capital contributions. In this regard, it is submitted that the year under appeal is the first year of business of assessee firm and therefore, the source of capital cannot be alleged as unexplained in the hands of assessee firm. During the course of assessment proceedings, it has been established with ample evidences that the capital has been contributed by the 17 partners and the availability of funds in their respective hands has been duly esta....
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....ue authorities were not satisfied with financial capability of 'S', amount in question could have been added at hands of 'S' but not in hands of firm - Whether in view of above, impugned addition made in case of assessee-firm was to be deleted - Held, yes [Para 25] [In favour of assessee] (iii) CIT Vs. Jaiswal Motor Finance (Allahabad HC) 141 ITR 706 Cash Credits - Firm - Deposits in Accounts of Partners in books of Firm in first year of assessment of Firm - Deposits made by partners towards capital - Without the deposits they could not have become partners - Deposits cannot be assessed as Income of Firm - Income Tax Act, 1961, s. 68. (iv) India Rice Mills Vs. CIT (Allahabad) 218 ITR 508 Income from Undisclosed Sources - Firm - Partners contributing capital before Firm commenced business - Onus on partners to explain source of deposits - May be added to Partners' income if they fail to explain source - Cannot be treated as Income of Firm - Income Tax Act, 1961. (iv) Surendra Mahan Seth Vs. CIT (Allahabad HC) 221 ITR 239 Income - Firm - Partners making deposit in firm on its first day of existence - Onus on partners to explain source - Partners fall....
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....even) partners instead of 10 (ten) partners, it does not make order passed as prejudicial to the interest of revenue since the amount allowable towards partners remuneration as per provisions of section 40(b) of the Income Tax Act,1961 remained the same (i.e. 14,70,000/-). Also, further that, in the financial statements, as audited by the auditors, the total salary was correctly distributed amongst all 10 partners, as prescribed in the partnership deed (APB 47-49). Hence, there was nothing prejudicial to the revenue, on this account so as to warrant issuing notice u/s 263 of the I T Act. 2. On the issue of alleged income from JCB or Crane, it is submitted that the assessee firm do not own any Crain and JCB, thus question of showing any receipt / income from JCB or Crane did not arise at all. The assessee used the JCB/ cranes for clearing the ways (Rasta) from check posts established to reach the main road, and for getting connectivity with the queries. The assessee had submitted the ledger account of the above said expenses during the course of assessment and also produced complete vouchers for the same which is clearly apparent from the letters filed before the Ld. AO (APB-106) ....
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....t all the parties are assessed to Income Tax since long and the amounts were received through account payee cheques and also shown the said amount in their respective returns, copies of Income Tax Return, Copies of Capital Accounts and Copies of Balance Sheet were duly submitted before the ld. AO during the course of assessment as mentioned in para 6 of the reply submitted (APB-105, 111-112). Thus, the documents required for the purposes of verification of loans taken had already been submitted and treated as genuine by the Ld. Assessing Authority at the time of assessment. In view of the above factual background of the case, it is humbly submitted that essential elements necessitated for invoking section 263 are not fulfilled. The basic ingredients to be fulfilled before invoking section 263 have been explained by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT reported in 243 ITR 83 (SC) (APB 28-29) in the following words: "A bare reading of section 263 of the Income Tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income Tax Officer is erroneous is....
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....ard reliance is placed on the following decisions: (1) Shri Narayan Tatu Rane vs ITO ITA No.2690 & 2691/Mum/16 (APB 1- 11) dated 06.05.2016 "20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying out enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification ....
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....est of the Revenue, and CIT could not exercise powers under s. 263." In view of the above proposition, and respectfully following principle laid down by the Hon'ble courts and keeping in view all these discussion, as also bearing in mind entirety of the case, we deem it fit and proper to uphold the grievance of the assessee and quash the impugned revision order as devoid of jurisdiction. The assessee gets the relief, accordingly." In view of above, it is submitted that : 1. The Order of Ld. AO is not erroneous: It has already been established above that this is the first year of operation of assessee's business and therefore, the source of share capital cannot be alleged as unexplained in the hands of assessee. Nevertheless, the Ld. AO had made inquiry on this aspect and complete details as asked for by the Ld. AO were submitted by assessee during the course of assessment proceedings and, as submitted above, the Ld. AO passed the assessment order after taking into consideration all those details and evidences. Similarly, with regard to the other aspects such as remuneration of partners and other expenses / receipts, due enquiry was conducted by the Ld. AO, in response t....
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....iew of such legal position, no action u/s 263 could have been taken. It is a well established law by now that section 263 does not contemplate mere substitution of the opinion of AO with that of CIT. It has further been held by the Courts that where two views are possible in the matter and the AO has chosen any one of them, then revision cannot be made merely because the CIT is of the opinion that the other view should have been taken by the AO. 2. The Order of Ld. AO is not prejudicial to the interest of revenue: In light of the facts of the present case, it is submitted that the Ld. CIT in the impugned order has not doubted the source of capital in the hands of assessee firm, which is clearly established from the fact that the same is contribution of partners. However, the Ld. CIT has doubted the source of income or availability of funds in the hands of the partners. In this regard it is submitted that the source of source cannot be inquired by the Ld. AO which can be done in their respective assessments only. Further, the assessee by adducing proper evidence has established the source of funds in the hands of the partners and therefore, the same in any circumstances could....
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....oes not have unfettered and un-checked discretion / power to reverse the order. He can do so within the bounds of the law and has to satisfy the need of fairness in action and fair play with due respect to the principle of Audi Alterem Partem as envisaged in the Constitution. The law is well settled that the CIT cannot invoke the powers to correct each and every mistake or error committed by the AO. Every loss to the Revenue, cannot be treated as prejudicial to the interest of the Revenue and if the Assessing Officer has adopted one of the course permissible under the law or where two views are possible and the AO has taken one view which the CIT does not agree with, it cannot be treated as an order erroneous and prejudicial to the interest of the revenue. The AO exercises quasi judicial power vested in him and if he exercises such powers in accordance with law, arrives at a just conclusion such conclusion cannot be termed as erroneous only because the CIT does not feel satisfied with the conclusion. 2. CIT Vs. M/s Deepak Real Estate Developers P. Ltd. (Raj HC) (2014) 51 TW (IV) 186 It is no longer res-integra that the revisional jurisdiction available to a Commissioner u/s 26....
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....ditions as laid down u/s 263 i.e. erroneous and prejudicial to the interest of the revenue have to be cumulatively satisfied and in the absence of one of the conditions, not being attracted the other would become nonest for the purposes of revision. Therefore, in view of the above it is prayed that the impugned order of Ld. CIT(Admn.) be quashed and held bad in law. 6. On the other hand, the ld CIT DR has relied on the order of the Pr. CIT, Alwar. 7. The Bench have heard both the sides on this issue, perused the material available on the record and also perused the case laws relied upon. Assessment year 2011-12 was the first year of operation of the assessee company. It was a partnership firm having 17 partners and the share of the each partner was specified as evidence from page No. 28 of the paper book. The assessee firm commenced the business of contractor ship in the name and style of Hari Om Stones with Mining Department and Sales tax department to collect the revenue for government. The partnership deed is placed at page Nos. 26 to 31 of the paper book. This partnership deed also specifies in para 10 that the partners to whom the remunerations is to be paid and limit of the....