TaxTMI 
TaxTMI 
2020 (6) TMI 604
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..... 48,01,970/- interalia making addition of Rs. 29,58,196/- on account of disallowance of expenditure claimed on payment of commission, on ad-hoc basis at the rate of 20% of the total commission payments and Rs. 10,45,060/- being 20% of the administrative expenses claimed by the assessee on ad-hoc basis on the ground that supporting details and vouchers were not produced. The ld. Pr. CIT, Kolkata, issued a notice u/s 263 of the Act, dt. 24/09/2018 proposing to revise the order passed by Assessing Officer u/s 143(3) of the Act, on 15/03/2019. The relevant part of the notice is extracted below for ready reference:- "On perusal of the assessment records, it was seen that the assessee failed to substantiate the necessity of payment of large amount of commission in a business of sale of Electric Goods, as well as failed to produce evidence of rendering service. It also transpired from record that details of the parties to whom commission were paid were not produced by the assessee. Because of irregular appearance by the assessee/AR, 20% of the total commission of Rs. 1,47,90,981/- was disallowed, without any proper verification. Apart from this, other CASS r....
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....r mentioned here in above. The assessee can just provide the details as called for and the nature and type of enquiry to be made is totally decided by the A O. Nor was the assessee made known of the points, which needed to be looked into or CASS points involved. It is further submitted that in the instant case, as accepted and admitted in the order, the A.O. after making proper inquiries in respect of commission, all expenses, all books of account, purchase and sale records and bank book and bank statement completed the assessment proceedings by treating the same as genuine. .....During the course of scrutiny the Ld. Income Tax Officer wanted details of commission paid to achieve the turnover. Proper details with PAN no. and address were provided to the Ld Income Tax Officer. It is submitted that the AO examined all the relevant documents and had conducted a proper enquiry. Details of commission were made available to him and based on his experience in earlier years, he was reasonably satisfied about the appropriateness of the commission paid. Other matters were looked into adequately and appropriately. It is also humbly submitted that since the ....
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....para 5 of his order, he held as follows:- "5. The above submissions of the assessee were given a thoughtful consideration by me. Before delving into the merits of the case, it would be appropriate to throw some light on the facts which confer jurisdiction on the Principal CIT to act under 263 of the Act. Daring the hearing held by the undersigned with the Assessee's A/R, copy of Quarterly TDS Statement, challans for TDS on commission, the details of parties to whom commission was paid etc. were produced for verification which matches with the observation of the A.O. under para 4 of its order where he remarked." QUOTED:- The submission of the assessee is considered but the contention of reply is not tenable as the assessee failed, to furnish full details in support of commission paid Of Rs. 1,47,90,981/ -. However, the A/R was asked why the commission will not be disallowed as per U/s. 37 of the I.T. Act. 1961. Though u/s. 37 dearly defines In (Explanation-1) for the removal of doubt. It is hereby declared that any expenditure Incurred by an assessee for any purpose which is offence or which is prohibited by law shall not be deemed to law been....
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....l the details filed by the assessee (pg. 22 to 50), in support of the genuineness of the claim of payment of commission, which was filed before the Assessing Officer. He submitted that the ld. Pr. CIT was wrong in concluding that the assessee has not filed all relevant details and documents before the Assessing Officer and the Assessing Officer has not examined the same. He submitted that this is factually incorrect and took this Bench through the various evidences filed by the assessee before the Assessing Officer in support of his claims of allowability account of commission payment, which included:- a) Ledger accounts of the parties b) Details of tax deducted at source from these parties on commission payments. c) Annexures of bills raised by those parties giving the items of sale on which a claim of commission was made. d) Copy of the account of the assessee firm, in the books of the commission agents. e) Copy of form no. 16A etc. 5.1. He submitted that the commission was claimed by these agents on sale of each item of electric goods, the details of which were furnished. He submitted that the Assessing Officer has examined these d....
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....No. 549 of 2004, judgment dt. 10/11/2014 5.4. He prayed for relief. 6. The ld. D/R, on the other hand, opposed the contentions of the assessee and submitted that the Assessing Officer has called for information and evidence but after the assessee submitted the same, the Assessing Officer has not examined these papers. He argued that the fundamental aspect, as to whether the services were rendered or not, was not examined by the Assessing Officer. He relied on the order passed u/s 263 of the Act and submitted that, no proper enquiries were made by the Assessing Officer. He relied on the order passed u/s 263 of the Act and submitted that, no proper enquiries were made by the Assessing Officer during the course of original assessment proceedings as the Assessing Officer had not examined the genuineness of the commission claimed as paid and has not made enquiries from third parties i.e., commission agents. Thus, he submits that this is a case of lack of enquiry which makes the assessment order not only erroneous but also prejudicial to the interest of the revenue. He prayed that the order passed u/s 263 of the Act, be upheld. 7. We have heard rival contentions. On careful cons....
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....become possible to sell goods throughout the country through the internet. For that purpose, agents are required throughout the country. The mechanism in that regard has been disclosed by the assessee and has been recorded in the order of the CIT (Appeals). For the purpose of carrying on its business, the assessee has to recruit the agents. It may not be possible for the assessee to know them personally. Whatever address was furnished to the assessee, has been disclosed to the Income-tax Department. Payments were admittedly made by cheque after deduction of tax. The tax deducted as source has duly been deposited. The judgment in the case of CIT vs. Precision Finance Pvt. Ltd. reported in 208 ITR 465 relied upon by Mr. Bhowmick does not really assist him. The aforesaid judgment is an authority for the proposition that mere payment by account payee cheque cannot establish that the transaction was genuine, but in the case before us, besides the fact that payment was made by cheque, there are other pieces of evidence available which are as follows: a) Books of Accounts maintained by the assessee in the ordinary course of business; b) Deduction of Tax at source; ....
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....e facts of this case, we come to the conclusion that the Assessing Officer has taken a possible view that the expenditure in question claimed by the assessee as commission payment, is allowable in part. This cannot be a case of lack of enquiry or non-application of mind. The issue whether third party enquiries have to be made or not during the course of investigation, is the prerogative of the Assessing Officer, as he is the investigator. The type, nature and extent of investigation is the prerogative of the Assessing Officer. The ld. Pr. CIT, cannot, in our view, invoke his power u/s 263 of the Act for revising an order passed u/s 143(3) of the Act for the reason that in his view, the investigation/enquiry should be conducted in a particular manner or to a particular extent. Inadequate enquiry cannot be a ground of revision. 9.1. On facts, this is a case where an enquiry was conducted and a possible view taken based on the examination of the materials available on record. The Hone'ble Andhra Pradesh High Court in the case of Spectra Shares and Scrips Pvt. Ltd. V CIT (AP) 354 ITR 35 had considered a number of judgments on this issue of exercise of jurisdiction u/s 263 of the Act....
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....sible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. On the facts of that case, Sec.80HHC(3) as it then stood was interpreted by the Assessing Officer but the Revenue contended that in view of the 2005 Amendment which is clarificatory and retrospective in nature, the view of the Assessing Officer was unsustainable in law and the Commissioner was correct in invoking Sec.263. But the Supreme Court rejected the said contention and held that when the Commissioner passed his order disagreeing with the view of the Assessing Officer, there were two views on the word "profits" in that section; that the said section was amended eleven times; that different views existed on the day when the Commissioner passed his order; that the mechanics of the section had become so complicated over the years that two views were inherently possible; and therefore, the subsequent amendment in 2005 even though retrospective will not attract the provision of Sec.263. 26. In Vikas Polymers (4 Supra), ....
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....issioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the 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. In that case, the Delhi High Court held that the Commissioner in the exercise of revisional power could not have objected to the finding of the Assessing Officer that expenditure on tools and dies by the assessee, a manufacturer of Car parts, is revenue expenditure where the said claim was allowed by the latter on being satisfied with the explanation of the assessee and where the same accounting practice followed by the assessee for number of years with the approval of the Income Tax Authorities. It held that the Assessing Officer had called for exp....
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....sts of the Revenue. Otherwise, it would amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh inquiry in matters which have already been concluded under law. 29. In M.S. Raju (15 Supra), this Court has held that the power of the Commissioner under Sec.263 (1) is not limited only to the material which was available before the Assessing Officer and, in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. 30. In Rampyari Devi Saraogi (21 Supra), the Commissioner in exercise of revisional powers cancelled assessee's assessment for the years 1952-1953 to 1960-61 because he found that the income tax officer was not justified in accepting the initial capital, the gift received and sale of jewellery, the income from business etc., without any enquiry or evidence whatsoever . He directed the income tax officer to do fresh assessment after making proper enquiry and inv....
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....e Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suomotu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. e) The Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted f) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even ....
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....ax. The term "erroneous" means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word "erroneous" includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under s. 263 is passed. In such cases, the order of the Assessing Officer will be....
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.... the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It may be noticed that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. COMMISSIONER OF INCOME TAX vs. J. L. MORRISON (INDIA) LTD. 366 ITR As regard the submission on behalf of the Revenue that power under Section 263 of the Act can be exercised even in a case where the issue is debatable, it was held that the case of CIT vs. M. M. Khambhatwala was not applicable. The observation that the Commissioner can exercise power under Section 263 of the Act even in a case were the issue is debatable was a mere passing remark which is again contrary to the view t....