TaxTMI 
TaxTMI 
2021 (1) TMI 877
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....rder u/s. 143(3) of the Act on 08.07.2015. 4. The Pr. CIT issued show cause notice u/s. 263(1) of the Act for the AY 2013-14, proposing to revise the assessment order passed u/s. 143(3) of the Act by the DCIT, Circle-1(2), Kolkata on 08.07.2015 for the following reason: "i) From Note XII annexed to the Balance Sheet for the year ended 31.03.2013 it is seen that assessee had shown inventory of Stock of Rs. 13,20,45,994/- comprising of stock of materials amounting Rs. 1,53,78,495/- and WIP amounting to Rs. 11,66,67,049/-. The inventory as per Balance Sheet for the year ended 31.03.2012 was Rs. 9,96,40,082/- comprising of stock of materials amounting Rs. 97,33,784/- and WIP amounting to Rs. 8,99,06,298/-. Thus there was an increase in amount on account of Stock of materials amounting by Rs. 56,45,145/- and WIP amounting by Rs. 2,67,60,751/- during the F.Y. 2012-13 relevant to A.Y. 2013-14. The closing sock of WIP of Rs. 11,66,67,049/- as on 31.03.2013 was computed after deducting from the amount of list of incomplete jobs of Rs. 69,68,36,440/-, the value of WIP on the liability side of Rs. 9,59,86,121/- and value of progressive bills raised of Rs. 48,41,83,270/- in the man....
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....tract revenue and thereby proper income is what is germane to the issue. From a perusal of the records, there is apparently an income of Rs. 48,17,78,936/- under the construction division under the head-Sales & construction. Furthermore as regards the adjustment of WIP with sales & services, the value of the certified work done and full work order completed of Rs. 33,07,61,197/- and Rs. 8,16,62,083/- respectively are seen too far lesser than that the amount of progressive bills raised of Rs. 48,17,78,936/-. Clearly the issue at hand required to be delved into thoroughly and calls for proper reconciliation statements. Assessee cannot hide behind its assertion that the accounting is as per the standards. It is the responsibility of the A.O. to scratch the surface to ensure that the correct income of the assessee is brought to tax. Thus the impugned order was obviously assessed without adequate enquiry and AO had failed to apply his mind. 11. Having regard to the facts and circumstances of the case and in the light of the aforesaid decision of Hon'ble Supreme Court and Hon'ble High Court, I hold that the impugned assessment order dated 08.07.2015 passed by th....
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....ound fault or shown a mistake or error in the accounts of the assessee or with the fact that the assessee is following AS-7 consistently, nor could he point out any error in the order of the AO which is prejudicial to the interest of the Revenue. He submitted that the Pr. CIT has simply set aside the matter to the file of the AO with a wrong observation on the alleged difference between opening WIP and closing stock of WIP. In support of his contention that the order passed u/s. 263 of the Act is bad in law, as the AO has examined all aspects and had taken a possible view and as it is not a case of lack of enquiry or a case of non-application of mind by the AO and as the Pr. CIT has not conducted any enquiry or verification by himself or pointed out any error which is prejudicial to the interest of the Revenue. He relied on a number of case laws. We will refer to the same as and when the issue arises. 9. The ld. D/R, on the other hand, relied on the order of the Pr. CIT and submitted that the ld. AO had in fact collected information on the issue of work-in-progress etc. and had just placed them in the file but has not applied his mind to the information so collected. He submitte....
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....th evidences. (i) Sundry Debtors [ Annexure 'A'] (ii) Sundry Creditors [ Annexure 'B'] (iii) Sundry Creditors for expenses [ Annexure 'C'] (iv) Advance from customers [ Annexure 'D'] (v) The break up of other liabilities [ Annexure 'E'] (vi) Addition to the fixed assets [ Annexure 'F'] (vii) The details of foreign travel of one of the director [ Annexure 'G'] (viii) Bank statement [ Annexure 'H'] (ix) Item description and stock as on 31.03.2013 [ Annexure 'I'] (x) Principal of the Accounting Standard 7 (AS-7) [ Annexure 'J'] (xi) Party wise break of the sales under trading and construction account. [Annexure 'K'] (xii) The break up of salaries and wages along with a comparative analysis. [Annexure 'L'] (xiii) Approved gratuity fund with Life Insurance Corporation. [Annexure 'M'] (xiv) Rent with copy of agreement. [Annexure 'N'] (xv) The minutes of the meeting of the directors guiding the payments of the directors. [Annexure 'O'] ....
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.... to be delved into thoroughly. v) Proper reconciliation has to be done. vi) It is the responsibility of the AO to scratch the surface to ensure that the correct income of the assessee is brought to tax. vii) The impugned assessment order was passed without adequate enquiry and the AO failed to apply his mind. 12. A perusal of the above reasons shows that the Pr. CIT has not pointed out any specific error in the order of the AO. He states that there was inadequate enquiry. It is well settled that inadequate enquiry is no ground to set aside an assessment order as erroneous and prejudicial to the interest of the Revenue. The Pr. CIT had a suspicion that income liable to tax has escaped assessment as in his view the AO should have conducted more enquiries. What is the nature of further enquiries or what the AO missed to examine and what would have been the income that has escaped is not made clear by the Pr. CIT. 12.1. The assessee is following percentage completion method of accounting. In this method, at best the dispute can be the year of taxation of a particular receipt as income but not the total escapement of income. The Pr. CIT is wrong in his u....
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....junction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible 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. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyaridevi Saraogi v. CIT (1968) 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal V. CIT (1973) 88 ITR 323 (SC)". 25. In Max India Ltd. (Supra), reiterated the view in Malabar Industrial Co. Ltd. (Supra) and observed that every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treat....
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....t be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the 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 suo motu 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. 27. In Sunbeam Auto Ltd. (Supra), the Delhi High Court held that the Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction....
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....ngs 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 versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted; that to do so is to divide one argument into two and multiply the litigation. It held that cases may be visualized where the Income Tax Officer while making an assessment examines the accounts, makes inquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the account or by making some estimate himself; that the Commissioner, on perusal of the record, may be of the opinion that the estimate made by the Officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer; but that would not vest the Commissioner with power to reexamine the accounts and determine ....
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....satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue - recourse cannot be had to Sec. 263(1) of the Act. b) Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible 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. c) To invoke suo motu revisional powers to reopen a concluded assessment under Sec. 263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice....
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....w examine the following judgments on this issue:- DIRECTOR OF INCOME TAX vs. JYOTI FOUNDATION 357 ITR 388 (Delhi High Court) It was held that revisionary power u/s. 263 is conferred on the Commissioner/Director of Income Tax when an order passed by the lower authority is erroneous and prejudicial to the interest of the Revenue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interest of the Revenue, but orders which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interest of the Revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. INCOME TAX OFFICER vs. DG HOUSING PROJECTS LTD 343 ITR 329 (Delhi) Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. S. 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be rev....
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....ther 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 s. 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. This distinction must be kept in mind by the CIT while exercising jurisdiction under s. 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 passed by the CIT to ask the Assessing Officer to d....
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....sessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under Section 142(1) of the Act could not have been formulated. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presum....
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.... based on incorrect assumption of facts or on incorrect application of law or without applying the principles of natural justice and without application of mind, it would be treated as erroneous. Likewise, the expression "prejudicial to the interest of the Revenue" is of wide import and is not confined to loss of tax. If due to an erroneous order of the AO the Revenue is losing tax lawfully payable by a person, it would be certainly prejudicial to the interest of the Revenue. The power of revision is not meant to be exercised for the purpose of directing the AO to hold another investigation without describing as to how the order of the AO is erroneous. From this it also follows that where the assessment order has been passed by the AO after taking into account the assessee's submissions and documents furnished by him and no material whatsoever has been brought on record by the CIT which showed that there was any discrepancy or falsity in evidences furnished by the assessee, the order of the AO cannot be set aside for making deep inquiry only on the presumption and assumption that something new may come out. For making a valid order under s. 263 it is essential that the CIT has ....
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.... by the assessee. He has only remarked that there should have been a deeper probe by calling for more details. This is neither here nor there, when one keeps in view the ingredients of s. 263. (Para 15) Insofar as the insurance claim is concerned, the CIT observed that the assessee had shown receivable on this account to the tune of Rs. 1.21 crores but no details had been furnished. The AO had also not made any inquiries. In the detailed discussion on this aspect, the Tribunal has observed that insurance claim was lodged for the goods lost in transit. The assessee at that time had merely filed a claim with the insurance company. This claim had not been approved as the insurance company had neither accepted the same nor given any assurance for making payment. Therefore, no income had "accrued" which could be taxed. The Tribunal rightly held that ordinarily the income is said to have accrued to a person when he acquires the right to income and this should be enforceable right, though actual quantification or receipt may follow in due course. The mere claim to income without any enforceable right cannot be regarded as an accrued income for the purpose of IT Act. (Par....
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.... made u/s. 14A by the assessee. In such circumstances it is not open for the ld. CIT to come to a conclusion that the AO should have invoked Rule 8D, without himself recording the satisfaction that the calculation given by the assessee in its disallowance made suo moto u/s. 14A is not correct. Coming to the other expenses claimed, the ld. CIT has simply collected information after raising queries and has not given any finding whatsoever that there is an error made by the AO or that the circumstances was such that would require and warrant further inquiry or investigation. No error in the assessment order has been pointed out and it is not stated as to how prejudice was caused to the revenue. The finding that the AO had failed to properly scrutinise the above aspects does not give powers to the ld. CIT to revise the assessment u/s. 263 of the Act. Making rowing enquiries is not a finding of an error. Assessments cannot be set aside for fresh enquiries unless a specific error is pointed out at not making proper enquiry cannot be equated with no enquiry. In view of the above we quash the order passed u/s. 263 of the Act and allow the appeal of the assessee." 14. Applying the propos....