TaxTMI 
TaxTMI 
2021 (7) TMI 203
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.... Purchase of property reported in form 26QB." 2.1. The AO passed an order u/s 143(3) of the Act dated 30.12.2017 determining the assessee's income at the loss of Rs.1,10,50,371/- after disallowing Rs.93,58,816/- being loss incurred with regard to transaction with M/s. Ankit Metal & Power. The Pr. CIT issued a show cause notice u/s 263 of the Act dated 23.10.2019 proposing to revise the assessment order passed u/s 143(3) of the Act on 13.12.2017. The reason for proposing revision is at para-2 of the show cause notice. This is extracted for ready reference: "In order to judge the merits of the order passed by the Assessing Officer, the assessment records were perused. The records available revealed that as per the audit objection the share difference value of Rs. 7,92,054/- were not at all examined by the Assessing Officer while passing the assessment order u/s 143(3) of the Income Tax Act, 1961." 2.2. The assessee replied vide letter dated 26.11.2019. Para-3 of the letter reads as follows: "3. Now regarding the difference in details in quantity submitted by the assessee and as per the Tax Audit Report, it is stated that the assessee had opening stock of 54050....
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.... and the replies received were accepted by the AO, which shows nonapplication of mind d) The AO failed to establish the nexus between the loss incurred on the sale of shares of M/s. Ankit Metal & Power and the loans and advances received from various companies though the assessee company was making a loss. 2.4. The ld. Pr. CIT cancelled the order passed u/s 143(3) of the Act on 30.12.2017 by the AO and ordered de-novo assessment. Aggrieved, the assessee is in appeal before us. 3. The ld. Counsel for the assessee submits that the show cause notice was given based on an audit objection that there was share difference value of Rs.7,92,054/-. While so, the ld. Pr. CIT has raised many other issues in the final order passed u/s 263 of the Act and concluded that the assessment was erroneous and prejudicial to the interest of the Revenue. 3.1. He submitted that the Pr. CIT cannot proceed on the basis of the audit objection without application of own mind,and that such action was bad in law.For this proposition he relied on the following case laws: a) Jeewanlal (1929) Ltd. vs. Addl.CIT, 108 ITR 407 Cal. b) CIT vs. Sohana Woollen Mills, 296 ITR 238 P&H. ....
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.... well as the case laws cited, we hold as follows. 6. Para-2 of the show cause notice issued u/s 263 of the Act dated 23.10.2019 refers to an audit objection. The Pr. CIT initiated proceedings u/s 263 of the Act based on the audit objections,which was with regard to a variation in value of shares.The assessee had filed an explanation on this variation.This reply dated 26.11.2019 is extracted for ready reference: "3. Now regarding the difference in details in quantity submitted by the assessee and as per the Tax Audit Report, it is stated that the assessee had opening stock of 540500 number of equity shares in Pipava Defence. Out of which sold 286363 equity shares for Rs. 1.24.38,330/- in that year itself However due to typographical error the figure was taken at 2,37,628 equity shares and the mistake continued while taking the closing stock figure in that year which was taken at 302872 shares. The fact can be verified from the brokers note for the sale of 286363 shares which were issued by the broker in the F.Y. 2013-14. Not only that the shares so sold in that year is also reflected from the denial account for that year. The copy of the demat account as well as the brok....
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....est of the Revenue. This is not a case of lack of enquiry or non-application of mind. The AO has made an enquiry and has taken a plausible view on the issues. 6.4. On these facts, the various Courts have laid down the following propositions of law:- 6.4.1. The Hon'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 by the Principal Commissioner of Income Tax and culled the principles laid down in the judgments as below: "24. In Malabar Industrial Co.Ltd. (2 Supra), the Supreme Court held that a bare reading of Sec.263 makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suomotu under it, is the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be 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 one of them is absent - if the order of the Income Tax Officer is erroneous but is not....
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....essing 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), the Delhi High Court held that the power of suomotu revision exercisable by the Commissioner under the provisions of Sec.263 is supervisory in nature; that an "erroneous judgment" means one which is not in accordance with law; that 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 differently or more elaborately; that the section does not visualize the substitution of the judgment of the Commissioner for that of the Income Tax Officer, who passed the order unless the decision is not in accordance with the law; that to invoke suomotu revisional powers ....
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....e 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 explanation on the very item from the assessee and the assessee had furnished its explanation. Merely because the Assessing Officer in his order did not make an elaborate discussion in that regard, his order cannot be termed as erroneous. The opinion of the Assessing Officer is one of the possible views and there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. 28. In Gabriel India Ltd. (6 Supra), the Bombay High Court held that a consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on....
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....nt. 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 investigation in regard to the jurisdiction. The assessee complained before the Supreme Court that no fair or reasonable opportunity was given to her. The Supreme Court held that there was ample material to show that the income tax officer made the assessments in undue hurry; that he had passed a short stereo typed assessment order for each assessment year; that on the face of the record, the orders were pre-judicial to the interest of the Revenue; and no prejudice was caused to the assessee on account of failure of the Commissioner to indicate the results of the enquiry made by him, as she would have a full opportunity for showing to the income tax officer whether he had jurisdiction or not and whether the income ta....
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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 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 inadequate that would not by itself give occasion to the Commissioner 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. g) The power of ....
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....e 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 erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified....
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....OMMISSIONER 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 taken by the Apex Court in thecase of Malabar Industrial Company Ltd. & Max India Ltd. If the Assessing Officer has taken a possible view, it cannot be said that the view taken by him is erroneous nor the order of the Assessing Officer in that case can be set aside in revision. It has to be shown unmistakably that the order of the Assessing Officer is unsustainable. Anything short of that would not clothe the CIT with jurisdiction to exercise power under Section 263 of the Act. CIT vs. M. M. Khambhatwala reported in 198 ITR 144; CIT vs. Ralson Industries Ltd. reported in 288 ITR 322 (SC), not applicable; Malabar Industrial Co. Ltd. v. CIT reported in 243 ITR 83, relied on. (Para 72) ....