TaxTMI 
TaxTMI 
2018 (7) TMI 2339
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....senger and Cargo Hub Airport, Nagpur (MIHAN), wherein, the Department itself allowed the claimed deduction made under section 80IAB of the Act in accordance with law and identically in all earlier Assessment Year, such claim was accepted as capital receipt for which our attention was invited to page 242 of the paperbook. It was pointed out that for Assessment Year 2008-09, under section 148 notice was issued, which was quashed by the Ld. Commissioner of Income Tax (Appeal) and upheld by the Tribunal for which our attention was invited to page-97 to 104 of the paper book. The crux of the argument is that in all Assessment Years identical claim was accepted, therefore, the revisional jurisdiction under section 263 in the present Assessment Year cannot said to be justified. Reliance was placed upon the decision from Hon'ble Delhi High Court in the case of CIT vs Escorts Ltd. (2011) 338 ITR 435 (Del.). So far as, alleged calculation errors is concerned, the ld. counsel argued that it cannot be a subject matter of section 263, which can be rectified under section 154 of the Act. It was pleaded that even in Assessment Year 2008-09, the Tribunal accepted such claim as business income ....
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....ion 1.]-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Director General or] Director General or [Principal Commissioner or] Commissioner authorised by the Board in this behalf under section 120; (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the [Principal Commissioner or] Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject mat....
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....e Board u/s 119 or (d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional high court or Supreme Court in a case of the assessee or any other person. 2.5. If the aforesaid insertion, w.e.f. 01/06/2015, if kept in juxtaposition with the facts of the present appeal, it can be said that there is no violation of the insertion by the Assessing Officer because the assessment order was passed after considering the details and on examination/verification of the same and the relief was granted to the assessee after making due enquiry, therefore, so far as, explanation-2(a) and (b) is concerned, consequently, on this count also, we find no merit in the assertion made on behalf of the Revenue. 2.6. Now, we shall deal with the cases relied upon by Ld. CIT-DR. One such case is ARVEE INTERNATIONAL v. ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE 19(1), MUMBAI [2006] 101 ITD 495 (ITAT[Mum]), order dated 13/01/2006. The relevant portion of the order is reproduced hereunder:- "The appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income-tax under secti....
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....tely. Demand notice and challan is issued accordingly." 3. The learned Commissioner of Income-tax called for the records of the assessee and found that the assessee had shown, in the assessment year 1996-97, export turn over of Rs. 2.36 crores and total profit of Rs. 1.58 crores including import entitlements of Rs. 73.01 lakhs obtained by the assessee as a result of the exports made by it. The learned Commissioner noted that the entire profit including the value of import entitlements obtained by it was claimed by the assessee and allowed by the Assessing Officer as deduction under section 80HHC while processing the return under section 143(1) of the IT Act on 15-1-1997 for assessment year 1996-97. He further noted that the assessee had subse- quently declared, in assessment year 1998-99, i.e., the assessment year under appeal, loss of Rs. 13,90,096 on sale of the aforesaid import licences on which it had earlier (in assessment year 1996-97) claimed and obtained deduction under section 80HHC with the result that it claimed a net loss of Rs. 11,32,829 in the return of income for the assessment year under appeal. The Ld. Commissioner was of the opinion that since the value o....
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....it was only then that he decided to accept the loss in question as shown by the assessee. He argued that the claim of the assessee for deduction under section 80HHC in assessment year 1996-97 and its claim for allowance of business loss on sale of import entitlements during the previous year relevant to the assessment year under consideration were altogether different from each other and that their admissibility depended upon the fulfilment of the statutory conditions laid down in that behalf. He submitted that the mere fact that the import licences had been taken into account while computing the deduction under section 80HHC in an earlier year would not ipso facto disentitle the assessee from claiming loss suffered on their sale in a subsequent year. According to him, the assessee was entitled to both the claims in that it satisfied the requisite conditions prescribed for availing both of them. His alternative submission was that even if the issue was considered to be a debatable one, the learned Commissioner was not justified in assuming jurisdiction under section 263 as the Assessing Officer had taken a plausible view while making the assessment. According to him, the Ld. Commis....
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....at the Assessing Officer had earlier taken into consideration and allowed deduction under section 80HHC with reference to the import entitlements of Rs. 73,01,184 in assessment year 1996-97 obtained by the assessee. Thus, the assessee first claimed and obtained, in assessment year 1996- 97, 100% deduction on the said import entitlements under section 80HHC on the basis of their mere receipt from the Government and without selling them. The assessee thereafter sold those licences and claimed loss of Rs. 13,90,096 on their sale in the assessment year under appeal. In other words, the assessee was claiming in the assessment year under appeal further deduction of Rs. 13,90,096 on account of the alleged loss over and above the deduction of Rs. 73,01,184 allowed by the Assessing Officer under section 80HHC in assessment year 1996-97 on the basis of mere receipt of import licences. 8. The facts available on record clearly show that the assessee was not engaged in the business of purchase and sale of import licences during the relevant period. Import licences accrue to an exporter as incentive on the basis of exports made. Licences are neither sold by the Government nor are they p....
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....n accordance with law. We have therefore, no hesitation to hold that the assessment order mechanically passed by him without due application of mind was not only erroneous but was also prejudicial to the interest of the revenue within the meaning of section 263 of the Income-tax Act. 9. Let us now examine the legality of the order passed by the learned Commissioner with reference to the statutory conditions laid down in section 263. The scheme of the Income-tax Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Assessing Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. As held in Malabar Industrial Co. Ltd.'s case (supra), the Commissioner can exercise revisional jurisdiction under section 263 if he is satisfied that the order of the Assessing Officer sought to be revised is (i) erroneous; and also (ii) prejudicial to the interests of the revenue. 10. The word "erroneous" has not been defined in the Income-tax Act. It has however been defined at page 562 in Black's Law Dictionary (....
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....her an order sought to be revised under section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under section 263 would be erroneous and fall in the aforesaid category of "errors" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue. 14. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo motu proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer s....
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....uiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we are supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84, Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323and Malabar Industrial Co. Ltd.'s case (supra). In Malabar Industrial Co. Ltd.'s case (supra) the Hon'ble Court has held as under : "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumpti....
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....ilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideratio....
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.... (ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind. (iii) The order passed by the Assessing Officer is a stereo-typed order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case." 17. We shall now turn to the facts of the case to see whether the case before us is covered by the aforesaid principles. We have already reproduced earlier the entire assessment order. Perusal of the assessment order passed by the Assessing Officer does not show any application of mind on his part. It simply says in one line that the loss returned by the assessee is accepted. No greater evidence is required than the mere reproduction of the aforesaid line from the assessment order to establish that it is a case where the Assessing Officer mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry. No evidence has ....
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....f the Assessing Officer had made the requisite inquiries or examined the claim of the assessee in accordance with law. He could have accepted the assessee's claim. Equally, he could have also rejected the assessee's claim depending upon the results of his enquiry or examination into the claim of the assessee. Thus, the formation of any view by the Assessing Officer would necessarily depend upon the results of his inquiry and conscious, and not passive, examination into the claim of the assessee. If the Assessing Officer passes an order mechanically without making the requisite inquiries or examining the claim of the assessee in accordance with law, such an order will clearly be erroneous in law as it would not be based on objective consideration of the relevant materials. It is therefore, the mere failure on the part of the Assessing Officer in not making the inquiries or not examining the claim of the assessee in accordance with law that per se renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing else is required to be established in such a case to show that the order sought to be revised is erroneous and prejudicial to the interests of the....
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....fficer 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." [Emphasis supplied] 21. We have carefully gone through the aforesaid observations. "Adopting" one of the courses permissible in law necessarily requires the Assessing Officer to consciously analyse and evaluate the facts in the light of relevant law and bring them on record. It is only then that he can be said to have "adopted" or chosen one of the courses permissible in law. The Assessing Officer cannot be presumed or attributed to have "adopted" or chosen a course permissible in law when his order does not say so. Similarly, "taking" one view where two or more views are possible also necessarily imports the requirement of analysing the facts in the light of applicable law. Therefore, proper examin....
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....e assessee; rather they go against the assessee. 22. In Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147, the Hon'ble Supreme Court has held that ". . . There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Herrington v. British Railways Board [1972] 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases . . . ." Therefore, the observations of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd.'s case (supra) on which reliance has been placed by the learned counsel cannot be read in isolation. The judgment deserves to be read in its entirety to cull out the law laid down by the Hon'ble Supreme Court. If so read, it is quite evident that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind will satisfy the requirement of the order being erroneous and prejudicia....
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....ce caused to him corrected by filing appeal as also by filing a revision application under section 264. But the State Exchequer has no right of appeal against the orders of the Assessing Officer. Section 263 has therefore been enacted to empower the Commissioner to correct an erroneous order passed by the Assessing Officer which he considers to be prejudicial to the interest of the revenue. The Commissioner has also been empowered to invoke his revisional jurisdiction under section 264 at the instance of the assessee also. The line of difference between sections 263 and 264 is that while the former can be invoked to remove the prejudice caused to the State the later can be invoked to remove the prejudice caused to the assessee. The provisions of section 263 would loose significance if they were to be interpreted in a manner that prevented the Commissioner from revising the erroneous order passed by the Assessing Officer, which was prejudicial to the interest of the revenue. In fact, such a course would be counter productive as it would have the effect of promoting arbitrariness in the decisions of the Assessing Officers and thus destroy the very fabric of sound tax discipline. If e....
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....nsactions falling under section 40A(2)(b) of the Act. Accordingly, the Learned CIT issued notice under section 263 on the following grounds : "1.In the order under section 143(3), deduction under section 80HHC of Income-tax Act of Rs. 70,46,582 was allowed. It is seen that the eligible business profits include duty draw-back of Rs. 20,64,833. As per the Supreme Court decision in the case of Sterling Foods, 237 ITR 579, the said amount was not derived from export activity and hence does not qualify for deduction under section 80HHC of Income-tax Act. Further the deduction under section 80HHC allowed on the duty drawback received as per proviso to section 80HHC(3) was erroneously allowed. 2.Purchases of Rs. 49,05,984 from M/s. Mineral India International were not verified in terms of section 40A(2)(b) of the Income-tax Act. 3.Loans appearing in the Balance Sheet and loans squared off during the year were not verified in terms of section 68 of the Income-tax Act." After considering the reply of the assessee, the Learned CIT held that excessive deduction was allowed under section 80HHC for three reasons namely (i) that the Assessing Officer should ha....
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....ew our attention to the audit report to point out that all necessary details falling under section 40A(2)(b) were supplied as per Annexure-J to the audit report appearing at Page 26 of the Paper Book. Then he referred to the letter of assessee dated 26-12- 2002 addressed to the Assessing Officer to point out that date-wise details were furnished in respect of bills issued by the sister concern M/s. Mineral India International. This letter appears at Page 42 of the Paper Book. In view of the same, it was submitted that proper enquiry was made by the Assessing Officer and, therefore, the assessment order could not be said to be erroneous. 5. Proceeding further, it was submitted that necessary details in respect of each loan falling under section 269SS of the Act were furnished in Annexure-O to the audit report. Then he referred to Page- 39 of the Paper Book to point out that Assessing Officer had made enquiries vide letter dated 9-11-2001 by asking the assessee to furnish the details regarding unsecured loans along with the confirmation letters and Permanent Account Numbers of the creditors. According to him, such information was supplied to the Assessing Officer. Hence, acc....
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....ce paid by the assessee against the purchases made from the sister concerns, there was failure on the part of the Assessing Officer to make proper enquiries. Similarly, it was further submitted that mere confirmations and payment by cheque is not sufficient to prove the creditworthiness of the creditors and the genuineness of the loan transactions. According to him, it is the settled legal position that assessee is required to prove identity and capacity of the cash creditors as well as the genuineness of the transactions. It was pointed out by him that there was no evidence on record to prove the genuineness of the transactions as well as the creditworthiness of the cash creditors. Thus, there was lack of proper enquiry on the part of Assessing Officer. In view of the above arguments, it was submitted by him that order of the Learned CIT be upheld. 8. Rival submissions of the parties have been considered carefully in the light of the material placed before us and the case law referred to. The first question for our consideration is whether the order of the Learned CIT under section 263 can be upheld where reasons given in the order for holding the assessment order as erro....
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....otice, obviously the assessee had no opportunity to meet that point. Moreover, a reading of the show-cause notice cannot give the assessee or even us, for that matter, any indication with reference to the hire charges which are sought to be assessed by the revision." Similar view has been taken by the Tribunal, Madras Bench in the case of Sanco Trans Ltd. ( supra). The relevant portion of the same is reproduced as under : "The Hon'ble Calcutta High Court in the case of CIT v. General Trade Agencies [1973] Tax LR 1383 held that where the show-cause notice did not fairly indicate the grounds used by the Commissioner in his order under section 263, the assessee was deprived of fair opportunity to show cause against proposed action and in such a case, the revisional order of the Commissioner cannot be sustained. The same Calcutta High Court in the case of Bagsu Devi Bafna v. CIT [1966] 62 ITR 506, affirmed in Bagsu Devi Bafna v. CIT [1967] 63 ITR 333, held that the Commissioner must disclose in his notice to the assessee, the grounds on which he proposes to revise, to enable the assessee to show cause and to give him an opportunity of being heard. The Hon'ble Orissa H....
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....been excluded from the business profits under clause (baa) of Explanation to section 80HHC, and (iii) Central Excise refund and Sales Tax setoff should have been included in the total turnover. However, there is no mention of the basis mentioned in the show-cause notice. This clearly shows that there was no nexus between the reasons given in the show cause and the reasons given in the impugned order for holding the order of Assessing Officer as erroneous qua deduction under section 80HHC. Therefore, following the reasons given by us in the preceding Paras, we quash the order of the Learned CIT (A) to the extent mentioned above. 10. The next question for our consideration is whether there was lack of enquiry and non-application of mind on the part of Assessing Officer vis-a-vis the issue relating to unsecured loans and excessive allowance of expenditure vis-a-vis section 40A(2). There is no dispute that lack of enquiry would render the order of assessment as erroneous and prejudicial to the interest of Revenue as held by the Hon'ble Supreme Court in the case of Rampyari Devi Saraogi [1968] 67 ITR 84 and in the case of Smt. Tara Devi Aggarwal ( supra). The lack of enquiry wo....
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....issue of unsecured loans, the audit report, vide Annexure-O, provides the details of loans, accepted by the assessee, exceeding the limit prescribed in section 269SS of the Act (Pages 30 and 31 of the Paper Book). It also appears that the Assessing Officer asked the assessee to furnish the details of unsecured loans along with confirmation letters and the Permanent Account Numbers of the cash creditors (Page 39 of the Paper Book). In response to the same, the assessee had furnished the copies of the accounts of these cash creditors in the books of assessee on which such cash creditors had confirmed such accounts. Their addresses and Permanent Account Numbers are given on such certificates. It also appears that the transactions were by cheques. So, the question is whether there was any lack of enquiry on the part of the Assessing Officer. It is the settled legal position that in the case of cash credits appearing in the books of assessee, the onus is on the assessee to prove the identity and creditworthiness of the cash creditors as well as the genuineness of the transactions. The evidence produced before the Assessing Officer nowhere provides the creditworthiness of the cash credit....
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....icer and the same rendered the assessment order to be erroneous and prejudicial to the interest of Revenue. The order of the Learned CIT(A) is, therefore, sustained on this issue. 14. In view of the above discussion, the order of the Learned CIT under section 263 is partly quashed. Consequently, the appeal of the assessee is partly allowed. 2.8. Another case relied upon is from Hon'ble Madras High Court in CIT vs Amalgamations Ltd. (1999) 238 ITR 963 (MAD). The relevant portion of the same is reproduced hereunder:- "It was no doubt true that the value of the property was determined for 1972-73 and the same value was adopted for the assessment years in question. The Commissioner undoubtly noticed the area of the building and the extent of the land occupied by the tenant, but there was no investigation or enquiry by him whether there was any actual increase in the rental value of the property and if so what was the extent of increase in the rental value of the properties. The Commissioner, on the basis of his own assumption that there was general increase in the rental value of the property, had directed the ITO to investigate further and determine the rental....
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....rental value of the properties made by the ITO was erroneous. Therefore, the Commissioner had exercised his power of revision on his own assumption and exercised his power without any material or any evidence on record. As rightly pointed out by the Tribunal the trend was that there was an increase in rental value of the properties in the city it could not be assumed that the ITO had overlooked or missed the upward trend in the valuation of the city properties. The Tribunal had come to the correct conclusion in holding that the determination of annual rental value of the properties in respect of two assessment years made by the ITO had not been established to be erroneous in law and it could not be revised under section 263. 2.9. The Ld. CIT-DR also relied upon the decision from Hon'ble Madras High Court in CIT vs Neyveli Lignite Corporatoin Ltd., order dated 06/11/2000, [2001] 118 Taxman 230 (Madras)/[2001] 248 ITR 611 (Madras)/[2001] 171 CTR 154 (Madras). The relevant portion of the same is reproduced hereunder:- "The assessment year with which we are concerned in this matter is 1977-78. The assessee had set up in the year 1977, a belt reconditioning plant designe....
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....herein the Court observed, inter alia, thus : "...The word 'manufacture' has various shades of meaning but unless defined under the Act it is to be interpreted in the context of the object and the language used in the sections. In the context of the provisions which deal with grant of investment allowance or deduction under section 80J it is apparent that it is used to mean production of a new article or bringing into existence some new commodity by an industrial undertaking. . . ." (p. 544) 6. According to the assessee's claim here, what it does is to recondition the old belts. The article remains a belt before and after such reconditioning. It becomes more useful after reconditioning. The belt, however, does not change its character as a belt as a result of the reconditioning. It cannot, therefore, be said that any new article comes into existence when the old belt is reconditioned and made fit for use for some more time. The life of a reconditioned belt is not the same as that of a new belt. The purpose which a reconditioned belt is to serve is the same as the purpose that the belt before reconditioning was serving. We must, therefore, hold that the....
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....e thereof. The assessee furnished a detailed explanation, vide his letter dated September 19, 1975. It was on a consideration of the said explanation and on being satisfied that it was a revenue expenditure that the Income-tax Officer allowed the claim for deduction. It is, however, correct that in his order, he did not make any discussion in regard to the query made by him and the explanation submitted by the assessee thereto. 8. According to the commissioner of Income-tax, the order of the Income-tax Officer did not disclose any application of mind. He issued the notice as he felt that the expenditure in question might be a capital expenditure. But despite examining the matter at length and hearing the assessee, he could not come to any conclusion that the expenditure was not revenue expenditure but expenditure of capital nature. He referred the matter back to the Income-tax Officer to examine the same and to decide afresh. The Tribunal did not approve such action of the Commissioner. Therefore, the question that arises for consideration is whether the Commissioner without arriving at a finding that the order in question was erroneous can set aside the assessment in exer....
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....dicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO ). 10. As observed in Sirpur Paper Mills Ltd. v. ITO by Raghuveer J. (as his Lordship then was), 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 circumstances. 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". 11. The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to b....
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.... Commissioner with the power of suo moto revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo moto revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also 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. 13. As observed in Dawjee Dadabhoy and Co. v. S. P. Jain [1957] 31 ITR 872 (Cat), at page 881, "the words 'prejudicial to the interests of the Revenue' have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. It can mean nothing else". The aforesaid observations were also applied by the Gujarat High Court in Addl. CIT v. Mukur Corporation [197....
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.... same is concerned, undoubtedly, it is an administrative act, but on examination "to consider" or in other words, to form an opinion that the particular order is erroneous in so tar as it is prejudicial to the interests of the Revenue, is a quasi-judicial act because on this consideration or opinion the whole machinery of re-examination and reconsideration of an order of assessment, which has already been concluded and controversy which has been set at rest, is set again in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from the records called for by the Commissioner. 15. We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Incometax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-ta....
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....law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law". Learned Principal Commissioner was thus in error in holding that the ld. Assessing Officer did not made enquiries while framing the assessment and rendered the assessment order erroneous and prejudicial to the interest of the revenue, we find no such error, which can lead to the assessment order being subjected to the revision proceedings under section 263. 3.1. The case of the assessee is further fortified by the decision in Siddhi Real Estate Developers vs CIT (ITA No.2630 to 2635/Mum/2012) order dated 13/05/2014, wherein, various decisions like Mudhit Madanlal Gupta vs ACIT (51 DTR 217), DCIT vs Magapatta Township Development and Construction Company (141 ITD 682)(Pune), Rahul Construction Company vs ITO (ITA No.1250/Pn/2009), CIT vs Vandana Properties (2012) 353 ITR 36 (Bom.) and various decisions were considered and finally decided in favour of the assessee. 3.2. Hon'ble Delhi High Court ....
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.... to the interests of the Revenue". This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer" and "it is only when an order is erroneous that the section will be attracted". The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression "prejudicial to the interests of the Revenue", the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) : "The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of ....
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.... CIT(A) on 22nd March 2013 and even the written submissions were filed on 14th October 2013. Learned CIT(A) was thus in seisin of the question as to whether the disallowance under section 14A was correctly made, and let us not forget that the CIT(A) had all the powers, co terminus with the powers of the Assessing Officer, including the powers of enhancement. As to whether the learned Commissioner could have exercised his revision powers under section 263 at this point of time, we find guidance from Hon'ble Madras High Court's judgment, in the case of CWT Vs Sampathmal Chordia [(2002) 256 ITR 440 (Mad)], which observes, inter alia, as follows: 2. The revisional jurisdiction cannot be exercised in a manner which would result in depriving the appellate authority of the power to examine the correctness of the order under appeal, when an appeal, has, in fact, been filed in respect of those matters and was pending before the appellate authority. The Explanation to s. 25(2) in cl. (c) thereof, after its amendment by the Finance Act of 1989 makes this abundantly clear. That provision sets out that where the order sought to be revised is one passed by the AO and had been ma....
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.... Ld. DR that explanation-2 was inserted by the legislature w.e.f. 01/06/2015 is concerned, the ld. counsel for the assessee, invited our attention to the decision of the Mumbai Bench of the Tribunal in the case of Narayan Tatu Rane vs Income Tax Officer (2016) 70 taxman.com 227 (Mum. Trib.), therefore, the relevant portion of the aforesaid order is reproduced hereunder:- "1. - Both the appeals filed by the assessee are directed against the common order dated 29-03-2016 passed by Ld Pr. CIT-27, Mumbai u/s 263 of the Act and they relate to the assessment years 2007-08 and 2008- 09. The assessee is challenging the validity of the revision orders passed by Ld CIT. 2. The facts relating to the issue are stated in brief. The assessee originally filed returns of income for both the years under consideration u/s 139(1) of the Act. Subsequently information was received from Bangalore office of Income tax that they had carried out search and seizure operations in the case of M/s R.N.S Infrastructure Ltd on 16.02.2012 and during the course of the search, certain documents indicating payments made to persons holding public office were seized. One of the said documents contain....
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....ich birthday is mentioned. The date of birth of Shri Narayan Rane, Ex Chief-Minister of Maharashtra is 10^th April, 1952 which is the same as mentioned above. ii. An amount of 50 lacs is shown to have been paid in March, 1999 (end of Mar). It is hereby pointed out that Shri Narayan T. Rane became the Chief Minister of Maharashtra in February, 1999. iii. Further, there are following entries on the same page in date-wise sequence: 3rd week September, 1999 50,00,000 Kudal 4th week September, 1999 50,00,000 Kudal 7/4/2003 5,00,000 Panch Elect. Vijaya 29/12/07 10,00,000 Election, Kudal Similarly for the A.Y. 2008-09, similar payments were noticed as mentioned hereunder: Rane - CM 14.3.2008 50,00,000/- NAVEEN 14.3.2008 17,00,000/- SITE The Assessing Officer did not examine and verify the above issues while completing the assessment u/s 143(3) r.w.s 147 of the Act for both the A.Ys. and accepted the assessee's explanation that he did not have any transactions with M/s. R. N. S. Infrastructure Ltd. or Shri Sunil D. Sahastrabudhe, Vice President, Finance and had not received any cash fro....
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....see relied upon following case law in support of his contentions:- (i) CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.) (ii) CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi) (iii) CIT v. Vikas Polymers [2012] 341 ITR 537/[2010] 194 Taxman 57 (Delhi) (iv) CIT v. Arvind Jeweller [2003] 259 ITR 502/[2002] 124 Taxman 615 (Guj.) 5. The Ld Pr. CIT was not convinced with the contentions of the assessee and accordingly held that the assessment order is erroneous and prejudicial to the interests of revenue. Accordingly he set aside the assessment orders of both the years under consideration and directed the AO to redo the assessment de novo. The Ld Pr. CIT also observed that the AO may pass the assessment order within six months under the guidance and after obtaining prior approval of the Jt. Commissioner of Income tax. For the sake of convenience, we extract below the operative portion of the revision order passed by Ld Pr. CIT. "7. I have considered the facts of the case, the assessment records, show cause notice issued and appellant's submission and the case laws relied upon by the assesse....
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.... of the assessee. 8. The objection of the assessee that the order is no erroneous for the purpose of section 263 of the Act is also not borne out from the facts of the case. The relevant facts of these cases relied upon are not similar to the facts of the case of the assessee as the Assessing Officer has not examined and verified the information with reference to the assessee. Secondly, the assessee has maintained silence on the issue in para no.3(2) of the show cause notice wherein it was mentioned that the payments were made to "Rane CM" who is the same person as Shri Narayan T Rane, the Ex-Chief Minister of Maharashtra. Kudal is the assembly constituency of Shri Narayan Rane which is also mentioned in the first two entries. The last entry indicates that the amount was paid to Shri Narayan Rane for the election expenses. Further, it is also observed that no notices u/s 133(6) were issued to M/s R.N.S Infrastructure Pvt Ltd and neither was any opportunity given to the assessee to cross examine the said person Shri Sunil Sahasrabudhe (VP - Finance) on the basis of whose statement the case was reopened. Merely on the basis of the assessee's submissions and arguments, th....
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....this regard, he placed reliance on the decision rendered by the Hon'ble jurisdictional Bombay High Court in the case of CIT v. Development Credit Bank Ltd. [2010] 323 ITR 206/[2011] 196 Taxman 329. He further submitted that the provisions of sec. 263 do not visualise a case of substitution of the judgement of the Commissioner for that of the Income tax Officer who passed the order unless the decision is held to be erroneous, as held by Hon'ble Delhi High Court in the case of Sunbeam Auto Ltd. (supra). 8. He further contended that the assessment order cannot be considered to be prejudicial to the interests of the revenue, if the assessing officer has taken one of the possible views. He further submitted that the Ld Pr. CIT has not shown as to how the entries made in the incriminating document could translate into income in the hands of the assessee. He further submitted that the impugned incriminating document was a dumb document and even the official of M/s R.N.S. Infrastructure also did not implicate the assessee, when specific questions were put to him about the impugned incrimating document. Accordingly he submitted that the assessment order cannot be considered....
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.... has not rebutted this inference before the assessing officer. He further submitted that there is a reference to a place called "Kudal" and the said place happened to be the assembly constituency from where the assessee had won elections. He submitted that the assessing officer did not make enquires about these facts, which create link between the assessee and the incriminating document. He submitted that all these factual aspects clearly point out that the entries made in the impugned incriminating document are factually correct. Further he did not make any enquiries with M/s R.N.S Infrastructure, from whom the document was seized. He further submitted that the assessing officer should have made necessary enquires and should have provided opportunity to the assessee to cross examine them. Accordingly he submitted that the assessing officer has completed the assessment upon incorrect presumption of facts and without making proper enquiries and without taking a view. The Ld D.R placed reliance on the decision rendered by Hon'ble Madras High Court in the case of CIT v. Amalgamations Ltd. [1999] 238 ITR 963 to contend that the incorrect assumption of facts renders the assessment o....
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....in the document could be linked to the assessee, particularly in view of the fact that the official of M/s RNS infrastructure did not implicate the assessee in the statement taken with regard to the impugned document. He further submitted that the Ld CIT did not show as to how the entries made in the document could be considered as income in the hands of the assessee, even if it is taken for a moment that the entries made in the document did relate to the assessee. Accordingly the Ld A.R submitted that the Ld CIT has not brought on record any corroborative material to show that the said document relates to the assessee and further there is any income element therein causing prejudicial to the interests of the revenue. Accordingly he submitted that the Ld CIT could not have taken support from the Explanation 2 inserted by Finance Act, 2015 prospectively. He submitted that the Ld Pr. CIT has thrust upon the assessing officer his views through this revision orders and hence the same are not sustainable. 12. We have heard rival contentions and perused the record. Before going into the merits of the issue, we would like to discuss about the legal position with regard to the pow....
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....missible 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." The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.' 13. In the instant case, the assessing officer has reopened the assessment only to assess the income, if any, that has escaped the assessment for the years under consideration. The assessments have been reopened only on the basis of the impugned incriminating document found at the premises of M/s RNS infrastructure. We also notice that the search team has recorded a statement from VP - Finance of M/s RNS Infrastructure Ltd u/s 132(4) of the Act on 16.12.2012 and he was confronted with the impugned incriminating document. In the reply given by the VP - Finance, he has stated that the entries were made by him on the ....
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....a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income tax officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of records, 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. That would not vest the Commissioner with power to examine the accounts and determine the income himself at a higher figure. It 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. . . . There must be some prima facie material on record to show that the tax which was lawfully el....
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....d a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income tax and he is able to establish and show the error or mistake made by the Assessing officer, making the order unstainable in law. In some cases possibly though rarely, the Commissioner of Income tax can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further 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 section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the Commissioner of Income tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question........
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....uld 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 our 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 which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the ....
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.... Ld D.R that there are references to various names such as Mumbai Naveen, Ravi Mumbai, Vijaya Mum, Sanjeev Shetty etc. Further the entries are dated from March 99 to February, 2012. Under these set of facts, a specific question was asked to Ld D.R as to how these entries can translate into income in the hands of the assessee, since the same lists out payments made to various persons on various dates. Unless it is established that these payments can be taken as income in the hands of the assessee, they cannot be assessed in his hands. In that case, it cannot be said that these entries would cause any prejudice to the interests of the revenue, if they are not assessable in the hands of the assessee. The Ld D.R replied that these aspects require examination at the end of the assessing officer. The said stand taken by the department clearly shows that they are also not sure as to whether these entries could be considered as income in the hands of the assessee. Further, we notice that the Ld Pr. CIT has not brought on record any material to show that these amounts were paid to the assessee or on his behalf. Even if it is considered for a moment that the assessee could be linked with it,....
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....(Bom.) (para 12), xii. CIT v. Nagesh Knitwears (P.) Ltd. [2012] 345 ITR 135/210 Taxman 145/22 taxmann.com 309 (Delhi) (para 18), xiii. CIT v. Goetze (India) Ltd. [2014] 361 ITR 505/225 Taxman 133/44 taxmann.com 138 (Delhi) (para 18) and xiv. Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) (para 19). 3.7. On consideration of the aforesaid cases, the Coordinate Bench held as under:- ■ The assessments have been reopened only on the basis of the impugned incriminating document found at the premises of a concern named RNS. The search team has recorded a statement from VP - Finance and he was confronted with the impugned incriminating document. In the reply given by the VP he has stated that the entries were made by him on the basis of information given to him over phone from the Maharashtra branch. With regard to the entry made as 'Rane- CM' also, he simply stated that the information was received from the branch. Thus, in none of the answers given, the VP has implicated the assessee. In spite of these facts, the investigation wing has passed on these documents and information to the Assessing Officer and, accordingly, ....
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....ence, what is relevant for clause (a) of Explanation 2 to section 263 is whether the Assessing Officer 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 Commissioner to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. It is the responsibility of the Commissioner to show that the enquiries or verification conducted by the Assessing Officer was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant. [Para 20] ■ In the instant case, the Assessing Officer has accepted the explanations of the assessee, since there is no fool proof evidence to link the assessee with the document and RNS also did not implicate the assessee. Thus, the assessee has been expected to prove a negative fact, which is humanely not possible. No other corrobor....
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....nt clearly shows that they are also not sure as to whether these entries could be considered as income in the hands of the assessee. Further, the Commissioner has not brought on record any material to show that these amounts were paid to the assessee or on his behalf. Even if it is considered for a moment that the assessee could be linked with it, without showing that the entries noted down in the impugned document results in income in the hands of the assessee, it cannot be said that the assessment orders passed by the Assessing Officer could be taken as prejudicial to the interests of the revenue. Accordingly the revision orders passed by Commissioner falls on this ground also. [Para 22] ■ In view of the foregoing discussions, Commissioner has failed to show that the impugned assessment orders passed by the Assessing Officer were not only erroneous but also prejudicial to the interests of the revenue. It is a well established proposition that both the above said conditions are required to be satisfied before invoking the revisional powers given under section 263. In the instant case, Commissioner has failed to show that both the conditions exist in the instant case....
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....ubmission made therein. The Ld. Assessing Officer also considered the decision in the case of CIT vs Panian Chemicals Ltd. (262 ITR 278) (Supreme Court) with respect to the word 'derived from' Short term deposits made out of the funds available for the business of the assessee and also from the advances given also the eligibility of claimed deduction under section 80IAB of the Act. Discussion has also been made about rent from building and lease premium of land located at SEZ and held that it was income from other sources, not eligible for deduction under section 80IAB of the Act. It was held that the amount of Rs.3,18,52,281/-, being interest on fixed deposits and Rs.3,85,32,309/-, being interest from contractor (total Rs.7,03,84,590/-) and income from other sources of SEZ unit of Rs.2,04,90,596/- was held to be taxed separately as income from other sources. Discussion has also been made with respect to disallowance under section 14A r.w. Rule- 8D of the Rules and thereafter calculation has been made. Totality of facts, clearly indicates that the assessment was framed after examination/verification of facts and on application of mind, therefore, the contention of the Revenue that ....