TaxTMI 
TaxTMI 
2017 (1) TMI 1872
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....he assessment order and directing the Assessing Officer to reframe the assessment as per the direction given in the impugned order passed u/s 263 is bad in law inasmuch as the order of the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue. The Principal Commissioner of Income Tax has not appreciated the facts and law correctly and hence arrived at incorrect conclusion. 4. The facts of the case, in brief, are that the assessment u/s 143(3) of the I.T. Act was completed in this case vide order dated 31/01/2014 by ACIT-25(2), Mumbai at a total income of nil. The Principal Commissioner of Income Tax called for the record and was of the opinion that the order passed by the Assessing Officer is erroneous in so far it is prejudicial to the interest of the Revenue. Accordingly, he issued show cause notice dated 03/03/2016 to the assessee as to why proceedings u/s 263 should not be initiated against him and the assessment order passed be revised. The said show cause notice gives the following reasons: "3. From the perusal of records, it is seen that :- i. The assessee has neither followed the Project Completion Method nor the Percenta....
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.... reply thereto the assessee, vide its letter dated 10/03/2016, made the submission before the Principal Commissioner of Income Tax that the assessment is neither erroneous nor prejudicial to the interest of the Revenue, the copy of which is available at pages A1 to A9 of the paper book. Briefly, in respect of point No. 1 regarding the non following of the project completion method or percentage completion method, it was submitted that the assessee followed project completion method and offered sale in the year of the completion of the project. This fact has duly been submitted before the Assessing Officer vide letter dated 21/08/2013 and 03/10/2013. In the impugned assessment year, since the project was still under consideration, the assessee offered the income when the project was completed. The project was partly completed in the financial year 2011-12. The copy of occupancy certificate dated 11/05/2011 was filed to prove that the project was completed during the financial year 2011-12 relevant to assessment year 2012-13 in which the assessee has offered the revenue. The sale deeds were executed in favour of the buyer as per the terms of agreement to sell but the possessions were....
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....penses. In the preceding years also, the assessee has debited the interest to the profit & loss account and such interest was allowed as deduction. The claim of the interest made by the assessee, presuming but not accepting the fact, that even if the said interest were to be added to work-in-progress in assessment year 2011-12, the loss of Rs.42,32,511/- would have been reduced by that extent and the loss to be carry forward to assessment year 2012-13 would be reduced and there would not be any tax implication. In respect of interest income, it was stated that the same has been offered to tax under the head `income from business & profession'. It should have been considered as business income as it was made out of idle working in capital funds. Interest income has been offered for tax and has not been reduced from work-in- progress of the project but that would not have any impact on the loss to be carry forward for that year as the interest income if would not have been considered under the head income from business and profession would have been considered the income from other sources. Mere change of head of income with no tax implication would not result any prejudice to th....
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....ompleted. During the course of assessment proceedings the AO has failed in examining this aspect which has resulted in under assessment of income. (ii) The assessee's submission filed on 17.03.2016 at point no. 11 is inconsistent to the extent that the details with regard to Architect's letter dated 25.02.2012 as well the application filed before the competent authority for issuance of occupancy certificate dated 06.03.2012 were submitted during the original assessment proceedings. This aspect was never examined by the AO while completing the assessment. As such the AO has failed to ascertain the date of completion of the project. (iii) The assessee's contention that the major work was completed in F.Y. 2011-12 relevant to A.Y. 2012-13 is factually incorrect as the WIP as on 31.03.2011 has been shown of Rs.16,55,35,103/- and in subsequent F.Y. 2011-12 the value addition is of Rs. 6.51 crores only which shows that a substantial work was completed upto A.Y. 2011-12. This aspect has not been examined by the AO while completing the assessment. (iv) Assessing Officer has not at all examined the AIR details and the income shown by the assessee durin....
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....liance was placed on the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Lokhandwala Construction Inds. Ltd. [2003] 260 ITR 579 (Bom) in which it was held that the interest on borrowed capital for obtaining the stock in trade is a revenue expenditure. 6. Learned D. R., on the other hand, relied on the order passed by learned Principal Commissioner of Income Tax u/s 263 of the I.T. Act. 7. We have heard the rival submissions and carefully considered the same along with the order of the tax authorities below before deciding the order passed by the CIT u/s 263 is valid or not, it is necessary to discuss the provisions of section 263 which are stipulated as under :- "263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modif....
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....al year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court. Explanation .- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded." 8. From the perusal of the aforesaid section, it is apparent that there are four main features of the power of revision to be exercised u/s 263 by the Commissioner of Income-tax. Firstly, the Commissioner may call for and examine the records of any proceedings under the Act and for this purpose he need not to show any reason or record any reason to believe as is required u/s 147 or 148(2). It is a part of his administrative power to call for the record and examine them....
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....f law by the A.O. If the A.O. after making the enquiries and examining the records taken one of the possible view, it cannot be said that the order passed by the A.O. was erroneous until and unless the view taken by the assessing officer is unsustainable in law. If the assessing officer has not carried out any enquiry, it can be said that the order passed is erroneous as due process of legal principals have not been followed. From the show cause notice of the CIT, it is apparent that the CIT has treated the order to be erroneous as well as pre-judicial to the interest of the revenue as the assessing officer has not examined the effect of change in accounting policy from percentage completion method to project completion method. The Ld. AR relied in this regard on certain decisions also and submitted that inadequacy of enquiry according to the whims and caprice of CIT does not give jurisdiction to the CIT to invoke section 263 and set aside the assessment. Now, the question before us is whether the assessing officer has examined each and every issue relating to the question which has been raised by the CIT in the show cause notice and after examining the same he has taken a consciou....
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....of the AIR transaction entered into by the assessee in respect of five flats during the year, the copy of which is available at pages 126 and 127 of the paper book that the assessee follows the project completion method and thus, the assessee records the sale only during the year when the project is completed. Not only this, the assessee has given complete details party-wise in respect of the area booked by him which is available at pages 131 and 132 of the paper book. Thus, we noted that this is a case where the assessee has duly explained to the Assessing Officer in response to the notice u/s 142(1) that the assessee has changed the revenue recognition method to project completion method and the assessee thereafter consistently following the project completion method. This fact has duly been examined and verified by the AO. The assessee has not shown any sale during the impugned assessment year as he was following the project completion method. Thus, this is not a case of lack of inquiry on the part of the Assessing Officer so far as following the project completion method by the assessee is concerned. 10.2 The second issue on the basis of which the Principal Commissioner of I....
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....r of Income Tax to invoke the jurisdiction u/s 263 of the Act unless the view taken by the Assessing Officer is unsustainable in law. This is not a case of lack of inquiry. 10.4 We have examined Explanation 2 to section 263 which is inserted by the Finance Act, 2015 with effect from 01/06/2015. This explanation empowers the CIT from 01.06.2015 to invoke the provision of section 263 to the assessment order to be erroneous in so far as it is prejudicial to the interest of the revenue, if, in the opinion of the Principal CIT,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been in accordance with any order, direction or instruction issued by the Board under section 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 the case of the assessee or any other person." 11. No doubt clause (a) of this explanation deems the order to be erroneous and prejudicial to the interest of the reve....
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....ng to each and every issue in the assessment order. It is only the query raised by the Assessing Officer and the submission made by the assessee will speak of where the Assessing Officer has applied his mind or not. We find the Hon'ble Bombay High Court in the case of CIT Vs. Gabriel India Ltd. 203 ITR 108 Bombay (1993) has held in this regard as under: "Held, that the Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were 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. This decision of the Income-tax Officer could not be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure o....
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....has to be satisfied of twin conditions, namely, (i) the order of the assessing officer sought to be revised is erroneous; and (ii) is prejudicial to the interests of the revenue. If one of them is absent- if the order of the Assessing office is erroneous but is not prejudicial to the revenue - recourse cannot be had to section 263(1). 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 assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interest 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 the order of the assessing officer cannot be treated as prejudicial to the interests of the revenue. For example, if the assessing officer has adopted one of the courses permissible in law an....
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....with the books and records. No adverse observation was made by the AO and hence, no addition was made in the regular assessment. The AO has also randomly selected two labourers and examined them and their statements were recorded under s. 131. Since all necessary details were furnished by the assessee, there was no reason for the CIT to invoke the revisional jurisdiction under s. 263. The CIT has not stopped merely by issuance of notice under s. 263. Once compliance is made, he went on issuing notice after notice and certain adverse inference were drawn by him from the details collected by him during the revisional proceedings. Those details were thoroughly checked and examined by the Tribunal and it arrived at a factual finding that there was no illegality committed by the assessee in entrusting the work to sub-contractors nor there was any illegality in making all due payments to them. The Tribunal has also given specific finding to the effect that there was no evidence on record that these contractors were related to the assessee or were associates or sister concerns of the assessee. The Tribunal has also given finding that the Revenue has not discharged the onus that the paymen....
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....the lack of inquiry in accordance with CIT if he has different opinion how to proceed with the assessment of the assessee. 19. Similar view has been taken by Hon'ble Delhi High court in the case of CIT Vs Software Consultants 341 ITR 240 (Del.) in which it has held as under :- "The assessee-company did not file its return of income for the assessment year 1993-94. During the course of assessment proceedings for the assessment year 1997-98, it was noticed that the central Bureau of Investigation had conducted search in the premises in which fixed deposit receipts worth Rs.20 lakhs relating to assessment year 1993-94 were found in the possession of P, a director of the company. However, P claimed that the fixed deposits though in her name, actually belonged to the assessee. This stand was accepted by the Commissioner (Appeals) in the appeal filed by P. Thereafter, the Assessing Officer in the case of the assessee issued notice under section 148 of the income-tax Act, 1961. In response to this notice, the assessee filed a return showing loss of Rs.1,02,756. By assessment order the Assessing officer accepted that the assessee had established and proved the source and it....
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....Commissioner could not have exercised jurisdiction under section 263 of the Act." 20. In the case of CIT Vs Sunbeam Auto Ltd, 332 ITR 167 (Del.) High court has held that inadequacy of enquiry will not give the jurisdiction to CIT u/s 263. In this Hon'ble High court has held as under :- "The Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc. Whether there was application of mind before allowing the expenditure in question has to be seen. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Income-tax Act, 1961, merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open. An order cannot be termed erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, it cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. Section 263 does not visualise a case of sub....