M/s. Linikwell Telesystems P. Ltd, Hyd, Hyderabad V. ACIT Range-16, Hyderabad

ITA 1089/HYD/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1329 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 06-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: DR C P RAMASWAMI
• Keywords: Depreciation; Principle of natural justice; Assessment record
• Section: 43B; 143(3); 263; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1089/HYD/2011 ASSESSMENT YEAR 2006-07 M/S. LINKWELL TELESYSTEMS PVT. LTD., HYDERABAD PAN: AAACL3452E VS. THE ADDL. CIT RANGE-16 HYDERABAD APPELLANT RESPONDENT APPELLANT BY: DR. C.P. RAMASWAM I RESPONDENT BY: SRI D. SUDHAKAR RAO DATE OF HEARING: 16 . 0 1.201 3 DATE OF PRONOUNCEMENT: 22.02.2013 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E DIFFERENT ORDER OF THE CIT-IV, HYDERABAD DATED 30.0 3.2011 PASSED U/S. 263 OF THE INCOME-TAX ACT, 1961 FOR ASS ESSMENT YEAR 2006-07. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : 1) THE IMPUGNED ORDER OF THE COMMISSIONER OF INCOME-TAX-IV, HYDERABAD, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE APPELLANT, IS AGAINST LAW, WEIGHT OF EVIDENCE AND PROBABILITIES OF THE CASE. 2) A) THE LEARNED COMMISSIONER OF INCOME-TAX GROSSLY ERRED IN HOLDING THAT THE ORIGINAL ASSESSMENT ORDER DATED 5-12-2008 PASSED UNDER SECTION 143(3) BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. B) THE LEARNED COMMISSIONER OF INCOME-TAX FAILED TO APPRECIATE THAT THE ORIGINAL ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERES T OF REVENUE WITH REGARD TO ALL THE THREE ISSUES ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 2 RAISED IN THE SHOW CAUSE NOTICE U/S. 263 OF THE INCOME-TAX ACT, 1961. CONSEQUENTLY, HE ERRED IN GIVING DIRECTIONS FOR MAKING VARIOUS ADDITIONS TO THE ASSESSED INCOME, WHICH ARE EITHER TAX NEUTRAL OR ACTUALLY PREJUDICIAL TO THE INTEREST OF REVENUE. 3) THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN DIRECTING THE ASSESSING OFFICER TO CHARGE TO TAX A SUM OF RS. 16,64,423/- AS DIFFERENCE IN EXPORT SALES AS HE FAILED TO APPRECIATE THE ERROR COMMITTED IN THE ASSESSMENT ORDER UNDER APGST/CST DESPITE THE RECONCILIATION OF THE FIGURES PRESENTED BEFORE HIM. 4) A) THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN DIRECTING ADDITION OF RS. 13,52,100/- AS CST COLLECTED AND NOT PAID DESPITE THE FACT THAT THERE WAS NO SHORT FALL IN THE COLLECTION AND PAYMENT OF CST AS EVIDENCED IN ANNEXURE-3 TO THE IMPUGNED ORDER U/S. 263 OF INCOME-TAX ACT, 1961. B) THE LEARNED COMMISSIONER OF INCOME-TAX FAILED TO APPRECIATE THAT PAYMENT OF CST IN RESPECT OF THE BRANCHES OUTSIDE A.P. WOULD NOT BE REFLECTED IN THE ASSESSMENT ORDER OF CST PASSED BY THE CST AUTHORITY IN A.P. CONSEQUENTLY, THE CIT WRONGLY ASSUMED THE SHORT FALL IN CST PAID. C) THE LEARNED COMMISSIONER OF INCOME-TAX FAILED TO APPRECIATE THAT EVEN AFTER INCLUDING EXCISE DUTY AND TAXES IN SALES FIGURE THE NET PROFIT IS NO T IMPACTED. 5) A) THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN GIVING A DIRECTION TO BRING TO TAX A SUM OF RS. 33,71,997/- NAMELY THE SALES RETURNS REDUCED FROM THE GROSS SALES FIGURE BY ASSUMING FACTS BASED ON SURMISES WITH REGARD TO SUCH SALES RETURNS. B) THE LEARNED COMMISSIONER OF INCOME-TAX FAILED TO APPRECIATE THAT IN TERMS OF EXCISE LAWS SALES RETURNS HAVE TO BE ACCOUNTED FOR ON ACTUAL BASIS WHENEVER THEY ARE RECEIVED. CONSEQUENTLY, HE ERRED IN SUSPECTING EVEN THE ACTUAL FIGURES OF SALES RETURNS AND ASSUMED THE SAME AS SUPPRESSED SALES. C) THE LEARNED COMMISSIONER OF INCOME-TAX FAILED TO APPRECIATE THAT SALES RETURNS OUT OF SALES OF EARLIER MONTHS WOULD NORMALLY BE IN THE ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 3 SUCCEEDING MONTHS AND CONSEQUENTLY SUCH RETURNS CANNOT BE REDUCED FROM THE ORIGINAL DATES OF SALE. HE FAILED TO APPRECIATE ~E RECONCILIATION STATEMENT FILED BEFORE HIM. 6) A) THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN DIRECTING TO TAX AN ASSUMED FIGURE OF TDS AS OUTSTANDING OUT OF CURRENT LIABILITIES. HE FAILED T O APPRECIATE THAT PAYMENT OF TDS TO THE CREDIT OF THE GOVERNMENT IS NOT GOVERNED BY SECTION 438 BUT SECTION 201. THE FACT THAT NO ACTION WAS TAKEN UNDER SECTION 201 SHOWS THAT THERE WAS NO SHORT FALL IN THE TDS COLLECTED AND PAID AS PER RETURN U/S. 203. B) THE LEARNED COMMISSIONER OF INCOME-TAX FAILED TO APPRECIATE THAT COLUMN 21 IN THE 3CD REPORT DOES NOT DEAL WITH TDS UNPAID AND FAILED TO READ COLUMN 27 DEPICTING 'NIL' TDS. 7) A) THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN DIRECTING AN ADDITION OF RS. 13,53,882/- ON ACCOUNT OF DUTY PAID ON CLOSING STOCK OF BOTH FINISHED AND SEMI-FINISHED GOODS WITHOUT APPRECIATING THE FACT THAT NO SUCH ADDITION CAN BE MADE IN RESPECT OF SEMI-FINISHED GOODS EVEN U/S. 145A OF THE INCOME-TAX ACT, 1961. B) THE LEARNED CIT FAILED TO APPRECIATE THAT ONCE DUTY PAID WERE ADDED IN THE VALUATION OF FINISHED GOODS APPEARING BOTH IN OPENING AND CLOSING STOCK OF FINANCIAL YEAR 2005-06 IT WOULD BE A NEGATIVE FIGURE OF RS. 3,36,020/-. CONSEQUENTLY, THE ADDITION DIRECTED IS PREJUDICIAL TO THE INTERES T OF THE REVENUE. 8) FOR THE ABOVE GROUNDS AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE APPEAL BE ALLOWED. 9) THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR MODIFY THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, IF IT IS CONSIDERED NECESSARY. 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE RETU RNED INCOME FOR A.Y. 2006-07 AT RS. 18,78,87,350. ASSES SMENT WAS COMPLETED U/S. 143(3) OF THE INCOME-TAX ACT, 19 61 ON 5.12.208 AT RS. 18,98,98,840 BY DISALLOWING CLAIM O F ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 4 DEPRECIATION, COMMISSION ON EXPORT SALES AND PROFES SIONAL CHARGES U/S. 40(A)(IA). THE CIT ON EXAMINATION OF RECORD FOUND THAT THE ORDER OF THE ASSESSING OFFICER CONTA INS CERTAIN ERRORS WHICH ARE PREJUDICIAL TO THE INTERES T OF REVENUE. HE HAD ISSUED A NOTICE CALLING FOR EXPLAN ATION FROM THE ASSESSEE. THE POINTS RAISED BY THE CIT IN HIS NOTICE ARE AS FOLLOWS: (I) IT IS OBSERVED FROM THE COPIES OF MONTHLY VAT RETUR NS FILED DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THAT THE SALES FOR F.Y 2005-06 AS PER MONTHLY VAT RETURNS ARE RS. 135,99,57,318/-. HOWEV ER, AS PER THE PROFIT & LOSS ACCOUNT, THE SALES CREDITE D ARE RS. 127,86,78,960/-. THUS THE SALES WERE SHOWN LES S BY RS. 8,12,78,358/-. THE SHORT ACCOUNTING OF SALES NE EDS TO BE BROUGHT TO TAX. (II) IT IS OBSERVED FROM SCHEDULE-12 - 'CURRENT LIABILIT IES' FORMING PART OF THE BALANCE SHEET THAT STATUTORY DU ES PAYABLE WERE RS. 83,15,121/- . HOWEVER, AS PER COLU MN NO. 21 OF 3CD & CORRESPONDING ANNEXURE, THE STATUTO RY DUES PAID BEFORE DUE DATE FOR FILING OF RETURN OF I NCOME WERE ONLY RS. 46,73,223/-.THE BALANCE STATUTORY DUE S OF RS. 36,41,898/- WHICH APPEAR NOT TO HAVE BEEN PAID BEFORE DUE DATE FOR FILING OF RETURN OF INCOME FOR A.Y. 2006-07, SHOULD HAVE BEEN CONSIDERED FOR DISALLOWAN CE U/S. 43B OF THE IT ACT. (III) IT IS OBSERVED FROM SCHEDULE-20 - ' NOTES ON ACCOUN TS' THAT SALES SHOWN WERE NET OF EXCISE DUTY, SALES TAX , FREIGHT AND INSURANCE. IT WAS SEEN THAT THE CLOSING STOCK WAS VALUED NET OF EXCISE DUTY WHICH IS CONTRARY TO THE DECISION OF SUPREME COURT IN THE CASE OF CIT V. BRI TISH PAINTS INDIA LIMITED (1991) 188 ITR 44 AS WELL AS S ECTION 145. ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 5 4. ON THE ABOVE ISSUES, THE CIT FURTHER OBSERVED AS FOLLOWS: 5. THE FIRST ISSUE IS REGARDING THE DISCREPANCY BETWEE N THE FIGURE OF SALES AS PER VAT RETURNS I.E., RS. 135.99 CRORES AND THE FIGURE OF SALES SHOWN IN THE P&L ACCOUNT I.E. RS. 1 27.86 CRORES. IT IS SEEN FROM THE 13 TH ANNUAL REPORT WHICH IS RELEVANT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION (VIDE SCHEDULE 20 I.E. SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUN TS) THAT THE SALES ARE NET OF EXCISE DUTY, SALES TAX, FREIGHT AN D INSURANCE (VIDE SL. NO. 6 UNDER ACCOUNTING POLICIES UNDER SCHEDULE 20). SALES REFLECTED IN THE VAT RETURNS ARE, OF COURSE, INCLUS IVE OF EXCISE DUTY. THE TOTAL AMOUNT OF EXCISE DUTY PAID BY WAY OF CENV AT CREDIT AS WELL AS BY CASH PAYMENT PUT TOGETHER IS OF THE ORDE R OF RS. 16.25 CRORES. THIS FIGURE HAS BEEN CONFIRMED BY THE JURIS DICTIONAL CENTRAL EXCISE AUTHORITY IN ITS REPLY DATED 13.03.2 011 TO THE CIT. IN THE COURSE OF THE PRESENT PROCEEDING, THE ASSESS EE, SUBMITTED A COPY OF THE RELEVANT CST ASSESSMENT ORDER AND FURNI SHED PARTICULARS OF VAT SALES, CST SALES, EXPORT SALES, VAT COLLECTED AND PAID, EXCISE DUTY COLLECTED AND PAID, CST COLLE CTED AND PAID ETC. COMPARING THE FURNISHED DETAILS WITH THE RELEV ANT CST ASSESSMENT ORDER (VIDE COPY OF RELEVANT CST FINAL A SSESSMENT ORDER FOR THE YEAR 2005-06 DATED 22.02.2009 UNDER A NNEXURE-I) DISCREPANCY IS NOTICED WITH REGARD TO EXPORT SALES. IN THE P&L ACCOUNT, UNDER SCHEDULE-13 (WHICH SCHEDULE RELATES TO BREAK UP OF SALES) THE ASSESSEE HAS CREDITED RS. 13.35 CRORES B Y WAY OF EXPORT SALES. THIS FIGURE IS THE NET OF EXCISE DUTY. ACCOR DING TO THE ASSESSEE (VIDE ANNEXURE -2) EXCISE DUTY ON EXPORTS IS RS. 3,40,735/ - + CESS RS. 6,816/- = RS. 3,47,551/ -. H ENCE THE TOTAL EXPORT SALES FIGURE ACCORDING TO THE ASSESSEE I.E., INCLUSIVE OF EXCISE DUTY ETC., IS RS. 13.35 CRORES. BUT IN THE C ST ASSESSMENT ORDER, THE TOTAL EXPORT SALES HAS BEEN STATED AT RS . 13,51,70,978. IN THE COURSE OF HEARINGS BEFORE THE CIT, THE ASSE SSEE WAS ASKED ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 6 TO EXPLAIN THE DIFFERENCE. BUT IT COULD NOT EXPLAIN THE SAME. THE DIFFERENCE WORKS OUT TO RS. 16,64,423/-. THIS IS E VIDENT UNDERSTATEMENT OF EXPORT SALES. THE CIT DIRECTED TH E ASSESSING OFFICER TO BRING THIS AMOUNT TO TAX. 6. ANNEXURE-3 CONTAINS DETAILS OF SALES TAX COLLECTED AND PAID DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AS S UBMITTED BY THE ASSESSEE IN THE COURSE OF HEARINGS. AS PER THI S DOCUMENT, THE TOTAL CST COLLECTED IS OF THE ORDER OF RS. 1,27,28, 381/ -. BUT THE FINAL CST ASSESSMENT ORDER UNDER ANNEXURE EVIDENCES THAT THE TOTAL CST PAID BY THE ASSESSEE TILL FEBRUARY, 2009 (DATE OF ASSESSMENT ORDER) WAS OF THE ORDER OF RS. 1,13,76,2 81/ -. THIS EVIDENT DIFFERENCE WORKS OUT TO RS. 13,52,100/-. TH IS AMOUNT SHOULD HAVE BEEN A PART OF TURN OVER SHOWN IN THE P & L ACCOUNT. BUT THE ASSESSEE, BY SHOWING OF SALES TAX, EXCISE D UTY, HAS CONTRIVED TO ESCAPE INCOME TAX LIABILITY ON CST COL LECTED AND UNPAID TILL THE DATE OF FILING OF INCOME TAX RETURN I.E. RS. 13,52,100/-. THIS IS CLEAR, EVIDENT SUPPRESSION OF TURN-OVER IN THE P & L ACCOUNT. THE CIT DIRECTED THE ASSESSING OFFIC ER TO BRING THIS AMOUNT TO TAX. ANNEXURE -6 WHICH IS A STATEMENT OF RECONCILIATION SUBMITTED BY THE ASSESSEE I.E. ATTEMPTS TO RECONCIL E THE SALES FIGURE IN THE P & L ACCOUNT I.E. RS 127.28 CRORES W ITH THE SALES FIGURE AS PER VAT RETURNS I.E. RS. 135.96 CRORES. I T CAN BE SEEN THEREFROM THAT THE ASSESSEE HAS TAKEN INTO ACCOUNT SALES RETURNS OF RS. 33,71,997/ -. IN THE COURSE OF HEARINGS, THE ASSESSEE HAS EXPLAINED THE SALES RETURNS AS RELATING TO SALES OF PRECEDING PREVIOUS YEAR AND NOT RELATING TO THE ASSESSMENT YE AR 2006-07 WHICH IS UNDER CONSIDERATION. THE ASSESSEE WAS CALL ED UPON TO ESTABLISH THIS WITH COGENT EVIDENCE. BUT IT COULD NOT ESTABLISH THE SAME. IN THE ABSENCE OF COGENT EVIDENCE, THIS AMOUNT HAS TO BE TREATED AS SALES I.E. SUPPRESSED SALES. HE DIRECTE D THE ASSESSING OFFICER TO BRING THIS AMOUNT I.E. RS. 33,71,997/ - TO TAX. ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 7 7. THE SECOND ISSUE IS REGARDING STATUTORY DUES OF RS. 83,15,121/-SHOWN IN THE BALANCE SHEET AS AT 31.03.2 006 UNDER SCHEDULE -12 HEADED 'CURRENT LIABILITIES' ANNEXURE -4, IS A COPY OF 3CD FORM (I.E. STATUTORY AUDIT REPORT U/S. 44AB FIL ED ALONG WITH THE RETURN OF INCOME). AGAINST COL. NO. 21, WHICH R EQUIRES AN ASSESSEE TO STATE SUMS REFERRED TO IN CLAUSE (A), ( B), (C), (D), (E) OR (F) OF SECTION 43B I.E., THE LIABILITY WHICH WAS INCURR ED IN THE PREVIOUS YEAR AND WAS PAID ON OR BEFORE THE DUE DATE OF FURN ISHING THE RETURN OF INCOME OF THE PREVIOUS YEAR U/S. 139 (1), THE ASSESSEE HAS STATED 'AS PER ANNEXURE'. IT WAS OBSERVED FROM ANNEXURE-5 OF CIT ORDER THAT THE AGGREGATE AMOUNT OF STATUTORY DU ES PAID BEFORE FILING OF RETURN HAS BEEN STATED AT RS. 46,73,223/- . BUT THIS IS SUBSTANTIALLY LESS THAN THE FIGURE REFLECTED IN THE BALANCE SHEET I.E., RS. 83,15,121/-. IT IS THE CASE OF THE ASSES SEE THAT THE DIFFERENCE OF RS. 36,41,898/- REPRESENTS THE AGGREG ATE OF TDS MADE BY THE ASSESSEE FROM SALARIES AND OTHER PAYMEN TS I.E., RS. 27.16 LAKH + CST RS. 6.79 LAKH + PROVISION FOR INCO ME TAX RS. 2.16 LAKHS AND SOME SMALL AMOUNTS RELATING TO WORKS CONTRACT TAX. AS REGARDS CST, IT HAS ALREADY BEEN DEMONSTRAT ED IN THE PRECEDING PARA BY COGENT EVIDENCE THAT THE ASSESSEE 'S DEFAULT IN PAYMENT OF COLLECTED CST IS OF THE ORDER OF RS. 13, 52,100/-. AS REGARDS THE ALLEGED TDS LIABILITY OF RS. 27.16 LAKH S, THE ASSESSEE HAS NOT PRODUCED THE RELEVANT EVIDENCE. HE DIRECTED THE ASSESSING OFFICER TO THOROUGHLY EXAMINE THIS POINT AND IN CAS E, THE ASSESSEE FAILS TO SUBSTANTIATE ITS CLAIM RELATING TO TDS I.E ., RS. 27.16 LAKHS, HE SHOULD BRING THE EXTENT OF UNSUBSTANTIATED CLAIM OF LIABILITY TO TAX. 8. THE LAST ISSUE IS REGARDING UNDER VALUATION OF CLOS ING STOCK ON ACCOUNT OF NOT TAKING EXCISE DUTY INTO ACCOUNT F OR THE PURPOSES OF EVALUATING CLOSING STOCK. THIS MATTER HAD BEEN P OINTED OUT TO THE ASSESSEE IN THE SHOW CAUSE NOTICE BY ADVERTING TO THE DECISION ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 8 OF THE SUPREME COURT IN THE CASE OF CIT VS BRITISH PAINTS INDIA LIMITED (1991) 188 ITR 44. THE ASSESSEE WAS CALLED UPON TO PRODUCE VALUATION OF CLOSING STOCK AFTER TAKING EXC ISE DUTY INTO ACCOUNT. THE ASSESSEE DULY SUBMITTED SUCH CALCULATI ON. IN THE P&L ACCOUNT, THE ASSESSEE HAS SHOWN THE INCREASE IN STOCK (SCHEDULE -15) AT RS. 95,57,882. AFTER TAKING EXCI SE DUTY INTO THE VALUATION OF BOTH OPENING STOCK AND THE CLOSING STO CK, THE INCREASE IN STOCK WORKS OUT TO RS. 1,09,11,704/- IN THIS CONTEXT, THE ASSESSEE HAS MADE THE FOLLOWING SUBMISSIONS; AS REGARDS THE NON INCLUSION OF EXCISE DUTY IN THE CLOSING STOCK, IT IS SUBMITTED THAT AS THE COMPANY IS CONSISTENTLY FOLLOWING EXCLUSIVE METHOD OF ACCOUNTI NG I. E THE DUTIES ON OPENING STOCKS, PURCHASES, ALES AND CLOSING STOCK ARE NEITHER DEBITED NOR CREDITED TO T HE PROFIT AND LOSS ACCOUNT AND THE COMPANY IS CONSISTENTLY FOLLOWING THE VALUATION OF STOCKS AT COST OR MARKET VALUE WHICHEVER IS LOWER. THEREFORE, THERE I S NO ESCAPEMENT OF ANY INCOME ON ACCOUNT OF THE METHOD O F VALUATION FOLLOWED BY THE COMPANY WARRANTING THE PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT. AS SAID WE HAVE SUBMITTED MANUFACTURING ACCOUNT BY INCLUDIN G EXCISE DUTIES IN OPENING STOCK, CLOSING STOCKS, PURCHASES AND SALES AS DIRECTED BY YOU. IT IS SUBMITTED THAT NON INCLUSION OF DUTIES DOES NOT IMPACT THE PROFIT OF THE COMPANY. AS REGARDS THE APPLICATION OF THE DECISION OF THE APEX COURT IN THE CASE OF BRITISH PAINTS INDIA LIMITED IT IS SUBMITTED THAT HE DECISION ONLY LAID DOWN THAT DESP ITE FOLLOWING THE CONSISTENT METHOD OF ACCOUNTING IF TH E ASSESSING OFFICER FINDS THAT THERE IS SUPPRESSION OF INCOME HE CAN DISCARD THE CONSISTENT METHOD. AS EXPLAINED ABOVE IN OUR CASE BECAUSE OF FOLLOWING THE EXCLUSIVE METHOD OF ACCOUNTING BY EXCLUDING THE DUT Y COMPONENT FROM THE CLOSING STOCK AND BY NOT DEBITIN G THE SAME IN THE PROFIT AND LOSS ACCOUNT THERE IS NO IMPACT ON THE PROFIT WORKED OUT BY THE COMPANY. THEREFORE, IT IS SUBMITTED THAT THE SAID DECISION M AY NOT BE ANY ASSISTANCE TO CANCEL THE ASSESSMENT' 9. IT IS THE CASE OF THE ASSESSEE COMPANY THAT TWO VIEWS ARE POSSIBLE ON THE MATTER AND THE ASSESSING OFFICER AD OPTED ONE VIEW. THE SUBMISSION MADE BY THE AUTHORISED REPRESENTATIV E IS FOUND ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 9 TO BE DEVOID OF SUBSTANCE AND MERIT. THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS BRITISH PAINTS (1991) 188 ITR 44 CLEARLY LAYS DOWN THAT THE EXCISE DUTY IS AN INE VITABLE INGREDIENT IN THE VALUATION OF STOCK. IF THE ASSESS EE HAS CONSISTENTLY FOLLOWED THE METHOD OF EXCLUDING EXCIS E DUTY FROM THE VALUATION OF STOCK ON THE OPENING DATE AND CLOSING DATE OF THE PREVIOUS YEAR, THE ASSESSEE BY THIS DEVISE CAN SHIF T ITS ACTUAL TAX LIABILITY FROM ONE TO ANOTHER YEAR. THE METHOD FOLL OWED BY THE ASSESSEE MUST RESULT IN A PROPER AND FAIR PICTURE O F INCOME NOT LOP SIDED VIEW OF IT. THE METHOD FOLLOWED BY THE ASSESS EE IS CONTRARY TO SECTION 145A AS WELL AS THE LAW LAID DOWN BY THE HO N'BLE SUPREME COURT IN THE CASE OF BRITISH PAINTS. 10. FURTHER ACCOUNTING STANDARD-2 REQUIRES EXCISE DUTY TO BE INCLUDED IN THE VALUATION OF FINISHED GOODS. PARAGR APHS 18-20 OF THE GUIDANCE NOTE ON ACCOUNTING TREATMENT FOR EXCIS E DUTY ISSUED BY ICAI STATES AS UNDER: 'SINCE THE LIABILITY FOR EXCISE DUTY ARISES WHEN THE MANUFACTURE OF THE GOODS IS COMPLETED, IT IS NECESSARY TO CREATE A PROVISION FOR LIABILITY OF UNPAID EXCIS E DUTY ON STOCKS LYING IN FACTORY OR BONDED WAREHOUSE. THE ESTIMATE OF SUCH LIABILITY CAN BE MADE AT THE RATES IN FORCE ON THE BALANCE SHEET DATE. THE EXCISE DUTY PAID/PROVIDED ON FINISHED GOODS SHOULD, THEREFORE, BE INCLUDED IN INVENTORY VALUATION' 11. THE CIT OBSERVED THAT THERE IS EVIDENT DIFFERENCE O F RS. 13,53,882/- I.E. RELATING TO FINISHED AND SEMI-FINI SHED GOODS. THIS IS EVIDENT UNDER VALUATION OF STOCK AND THE ASSESSI NG OFFICER IS DIRECTED TO BRING THIS AMOUNT TO TAX. 12. ACCORDINGLY, THE CIT WAS OF THE OPINION THAT WHILE COMPLETING THE ORIGINAL ASSESSMENT, THE ASSESSING O FFICER HAD NOT ENQUIRED INTO THE AFORE STATED THREE ISSUES. THE EV IDENT DISCREPANCY BETWEEN THE .FIGURE OF SALES AS PER VAT RETURNS (WHICH ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 10 ARE AVAILABLE ON ASSESSMENT RECORD) AND THE FIGURE OF SALES SHOWN IN THE P & L ACCOUNT HAD ESCAPED HIS ATTENTION. SIM ILARLY, HE HAD NOT ENQUIRED INTO THE OUTSTANDING STATUTORY DUES OR INTO THE ISSUE OF VALUATION OF CLOSING STOCK. THESE SERIOUS OMISSI ONS HAVE RENDERED THE ASSESSMENT NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF REVENUE IN THE LIGHT OF THE DECISIO N OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISES VS ADDL.CIT AND OTHERS 99 ITR 375(DELHI) AS WELL AS IN THE LIGH T OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MALABAR IND USTRIAL COMPANY LTD. VS. CIT (109 TAXMAN 66), IT IS IN PLAC E TO EXTRACT THE RELEVANT PORTION OF THE LAND MARK JUDGMENT OF HON'B LE APEX COURT AS UNDER: '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. XXXX THE SCHEME OF THE 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 INCOME TAX OFFICER, THE REVENUE IS LOS ING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ' 13. THUS HE SET ASIDE THE ASSESSMENT ORDER AND GAVE DIRECTION TO THE AO TO REDO THE ASSESSMENT. AGAINS T THIS FINDING OF THE CIT THE ASSESSEE IS IN APPEAL BEFORE US. 14. THE LEARNED AR SUBMITTED THAT THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT U/S. 143(3) OF THE ACT HAS CAREFULLY EXAMINED THE FACTS OF THE CASE AND TAKEN A CONSCIOUS DECISION AND ACCORDING TO THE ASSESSING O FFICER THERE IS NO QUESTION OF MAKING ANY ADDITION ON THE ISSUES RAISED BY THE CIT. HE DREW OUR ATTENTION TO THE AS SESSMENT ORDER WHICH SHOWS THAT THE ASSESSING OFFICER EXAMIN ED THE VARIOUS INFORMATION PRODUCED BY THE ASSESSEE AND TH EN ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 11 PASSED THE ASSESSMENT ORDER. IF THE ORDER OF THE A SSESSING OFFICER IS NOT IN THE STYLE AS EXPECTED BY THE CIT IT CANNOT BE FAULTED WITH AND THE JURISDICTION OF SECTION 263 CA NNOT BE INVOKED. FURTHER HE RELIED ON THE JUDGEMENT OF DEL HI HIGH COURT IN THE CASE OF CIT V. MAHAVIR ALUMINIUM LTD. (297 ITR 77) FOR THE PROPOSITION THAT WHATEVER ADJUSTMENT IS MADE IN THE VALUATION OF INVENTORY, THIS WILL AFFECT BOTH T HE OPENING AS WELL AS CLOSING STOCKS. IF ANY ADJUSTMENT WAS R EQUIRED TO BE MADE BY A STATUTE, EFFECT SHOULD BE GIVEN TO IT IRRESPECTIVE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FO R TAX PURPOSES. HE RELIED ON THE ASSESSMENT ORDER AND SUB MITTED THAT THE CIT IS MAKING ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. SUCH ACTION WILL BE AG AINST THE WELL- ACCEPTED POLICY OF LAW THAT THERE MUST BE A POINT O F FINALITY IN ALL LEGAL PROCEEDINGS, THAT STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPSE OF TIME MU ST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI-JUDICI AL CONTROVERSIES AS IT MUST IN ETHER SPHERES OF HUMAN ACTIVITY. 15. THE LEARNED DR STRONGLY RELIED ON THE ORDER OF THE CIT. 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE EARLIER ORDER OF THE ASSESSING OFFICER PASSED U/S. 143(3) OF THE ACT DATED 5.12.2008. THERE IS NO WHISPER REGAR DING THE IMPUGNED ISSUE IN THE ASSESSMENT ORDER. THE ORDER PASSED BY THE ASSESSING OFFICER IS VERY CRYPTIC AND IT CAN NOT BE SAID THAT THE ASSESSING OFFICER APPLIED HIS MIND. THE O RDER SOUGHT TO BE REVISED CONTAINS ERROR OF REASONING AN D IT IS ON INCORRECT ASSUMPTION OF FACTS AS WELL AS INCORRECT APPLICATION OF LAW. THERE IS NO APPLICATION OF MIND BY THE ASS ESSING OFFICER. THE ORDER PASSED BY THE ASSESSING OFFICER IS A STEREOTYPE ORDER WHICH SIMPLY ACCEPTED WHAT THE ASS ESSEE ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 12 HAS STATED IN ITS RETURN OF INCOME AND HE IS FAILED TO EXAMINE THE GENUINENESS OF THE CLAIM OF THE ASSESSE E. 17. SECTION 263 OF THE INCOME-TAX ACT SEEKS TO REMOVE T HE PREJUDICE CAUSED TO THE REVENUE BY THE ERRONEOUS OR DER PASSED BY THE ASSESSING OFFICER. IT EMPOWERS THE COMMISSIONER TO INITIATE SUO MOTO PROCEEDINGS EITHER WHERE THE ASSESSING OFFICER TAK ES A WRONG DECISION WITHOUT CONSIDERING THE MATERIALS AV AILABLE ON RECORD OR HE TAKES A DECISION WITHOUT MAKING AN ENQ UIRY INTO THE MATTERS, WHERE SUCH INQUIRY WAS PRIMA FACIE WARRANT ED. THE COMMISSIONER WILL BE WELL WITHIN HIS POWERS TO REGA RD AN ORDER AS ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES O F THE CASE, THE ASSESSING OFFICER SHOULD HAVE MADE FURTHER INQUIRIE S BEFORE ACCEPTING THE CLAIM MADE BY THE ASSESSEE IN HIS RET URN. THE REASON IS OBVIOUS. UNLIKE THE CIVIL COURT WHICH IS NEUTRAL IN GIVING A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE IT, THE ROLE OF AN ASSESSING OFFICER UNDER THE INCOME-TAX ACT IS NO T ONLY THAT OF AN ADJUDICATOR BUT ALSO OF AN INVESTIGATOR. HE CANN OT REMAIN PASSIVE IN THE FACE OF A RETURN, WHICH IS APPARENTL Y IN ORDER BUT CALLS FOR FURTHER ENQUIRY. HE MUST DISCHARGE BOTH T HE ROLES EFFECTIVELY. IN OTHER WORDS, HE MUST CARRY OUT INVE STIGATION WHERE THE FACTS OF THE CASE SO REQUIRE AND ALSO DECIDE TH E MATTER JUDICIOUSLY ON THE BASIS OF MATERIALS COLLECTED BY HIM AS ALSO THOSE PRODUCED BY THE ASSESSEE BEFORE HIM. THE SCHEME OF ASSESSMENT HAS UNDERGONE RADICAL CHANGES IN RECENT YEARS. IT D ESERVES TO BE NOTED THAT THE PRESENT ASSESSMENT WAS MADE UNDER SE CTION 143(3) OF THE INCOME-TAX ACT. IN OTHER WORDS, THE ASSESSIN G OFFICER WAS STATUTORILY REQUIRED TO MAKE THE ASSESSMENT UNDER S ECTION 143(3) AFTER SCRUTINY AND NOT IN A SUMMARY MANNER AS CONTE MPLATED BY SUB-SECTION (1) OF SECTION 143. BULK OF THE RETURNS FILED BY THE ASSESSEES ACROSS THE COUNTRY IS ACCEPTED BY THE DEP ARTMENT UNDER SECTION 143(1) WITHOUT ANY SCRUTINY. ONLY A FEW CAS ES ARE PICKED UP FOR SCRUTINY. THE ASSESSING OFFICER IS THEREFORE , REQUIRED TO ACT ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 13 FAIRLY WHILE ACCEPTING OR REJECTING THE CLAIM OF TH E ASSESSEE IN CASES OF SCRUTINY ASSESSMENTS. HE SHOULD BE FAIR NO T ONLY TO THE ASSESSEE BUT ALSO TO THE PUBLIC EXCHEQUER. THE ASSE SSING OFFICER HAS GOT TO PROTECT, ON ONE HAND, THE INTEREST OF TH E ASSESSEE IN THE SENSE THAT HE IS NOT SUBJECTED TO ANY AMOUNT OF TAX IN EXCESS OF WHAT IS LEGITIMATELY DUE FROM HIM, AND ON THE OTHER HAND, HE HAS A DUTY TO PROTECT THE INTERESTS OF THE REVENUE AND TO SEE THAT NO ONE DODGED THE REVENUE AND ESCAPED WITHOUT PAYING T HE LEGITIMATE TAX. THE ASSESSING OFFICER IS NOT EXPECTED TO PUT B LINKERS ON HIS EYES AND MECHANICALLY ACCEPT WHAT THE ASSESSEE CLAI MS BEFORE HIM. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE F ACTS STATED AND THE GENUINENESS OF THE CLAIMS MADE IN THE RETURN WHEN T HE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE IN QUIRY. ARBITRARINESS IN EITHER ACCEPTING OR REJECTING THE CLAIM HAS NO PLACE. THE ORDER PASSED BY THE ASSESSING OFFICER BE COMES ERRONEOUS BECAUSE AN ENQUIRY HAS NOT BEEN MADE OR G ENUINENESS OF THE CLAIM HAS NOT BEEN EXAMINED WHERE THE INQUIR IES OUGHT TO HAVE BEEN MADE AND THE GENUINENESS OF THE CLAIM OUG HT TO HAVE BEEN EXAMINED AND NOT BECAUSE THERE IS ANYTHING WRO NG 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 A CCEPTS WHAT THE ASSESSEE HAS STATED IN HIS RETURN AND FAILS TO MAKE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH ARE CALL ED FOR IN THE CIRCUMSTANCES OF THE CASE. IN TAKING THE AFORESAID VIEW, WE ARE SUPPORTED BY THE DECISIONS OF THE HON'BLE SUPREME C OURT IN RAMPYARI DEVI SARAOGI V. CIT (67 ITR 84) (SC), SM T. TARA DEVI AGGARWAL V. CIT (88 ITR 323) (SC), AND MALABAR INDU STRIAL CO. LTD'S CASE ( 243 ITR 83) (SC). ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 14 18. IN MALABAR INDUSTRIAL CO. LTD. CASE THE HON'BLE CO URT HAS HELD AS UNDER: THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONL Y 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 REQUI REMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL THE ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES O F NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. 19. IN OUR HUMBLE VIEW, ARBITRARINESS IN DECISION-MAKIN G WOULD ALWAYS NEED CORRECTION REGARDLESS OF WHETHER IT CAU SES PREJUDICE TO AN ASSESSEE OR TO THE STATE EXCHEQUER. THE LEGISLAT URE HAS TAKEN AMPLE CARE TO PROVIDE FOR THE MECHANISM TO HAVE SUC H PREJUDICE REMOVED. WHILE AN ASSESSEE CAN HAVE IT CORRECTED TH ROUGH REVISIONAL JURISDICTION OF THE COMMISSIONER UNDER S ECTION 264 OR THROUGH APPEALS AND OTHER MEANS OF JUDICIAL REVIEW, THE PREJUDICE CAUSED TO THE STATE EXCHEQUER CAN ALSO BE CORRECTED BY INVOKING REVISIONAL JURISDICTION OF THE COMMISSIONER UNDER S ECTION 263. ARBITRARINESS IN DECISION-MAKING CAUSING PREJUDICE TO EITHER PARTY CANNOT THEREFORE BE ALLOWED TO STAND AND STARE AT T HE LEGAL SYSTEM. IT IS DIFFICULT TO COUNTENANCE SUCH ARBITRARINESS I N THE ACTIONS OF THE ASSESSING OFFICER. IT IS THE DUTY OF THE ASSESS ING OFFICER TO ADEQUATELY PROTECT THE INTEREST OF BOTH THE PARTIES , NAMELY, THE ASSESSEE AS WELL AS THE STATE. IF HE FAILS TO DISCH ARGE HIS DUTIES FAIRLY, HIS ARBITRARY ACTIONS CULMINATING IN ERRONE OUS ORDERS CAN ALWAYS BE CORRECTED EITHER AT THE INSTANCE OF THE A SSESSEE, IF THE ASSESSEE IS PREJUDICED OR AT THE INSTANCE OF THE CO MMISSIONER, IF THE REVENUE IS PREJUDICED. WHILE MAKING AN ASSESSM ENT, THE ITO HAS A VARIED ROLE TO PLAY. HE IS THE INVESTIGATOR, PROSECUTOR AS WELL AS ADJUDICATOR. AS AN ADJUDICATOR HE IS AN ARBITRAT OR BETWEEN THE REVENUE AND THE TAXPAYER AND HE HAS TO BE FAIR TO B OTH. HIS DUTY TO ACT FAIRLY REQUIRES THAT WHEN HE ENQUIRES INTO A SU BSTANTIAL MATTER ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 15 LIKE THE PRESENT ONE, HE MUST RECORD A FINDING ON T HE RELEVANT ISSUE GIVING, HOWSOEVER BRIEFLY, HIS REASONS THEREF OR. 20. IN S.N. MUKHERJEE V. UNION OF INDIA AIR 1990 SC 198 4, IT HAS BEEN OBSERVED BY THE HON'BLE SUPREME COURT AS F OLLOWS: REASONS, WHEN RECORDED BY AN ADMINISTRATIVE AUTHORITY IN AN ORDER PASSED BY IT WHILE EXERCISING QUASI-JUDICIAL FUNCTIONS, WOULD NO DOUBT FACILITATE THE EXERCISE OF ITS JURISDICTION BY THE APPELLATE OR SUPERVISORY AUTHORITY. BUT THE OTHER CONSIDERATIONS , REFERRED TO ABOVE, WHICH HAVE ALSO WEIGHED WITH THI S COURT IN HOLDING THAT AN ADMINISTRATIVE AUTHORITY M UST 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 CHAN CES OR ARBITRARINESS AND ENSURES A DEGREE OF FAIRNESS I N 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 APPEA L, REVISION OR JUDICIAL REVIEW. IN OUR OPINION, THEREF ORE, THE REQUIREMENT THAT REASONS BE RECORDED SHOULD GOVERN THE DECISIONS OF AN ADMINISTRATIVE AUTHORITY EXERCISING QUASI-JUDICIAL FUNCTIONS IRRESPECTIVE OF THE FACT M AY, HOWEVER, BE ADDED THAT IT IS NOT REQUIRED THAT THE REASONS SHOULD BE AS ELABORATE AS IN THE DECISION O F 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 G IVEN DUE CONSIDERATION TO THE POINTS IN CONTROVERSY. THE NEED FOR RECORDING OF REASONS IS GREATER IN A CASE WHERE THE ORDER IS PASSED AT THE ORIGINAL STAGE. THE APPELLAT E OR REVISIONAL AUTHORITY, IF IT AFFIRMS SUCH AN ORDER, NEED NOT GIVE SEPARATE REASONS IF THE APPELLATE OR REVISIONA L AUTHORITY AGREES WITH THE REASONS CONTAINED IN THE ORDER UNDER CHALLENGE. 21. SIMILAR VIEW WAS EARLIER TAKEN BY THE HON'BLE SUPRE ME COURT IN SIEMENS ENGG. & MFG. CO. LTD. V. UNION OF INDIA [AIR (1976) SC 1785]. IT IS SETTLED LAW THAT WHILE MAKIN G ASSESSMENT ON ASSESSEE, THE ITO ACTS IN A QUASI-JUDICIAL CAPACITY . AN ASSESSMENT ORDER IS AMENABLE TO APPEAL BY THE ASSESSEE AND TO REVISION BY THE ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 16 COMMISSIONER UNDER SECTIONS 263 AND 264. THEREFORE, A REASONED ORDER ON A SUBSTANTIAL ISSUE IS LEGALLY NECESSARY. THE JUDGMENTS ON WHICH RELIANCE WAS PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE ALSO POINTS TO THE SAME DIRECTION. THEY HA VE HELD THAT ORDERS, WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF REVENUE, MUST BE REGARDED AS ERRONEOUS AND PREJUDICIAL TO TH E INTERESTS OF THE REVENUE. IF THE ASSESSING OFFICERS ARE ALLOWED TO MAKE ASSESSMENTS IN AN ARBITRARY MANNER, AS HAS BEEN DON E IN THE CASE BEFORE US, THE ADMINISTRATION OF REVENUE IS BOUND T O SUFFER. IF WITHOUT DISCUSSING THE NATURE OF THE TRANSACTION AN D MATERIALS ON RECORD, THE ASSESSING OFFICER HAD MADE CERTAIN ADDI TION TO THE INCOME OF THE ASSESSEE, THE SAME WOULD HAVE BEEN CO NSIDERED ERRONEOUS BY ANY APPELLATE AUTHORITY AS BEING VIOLA TIVE OF THE PRINCIPLES OF NATURAL JUSTICE WHICH REQUIRE THAT TH E AUTHORITY MUST INDICATE THE REASONS FOR AN ADVERSE ORDER. WE FIND NO REASON WHY THE SAME VIEW SHOULD NOT BE TAKEN WHEN AN ORDER IS AGAINST THE INTERESTS OF THE REVENUE. AS A MATTER OF FACT SUCH ORDERS ARE PREJUDICIAL TO THE INTERESTS OF BOTH THE PARTIES, B ECAUSE EVEN THE ASSESSEE IS DEPRIVED OF THE BENEFIT OF A POSITIVE F INDING IN HIS FAVOUR, THOUGH HE MAY HAVE SUFFICIENTLY ESTABLISHED HIS CASE. 22. IN VIEW OF THE FOREGOING, IT CAN SAFELY BE SAID THA T AN ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS A ND PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNDER SECTION 263 I N THE FOLLOWING CASES: (I) THE ORDER SOUGHT TO BE REVISED CONTAINS ERROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. (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 STEREOTYPE ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED IN HIS RETURN OR WHERE HE ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 17 FAILS TO MAKE THE REQUISITE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH IS CALLED FOR IN THE CIRCUMSTANCES OF THE CASE. 23. WE SHALL NOW TURN TO THE FACTS OF THE CASE TO SEE W HETHER THE CASE BEFORE US IS COVERED BY THE AFORESAID PRINCIPL ES. PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER DO ES NOT SHOW ANY APPLICATION OF MIND ON HIS PART ON THE ISSUES R AISED BY THE CIT. THE ASSESSMENT ORDER LOOKS LIKE HE HAS JUST B ASED HIS CONCLUSION ON THE BASIS OF TAX AUDIT REPORT. THIS IS A CASE WHERE THE ASSESSING OFFICER MECHANICALLY ACCEPTED WHAT TH E ASSESSEE WANTED HIM TO ACCEPT WITHOUT ANY APPLICATION OF MIN D OR ENQUIRY. THE EVIDENCE AVAILABLE ON RECORD IS NOT ENOUGH TO H OLD THAT THE RETURN OF THE ASSESSEE WAS OBJECTIVELY EXAMINED OR CONSIDERED BY THE ASSESSING OFFICER. IT IS BECAUSE OF SUCH NON-C ONSIDERATION OF THE ISSUES ON THE PART OF THE ASSESSING OFFICER THA T THE RETURN FILED BY THE ASSESSEE STOOD AUTOMATICALLY ACCEPTED WITHOU T ANY PROPER SCRUTINY. THE ASSESSMENT ORDER PLACED BEFORE US IS CLEARLY ERRONEOUS AS IT WAS PASSED WITHOUT PROPER EXAMINATI ON OR ENQUIRY OR VERIFICATION OR OBJECTIVE CONSIDERATION OF THE C LAIM MADE BY THE ASSESSEE. THE ASSESSING OFFICER HAS COMPLETELY OMIT TED TO EXAMINE THE ISSUES IN QUESTION FROM CONSIDERATION AND MADE THE ASSESSMENT IN AN ARBITRARY MANNER. HIS ORDER IS A C OMPLETELY NON- SPEAKING ORDER WITH REFERENCE TO THE IMPUGNED ISSUE S. IN OUR VIEW, IT WAS A FIT CASE FOR THE LEARNED COMMISSIONER TO E XERCISE HIS REVISIONAL JURISDICTION UNDER SECTION 263 WHICH HE RIGHTLY EXERCISED BY CANCELLING THE ASSESSMENT ORDER AND DI RECTING THE ASSESSING OFFICER TO PASS A FRESH ORDER CONSIDERIN G THE ISSUES RAISED BY THE CIT. IN OUR VIEW, THE ASSESSEE SHOULD HAVE NO GRIEVANCE IN THE ACTION OF LEARNED COMMISSIONER IN EXERCISING THE JURISDICTION U/S. 263 OF THE IT ACT. 24. IT WAS HOWEVER CONTENDED BY THE LEARNED COUNSEL THA T THE ASSESSING OFFICER HAD TAKEN A POSSIBLE VIEW IN ACCE PTING THE RETURN ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 18 OF THE ASSESSEE WITH REFERENCE TO EXPENDITURE AND H ENCE, THE COMMISSIONER WAS NOT JUSTIFIED IN ASSUMING THE REVI SIONAL JURISDICTION UNDER SECTION 263. WE HAVE GIVEN OUR T HOUGHTFUL CONSIDERATION TO THE AFORESAID SUBMISSIONS. AS ALRE ADY STATED EARLIER, AN ORDER BECOMES ERRONEOUS BECAUSE INQUIRI ES, WHICH OUGHT TO HAVE BEEN MADE ON THE FACTS OF THE CASE, W ERE NOT MADE AND NOT BECAUSE THERE IS ANYTHING WRONG WITH THE OR DER IF ALL THE FACTS STATED OR THE CLAIMS MADE IN THE RETURN ARE A SSUMED TO BE CORRECT. THUS, IT IS MERE FAILURE ON THE PART OF TH E ASSESSING OFFICER TO MAKE THE NECESSARY INQUIRIES OR TO EXAMINE THE C LAIM MADE BY THE ASSESSEE IN ACCORDANCE WITH LAW, WHICH RENDERS THE RESULTANT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. NOTHING MORE IS REQUIRED TO BE ESTABLISHED IN SUCH A CASE. ONE WOULD NOT KNOW AS TO WHAT WOULD HAVE HAPPENED IF TH E ASSESSING OFFICER HAD MADE THE REQUISITE INQUIRIES OR EXAMINE D THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW. HE COULD HAVE ACCEPTED THE ASSESSEE'S CLAIM. EQUALLY, HE COULD HAVE ALSO REJEC TED THE ASSESSEE'S CLAIM DEPENDING UPON THE RESULTS OF HIS ENQUIRY OR EXAMINATION INTO THE CLAIM OF THE ASSESSEE. THUS, T HE FORMATION OF ANY VIEW BY THE ASSESSING OFFICER WOULD NECESSARILY DEPEND UPON THE RESULTS OF HIS INQUIRY AND CONSCIOUS, AND NOT P ASSIVE, EXAMINATION INTO THE CLAIM OF THE ASSESSEE. IF THE ASSESSING OFFICER PASSES AN ORDER MECHANICALLY WITHOUT MAKING THE REQ UISITE INQUIRIES OR EXAMINING THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW, SUCH AN ORDER WILL CLEARLY BE ERRONEOUS I N LAW AS IT WOULD NOT BE BASED ON OBJECTIVE CONSIDERATION OF THE RELE VANT MATERIALS. IT IS THEREFORE, THE MERE FAILURE ON THE PART OF TH E ASSESSING OFFICER IN NOT MAKING THE INQUIRIES OR NOT EXAMINING THE CL AIM 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 ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 19 THAT THE ORDER SOUGHT TO BE REVISED IS ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 25. WE ARE UNABLE TO ACCEPT THE SUBMISSION OF THE LEARN ED COUNSEL FOR TWO OTHER REASONS ALSO. FIRST REASON IS THAT THE VIEW SO TAKEN BY THE ASSESSING OFFICER WITHOUT MAKING THE R EQUISITE INQUIRIES OR EXAMINING THE CLAIM OF THE ASSESSEE WI LL PER SE BE AN ERRONEOUS VIEW AND HENCE WILL BE AMENABLE TO REVISI ONAL JURISDICTION UNDER SECTION 263. SECOND REASON IS TH AT IT IS NOT TAKING OF ANY VIEW ON THE ISSUES INVOLVED THAT WILL TAKE THE MATTER UNDER THE SCOPE OF SECTION 263. THE VIEW TAKEN BY T HE ASSESSING OFFICER SHOULD NOT BE A MERE VIEW IN VACUUM BUT A J UDICIAL VIEW. IT IS WELL ESTABLISHED THAT THE ASSESSING OFFICER BEIN G A QUASI-JUDICIAL AUTHORITY CANNOT TAKE A VIEW, EITHER AGAINST OR IN FAVOUR OF THE ASSESSEE / REVENUE, WITHOUT MAKING PROPER INQUIRIES AND WITHOUT PROPER EXAMINATION OF THE CLAIM MADE BY THE ASSESSE E IN THE LIGHT OF THE APPLICABLE LAW. AS ALREADY STATED EARLIER, WE ARE NOT ABLE TO APPRECIATE ON WHAT MATERIAL WAS PLACED BEFORE THE A SSESSING OFFICER AT THE ASSESSMENT STAGE TO TAKE SUCH A VIEW . THE ASSESSEE HAS ALSO NOT BEEN ABLE TO LEAD ENOUGH EVIDENCE TO S HOW TO US THAT ANY INQUIRY WAS MADE BY THE ASSESSING OFFICER IN TH IS REGARD. THEREFORE MERE ALLEGATION THAT THE ASSESSING OFFICE R HAS TAKEN A VIEW IN THE MATTER WILL NOT PUT THE MATTER BEYOND T HE PURVIEW OF SECTION 263 UNLESS THE VIEW SO TAKEN BY THE ASSESSI NG OFFICER IS A JUDICIAL VIEW CONSCIOUSLY BASED UPON PROPER INQUIRI ES AND APPRECIATION OF ALL THE RELEVANT FACTUAL AND LEGAL ASPECTS OF THE CASE. THE JUDICIAL VIEW TAKEN BY THE ASSESSING OFFI CER MAY PERHAPS PLACE THE MATTER OUTSIDE THE PURVIEW OF SECTION 263 UNLESS IT IS SHOWN THAT THE VIEW SO TAKEN BY THE ASSESSING OFFIC ER CONTAINS SOME APPARENT ERROR OF REASONING OR OF LAW OR OF FA CT ON THE FACE OF IT. ITA NO. 1089/HYD/2011 M/S. LINKWELL TELESYSTEMS PVT. LTD. =========================== 20 26. BEING SO, THE ORDER OF THE ASSESSING OFFICER IS CRY PTIC IN NATURE AND THERE IS NO DISCUSSION. NO PROPER EN QUIRY ON THE PART OF THE ASSESSING OFFICER. THE ASSESSING O FFICER ABSOLUTELY CLOSED HIS EYES AND COMPLETED THE ASSESS MENT WITHOUT RAISING ANY OBJECTION ON THE IMPUGNED ISSUE S. BEING SO, THE ISSUES IN DISPUTE ARE REQUIRED TO BE EXAMINED THOROUGHLY BY THE ASSESSING OFFICER. THE CIT IS NO T JUSTIFIED HIMSELF GIVING DIRECTION TO MAKE ADDITION. IN OUR OPINION, AT ALL FAIRNESS, THE ISSUES HAVE TO GO BACK TO THE ASS ESSING OFFICER FOR FRESH CONSIDERATION. ACCORDINGLY, THE E NTIRE ISSUES ARE REMITTED BACK TO THE ASSESSING OFFICER FOR FRES H CONSIDERATION AND CAUSE NECESSARY AND DECIDE THEREU PON IN IN ACCORDANCE WITH LAW AFTER GIVING ADEQUATE OPPORT UNITY OF HEARING TO THE ASSESSEE FOR SPECIFIED PURPOSE. 27. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2013. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 22 ND FEBRUARY, 2013 TPRAO COPY FORWARDED TO: 1. M/S. LINKWELL TELESYSTEMS PVT. LTD., C/O. DR. C.P. RAMASWAMI, ADVOCATE, FLAT NOS. 102 & 303, GITANJALI APTS., PLOT NO. 108, SRINAGAR COLONY, HYDERABAD-500 073. 2. THE ADDL. CIT, RANGE - 16, HYDERABAD. 3. THE CIT - IV, HYDERABAD. 4 . THE D CIT , CIRCLE - 16(1) , HYDERABAD. 5 . THE DR B BENCH, ITAT, HYDERABAD.