SpringMerchandisers Pvt. Ltd., Mathura V. C.I.T.-I, Agra

ITA 121/AGR/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6963 (ITAT-AGRA)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 29-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HOMI RAJVANSH
• Assessee Lawyers: M M AGARWAL
• Keywords: Opportunity of being heard; Principle of natural justice; Period of limitation; Commercial expediency; Reason to believe; Capital expenditure
• Section: 44AD; 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 121/AGRA/2010 ASSTT. YEAR : 2005-06 SPRING MERCHANDISERS PVT. LTD., VS. COMMISSIONER OF INCOME-TAX-I, 64/71, DAMPIER NAGAR, MATHURA. AGRA. (PAN : AAACS 5240 D). (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI M.M. AGARWAL, FCA. FOR RESPONDENT : SHRI HOMI RAJVANSH, CIT/DR ORDER PER P.K. BANSAL, A.M. : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINS T THE ORDER OF CIT DATED 30.03.2010 PASSED U/S. 263 OF THE INCOME-TAX ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE CIT(A) BY INVOKING THE PROVISIONS OF SECTION 263 REVISED THE ASSESSMENT PASSED U/S. 143(3) VIDE ORDE R DATED 17.12.2007 HOLDING THAT THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT WITHOUT CONDUC TING NECESSARY ENQUIRIES WITHOUT EXAMINATION AND VERIFICATION AND, THEREFORE, THE AS SESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS PREJUDICIAL TO TH E INTEREST OF REVENUE AND, ACCORDINGLY, HE CANCELLED THE ASSESSMENT WITH THE DIRECTION TO THE ASSESSING OFFICER TO COMPLETE THE ASSESSMENT AFTER CONDUCTING NECESSARY ENQUIRIES/VERIFICATIONS ON THE ISSUE MENTION IN THE ORDER AFTER PROVIDING PROPER OPPORTUNITY TO THE ASSESSEE. THE C IT WAS OF THE OPINION THAT THE ASSESSEE HAS SHOWN IN SCHEDULE F(D) TO THE BALANCE SHEET UNDER THE HEAD OTHER ADVANCES A SUM OF RS.83,71,210/-. THESE ADVANCES ALSO INCLUDE THE ADV ANCE/LOAN GIVEN TO THE DIRECTORS AND SISTER CONCERN AND ON THESE, THE ASSESSEE HAS NOT CHARGED ANY INTEREST. EVEN THOUGH THE INTEREST HAS 2 BEEN PAID TO THE BANK ON THE SECURED LOAN TO THE EX TENT OF RS.16,05,990/-, THE CIT WAS OF THE VIEW THAT THE ASSESSEE HAS DIVERTED ITS INTEREST BE ARING SECURED LOANS TO ITS DIRECTORS/SISTER CONCERNS IN THE SHAPE OF INTEREST FREE LOANS/ADVANC ES. HE WAS OF THE OPINION THAT THE ASSESSING OFFICER HAS NOT EXAMINED ON THIS ASPECT. WHEN THE S HOW CAUSE NOTICE WAS ISSUED, THE ASSESSEE HAS POINTED OUT THAT THE ASSESSING OFFICER HAS DULY MADE THE ENQUIRIES DURING THE COURSE OF HEARING, WHICH WAS REPLIED BY THE ASSESSEE. IT IS N OT A CASE WHERE NO ENQUIRY WAS MADE. EVEN ON MERIT ALSO, IT WAS CONTENDED THAT THE ASSESSEE WAS HAVING SUFFICIENT FUNDS OTHER THAN BORROWED MONEY FOR GIVING THE AMOUNT AS LOAN TO ITS SISTER C ONCERN. THE CIT DID NOT AGREE BUT CANCELLED THE ASSESSMENT BY INVOKING THE PROVISIONS OF SECTIO N 263. 3. BEFORE US, THE LEARNED AR VEHEMENTLY CONTENDED T HAT THE CIT(A) HAS POINTED OUT TOTAL ADVANCE TO THE EXTENT OF RS.72,44,865/- OUT OF WHIC H ADVANCE TO THE EXTENT OF RS.74,865/- RELATING TO BHAGYODAYA SALES LIMITED, AKAL TRANS IN DIA, DELHI, SUPER GOODS TRANSPORT CO. AND VEENUS PETRO CHEMICALS (B) PVT. LTD. TO THE EXTENT OF RS.74,865/- RELATE TO REGULAR BUSINESS TRANSACTION. OUT OF THE BALANCE, ADVANCE TO THE EXT ENT OF RS.25,50,000/- WERE MADE IN THE EARLIER YEARS RELATING TO PRANESH SHAH LOAN A/C RS.2,50,000 /-, SAMAYAK COMMERCIAL PRIVATE LIMITED RS.21,50,000/-, REFRACTORY & MINERALS (I) LIMITED R S.1,50,000/-. THE BALANCE ADVANCES WERE ONLY TO THE EXTENT OF RS.46,40,000/-, THE DETAILS O F WHICH WERE GIVEN AS UNDER : SL. NO. NAME OF THE PARTY AMOUNT 1. BUDHANI HOUSING DEVELOPERS (P) LTD. 10,00,000 2. DIRECTORS LOAN 3,00,000 4. KARSHNEY DEVELOPERS PVT. LTD. 8,10,000 5. N.D. OVERSEAS PRIVATE LIMITED 25,00,000 8. ANANTHA LOAN 10,000 IT WAS POINTED OUT THAT DURING THE YEAR, THE ASSESS EE WAS HAVING NET PROFIT AFTER TAX TO THE EXTENT OF RS.76,83,645/-, INTEREST FREE UNSECURED LOAN RS. 50,00,000/-. THE TOTAL INTERESTS FREE FUND 3 AVAILABLE WITH THE ASSESSEE WAS TO THE EXTENT OF RS .1,06,13,645/-. IN THIS REGARD, THE CASH FLOW STATEMENT AS WELL AS THE BALANCE SHEET AND PROFIT A ND LOSS ACCOUNT WERE ALSO FILED. THE ASSESSEE HAS SUBMITTED DETAILED REPLY TO THE CIT VIDE LETTER DATED 22.03.2010 ON THE SHOW CAUSE NOTICE ISSUED U/S. 263, COPY OF WHICH IS AVAILABLE AT PAGE 63 & 64 OF THE PAPER BOOK. IT WAS POINTED OUT THAT THE ASSESSING OFFICER DURING THE COURSE OF ASS ESSMENT, ISSUED A NOTICE U/S. 142, COPY OF WHICH IS AVAILABLE AT PAGE 89 TO 90 OF THE PAPER BO OK. THROUGH THIS NOTICE, THE ASSESSING OFFICER HAS CLEARLY MADE A QUERY ABOUT THE ADVANCE/LOAN OF RS.83,71,210/- GIVEN BY THE ASSESSEE. THE QUERY WAS AT SL. NO. 6 AND READS AS UNDER : YOU HAVE ADVANCED LOAN OF RS.83,71,210/- TO OTHERS . PLEASE EXPLAIN PURPOSE OF LOAN AND WHETHER ANY INTEREST HAS BEEN C HARGED OR NOT. IT WAS POINTED OUT THAT THE ASSESSEE SUBMITTED THE REPLY IN RESPECT OF THE SAID QUERY VIDE HIS LETTER DATED 10 TH DECEMBER, 2007, COPY OF WHICH IS AVAILABLE AT PAGE 92 TO 96 OF THE PAPER BOOK. IT WAS POINTED OUT THAT UNDER PARA 10, A REPLY WAS GIVEN M ENTIONING THEREIN THE DETAILS OF OTHER ADVANCES OF RS.83,71,210/-. ALL THE ADVANCES HAVE B EEN GIVEN IN THE NORMAL COURSE OF BUSINESS. NO INTEREST HAS BEEN CHARGED ON SUCH ADVANCES. THUS , IT WAS CONTENDED THAT THERE IS APPLICATION OF MIND ON THE PART OF THE ASSESSING OFFICER. IT IS NOT A CASE WHERE THE ASSESSING OFFICER HAS NOT AT ALL EXAMINED THE ISSUE RELATING TO NON-CHARGING OF INTEREST ON THE ADVANCES. IT WAS ALSO POINTED OUT THAT THE ASSESSEE CANNOT DIRECT THE ASSESSING O FFICER WHAT THE ASSESSING OFFICER SHOULD INCORPORATE IN THE ASSESSMENT ORDER. IT IS THE PRER OGATIVE OF THE ASSESSING OFFICER TO DRAFT THE ASSESSMENT ORDER IN THE MANNER IN WHICH HE MAY DESI RE. THE ASSESSEE HAS SUBMITTED ALL THE NECESSARY INFORMATION AS WAS ASKED FOR. IF THE ASSE SSING OFFICER HAS TAKEN ONE OF THE VIEW, WHICH IS NOT LIKED BY THE CIT, IT CANNOT BE SAID TH AT THE ASSESSING OFFICER HAS NOT MADE PROPER ENQUIRY AND THE ORDER PASSED BY HIM IS ERRONEOUS. R ELIANCE WAS PLACED IN THIS REGARD ON THE FOLLOWING CASE LAWS : 4 I). CIT VS. RATLAM COAL ASH COMPANY, 171 ITR 141 ( MP) II). CIT VS. ARVIND JEWELLERS, 259 ITR 502 (GUJ.) III). CIT VS. MAX INDIA LIMITED, 295 ITR 282 (SC) IV). CIT VS. R.K. CONSTRUCTION CO. 313 ITR 65 (GUJ .) V). MALABAR INDUSTRIAL CO. LTD. VS. CIT, 243 ITR 8 2 (SC) VI). CIT VS. GABRIEL INDIA LIMITED 203 ITR 108(BOM .) VII). CIT VS. MAHENDER KUMAR BANSAL, 297 ITR 99(AL L) VIII). CIT VS. GOYAL PRIVATE FAMILY SPECIFIC TRUST , 171 ITR 698(ALLD) 4. THE LEARNED DR, ON THE OTHER HAND, VEHEMENTLY CO NTENDED THAT THE ASSESSING OFFICER HAS NOT MADE PROPER ENQUIRY AFTER THE SUBMISSION OF THE REPLY BY THE ASSESSEE. THE ASSESSING OFFICER SHOULD HAVE EXAMINED THE ISSUE IN DETAIL. THUS, THE RE IS NON APPLICATION OF MIND ON THE PART OF THE ASSESSING OFFICER. THE CIT WAS, THEREFORE, CORRECT IN LAW IN SETTING ASIDE THE ASSESSMENT. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO N AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE CASE LAW AS RELIED ON AND THE ORDER OF THE CIT PASSED U/S. 263 OF THE ACT. SECTION 263 LAYS DOWN AS UNDER:- 263. (1) THE COMMISSIONER MAY CALL FOR AND EXA MINE 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 IN TERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD A ND 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 O R MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASS ESSMENT. EXPLANATION.-FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT, FOR THE PURPOSES OF THIS SUB-SECTION, - (A) AN ORDER PASSED ON OR BEFORE OR AFTER THE 1ST D AY OF JUNE, 1988 BY THE ASSESSING OFFICER SHALL INCLUDE - (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT CO MMISSIONER OR DEPUTY DIRECTOR OR THE INCOME-TAX OFFICER ON THE BA SIS OF THE DIRECTIONS ISSUED BY THE JOINT COMMISSIONER UNDER S ECTION 144A; (II) AN ORDER MADE BY THE JOINT COMMISSIONER IN EXE RCISE OF THE POWER OR IN THE PERFORMANCE OF THE FUNCTIONS OF AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR 5 DIRECTIONS ISSUED BY THE BOARD OR BY THE CHIEF COMM ISSIONER OR DIRECTOR GENERAL OR COMMISSIONER AUTHORISED BY THE BOARD IN THIS BEHALF UNDER SECTION 120; (B) 'RECORD' SHALL INCLUDE AND SHALL BE DEEMED ALWA YS TO HAVE INCLUDED ALL RECORDS RELATING TO ANY PROCEEDING UNDER THIS ACT A VAILABLE AT THE TIME OF EXAMINATION BY THE COMMISSIONER; (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTER OF AN Y APPEAL FILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988, THE POWE RS OF THE COMMISSIONER UNDER THIS SUB-SECTION SHALL EXTEND AND SHALL BE DE EMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL. (2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) AF TER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED. (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (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 C OURT. 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 PROCEED ING UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUD ED. 6. 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 O F ANY PROCEEDINGS UNDER THE ACT AND FOR THIS PURPOSE HE NEED NOT TO SHOW ANY REASON OR RECO RD ANY REASON TO BELIEVE. IT IS A PART OF HIS ADMINISTRATIVE POWER TO CALL FOR THE RECORD AND EXA MINE THEM RELATING TO ANY ASSESSEE. SECONDLY, HE MAY CONSIDER ANY ORDER PASSED BY THE ASSESSING O FFICER AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THIS IS EXERCISED BY C ALLING FOR AND EXAMINING THE RECORD AVAILABLE AT THIS STAGE. THERE IS NO QUESTION OF THE ASSESSEE TO APPEAR AND MAKE SUBMISSION AT THIS STAGE. THIRDLY, IF AFTER CALLING FOR AND EXAMINING THE REC ORDS THE COMMISSIONER CONSIDERS THAT THE ORDER 6 OF THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE I S BOUND TO GIVE AN OPPORTUNITY TO THE ASSESSEE OF BEI NG HEARD AND AFTER MAKING OR CAUSING TO BE MADE SUCH ENQUIRY AS HE MAY DEEM FIT, PASS SUCH ORD ER THEREON AS THE CIRCUMSTANCES OF THE CASE MAY JUSTIFY INCLUDING AN ORDER ENHANCING OR MODIFYI NG THE ASSESSMENT OR CANCELING ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. THIS EMPOWERS TH E CIT TO CAUSE OR MAKE SUCH ENQUIRIES AS HE DEEMS NECESSARY. FOURTHLY, THE CIT U/S 263 CAN ENH ANCE OR MODIFY THE ASSESSMENT AS A RESULT OF ENQUIRY CONDUCTED AND HEARING OF THE ASSESSEE. 7. FOR INVOKING THE PROVISIONS OF SECTION 263, BOTH THE CONDITIONS THAT THE ORDER PASSED BY THE A.O. IS ERRONEOUS AND ALSO THAT IT IS PREJUDICI AL TO THE INTEREST OF REVENUE MUST BE SATISFIED. IF ONE OF THEM IS ABSENT, THE PROVISIONS OF SECTION 26 3 CANNOT BE INVOKED. THE TERM ERRONEOUS HAS NOT BEEN DEFINED UNDER THE INCOME-TAX ACT BUT IT IS WELL SETTLED THAT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE A.O. CANNOT BE SA ID TO BE AN ERROR. AN ORDER CAN BE SAID TO BE ERRONEOUS IF THERE IS INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW IN THE ORDER BY THE A.O. IF THE A.O. AFTER MAKING THE ENQUIRIES AN D EXAMINING THE RECORDS TAKEN ONE OF THE POSSIBLE VIEW, IT CANNOT BE SAID THAT THE ORDER PAS SED BY THE A.O. WAS ERRONEOUS. THE RECORD AND THE EVIDENCE PRODUCED BEFORE US DURING THE COURSE O F HEARING REFLECT APPARENTLY THAT THE A.O. IN THIS CASE HAS CARRIED OUT ENQUIRY FOR NON-CHARGING OF INTEREST ON THE LOANS AND ADVANCE GIVEN BY THE ASSESSEE DURING THE YEAR. THE ASSESSING OFFICER HAS ISSUED THE NOTICE TO THE ASSESSEE U/S. 142, COPY OF WHICH IS AVAILABLE AT PAGE 89 AND 90. AT SE RIAL NO. 6, THE ASSESSING OFFICER HAS MADE SPECIFIC QUERY, WHICH IS REPRODUCED AS UNDER : YOU HAVE ADVANCED LOAN OF RS.83,71,210/- TO OTHERS . PLEASE EXPLAIN PURPOSE OF LOAN AND WHETHER ANY INTEREST HAS BEEN C HARGED OR NOT. 7 THE ASSESSEE SUBMITTED REPLY TO THE QUERY VIDE HIS LETTER DATED 10.12.2007 UNDER PARA 10 OF THE LETTER NARRATING AS UNDER : DETAILS OF OTHER ADVANCES OF RS.83,71,210/- IS ENCL OSED HEREWITH. ALL ADVANCES HAVE BEEN GIVEN IN THE NORMAL COURSE OF BUSINESS. N O INTEREST HAS BEEN CHARGED ON SUCH ADVANCES. THE ASSESSING OFFICER DID NOT RAISE ANY FURTHER QUE RY ON THE SUBMISSIONS MADE BY THE ASSESSEE. THE ASSESSING OFFICER HAS ALSO NOT MADE ANY DISALLO WANCE IN RESPECT OF INTEREST FOR THE BORROWED FUND NOT BEING USED FOR THE PURPOSE OF BUSINESS. TH E ASSESSMENT ORDER WAS PASSED U/S. 143(3) VIDE ORDER DATED 17.12.2007. THE ADDITIONS WERE MAD E ON ACCOUNT OF VARIOUS OTHER DISALLOWANCES. THE ASSESSING OFFICER IN PARA 2 OF T HE ASSESSMENT ORDER HAS CLEARLY MENTIONED THAT THE NOTICE U/S. 142(1) DATED 25.09.07 AND 30.1 1.07 WERE ISSUED TO THE ASSESSEE, IN RESPONSE TO WHICH SHRI M.M. AGARWAL, FCA ATTENDED THE PROCEEDIN GS AND FILED THE REQUIRED DETAILS AND PRODUCED THE BOOKS OF ACCOUNT, STOCK REGISTER AND V OUCHERS WHICH WERE TEST CHECKED. THIS FACT IS ALSO APPARENT FROM THE WRITTEN SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE CIT AS INCORPORATED IN THE ORDER PASSED U/S. 263. EVEN THE ASSESSEE HAS SUBMITTED BEFORE THE CIT THE DETAILS SHOWING THE AVAILABILITY OF INTEREST FREE FUNDS WITH THE AS SESSEE OUT OF WHICH THE ADVANCES WERE BEING GIVEN TO THE PARTIES WITHOUT INTEREST. THE CIT WITH OUT LOOKING INTO THE FACTS OF THE CASE TOOK THE VIEW THAT THE ASSESSING OFFICER HAS NOT EXAMINED TH E PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MONEY TO ITS SISTER CONCERNS AND WHAT THE SISTE R CONCERNS DID WITH THE MONEY EVEN THOUGH HE IS FULLY AWARE OF THAT THE ADVANCEMENT OF MONEY TO THE SISTER CONCERN MAY BE DUE TO COMMERCIAL EXPEDIENCY. RELYING ON THE DECISION OF HONBLE SUP REME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT, 288 ITR 1 (SC), THE CIT ULTIMATELY TOOK TH E VIEW THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE AND CANCELLED THE ASSESSMENT DIR ECTING THE ASSESSING OFFICER TO COMPLETE THE ASSESSMENT AFTER CONDUCTING NECESSARY ENQUIRIES ON THIS ISSUE. IN OUR OPINION, THE CIT CANNOT ENTER INTO THE SHOES OF THE A.O. IF THE A.O. HAS T AKEN ONE OF THE VIEWS. UUNTIL AND UNLESS THAT 8 VIEW IS UNSUSTAINABLE IN LAW, THE CIT CANNOT TAKE A CTION UNDER SECTION 263 HOLDING THE ORDER PASSED BY THE A.O. TO BE ERRONEOUS. THERE IS NOTHI NG ON RECORD HOW THE REASON GIVEN BY THE ASSESSEE WERE NOT ACCEPTABLE. THE A.O. WHO HAS BEE N EMPOWERED UNDER SECTION 143(3) TO FRAME THE ASSESSMENT AND DETERMINE THE TAXABLE INCOME OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF LAW. THE POWERS UNDER SECTION 263, A S HAS BEEN POINTED OUT BY US EARLIER, CAN BE INVOKED BY THE CIT IF THERE IS AN ERROR IN THE ORDE R OF THE A.O. AND THE ORDER SO PASSED IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IF THE A.O. HAS DULY CONSIDERED THE ISSUE AND HAS TAKEN THE VIEW WHICH MAY BE IN FAVOUR OF THE ASSESSEE THA T WILL NOT EMPOWER THE CIT TO INVOKE THE PROVISIONS OF SECTION 263 OF THE ACT UNTIL AND UNLE SS THAT VIEW IS UNSUSTAINABLE IN LAW OR ILLEGAL. 8. COMING TO THE CONTENTION OF THE LD. A.R. THAT IT IS NOT NECESSARY BY THE A.O. TO DISCUSS IN THE ORDER ALL THE CONTENTIONS BY THE ASSESSEE, WE D O AGREE WITH THE LD. A.R. THAT THERE IS NO PROVISIONS IN THE INCOME-TAX ACT WHICH PROVIDES THA T THE A.O. SHOULD PASS THE ASSESSMENT ORDER IN THE MANNER SO THAT ALL THE QUERIES RAISED BY HIM AS WELL AS THE SUBMISSIONS MADE BY THE ASSESSEE SHOULD BE INCORPORATED IN THE ASSESSMENT O RDER. IN OUR OPINION, WHERE THE A.O. DO NOT AGREE WITH THE ASSESSEE, HE SHOULD DISCUSS THE SAME IN THE ASSESSMENT ORDER SO THAT THE ASSESSEE SHOULD KNOW THE REASONS THEREOF AND FILE THE APPEAL . IN THIS CASE THE A.O. AFTER EXAMINING THE ISSUES, PREFERRED NOT TO MAKE THE DISALLOWANCE IN R ESPECT OF INTEREST. THEREFORE, IN OUR OPINION, THERE IS NO ERROR IN THE ORDER OF THE A.O IF HE HAS NOT DISCUSSED THE ISSUE RELATING TO DISALLOWANCE OF INTEREST IN THE ASSESSMENT ORDER. IT IS ONLY TH E QUERIES RAISED BY THE A.O. AND THE SUBMISSIONS MADE BY THE ASSESSEE WILL SPEAK OF WHETHER THE A.O. HAS APPLIED HIS MIND OR NOT. WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V GABRIEL INDIA LIMITED 203 ITR 108 HAS HELD IN THIS REGARD AS UNDER:- 9 '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 LE TTER IN WRITING. ALL THESE WERE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAI M 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 'ERRONEO US' SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REG ARD. MOREOVER, IN THE INSTANT CASE, THE COMMISSIONER HIMSELF, EVEN AFTER INITIATI NG PROCEEDINGS FOR REVISION AND HEARING THE ASSESSEE, COULD NOT SAY THAT THE ALLOWA NCE OF THE CLAIM OF THE ASSESSEE WAS ERRONEOUS AND THAT THE EXPENDITURE WAS NOT REVE NUE EXPENDITURE BUT AN EXPENDITURE OF CAPITAL NATURE. HE SIMPLY ASKED THE INCOME-TAX OFFICER TO RE- EXAMINE THE MATTER. THAT WAS NOT PERMISSIBLE. THE T RIBUNAL WAS JUSTIFIED IN SETTING ASIDE THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263.' 9. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF CIT VS. MAHENDER KUMAR BANSAL, 297 ITR 0099 IN WHICH RE SPECTFULLY FOLLOWING THE DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. GOYAL PRIVATE FAMILY SPECIFIC TRUST, 171 ITR 698 (ALLD.) HAS HELD UNDER PARA NO.12 AS UNDER :- AS HELD BY THIS COURT IN THE CASE OF GOYAL PRIVATE FAMILY SPECIFIC TRUST (SUPRA,) WE ARE OF THE CONSIDERED OPINION THAT MERE LY BECAUSE THE ITO HAD NOT WRITTEN LENGTHY ORDER, IT WOULD NOT ESTABLISH THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3)/148 OF THE ACT IS ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHOUT BRINGING ON RECORD SPECIFIC INS TANCES, WHICH IN THE PRESENT CASE, THE CIT HAS FAILED TO DO. 10. A PERUSAL OF THE ORDER FRAMED BY CIT INDICATES THAT THE ASSESSMENT ORDER PASSED BY THE A.O. WAS SET ASIDE ON THE GROUND THAT THE A.O. HAS NOT MADE DETAILED ENQUIRY. THIS, IN OUR CONSIDERED OPINION, CANNOT BE SUFFICIENT GROUND FOR SETTING ASIDE THE ASSESSMENT. WHILE MAKING ASSESSMENT ORDER, IT IS THE SATISFACTION OF THE A.O . WHO MADE THE ENQUIRY AND IT SHOULD BE A TOUCHSTONE OF THE ASSESSMENT ORDER PASSED BY HIM, T HE CIT CANNOT SUBSTITUTE HIS VIEW IN PLACE OF FINDING OF THE A.O. UNTIL AND UNLESS THE VIEW TAKEN BY THE A.O. IS UNSUSTAINABLE IN LAW. NO COGENT MATERIAL OR EVIDENCE WAS BROUGHT TO OUR KNOW LEDGE BY THE LD. D.R. WHICH MAY PROVE THAT THE DECISION TAKEN BY THE A.O. IN THE CASE OF THE A SSESSEE WAS UNSUSTAINABLE IN LAW. THE ORDER 10 PASSED BY CIT IS ILLEGAL WITHOUT JURISDICTION. THE ORDER PASSED BY THE CIT CANNOT BE SUSTAINED IF THE ORDER IS SUSTAINED THEN THIS WILL PERMIT THE IL LEGALITY TO CONTINUE AND THE SUBSEQUENT ACTION CARRIED OUT ON THE ILLEGAL ORDER ARE ALSO ILLEGAL. WE HAVE GONE THROUGH THE CASE LAWS CITED BY THE LD. A.R. WE FIND THAT THE CASE OF THE ASSESSEE IS DULY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO . LTD. VS. CIT, 243 ITR 83 (SC) WHEREIN THEIR LORDSHIPS HAS HELD AS UNDER :- 'THE PRE-REQUISITE TO THE EXERCISE OF JURISDICTION BY THE COMMISSIONER UNDER SECTION 263 IS THAT THE ORDER OF THE AO IS ER RONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE CO MMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSES SING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IS PREJUDICIAL TO THE INTERE STS 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 EAC H AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONL Y WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT AS SUMPTION 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 T HE 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 CONSE QUENCE 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 O NE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHER E TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDIC IAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE ASSESSING OFF ICER IS UNSUSTAINABLE IN LAW. WHERE A SUM NOT EARNED BY A PERSON IS ASSESSED AS I NCOME IN HIS HANDS ON HIS SO OFFERING THE ORDER PASSED BY THE ASSESSING OFFICER ACCEPTING THE SAME WITHOUT APPLICATION OF MIND AS SUCH WILL BE ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF THE REVENUE.' 11. IN THE CASE OF CIT VS. R.K. CONSTRUCTION CO., HONBLE GUJARAT HIGH COURT 313 ITR 65 (GUJ.) AS CONFIRMED BY SUPREME COURT HAS HELD AS UN DER:- THE DETAILS OF SUB-CONTRACTORS EXAMINED BY THE AO AS PER THE DIRECTIONS OF CIT IN REVISION PROCEEDINGS, INTER ALIA, INCLUDE THE NAMES OF THESE SUB- CONTRACTORS, THEIR PERMANENT ACCOUNT NUMBERS, THEIR PERMANENT ADDRESSES, 11 AMOUNT GIVEN TO THEM, NAME OF WORK ENTRUSTED TO THE M, NATURE OF SUCH WORK AND STATEMENTS RECORDED BY THE AO, ETC. THESE DETAILS REVEAL THAT DURING THE COURSE OF EXAMINATION UNDER S. 131, NO QUESTION WAS PUT TO MA NY OF THESE SUB-CONTRACTORS AS TO THE VARIATION IN THEIR SIGNATURES. SIMILARLY , NO QUESTION WAS PUT TO THEM FOR THE REASONS OF DISCOUNTING WITH THE SHROFF. IT IS THE STAND OF THE ASSESSEE RIGHT FROM THE BEGINNING THAT ALL THESE SUB-CONTRACTORS W ERE MAINLY WORKING FOR THE ASSESSEE AND THEY DID NOT HAVE ANY OFFICE SET UP AN D SINCE THEY WERE WORKING FOR THE ASSESSEE, THEY HAVE USED ASSESSEES ADDRESS FOR CORRESPONDENCE, ESPECIALLY WITH THE GOVERNMENT FOR TIMELY COMMUNICATION. THES E PERSONS ARE ELIGIBLE UNDER S. 44AD TO FILE THEIR RETURNS UNDER PRESUMPTIVE SCH EME OF TAXATION. ALL THESE PERSONS WERE PRODUCED BEFORE THE AO IN REVISION PRO CEEDINGS AND NO QUESTION WAS PUT TO THEM THOUGH THEIR STATEMENTS ON OATH WER E RECORDED. ALL THESE PERSONS HAVE CONFIRMED IN REVISION PROCEEDINGS THAT THE MON EY WAS NOT RETURNED BY THEM TO ANY PERSON AND WAS USED FOR THEIR PERSONAL BENEF IT. THE PAYMENTS WERE MADE TO THESE PERSONS BY BANKING CHANNELS AND TAX WAS DE DUCTED AT SOURCE IN ACCORDANCE WITH LAW. THE ASSESSEE HAS ALSO GIVEN C OMPLETE DETAILS WITH RESPECT TO LABOUR EXPENSES CALLED FOR IN ASSESSMENT PROCEED INGS. THESE DETAILS WERE DULY VERIFIED BY THE AO WITH THE BOOKS AND RECORDS. NO ADVERSE OBSERVATION WAS MADE BY THE AO AND HENCE, NO ADDITION WAS MADE IN THE RE GULAR ASSESSMENT. THE AO HAS ALSO RANDOMLY SELECTED TWO LABOURERS AND EXAMIN ED THEM AND THEIR STATEMENTS WERE RECORDED UNDER S. 131. SINCE ALL N ECESSARY 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 FRO M THE DETAILS COLLECTED BY HIM DURING THE REVISIONAL PROCEEDINGS. THOSE DETAI LS WERE THOROUGHLY CHECKED AND EXAMINED BY THE TRIBUNAL AND IT ARRIVED AT A FA CTUAL 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 THER E WAS NO EVIDENCE ON RECORD THAT THESE CONTRACTORS WERE RELATED TO THE ASSESSEE OR W ERE ASSOCIATES OR SISTER CONCERNS OF THE ASSESSEE. THE TRIBUNAL HAS ALSO GI VEN FINDING THAT THE REVENUE HAS NOT DISCHARGED THE ONUS THAT THE PAYMENTS TO SU B-CONTRACTORS WERE NOT GENUINE. THUS THE TRIBUNAL HAS COME TO THE CONCLUS ION THAT NO DISALLOWANCES CAN BE MADE MERELY ON THE BASIS OF SUSPICION, HOWSOEVER STRONG MAY IT BE, AND THE SUSPICION CANNOT TAKE THE PLACE OF ACTUALITY. AO H AS TAKEN A PARTICULAR VIEW ON THE BASIS OF EVIDENCE PRODUCED BEFORE HIM. ON THE BASIS OF THE SAID MATERIAL AND MATERIALS WHICH WERE COLLECTED BY THE CIT IN REVISI ONAL PROCEEDINGS, THE CIT HAS TAKEN A DIFFERENT VIEW. HOWEVER, IN THE REVISIONAL PROCEEDINGS UNDER S. 263, IT IS NOT OPEN FOR THE CIT TO TAKE SUCH A DIFFERENT VIEW. NO SUBSTANTIAL QUESTIONS OF LAW ARISE OUT OF THE ORDER OF THE TRIBUNAL AND HENCE, T HE APPEAL FILED BY THE REVENUE DESERVES TO BE DISMISSED. CIT VS. ARVIND JEWELLER S (2002) 177 CTR (GUJ) 546 : (2003) 259 ITR 502 (GUJ) AND MALABAR INDUSTRIAL CO. LTD. VS. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) RELIED ON). 12 12. HONBLE SUPREME COURT IN THE CASE OF CIT VS. MA X INDIA LIMITED, 295 ITR 282 (SC) HAS HELD AS UNDER :- THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE IN SECTION 263 OF THE INCOME-TAX ACT, 1961, HAS TO BE READ IN CONJUNC TION WITH THE EXPRESSION ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CA NNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, WHEN THE ASSESSING OFFICER ADOPTS ONE OF TWO COURSES PERMISSIBLE IN LAW AND IT HAS RE SULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFI CER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE REVENUE, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. 13. IN CIT VS. RATLAM COAL ASH CO., 171 ITR 141 (MP ), MADHYA PRADESH HIGH COURT HAS HELD AS UNDER:- IT IS WELL SETTLED THAT WHERE THE ITO MADE THE ASS ESSMENT IN UNDUE HURRY, ACCEPTING WHAT THE ASSESSEE STATES IN THE RETURN WI THOUT MAKING ANY ENQUIRIES IN THE CIRCUMSTANCES OF THE CASE, THE CIT WOULD BE JUS TIFIED IN HOLDING THE ORDER OF THE ITO TO BE ERRONEOUS. IN THE INSTANT CASE, HOWE VER, THE TRIBUNAL HAS FOUND THAT THE ASSESSEE HAD FURNISHED ALL THE REQUISITE INFORM ATION AND THAT THE ITO, CONSIDERING ALL THE FACTS, HAD COMPLETED THE ASSESS MENT. THE TRIBUNAL FURTHER HELD THAT IN THE CIRCUMSTANCES OF THE CASE, IT COUL D NOT BE HELD THAT THE ITO HAD MADE ASSESSMENT WITHOUT MAKING PROPER ENQUIRIES. I N VIEW OF THESE FINDINGS, THE TRIBUNAL WAS JUSTIFIED IN LAW IN REVERSING THE ORDE R PASSED BY THE CIT. 14. IN CIT VS. ARVIND JEWELLERS, 259 ITR 502 (GUJ), HONBLE GUJRAT HIGH COURT HAS HELD AS UNDER:- IT IS THE FINDING OF FACT GIVEN BY THE TRIBUNAL TH AT THE ASSESSEE HAS PRODUCED RELEVANT MATERIAL AND OFFERED EXPLANATION IN PURSUANCE OF THE NOTICES ISSUED UNDER S. 142(1) AS WELL AS S. 143(2) AND AFT ER CONSIDERING THOSE MATERIALS AND EXPLANATION, THE ITO HAS COME TO A DEFINITE CON CLUSION. THE CIT DID NOT AGREE WITH THE CONCLUSION REACHED BY THE ITO. SEC. 263 DOES NOT EMPOWER HIM TO TAKE ACTION ON THESE FACTS TO ARRIVE AT THE CONCLUS ION THAT THE ORDER PASSED BY THE ITO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. SINCE THE MATERIAL WAS THERE ON RECORD AND THE SAID MATERIAL WAS CONSIDERED BY THE ITO AND A PARTICULAR VIEW WAS TAKEN, THE MERE FACT THAT DIFFERENT VIEW CAN BE TAKEN, SHOULD NOT BE THE BASIS FOR AN ACTION UNDER S.263 A ND IT CANNOT BE HELD TO BE JUSTIFIED. HAVING REGARD TO THE FACTS AND CIRCUMST ANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN SETTING ASIDE THE ORDER PASSED BY THE CIT UNDER S. 263. MALABAR 13 INDUSTRIAL CO. LTD. VS. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC) FOLLOWED. 15. IN VIEW OF THESE DECISIONS AND AFORESAID DISCUS SIONS WE ARE OF THE VIEW THAT THE CASE OF THE ASSESSEE IS DULY COVERED BY THESE DECISIONS AND THE CIT WAS NOT CORRECT IN LAW IN EXERCISING THE JURISDICTION U/S 263, AND ACCORDINGLY WE CANCEL THE ORDER PASSED U/S 263. 16. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.06.2011. SD/- SD/- (H.S. SIDHU) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 TH JUNE, 2011 *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE ASSISTANT REGISTRAR TRUE COPY