M/s Laxmi Narayan Shivhare, Gwalior V. Addl. CIT, Gwalior

ITA 173/AGR/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0467 (ITAT-AGRA)
• Duration Of Justice: 1 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 01-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SEEMA RAJ
• Keywords: Opportunity of being heard; Principle of natural justice; Period of limitation; Reason to believe; Capital expenditure
• Section: 44AD; 143(3); 142(1); 68; 6; 263; 10

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI P.K. BANSAL, ACCOUNTANT MEMBER ITA NO.173/AGR/2009 ASST. YEAR: 2006-07 M/S LAXMI NARAYAN SHIVHARE, VS. THE COMMISSIONE R OF INCOME-TAX, EXCISE CONTRACTOR, GWALIOR. B-17, ASHOK VIHAR COLONY, TANSEN ROAD, GWALAIOR. (PAN : AHIPS 2394 E). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJENDRA SHARMA, ADVOCATE RESPONDENT BY : SMT. SEEMA RAJ, CIT (D.R.) ORDER PER P.K. BANSAL, A.M.: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT DATED 31.03.2009 PASSED UNDER SECTION 263 OF THE INCOME-TAX ACT, 196 1 (THE ACT HEREINAFTER). 2. THE BRIEF FACTS OF THE CASE ARE THAT THE CIT IN VOKED JURISDICTION UNDER SECTION 263 OF THE ACT AND ISSUED NOTICE TO THE ASSESSEE ON 06.03.2009 .AN ADDITION ON ACCOUNT OF NET PROFIT (NP) OF RS.62,81,688/- @ 5% OF THE TOTAL SALE OF RS.15,5 1,47,501/- MADE IN THE ASSESSMENT COMPLETED ON 30.12.2008. THE CIT WAS OF THE OPINION THAT THE INCOME WAS UNDER-ASSESSED BY RS.2,17,37,6062/-. ACCORDING TO HIM THE SUPPRESSED SALES OF COUNTRY LIQUOR AS PER THE INFORMATION SUPPLIED BY EXCISE DEPARTMENT WERE WORK ED OUT AT RS.2,28,82,072/- WHICH SHOULD 2 HAVE BEEN ADDED TO THE TOTAL INCOME AS AGAINST AN A DDITIONS OF RS.11,44,410/- @ 5% OF SUPPRESSED SALES. 3. THE SECOND ISSUE RAISED BY THE CIT WAS THAT THE ASSESSEE HAS SHOWN INCOME OF RS.30,69,215/- FROM OTHER SOURCES DETAILED AS UNDER :- INTEREST FROM BANK RS.19,01,310/- INTEREST FROM INDUS GLOBAL EDUCATION RS.11,67,905/ - 4. THE CIT WAS OF THE OPINION THAT THE ASSESSEE HAS NOT SHOWN THE INVESTMENT IN THE BALANCE SHEET FROM WHICH THE ABOVE INTEREST INCOME WAS DERI VED. THE A.O. HAS NOT MADE ANY ENQUIRY REGARDING THE SOURCE OF THE ABOVE INVESTMENT. 5. THE THIRD ISSUE WAS THAT THE ASSESSEE HAS SHOWN THE UNSECURED LOAN OF RS.22,96,938/- RECEIVED FROM SHRI GAJENDRA SINGH BHADORIYA. DETAI LS READING THE SOURCE OF THESE DEPOSITS ARE NOT PLACED ON RECORD AND HAS NOT BEEN SUBJECTED TO VERIFICATION. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE CIT TOOK THE VIEW THAT THE ASSESS MENT ORDER DATED 30.12.2008 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND ACCO RDINGLY CANCELLED THE ASSESSMENT ORDER DATED 30.12.2008 UNDER SECTION 263 OF THE ACT AND DIRECTE D THE A.O. TO MAKE A FRESH ASSESSMENT. 6. AT THE TIME OF HEARING, THE LD. A.R. VEHEMENTLY CONTENDED THAT BOTH THE CONDITIONS THAT THERE IS AN ERROR IN THE ORDER AS WELL AS THE ORDER IS PREJUDICIAL TO THE INTEREST OF REVENUE MUST BE COMPLIED WITH. IN THIS CASE, SO FAR THE ISSUE RELA TING TO SUPPRESSION OF SALES IS CONCERNED, THE A.O. HAS DULY EXAMINED THE SUPPRESSION OF THE LIQUO R SALES ON THE BASIS OF THE INFORMATION 3 RECEIVED FROM EXCISE DEPARTMENT. THE A.O. WORKED O UT THE SUPPRESSED SALE AT RS.2,28,82,072/-. THE ASSESSEE HAS SHOWN N.P. AT 1.11% BUT THE A.O. H AS TAKEN THE INCOME FROM SUPPRESSED SALE @ 5%. OUR ATTENTION IN THIS REGARD WAS INVITED TOW ARDS THE PAGE NOS. 2 & 3 OF THE ASSESSMENT ORDER IN WHICH IT IS APPARENT THAT THE A.O. HAS DU LY EXAMINED THE INFORMATION RECEIVED FROM THE EXCISE DEPARTMENT AND AFTER EXAMINING THE SAME HE C AME TO THE CONCLUSION THAT THE N.P. @5% SHOULD BE ADDED INTO THE INCOME OF THE ASSESSEE AND ACCORDINGLY THE ADDITION HAS BEEN MADE. 7. IN RESPECT OF THE SECOND ISSUE, IT WAS POINTED O UT THAT THE A.O. HAS DULY EXAMINED THE INTEREST INCOME EARNED BY THE ASSESSEE AND THE SOUR CE THEREOF. IN THIS REGARD, OUR ATTENTION WAS INVITED TOWARDS THE NOTICE DATED 28.07.2008 AND IT WAS POINTED OUT UNDER POINT NO.13 THAT THE A.O. HAS DULY ASKED FOR THE DETAILS OF FDRS ON WHIC H THE RECEIPT OF INTEREST OF RS.19,01,310/- WAS SHOWN IN THE CAPITAL ACCOUNT OF THE ASSESSEE. IT WAS POINTED OUT BY REFERRING TO POINT NO.26 OF THE QUESTIONNAIRE ISSUED UNDER SECTION 142, THE A.O. HAS DULY ASKED FOR THE DETAILS IN RESPECT OF THE INTEREST RECEIVED FROM INDUS GLOBAL EDUCATIO N. THE ASSESSEE HAS SUBMITTED ALL THE DETAILS IN RESPECT OF THE FDRS. ETC. EVEN THE INTEREST INC OME FROM FDR WAS RECEIVED BY THE ASSESSEE DURING THE A.Y. 2005-06 AND THE SAME WAS DULY ASSES SED AT RS.12,62,894/-. FOR THIS, OUR ATTENTION WAS DRAWN TOWARDS THE ASSESSMENT ORDER FO R THE A.Y. 2005-06 PASSED UNDER SECTION 143(3) OF THE ACT SPECIFICALLY AT PAGE NO.12 OF THE PAPER BOOK. ATTENTION WAS ALSO INVITED TOWARDS PAGE NO. 14 ALSO WHICH CONSISTS OF THE COPY OF ACCOUNT OF THE FDRS WITH BANK. IN RESPECT OF THE DETAILS OF INVESTMENT WITH INDUS GLO BAL EDUCATION & WELFARE SOCIETY IT WAS POINTED OUT THAT A SUM OF RS.50 LACS WAS DEPOSITED THROUGH FDR WITH INDUS GLOBAL EDUCATION & WELFARE SOCIETY ON 19.02.2004. A SUM OF RS.10 LACS WAS DEPOSITED ON 07.01.2005. A SUM OF RS.15 LACS WAS DEPOSITED THROUGH PUNJAB & SIND BANK ON 27.05.2005 I.E. DURING THE YEAR. IT IS 4 ONLY RS.15 LACS WHICH WAS DEPOSITED ONLY DURING THE A.Y. INTEREST RECEIVED DURING THE YEAR WAS DULY SHOWN. ALL THESE INFORMATION WERE GIVEN TO TH E A.O. FOR THIS, OUR ATTENTION WAS DRAWN TOWARDS PAGE 15 TO 18 OF THE PAPER BOOK AND THUS IT WAS POINTED OUT THAT THE A.O. HAS DULY EXAMINED THE DETAILS AND THE SOURCE OF INVESTMENT I N THE DEPOSIT MADE WITH THE BANK AS WELL AS INDUS GLOBAL EDUCATION & WELFARE SOCIETY. IT IS NO T THE CASE WHERE THE A.O. HAS NOT MADE THE ENQUIRY. IF THE A.O. HAS NOT INCORPORATED THE ENQU IRY MADE IN THE ASSESSMENT ORDER, THE ORDER PASSED BY THE A.O. WILL NOT BECOME ERRONEOUS. THE ASSESSEE CANNOT DIRECT THE A.O. WHAT THE A.O. SHOULD INCORPORATE IN THE ASSESSMENT ORDER. I T IS THE DUTY OF THE A.O. TO DRAFT THE ASSESSMENT ORDER. IN THIS REGARD, RELIANCE WAS PLA CED ON THE FOLLOWING DECISIONS :- 1) CIT VS. GABRIAL INDIA LIMITED, 203 ITR 108 (MUM. ) 2) CIT VS. RATLAM COAL ASH COMPANY, 171 ITR 141 (M. P.) 8. THE ASSESSEE HAS SUBMITTED ALL THE NECESSARY INF ORMATION. IF THE A.O. HAS TAKEN ONE OF THE VIEW, IT CANNOT BE SAID THAT THE A.O. HAS NOT M ADE THE PROPER ENQUIRY AND THE ORDER IS ERRONEOUS. THE A.O. HAS MADE ENQUIRY IN RESPECT OF THE LOAN TAKEN AND REPAID BY THE ASSESSEE DURING THE YEAR. EVEN THE STATEMENT OF ALL THE ASS ETS AND LIABILITIES WAS ASKED FOR. THE ASSESSEE HAS SUBMITTED ALL THE DETAILS. IN RESPECT OF LOAN RECEIVED FROM SHRI GAJENDRA SINGH BHADORIYA, REFERRING TO PAGE NO.20 WHICH CONTAINED BALANCE SHE ET OF THE ASSESSEE, IT WAS POINTED OUT THAT THIS LOAN WAS APPEARING IN THE BALANCE SHEET ITSELF . THE ASSESSEE HAS SUBMITTED ALL THE NECESSARY INFORMATION BEFORE THE A.O. OUR ATTENTION WAS ALSO DRAWN TOWARDS PAGE NO.3 OF THE ASSESSMENT ORDER WHICH CLEARLY STATES THAT THE ASSESSEE WAS AS KED TO FURNISH THE CONFIRMATION OF THE UNSECURED LOANS, GENUINENESS AND CREDITWORTHINESS O F THE LENDERS. THE A.O. HAS ALSO NOTED THAT THE ASSESSEE COULD NOT PRODUCE THE COPY OF BANK ACC OUNT AND ACKNOWLEDGEMENT OF INCOME TAX 5 RETURN IN THE CASE OF M/S RADHE BISCUITS AND ACCORD INGLY THE ADDITION IN RESPECT OF THE LOAN RECEIVED FROM RADHEY BISCUIT WAS MADE UNDER SECTION 68 OF THE ACT. THE CIT CANNOT REVISE THE ORDER IF THE ASSESSMENT HAS DULY BEEN PASSED BY THE A.O. THE A.O. HAS GIVEN FINDING OF FACT THAT THE ASSESSEE HAD PRODUCED THE RELEVANT MATERIAL AND OFFERED EXPLANATION AND IF THE A.O. CAME TO THE CONCLUSION THAT NO ADDITION UNDER SECTION 68 CA N BE MADE, PROCEEDINGS UNDER SECTION 263 CANNOT BE TAKEN MERELY ON THE BASIS OF DIFFERENT VI EW IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THIS REGARD, RELIANCE WAS PLACED ON THE FOLLOWIN G DECISIONS:- 1) CIT VS. ARVIND JEWELLERS, 259 ITR 502 (GUJ.) 2) CIT VS. MAX INDIA LIMITED, 295 ITR 282 (SC) 3) CIT VS. R.K. CONSTRUCTION CO., 313 ITR 65 (GUJ.) 4) MALABAR INDUSTRIAL CO. LTD VS. CIT, 243 ITR 83 ( SC) 9. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORD ER OF THE AUTHORITIES BELOW. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ON 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, - 6 (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 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. 11. FROM THE PERUSAL OF THE AFORESAID SECTION, IT I S 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 7 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 CONSIDERATION HAV ING REGARD TO THE LANGUAGE OF SECTION 263 APPARENTLY IS A CONSIDERATION WHICH HE EXERCISES BY CALLING FOR AND EXAMINING THE RECORD AVAILABLE AT THIS STAGE. THERE IS NO QUESTION OF TH E ASSESSEE TO APPEAR AND MAKE SUBMISSION. THIRDLY, IF AFTER CALLING FOR AND EXAMINING THE REC ORDS THE COMMISSIONER CONSIDERS THAT THE ORDER 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 THE C.I.T. TO CAUSE OR MAKE SUCH ENQUIRIES AS HE DEEMS NECESSARY. FOURTHLY THE C.I.T. U/S 263 CAN EN HANCE OR MODIFY THE ASSESSMENT. 12. THUS, IT IS APPARENTLY CLEAR THAT IN ORDER TO I NVOKE THE PROVISIONS OF SECTION 263, BOTH THE CONDITIONS THAT THE ORDER PASSED BY THE AO IS ERRON EOUS AND ALSO THAT IT IS PREJUDICIAL TO THE INTEREST OF REVENUE MUST BE SATISFIED. IF ONE OF TH EM IS ABSENT, THE PROVISIONS OF SECTION 263 CANNOT BE INVOKED. THE TERM ERRONEOUS HAS NOT BEE N DEFINED UNDER THE INCOME-TAX ACT BUT IT IS WELL SETTLED THAT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO CANNOT BE SAID TO BE AN ERROR. AN ORDER CAN BE SAID TO BE ERRONEOUS I F THERE IS INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW IN THE ORDER BY THE AO . IF THE AO AFTER MAKING THE ENQUIRIES AND EXAMINING THE RECORDS TAKEN ONE OF THE POSSIBLE VIE W, IT CANNOT BE SAID THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS. 8 13. THE RECORD AND THE EVIDENCES PRODUCED BEFORE US DURING THE COURSE OF HEARING CLEARLY REFLECT THAT THE ENQUIRY IN THE IMPUGNED CASE HAS B EEN CARRIED OUT BY THE AO ON ALL THE ISSUES ON WHICH THE CIT TREATED THE ASSESSMENT TO BE ERRONEOU S. WE HAVE GONE THROUGH THE ASSESSMENT ORDER. WE NOTED THAT IN RESPECT OF FIRST ISSUE OF ESTIMATION OF N.P. ON THE SUPPRESSION OF THE SALES MADE BY THE ASSESSEE, THE A.O. ALTHOUGH DETER MINED THE SUPPRESSION AT THE SAME AMOUNT AMOUNTING TO RS.2,28,82,072/- BUT HE CAME TO THE CO NCLUSION THAT ONLY N.P. HAS TO BE ADDED TO THE INCOME OF THE ASSESSEE AND ACCORDINGLY HE ESTIM ATED THE N.P. @ 5% IN THE CASE OF LIQUOR TRADE AND MADE AN ADDITION OF RS.11,44,410/-. THIS FACT IS APPARENT FROM PAGE NOS.2 & 3 OF THE ASSESSMENT ORDER. IN OUR OPINION, IN THE PROCEEDIN GS TAKEN UNDER SECTION 263, THE CIT CANNOT ENTER INTO THE SHOES OF THE A.O. IF THE A.O. HAS D ULY CONSIDERED THE ISSUE AND HAS TAKEN ONE OF THE POSSIBLE VIEWS, UNLESS AND UNTIL THAT VIEW TAKE N BY THE A.O. IS UNSUSTAINABLE IN LAW, IT CANNOT BE SAID THAT THERE IS AN ERROR IN THE ORDER PASSED BY THE A.O. HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PRESIDENT OF INDIA 258 ITR 654 (GUJ ) HAS HELD THAT ONLY PROFIT EMBODIED IN THE SALES CAN BE TAXED. THEREFORE, THE VIEW TAKEN BY T HE AO IN OUR OPINION IS DULY SUPPORTED BY THE SAID DECISION. NO CONTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE SO THAT THE VIEW TAKEN BY THE AO CAN BE REGARDED TO BE UNSUSTAINABLE IN LAW. THU S, ON THE BASIS OF THE FIRST ISSUE REGARDING SUPPRESSION OF SALES, WE ARE OF THE VIEW THAT THE C IT WAS NOT CORRECT IN LAW IN INITIATING PROCEEDINGS UNDER SECTION 263 OF THE ACT. 14. IN RESPECT OF OTHER ISSUE REGARDING THE INCOME FROM OTHER SOURCE AMOUNTING TO RS.30,69,215/- AND ADDITION OF UNSECURED LOAN AMOUN TING TO RS.22,96,938/- RECEIVED BY THE ASSESSEE FROM SHRI GAJENDRA SINGH BHADORIYA, WE NOT ED THAT THE A.O. HAS ISSUED NOTICE UNDER SECTION 142(1) DATED 28.07.2008 TO THE ASSESSEE. T HE ASSESSEE HAS EXPLAINED THE INTEREST RECEIVED 9 ON FDR AND ALSO FROM INDUS GLOBAL EDUCATION & WELFA RE SOCIETY. EVEN HE HAS SUBMITTED THE DETAILS OF ACCOUNT OF FDRS. AND THE INVESTMENTS WIT H INDUS GLOBAL EDUCATION & WELFARE SOCIETY. THE FDRS. AND INVESTMENT WITH INDUS GLOBAL EDUCATIO N & WELFARE SOCIETY COMING FROM THE EARLIER A.Y. ONLY A SUM OF RS.15,00,000/- HAS BEEN INVESTED DURING THE YEAR WITH INDUS GLOBAL EDUCATION & WELFARE SOCIETY. THE SOURCES WERE DULY EXPLAINED BY THE ASSESSEE THAT THE AMOUNT HAS COME OUT OF PUNJAB & SIND BANK ACCOUNT. THE AS SESSEE HAS ALSO SHOWN AN INTEREST INCOME ON FDR IN THE EARLIER A.Y., COPY OF WHICH WAS ALSO SUBMITTED IN THE PAPER BOOK. SO FAR THE UNSECURED LOANS ARE CONCERNED, THE A.O. HAS SPECIFI CALLY ASKED FOR THE DETAILS OF THE UNSECURED LOAN AND HAS ALSO ASKED THE ASSESSEE TO FURNISH INF ORMATION IN THIS REGARD. THE ASSESSEE HAS DULY FURNISHED CONFIRMATION OF SHRI GAJENDRA SINGH BHADO RIYA DATED 01.04.2006 AVAILABALE AT PAGE NO.6 OF PAPER BOOK. SHRI GAJENDRA SINGH BHADORIYA IS A REGULAR ASSESSEE AND HAVING PAN. THE A.O. WAS SATISFIED WITH THE EXPLANATION OF THE ASSE SSEE. HE HAS NOT MADE ADDITION UNDER SECTION 68 EXCEPT FOR THE CASE OF M/S RADHE BISCUITS AMOUNT ING TO RS.1,00,000/-. THIS FACT IS CLEAR FROM THE FOLLOWING PARA OF THE ASSESSMENT ORDER AT PAGE NO.3 :- THE ASSESSEE HAS SHOWN UNSECURED LOANS FROM VARIO US PARTIES. THE ASSESSEE WAS ASKED TO FURNISH THE CONFIRMATION OF T HE UNSECURED LOANS, GENUINENESS AND CREDITWORTHINESS OF THE LENDERS. B UT THE ASSESSEE COULD NOT PRODUCE THE COPY OF BANK ACCOUNT AND ACKNOWLEDGEMEN T OF INCOME-TAX RETURN IN THE CASE OF M/S RADHE BISCUITS AMOUNTING TO RS.1,00 ,000/- WHICH HAS BEEN ADDED BACK IN HIS INCOME U/S 68 OF THE INCOME-TAX ACT, 19 61. 15. IN VIEW OF THE AFORESAID FINDING GIVEN BY THE A .O. IN THE ASSESSMENT ORDER, IT CANNOT BE SAID THAT THE A.O. HAS NOT EXAMINED THE UNSECURED L OAN RECEIVED BY THE ASSESSEE FROM SHRI GAJENDRA SINGH BHADORIYA. MERELY THE A.O. HAS NOT DISCUSSED THE ENQUIRY CARRIED OUT AND ITS OUTCOME DOES NOT MEAN THAT THE ASSESSMENT ORDER PAS SED BY THE A.O. IS ERRONEOUS. THERE IS NO PROVISION IN THE INCOME-TAX ACT WHICH PROVIDES THE A.O. SHOULD PASS THE ASSESSMENT ORDER IN THE 10 MANNER SO THAT ALL THE QUERIES RAISED BY HIM AS WEL L AS THE SUBMISSIONS MADE BY THE ASSESSEE SHOULD BE INCORPORATED IN THE ASSESSMENT ORDER. IN OUR OPINION, WHERE THE A.O. DO NOT AGREE WITH THE ASSESSEE, HE SHOULD DISCUSS THE SAME IN TH E 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 ADDITION IN RESPE CT OF SOURCES OF THE INVESTMENT ON WHICH THE ASSESSEE HAS EARNED INTEREST AS WELL AS THE CASH CR EDIT UNDER SECTION 68 OF THE ACT. THEREFORE, IN OUR OPINION, THERE IS NO ERROR IN THE ORDER OF THE A.O IF HE HAS NOT DISCUSSED THE ISSUE RELATING TO THE SOURCES OF THE INVESTMENT IN INTEREST IN ASSESS MENT ORDER. IT IS ONLY THE 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 UNDE R:- '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.' 16. 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 PROPER VE RIFICATION HAVE NOT BEEN MADE. 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 11 TOUCHSTONE OF THE ASSESSMENT ORDER PASSED BY HIM, T HE CIT CANNOT SUBSTITUTE HIS VIEW IN PLACE OF FINDING OF THE AO UNTIL AND UNLESS THE VIEW TAKEN B Y THE A.O. IS UNSUSTAINABLE IN LAW. NO COGENT MATERIAL OR EVIDENCE WAS BROUGHT TO OUR KNOWLEDGE B Y THE LD. D.R. WHICH MAY PROVE THAT THE DECISION TAKEN BY THE A.O. ON ALL THE THREE ISSUES IN THE CASE OF THE ASSESSEE WAS UNSUSTAINABLE IN LAW. THE ORDER PASSED BY CIT IS ILLEGAL WITHOUT JU RISDICTION. THE ORDER PASSED BY THE CIT CANNOT BE SUSTAINED IF THE ORDER IS SUSTAINED THEN THIS WI LL PERMIT THE ILLEGALITY 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 O F THE ASSESSEE IS DULY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR I NDUSTRIAL 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.' 12 17. 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, 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 13 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). 18. HONBLE SUPREME COURT IN THE CASE OF CIT VS. M AX 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. 19. 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. 20. 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 14 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 INDUSTRIAL CO. LTD. VS. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC) FOLLOWED. 21. IN VIEW OF THESE DECISIONS AND AFORESAID DISCUS SION, 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. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 27.08.2010) . SD/- SD/- (R.K. GUPTA) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: AGRA DATE: 27 TH AUGUST, 2010. PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT BY ORDER 3. CIT CONCERNED 4. CIT (APPEALS) CONCERNED 5. DR, ITAT, AGRA BENCH, AGRA 6. GUARD FILE ASSIST ANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY