M/s Surjeet Auto Agency , Bhopal V. PR CIT-2, Bhopal

ITA 189/Ind/2020

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3847 (ITAT-INDORE)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 30-06-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Revision of order; Opportunity of being heard; Period of limitation; Question of law; Fair market value; Revenue expenditure; Capital expenditure; Set aside
• Section: 54; 263; 63; 143(3); 54F; 142(1); 80HHC; 143(2); 64; 44AB; 13; 22; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI MANISH BORAD,ACCOUNTANT MEMBER AND MIS MADHUMITA ROY, JUDICIAL MEMBER ITA NO.189/IND/2020 ASSESSM ENT YEAR:2015-16 M/S SURJEET AUTO AGENCY , 4-5, LAJPAT NAGAR, RAISEN ROAD, APSARA CINEMA, BHOPAL / VS. PR. CIT - 2, BHOPAL (APPELLANT) (R ESPONDENT ) P.A. NO. AATFS 4110J APPELLANT BY S/ SHRI SUMI T NEMA, SR. ADV. & GAGAN TIWARI, PIUSH PARASAR ADVS. REVENUE BY SHRI S.B. PRASAD , CIT - DR DATE OF HEARING: 13.04.2021 DATE OF PRONOUNCEMENT: 25.05.2021 / O R D E R PER MANISH BORAD, A.M: BY WAY OF THIS APPEAL, THE APPELLANT HAS CHALLENGED THE ASSUMPTION OF JURISDICTION U/S 263 OF THE INCOME TA X ACT 1961( HEREINAFTER REFERRED TO AS THE ACT FOR SHORT) BY LD. PR. CIT-2 BHOPAL VIDE ORDER DATED 04.02.2020.THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- SURJEET AUTO AGENCY 2 1.THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, AND IN ANY VIEW OF THE MATTER, THE LEARNED PR. CIT-2, BH OPAL. HAS ERRED IN HOLDING THAT THE IMPUGNED ASSESSMENT ORDER DATED 2 6.04.2017 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE FOR COMPLETE LACK OF ENQUIRY ON THE PART OF THE LD. ASSESSING OFFICER ON ALL THE STA TED ISSUES. 2. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, AND IN ANY VIEW OF THE MATTER, THE LD. PR. CIT-2, BHOPA L, HAS ERRED IN SETTING ASIDE THE IMPUGNED ASSESSMENT ORDER DATED 26 .04.2017 PASSED U/S 143(3) OF THE INCOME TAX ACT,1961 HOLDIN G IT TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REV ENUE FOR COMPLETE LACK OF ENQUIRY ON THE PART OF THE LD. ASSESSING OFF ICER ON ALL THE STATED ISSUES. 3. THAT, THE APPELLANT CRAVES LEAVE TO ADD, AMEND, DEL ETE ANY GROUNDS OF APPEAL BEFORE AND/OR AT THE TIME OF HEARI NG. 2. BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE R ECORDS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSIN ESS OF TRADING OF TWO WHEELERS THEIR PART AND ACCESSORIES. THE ASSESS EE IS AN AUTHORIZED DEALER OF M/S BAJAJ AUTO LTD., PUNE. THE CASE WAS SELECTED THROUGH CASS FOR COMPLETE SCRUTINY FOR THE FOLLOWING REASONS: A) LOW INCOME SHOWN BY LARGE CONTRACTORS. B) MISMATCH IN AMOUNT PAID TO RELATED PERSONS U/S 40A( 2)(B) REPORTED IN AUDIT REPORT AND ITR. C) HIGHER TURNOVER REPORTED IN SERVICE TAX RETURN COMP ARED TO ITR AND ASSESSEE HAS DEPOSITED LARGE AMOUNT OF CASH IN SAVING BANK ACCOUNT. STATUTORY NOTICE U/S 143(2) OF THE ACT AND 142(1) O F THE ACT WERE DULY SERVED UPON THE ASSESSEE WITH DETAILED QUESTIO NNAIRE PLACED AT PAGES 1 TO 5 OF THE PAPER BOOK DATED 23.3.3021. ASS ESSEE FILED THE REPLY WITH NECESSARY EVIDENCES AND ALSO PRODUCED TH E DOCUMENTS. SURJEET AUTO AGENCY 3 AFTER EXAMINING THE SAME LD. AO COMPLETED THE ASSES SMENT. HE MADE DISALLOWANCE OF DONATION EXPENSES OF RS.64,391 /- AND OTHER EXPENSES AT RS.3,00,000/-, THEREBY ASSESSING INCOME AT RS.62,50,011/-. 3. SUBSEQUENTLY, LD. PR. CIT, BHOPAL INVOKED THE PR OVISIONS OF SECTION 263 OF THE ACT AND ISSUED FOLLOWING SHOW CA USE NOTICE TO THE ASSESSEE(RELEVANT EXTRACT IS REPRODUCED BELOW): PLEASE REFER TO THE ORDER U/S 143(3) OF THE IT ACT , 1961 DATED 26.04.2017 PASSED BY THE DCIT-5(1), BHOPAL FOR A.Y. 2015-16, WHEREBY TOTAL INCOME WAS ASSED AT RS.62,50,011/-. 2. FROM THE CASE RECORDS OF ASSESSEE FOR A.Y.2015-1 6, IT WAS NOTICES THAT THE CASE OF THE ASSESSEE WAS SELECTED FOR THE F OLLOWING REASONS UNDER THE COMPLETE SCRUTINY:- (I) LOW INCOME SHOWN BY LARGE CONTRACTORS (II) MISMATCH IN AMOUNT PAID TO RELATED PERSON U/S 40 A(2)(B) REPORTED IN AUDIT REPORT AND ITR (III) HIGHER TURNOVER REPORTED IN SERVICE TAX RETURN COMPARED TO ITR AND ASSESSEE HAS DEPOSITED LARGE AMOUNT OF CASH IN SAV ING BANK ACCOUNT. ON PERUSAL OF CASE RECORDS AND ASSESSMENT ORDER DATE D 26.04.2017, IT IS OBSERVED THAT THE ASSESSING OFFICER HAS FAILED TO EXAMINE AND VERIFY THE CORE ISSUES FOR WHICH THE CASE WAS SELEC TED IN COMPLETE SCRUTINY. 3. ASSESSMENT IN THE SAID CASE, U/S 143(3) DATED 26. 04.2017, WAS FINALIZED WITHOUT CONSIDERING THE ABOVE MENTIONED FACT S. THIS OMISSION ON PART OF THE AO, RENDERS THE ORDER ERRON EOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF REVENUE. THEREFORE, I PROPOSE TO INVOKE POWERS VESTED U/S 263 OF THE INCOME TAX ACT, 1961 IN RESPECT OF THE ORDER REFERRED TO ABOVE. 4. THE ABOVE STATED SHOW CAUSE NOTICE WAS REPLIED B Y THE ASSESSEE STATING AS FOLLOWS: I. THE ASSESSEE STATED THAT NET PROFIT OF RS.58.85 LACS IS VERY REASONABLE AGAINST TOTAL SALES OF RS.79.54 CRORES. ALL BOOKS HAVE BEEN MAINTAINED AND THERE IS NO CONTRACT WORK DONE. SURJEET AUTO AGENCY 4 II. AS REGARDS, MISMATCH IN THE AMOUNT PAID TO RELAT ED PERSONS U/S 40A(2)(B) REPORTED IN AUDIT REPORT AND ITR THE ASSES SEE SAYS THAT THESE PAYMENTS ARE ON DIFFERENT FOOTING AS THE INFORMATIO N FURNISHED IN AUDIT REPORT AND ITR RELATED TO TWO DIFFERENT CATEGORIES. IN ITR, INFORMATION REQUIRED TO BE GIVEN IS ONLY IN REGARD TO AMOUNT DISA LLOWABLE, WHEREAS, IN AUDIT REPORT DETAILS OF PAYMENT MADE ARE REQUIRED TO BE MENTIONED. III. AS REGARDS, HIGHER TURNOVER RETURN IN SERVICE T AX RETURN AS COMPARED TO ITR AND ALLEGED DEPOSIT OF LARGE AMOUNT O F CASH IN SAVING BANK ACCOUNT IS CONCERNED, THE ASSESSEE SAYS THAT T HERE IS NO MISMATCH AND THE AUDITOR HAS SHOWN TOTAL RECEIPT OF SERVICES AMOUNTING TO RS.66.95 LACS AND RECEIPTS FROM OTHER SERVICES A T RS.24.72 LACS. HOWEVER, AT THE TIME OF FILING OF SERVICE TAX RETURN THE ASSESSEE HAS SHOWN TOTAL SERVICES IN HIS RETURN. IN REGARD TO DEPOSIT OF CASH THE ASSESSEE SAYS THAT T HE ASSESSEE FIRM DOES NOT HAVE ANY SAVING BANK ACCOUNT. THEREAFTER, T HE ALLEGATION OF CASH DEPOSIT IS NOT CORRECT . 5. IT WAS ALSO SUBMITTED BEFORE THE LD. PR. CIT THA T ALL DETAILS REQUIRED BY LD. AO WERE FILED. LD. AO WAS AWARE OF THE ISSUES INVOLVED IN REASONS FOR COMPLETE SCRUTINY AND RAISE D SPECIFIC QUERIES. IN RESPONSE OF WHICH REPLIES WERE FILED AN D LD. AO EXAMINED EACH AND EVERY ASPECT WITH THE BOOKS OF AC COUNT AND RELEVANT RECORDS WITH DUE APPLICATION OF MIND. 6. HOWEVER, LD. PR. CIT WAS NOT SATISFIED WITH THIS REPLY AND AFTER PLACING RELIANCE ON VARIOUS JUDGMENTS CONCLUDED THA T AS THERE WAS A COMPLETE LACK OF ENQUIRY ON THE PART OF LD. AO, A LL THE STATED ISSUES WHICH HAVE RENDERED THE ORDER AS ERRONEOUS B ECAUSE IT HAS RESULTED IN A POTENTIAL LOSS OF REVENUE. THE ORDER IS ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY, THE ASSESS MENT ORDER DATED 26.04.2017 WAS SET ASIDE ON THE THREE ISSUES FOR WH ICH THE COMPLETE SCRUTINY WAS INITIATED, THEREBY, DIRECTING THE LD. AO TO CONDUCT FULL AND PROPER ENQUIRY. SURJEET AUTO AGENCY 5 7. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L CHALLENGING THE ACTION OF LD. PR. CIT OF ASSUMING JURISDICTION U/S 263 OF THE ACT. LEARNED SENIOR COUNSEL FOR THE ASSESSEE APART FROM REFERRING TO VARIOUS DOCUMENTS FILED IN PAPER BOOK RUNNING FROM PAGES 1 TO 158 AND THE SUBMISSIONS MADE BEFORE BOTH THE LOWER AUTH ORITIES REGARDING EACH ISSUES STATED THAT: A) AS REGARDS THE REASON LOW INCOME SHOWN BY LARGE CONTRACTORS IT WAS SUBMITTED THAT THE ASSESSEE IS BASICALLY A T RADER AND AUTHORIZED DEALER OF M/S BAJAJ AUTO LTD. AND IS NOT A LARGE CONTRACTOR. BEING AUTHORIZED DEALER OF REPUTED AUTO COMPANY OF ITS SALES ARE REGULARLY ACCOUNTED FAR. DURING TH E YEAR UNDER CONSIDERATION THE TURNOVER WAS RS.79.54 CR. (APPROX .) AND THE IMMEDIATE PROCEEDING YEAR IT WAS RS.76.42 CR. (APPR OX.). GROSS PROFIT RATE AND NET PROFIT RATE FOR CURRENT YEAR IS 14.34% AND 0.74% AS AGAINST 14.72% AND 0.89% IN PRECEDING YEAR . THERE IS NO MAJOR DOWN FALL IN THE NET PROFIT. BOOKS OF A CCOUNT ARE AUDITED. ALL THESE DETAILS WERE PLACED BEFORE THE L D. ASSESSING OFFICER WHO AFTER THOROUGH EXAMINATION ACCEPTED THE BOOK RESULTS, BUT MADE DISALLOWANCE FOR EXPENSES TO COVE R UP THE SHORT FALL IN NET PROFIT. B) AS REGARDS THE SECOND REASON MISMATCH IN AMOUNT PAID TO RELATED PERSONS U/S 40A(2)(B) REPORTED IN AUDIT REP ORT AND ITR I T WAS SUBMITTED THAT COMPLETE DETAILS WERE FILED FO R THE PAYMENT MADE TO RELATIVES WHICH ALSO FORMED PART OF TAX AUDIT REPORT U/S 44 AB OF THE ACT. EXCEPT THE PAYMENT OF LEGAL FEE SURJEET AUTO AGENCY 6 AND RENT TO SON OF THE PARTNER, ALL OTHER PAYMENTS WERE MADE TO PARTNERS TOWARDS INTEREST AND SALARY AS PER THE TERMS PROVIDED IN THE PARTNERSHIP DEED. THESE DETAILS WER E ALSO FILED BEFORE THE LD. AO. C) AS REGARDS 3 RD REASON HIGHER TURNOVER REPORTED IN SERVICE TAX RETURN COMPARED TO ITR AND ASSESSEE HAS DEPOSITED L ARGE AMOUNT OF CASH IN SAVING BANK ACCOUNT. LD. SR. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO MISMATCH BETWE EN THE TURNOVER REPORTED IN SERVICE TAX RETURN COMPARED TO ITR. COPIES OF HALF YEARLY RETURN FILED UNDER RULE 7 OF SERVICE TAX RULES WERE PLACED BEFORE THE LD. AO AS WELL AS LD. PR. CIT TO DRAW ATTENTION TO THE FACT THAT THERE IS NO MISMATC H. FURTHER AS REGARDS THE CASH DEPOSITED IN SAVING BANK ACCOUN T IT WAS SUBMITTED THAT THE ASSESSEE IS A PARTNERSHIP FIRM A ND CANNOT OPEN SAVING BANK ACCOUNT. DETAILS OF ALL BANK ACCOU NT HELD BY ASSESSEE WERE FILED BEFORE LOWER AUTHORITIES. LD . PR. CIT MADE NO FURTHER ENQUIRY TO BRING OUT THE INFORMATIO N AS TO WHICH IS THE SAVING BANK ACCOUNT IN WHICH CASH WAS DEPOSITED AND ACCOUNT NOT DISCLOSED BY THE ASSESSEE . IN SUPPORT OF THE ABOVE CONTENTION LD. SENIOR COUNSEL FOR THE ASSESSEE HAS RELIED ON FOLLOWING JUDGMENT: 1. MALABAR INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME TAX, (2000) 243 ITR 83 (SC) 2. CIT V. GABRIEL INDIA LTD . [1993] 203 ITR 108 ( BOM) 3. MICRO INKS LIMITED V. CIT (2018) 407 ITR 681 (GU J) (HC) 4. D.G. HOUSING PROJECTS LTD [2012] 20 TAXMANN.CO M 587(DELHI) SURJEET AUTO AGENCY 7 8. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE (DR) REFERRED TO THE FINDING OF LD. PR. CIT AND ALSO DECISIONS REFERRED IN THE IMPUGNED ORDER BY THE LD. PR. CIT AND THE SAME IS MENTIONED BELOW: 4. I HAVE CAREFULLY CONSIDER D THE FACTS OF THE CASE, THE SHOW CAUSE NOTICES, THE REPLY FILED BY THE ASSESSEE AND THE CASE RECORD. I FIND THAT A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT T HE THREE ISSUES WERE PART OF THE ASSESSMENT ORDER IN SO FAR AS MENT IONING THEM THEREIN IS CONCERNED. A PERUSAL OF PARA 4 PAGE 2 OF THE ASSESSMENT ORDER SHOWS THAT AO HAS MENTIONED THE THREE POINTS FOR COMPLETE SCRUTINY AND HAS SCANNED THE REPLY OF THE ASSESSEE. T HEREAFTER, HE HAS OBSERVED AS FOLLOWS: (ON PERUSAL OF THE SUBMISSION, IT IS FOUND THAT THE ASSESSEE DULY SUBSTANTIATE THE GENUINENESS OF HIS CLAIM IN HIS SUBMISSION WHIC H IS FOUND TO BE ACCEPTABLE, BUT, FAILED TO PROVE THE GENUINENESS OF SALLIE EXPENSES DEBITED FROM P&L ACCOUNT. 5. THE MOOT POINT IS WHETHER MERE RAISING OF A QUER Y AND OBTAINING A CRYPTIC REP AND NOT CONDUCTING ANY ENQUIRY ON THE INF ORMATION RECEIVED QUALIFIES AS AN ORDER PASSED WITH DUE APPLICA TION OF MIND. IS THERE ANY VERIFICATION OF THE APPARENT LOW PROFI T PERCENTAGE AND THIRD PARTY VERIFICATION'? IRONICALLY, THE AO HIMSELF SAYS THAT SOME EXPENSES ARE NOT VERIFIABLE. IT IS ULTIMATELY INFLA TION OF EXPENSES WHICH IS ONE OF THE REASONS FOR DEPICTION OF LOW INC OME. IT IS A PATENT ERROR OF REASONING AND UNSUSTAINABLE APPLICATION OF LAW WHEREBY A MUTUAL CONTRADICTORY STAND IS TAKEN BY THE AO. LIKEW ISE REGARDING AMOUNT PAID TO RELATED PERSONS, THE INVESTIGATION RE GARDING WHETHER THE PAYMENTS WERE AT ARMS LENGTH HAS NOT BEEN CARR IED OUT. FINALLY, THE VARIATION OF TURNOVER REPORTED IN STR AND ITR TO O HAVE REMAINED UNATTENDED, AND AO HAS NOT INVESTIGATED THE ASPECT OF CASH DEPOSIT WHETHER OR NOT OCCURRING IN SAVINGS BANK ACCOUNT OR OTHER ACCOUNTS. 5.1 THE TWIN ISSUES OF APPLICATION OF MIND AND CONDUCTING ENQUIRIES (AS OPPOSED TO MERELY RAISING A QUERY) ARE THE KEY I SSUES. I AM OF THE CONSIDERED VIEW THAT THE ASSESSMENT ORDER SATISFIES NE ITHER OF THE TWIN PARAMETERS. THE ISSUES WERE NOT EVEN GIVEN A J UDICIAL AND JUDICIOUS CONSIDERATION BY THE AO. LN CIT V.RAI BAHA DUR HARDUTROY MOTILAL CHAMARIA [1967] 66 ITR 443 (SC)A THREE JUDGE BENCH OF THE HONBLE HON'BLE SUPREME COURT EXPLAINED THIS AS FOLL OWS: IT WAS EXPLAINED WHAT 'CONSIDERED' BY AO IMPLIES:' IN THIS CO NTEXT 'CONSIDERATION' DOES NOT MEAN 'INCIDENTAL' OR 'COLLATERAL' EXAMINATION OF ANY MATTER BY THE INCOME -TAX OFFICER IN THE PROCESS OF ASSESSMENT. THERE MUST BE SOMETHING IN THE ASSES SMENT ORDER TO SURJEET AUTO AGENCY 8 SHOW THAT THE INCOME-TAX OFFICER APPLIED HIS MIND TO THE PARTICULAR SUBJECT-MATTER OR THE PARTICULAR SOURCE OF INCOME W ITH A VIEW TO ITS TAXABILITY OR TO 'ITS TAXABILITY AND NOT TO ANY INC IDENTAL CONNECTION. RELATED QUESTION ARISES: CAN A AO PASS AN ORDER WITH OUT GIVING ANY PROPER REASONS WHATSOEVER? THE ISSUE STANDS SETTLED BY THE HONBLE S.C. LD. PR. CIT WAS RELIED FOLLOWING DECISIONS: 1. CIT VS. TOYOTA MOTOR CORPN. (2008) 306 ITR 49(DELHI ) DATED APRIL 2,2008 2. TOYOTA MOTOR CORPORATION VS. CIT (2008) 306 ITR 52( SC) 3. PR. CIT VS. INDIA FINANCE LTD. (2016) 389 ITR 242(C ALCUTTA) 4. STATE BANK OF INDORE V. CIT (1998) 64 ITD 209 (INDO RE) 5. S.N. MUKHERJEE VS. UNION OF INDIA (1990) AIR 1984, 1990 SUPL. (1) 44 DID, 28 TH AUGUST, 1990 6. BOSTON ANALYTICS P. LTD. MUMBAI VS. ITO I.T.A.T. MU MBAI B BENCH ITANO.2745/MUM/2012 6. BASED ON THE ABOVE, IT IS CLEAR THAT, THERE IS COMPL ETE LACK OF ENQUIRY ON THE PART OF THE ASSESSING OFFICER ON ALL THE STATED ISSUES WHICH HAS RENDERED THE ORDER ERRONEOUS AND BECA USE IT HAS RESULTED IN A POTENTIAL LOSS OF REVENUE, THE ORDE R IS ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. THE ASSESSM ENT ORDER IS ACCORDINGLY SET ASIDE ON THE ABOVE THREE ISSUES WITH THE DIRECTION TO CONDUCT FULL AND PROPER ENQUIRY AND ALSO GIVING AS SESSEE PROPER OPPORTUNITY OF BEING HEARD. THEREFORE, A REA SONED AND SPEAKING ORDER SHOULD BE PASSED BY THE ASSESSING OFF ICER IN ACCORDANCE WITH LAW. 9. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US AND CAREFULLY GONE THROUGH THE FACTS OF T HE CASE, SUBMISSION FILED AND THE DECISIONS REFERRED AND REL IED BY BOTH SIDES. THROUGH THIS APPEAL THE ASSESSEE HAS CHALLENGED THE JURISDICTION ASSUMED BY LD. PR. CIT USING REVISIONARY POWERS U/S 263 OF THE ACT AND HOLDING THE ASSESSMENT ORDER DATED 26.04.2017 A S ERRONEOUS AND SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENU E. WE OBSERVE THAT THE ASSESSEE BEING A PARTNERSHIP FIRM IS AN AUTHORI ZED DEALER OF SURJEET AUTO AGENCY 9 M/S. BAJAJ AUTO LTD. ITS CASE WAS SELECTED FOR COMP LETE SCRUTINY FOR FOLLOWING THREE REASONS: 1. LOW INCOME SHOWN BY LARGE CONTRACTORS. 2. MISMATCH IN AMOUNT PAID TO RELATED PERSONS U/S 40A( 2)(B) REPORTED IN AUDIT REPORT AND ITR. 3. HIGHER TURNOVER REPORTED IN SERVICE TAX RETURN COMP ARED TO ITR AND ASSESSEE HAS DEPOSITED LARGE AMOUNT OF CASH IN SAVING BANK ACCOUNT. 10. WITH REFERENCE TO THE ABOVE REASONS ASSESSEE WA S ASKED TO REPLY AND LD. AO AFTER CONSIDERING THE SUBMISSIONS BY THE ASSESSEE COMPLETED THE ASSESSMENT MAKING CERTAIN DISALLOWANC ES. LD. PR. CIT WAS HOWEVER OF THE VIEW THAT MERELY RAISING OF A QUERY AND OBTAINING CRYPTIC REPLY AND NOT CONDUCTING ANY ENQU IRY ON THE INFORMATION RECEIVED, DO NOT QUALIFY AS AN ORDER PA SSED WITH DUE APPLICATION OF MIND. ON THE BASIS OF THESE OBSERVAT IONS AND ON THE STRENGTH OF JUDICIAL PRONOUNCEMENTS LD. PR. CIT INV OKED THE REVISIONARY POWERS AND HELD THE ASSESSMENT ORDER DA TED 26.04.2017 AS ERRONEOUS AND ALSO PREJUDICIAL TO THE INTEREST OF REVENUE AND ACCORDINGLY SET ASIDE THE ASSESSMENT OR DER DIRECTING LD. AO TO CONDUCT A FULL AND PROPER ENQUIRY FOR ALL THE ABOVE STATED THREE ISSUES. 11. BEFORE EXAMINING THE FACTS OF THE CASE WE WOULD FIRST LIKE TO GO THROUGH THE PROVISION OF SECTION 263 OF THE ACT WHI CH READS AS FOLLOWS: SURJEET AUTO AGENCY 10 ' 263. REVISION OF ORDERS PREJUDICIAL TO REVENUE.--(1 ) THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFI CER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE M AY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUS ING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS T HE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. EX PLANATION.--FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT, FOR THE PURPOSE S 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 COMMISSIONER OR THE INCOME TAX OFFICER ON THE BASIS OF THE DIRECTIONS ISSUED BY THE JOINT COMMISSIONER UNDER SECTION 144-A ; (II) AN ORDER MADE BY THE JOINT COMMISSIONER IN EXE RCISE OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTIONS OF AN ASSESSING OFFICE R CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BO ARD OR BY THE CHIEF COMMISSIONER OR DIRECTOR GENERAL OR COMMISSIONER AU THORISED 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 ANY APPEAL F ILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988, THE POWERS OF THE COMMISSION ER UNDER THIS SUB- SECTION SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXT ENDED 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 ORD ER 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, NA TIONAL TAX TRIBUNAL, THE HIGH COURT OR THE SUPREME COURT. EXPLANATION.--IN COMPUT ING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB-SECTION (2), THE TIME TAKEN IN GIVING AN OPPORTUNITY TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROCEEDING UNDER THIS SECTION IS STAYED B Y AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUDED.' 12. FURTHER WE FIND THAT THE PROVISION OF SECTION 2 63 OF THE ACT AS TIME AND AGAIN BEING ANALYZED BY THE HON'BLE COURTS LAYING DOWN SURJEET AUTO AGENCY 11 VARIOUS RATIO WHICH ARE BEING CONSISTENTLY APPLIED FOR ON CASE TO CASE BASIS. 13. THE HON'BLE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD ., 243 ITR 83 , HAS LAID DOWN THE FOLLOWING RATIO: 'A BARE READING OF SECTION 263 OF THE INCOME-TAX ACT, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCISE OF JUR ISDICTION BY THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED OF TWI N CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUG HT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERES TS OF THE REVENUE. IF ONE OF THEM IS ABSENT--IF THE ORDER OF THE INCOME-T AX OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE-- RECOU RSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT. THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMM ITTED BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRON EOUS 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 '. 14. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GABRIEL IN DIA LTD 203 ITR 108 HAS HELD AS UNDER: THE POWER OF SUO MOTU REVISION UNDER SUBSECTION (1) IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXER CISED ONLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMSTA NCES MUST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE POWER OF REV ISION UNDER THIS SUB10 SECTION, VIZ., (I) THE ORDER IS ERRONEOUS; (I I) BY VIRTUE OF THE ORDER BEING ERRONEOUS PREJUDICE HAS BEEN CAUSED TO THE INT ERESTS OF THE REVENUE. IT HAS, THEREFORE, TO BE CONSIDERED FIRSTLY AS TO WHEN AN ORDER CAN BE SAID TO BE ERRONEOUS. WE FIND THAT THE EXPRESSIONS 'ERRONEOUS', 'ERRONEOUS ASSESSMENT' AND 'ERRONEOUS JUDGMENT' HAVE BEEN DEFINED IN BLACK'S LAW DICTIONARY. ACCORDING TO THE DEFINITION, 'ERRONEOUS' MEANS 'INVOLVING ERROR; DEVIATING FROM T HE LAW'. 'ERRONEOUS ASSESSMENT' REFERS TO AN ASSESSMENT THA T DEVIATES FROM THE LAW AND IS, THEREFORE, INVALID, AND IS A DEFECT THAT IS JURISDICTIONAL IN ITS NATURE, AND DOES NOT REFER TO THE JUDGMENT OF T HE ASSESSING SURJEET AUTO AGENCY 12 OFFICER IN FIXING THE AMOUNT OF VALUATION OF THE PR OPERTY. SIMILARLY, 'ERRONEOUS JUDGMENT' MEANS 'ONE RENDERED ACCORDING T O COURSE AND PRACTICE OF COURT, BUT CONTRARY TO LAW, UPON MISTAK EN VIEW OF LAW; OR UPON ERRONEOUS APPLICATION OF LEGAL PRINCIPLES'. 12 . FROM THE AFORESAID DEFINITIONS IT IS CLEAR THAT AN ORDER CANN OT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCOME TAX OFFICER ACTING IN ACCORDANCE WITH LAW MAKES A CERTA IN ASSESSMENT, THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMI SSIONER SIMPLY BECAUSE, ACCORDING TO HIM, THE ORDER SHOULD H AVE BEEN WRITTEN MORE ELABORATELY THIS SECTION DOES NOT VISUA LISE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME-TAX OFFICER, WHO PASSED THE ORDER UNLESS THE D ECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE THE I NCOME-TAX OFFICER WHILE MAKING AN ASSESSMENT EXAMINES THE ACC OUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMST ANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING TH E ACCOUNTS OR BY MAKING SOME ESTIMATE HIMSELF. THE COMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND LEFT TO THE COMMISSIONER HE WOULD HAVE ESTIMATED THE INCOME AT A FIGURE HIGHER THAN THE ONE DETERMINED BY THE INCOME-TAX OFFICER. THAT WOULD NOT V EST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUS E THE INCOME-TAX OFFICER HAS EXERCISED THE QUASI-JUDICIAL POWER VESTE D IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT CONCLUSION AND SU CH A CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY B ECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUS ION. IT MAY BE SAID IN SUCH A CASE THAT IN THE OPINION OF THE COMM ISSIONER THE ORDER IN QUESTION IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BUT THAT BY ITSELF WILL NOT BE ENOUGH TO VEST THE COMMISSIONER WITH THE POWER OF SUO MOTU REVISION BECAUSE THE FIRST REQUIREMENT, VI Z., THAT THE ORDER IS ERRONEOUS, IS ABSENT. SIMILARLY, IF AN ORDER IS ERR ONEOUS BUT NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THEN A LSO THE POWER OF SUO MOTU REVISION CANNOT BE EXERCISED. ANY AND EVERY ER RONEOUS ORDER CANNOT BE THE SUBJECT-MATTER OF REVISION BECAUSE TH E SECOND REQUIREMENT ALSO MUST BE FULFILLED. THERE MUST BE SO ME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFUL LY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLICATION OF THE R ELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED. WE, THEREFORE, HOLD THAT IN O RDER TO EXERCISE POWER UNDER SUB-SECTION (1) OF SECTION 263 OF THE ACT THERE MUST BE MATERIAL BEFORE THE COMMISSIONER TO CONSIDER THAT TH E ORDER PASSED SURJEET AUTO AGENCY 13 BY THE INCOME-TAX OFFICER WAS ERRONEOUS IN SO FAR A S IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. WE HAVE ALREADY HEL D WHAT IS ERRONEOUS. IT MUST BE AN ORDER WHICH IS NOT IN ACCO RDANCE WITH THE LAW OR WHICH HAS BEEN PASSED BY THE INCOME-TAX OFFIC ER WITHOUT MAKING ANY ENQUIRY IN UNDUE HASTE. WE HAVE ALSO HELD AS TO WHAT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. AN ORD ER CAN BE SAID TO BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE IF IT I S NOT IN ACCORDANCE WITH THE LAW IN CONSEQUENCE WHEREOF THE LAWFUL REVE NUE DUE TO THE STATE HAS NOT BEEN REALISED OR CANNOT BE REALISED. TH ERE MUST BE MATERIAL AVAILABLE ON THE RECORD CALLED FOR BY THE CO MMISSIONER TO SATISFY HIM PRIMA FACIE THAT THE AFORESAID TWO REQUI SITES ARE PRESENT. IF NOT, HE HAS NO AUTHORITY TO INITIATE PROCEEDINGS FOR REVISION. EXERCISE OF POWER OF SUO MOTU REVISION UNDER SUCH C IRCUMSTANCES WILL AMOUNT TO ARBITRARY EXERCISE OF POWER. IT IS WELL-S ETTLED THAT WHEN EXERCISE OF STATUTORY POWER IS DEPENDENT UPON THE EXI STENCE OF CERTAIN OBJECTIVE FACTS, THE AUTHORITY BEFORE EXERC ISING SUCH POWER MUST HAVE MATERIALS ON RECORD TO SATISFY IT IN THAT REGARD. IF THE ACTION OF THE AUTHORITY IS CHALLENGED BEFORE THE COU RT IT WOULD BE OPEN TO THE COURTS TO EXAMINE WHETHER THE RELEVANT OBJEC TIVE FACTORS WERE AVAILABLE FROM THE RECORDS CALLED FOR AND EXAMINED BY SUCH AUTHORITY. THE INCOME-TAX OFFICER IN THIS CASE HAD M ADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN DETAILED EXPLANATION IN THAT REGAR D BY A LETTER IN WRITING. ALL THESE ARE PART OF THE RECORD OF THE CAS E. EVIDENTLY, THE CLAIM WAS ALLOWED BY THE INCOME-TAX OFFICER ON BEIN G SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. SUCH DECISION OF TH E INCOME-TAX OFFICER CANNOT BE HELD TO BE 'ERRONEOUS' SIMPLY BECA USE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGA RD. MOREOVER, IN THE INSTANT CASE, THE COMMISSIONER HIMSELF, EVEN AF TER INITIATING PROCEEDINGS FOR REVISION AND HEARING THE ASSESSEE, C OULD NOT SAY THAT THE ALLOWANCE OF THE CLAIM OF THE ASSESSEE WAS ERRO NEOUS AND THAT THE EXPENDITURE WAS NOT REVENUE EXPENDITURE BUT AN EXPENDITURE OF CAPITAL NATURE. HE SIMPLY ASKED THE INCOME-TAX OFFIC ER TO RE-EXAMINE THE MATTER. THAT, IN OUR OPINION, IS NOT PERMISSIBL E. HENCE THE PROVISIONS OF SECTION 263 OF THE ACT WERE NOT APPLI CABLE TO THE INSTANT CASE AND, THEREFORE, THE COMMISSIONER WAS NOT JUSTI FIED IN SETTING ASIDE THE ASSESSMENT ORDER. 15. THE HON'BLE SUPREME COURT IN THE CASE OF MAX INDIA LTD 295 ITR 282 HAS HELD AS UNDER: SURJEET AUTO AGENCY 14 IN OUR VIEW AT THE RELEVANT TIME TWO VIEWS WERE PO SSIBLE ON THE WORD 'PROFITS' IN THE PROVISO TO SECTION 80HHC(3). I T IS TRUE THAT VIDE THE 2005 AMENDMENT THE LAW HAS BEEN CLARIFIED WITH R ETROSPECTIVE EFFECT BY INSERTION OF THE WORD 'LOSS' IN THE NEW PR OVISO. WE EXPRESS NO OPINION ON THE SCOPE OF THE SAID AMENDMENT OF 20 05. SUFFICE IT TO STATE THAT IN THIS PARTICULAR CASE WHEN THE ORDER O F THE COMMISSIONER WAS PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961, TWO VIEWS ON THE SAID WORD 'PROFITS' EXISTED. IT IS NOT IN DISPUTE THAT WHEN THE ORDER OF THE COMMISSIONER WAS PASSED THERE WERE TWO VIEWS ON THE WORD 'PROFITS' IN THAT SECTION. THE PRO BLEM WITH SECTION 80HHC IS THAT IT HAS BEEN AMENDED ELEVEN TIMES. DIFFERENT V IEWS EXISTED ON THE DAY WHEN THE COMMISSIONER PASSED THE ABOVE ORDER. MOREOVER, THE MECHANICS OF THE SECTION HAVE BECOME SO COMPLICATED OVER THE YEARS THAT TWO VIEWS WERE INHERENTLY POSSI BLE. THEREFORE, SUBSEQUENT AMENDMENT IN 2005 EVEN THOUGH RETROSPECT IVE WILL NOT ATTRACT THE PROVISION OF SECTION 263 PARTICULARLY WHEN AS STATED ABOVE WE HAVE TO% TAKE INTO ACCOUNT THE POSITION OF LAW AS IT STOOD ON THE DATE WHEN THE COMMISSIONER PASSED THE ORDER DA TED MARCH 5,1997, IN PURPORTED EXERCISE OF HIS POWERS UNDER SECTION 263 OF THE INCOME TAX ACT. 3. FOR THE ABOVE REASONS, CIVIL APP EALS FILED BY THE DEPARTMENT STAND DISMISSED. 16. IT IS A SETTLED POSITION OF LAW THAT POWERS U/S 263 OF THE ACT CAN BE EXERCISED BY THE PR. COMMISSIONER/COMMISSIONER O N SATISFACTION OF TWIN CONDITIONS, I.E., THE ASSESSME NT ORDER SHOULD BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. BY 'ERRONEOUS' IS MEANT CONTRARY TO LAW. THUS, THIS PO WER CANNOT BE EXERCISED UNLESS THE COMMISSIONER IS ABLE TO ESTABL ISH THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF THE REVENUE. THUS, WHERE THERE ARE TWO POSSIBLE VIEWS AND THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSS IBLE VIEWS, NO ACTION TO EXERCISE POWERS OF REVISION CAN ARISE, NO R CAN REVISIONAL POWER BE EXERCISED FOR DIRECTING A FULLER ENQUIRY T O FIND OUT IF THE VIEW TAKEN IS ERRONEOUS. THIS POWER OF REVISION CAN BE EXERCISED SURJEET AUTO AGENCY 15 ONLY WHERE NO ENQUIRY, AS REQUIRED UNDER THE LAW, I S DONE. IT IS NOT OPEN TO ENQUIRE IN CASE OF INADEQUATE INQUIRY. OUR VIEW IS FORTIFIED BY THE JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. NIRAV MODI, [2016] 71 TAXMANN.COM 272 (BOMBAY). 17. THIS VIEW IS FURTHER SUPPORTED BY THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SHRI PRAKASH BHAG CHAND KHATRI IN TAX APPEAL NO. 177 WITH TAX APPEAL NO.178 OF 2016, WHEREIN THE HON'BLE GUJARAT HIGH COURT WAS SEIZED WITH THE FOLL OWING SUBSTANTIAL QUESTION OF LAW:- ' WHETHER THE TRIBUNAL IS RIGHT IN LAW AND ON FACTS I N UPHOLDING THE ORDER PASSED BY THE CIT UNDER SECTION 263 OF THE ACT ON MERITS AND STILL STORING THE ISSUE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 54 OF THE ACT TO THE FILE OF ASSESSING OFFICER EVEN THOUG H THE WORKING OF ALLOWABILITY OF DEDUCTION UNDER SECTION 54F IS AVAILABLE IN THE ORDER UNDER SECTION 263 WHICH IS NOT DISPUTED BY THE ASSESSEE BEFORE ITAT.' 18. AND THE HON'BLE HIGH COURT, AFTER CONSIDERING T HE FACTS, HELD AS UNDER:- '6. IT CAN THUS BE SEEN THAT THOUGH FINAL ORDER OF ASSESSMENT WAS SILENT ON THIS ASPECT, THE ASSESSING OFFICER HAD CAR RIED OUT INQUIRIES ABOUT THE NATURE OF SALE OF LAND AND ABOUT THE VALID ITY OF THE ASSESSEE'S CLAIM OF DEDUCTION UNDER SECTION 54F OF THE ACT. LEARNED COUNSEL FOR THE REVENUE HOWEVER SUBMITTED THAT THESE INQUIRIES WERE CONFINED TO THE CLAIM OF DEDUCTION UNDER SECTION 54F OF THE ACT IN THE CONTEXT OF FULFILLING CONDITIONS CONTAINED THEREIN A ND MAY POSSIBLY HAVE NO RELEVANCE TO THE QUESTION WHETHER THE SALE OF LAND GAVE RISE TO A LONG TERM CAPITAL GAIN. LOOKING TO THE TENOR O F QUERIES BY THE ASSESSING OFFICE AND DETAILS . A.Y. 2009-10 SUPPLIE D BY THE ASSESSEE, WE ARE UNABLE TO ACCEPT SUCH A CONDITION. IN THAT VIEW OF THE MATTER, THE OBSERVATION OF THE TRIBUNAL THAT TH E ASSESSING OFFICER HAVING MADE INQUIRIES AND WHEN TWO VIEWS ARE POSSIBL E, REVISIONAL POWERS COULD NOT BE EXERCISED, CALLED FOR NO INTERFERE NCE. SINCE WITH SURJEET AUTO AGENCY 16 RESPECT TO COMPUTATION AND ASSERTIONS OF OTHER ASPEC TS OF DEDUCTION UNDER SECTION 54F OF THE ACT, THE TRIBUNAL HAS REMANDED THE PROCEEDINGS, NOTHING STATED IN THIS ORDER WOULD AFFEC T EITHER SIDE IN CONSIDERATIONS OF SUCH CLAIM. 7. NO QUESTION OF LAW ARISES. TAX APPEALS ARE DISMI SSED.' 19. NOW EXAMINING THE FACTS OF THE CASE IN THE LIGH T OF THE ABOVE DECISIONS AND DISCUSSIONS MADE HEREINABOVE INCLUDIN G THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND BEFOR E US BY BOTH THE SIDES. WE WILL ANALYZE THE FACTS REFERRING TO E ACH OF THE REASONS: I. AS REGARDS LOW INCOME SHOWN BY LARGE CONTRACTORS WE OBSERVE THAT PRIMA FACIE GOING THROUGH RECORDS IT APPEARS THAT THE ASSESSEE IS A TRADER AND AUTHORIZED DEALER OF M/S. BAJAJ AUT O LTD. AND ALSO SALES ACCESSORIES AND SPARE PARTS. NO DOCUMENTS ARE PLACED BEFORE US WHICH COULD PROVE THAT THE ASSESSEE IS A LARGE C ONTRACTOR. EVEN OTHERWISE THE TURNOVER OF THE ASSESSEE HAS INCREASE D FROM 76.42 CR. (APPROX.) IN A.Y. 2014-15 TO RS.79.54 CR. (APPROX. ) IN A.Y. 2015- 16. GROSS PROFIT AND NET PROFIT RATIO HAS ALSO BEEN MORE OR LESS CONSISTENT AT 14.72% AND 0.83% FOR A.Y.2014-15 AND 14.34% AND 0.74% FOR A.Y.2015-16. THOUGH THERE IS A DECLINE IN OVERALL NET PROFIT OF RS.4,25,773/- BUT THE SAME HAS ALREADY BE EN CONSIDERED TO A LARGE EXTENT BY THE ASSESSING OFFICER BY DISALLO WING EXPENSES TO THE TUNE OF RS.3,64,391/-. THEREFORE, SO FAR AS THI S ISSUE IS CONCERNED, WE FIND THAT COMPLETE DETAILS WERE PLACE D BEFORE LD. AO AND HE AFTER DUE APPLICATION OF MIND AND EXAMINING THE NECESSARY DOCUMENTS HAS MADE ADDITIONS. THEREFORE, WE FIND NO JUSTIFICATION IN THE FINDING OF LD. PR. CIT DIRECTING THE ASSESSI NG OFFICER TO REEXAMINE THIS ISSUE. SURJEET AUTO AGENCY 17 II. AS REGARDS SECOND ISSUE IS CONCERNED WHICH IS MISMATCH IN AMOUNT PAID TO RELATED PERSONS U/S 40A(2)(B) REPORT ED IN AUDIT REPORT AND ITR , WE OBSERVE THAT COMPLETE DETAILS OF PAYMENTS MAD E TO RELATIVES U/S 40A(2)(B) OF THE ACT WERE PLACED BEFO RE LD. AO. THESE DETAILS ALSO FORM PART OF TAX AUDIT REPORT U/S 44AB OF THE ACT. EXCEPT LEGAL FEE AND RENT PAID AT RS.3,00,000/- & R S.7,20,000/- PAID TO DEEPAK NENWANI(SON OF ONE OF THE PARTNER), ALL OTHER PAYMENTS ARE MADE TO PARTNERS AS PER THE TERMS AND CONDITIONS PROVIDED IN THE PARTNERSHIP DEED. IN OUR VIEW, SO F AR AS PAYMENTS TO PARTNERS ARE CONCERNED THE SAME ARE ALREADY EXAMINE D BY THE LD. AO BY EXAMINING THE RELEVANT CLAUSES OF PARTNERSHIP S DEED. THUS THERE REMAINS NO OCCASION TO MAKE ANY FURTHER ENQUI RY HOWEVER, AS REGARDS THE PAYMENTS OF LEGAL FEE AND RENT TO DEEPA K NENWANI. LD. AO WAS DUTY BOUND TO GO STEP FURTHER. IN OTHER WORD S ONCE THERE IS A PAYMENT TO A RELATED PERSONS LD. AO WAS REQUIRED TO APPLY THE PROVISION OF SECTION 40A(2)(A) OF THE ACT SO AS TO EXAMINE WHETHER SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE WITH REGARD TO THE FAIR MARKET VALUE OF THE SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE. THE REPLY BY THE ASSESSEE SUBMITTED BEFORE THE LD. AO ONLY CONTAINS THE DETAILS OF PAYMENT MADE TO RELATIVES. THE RECORD DO NOT SHOW THAT WHETHER ANY OTHER ENQUIRY WAS MADE BY THE LD. AO TO EXAMINE THE REASONABLENESS OF THE EXPENDITURE OF LE GAL FEE OF RS.3,00,000/- AND RENT OF RS.7,20,000/- PAID TO DEE PAK NENWANI. WE, THEREFORE, ARE OF THE CONSIDERED VIEW THAT WITH REGARD TO SECOND ISSUE OF MISMATCH U/S 40A(2)(B) OF THE ACT THE FIND ING OF LD. PR. CIT SURJEET AUTO AGENCY 18 OF SETTING ASIDE THE ORDER OF LD. AO NEEDS TO BE PA RTLY ACCEPTED ONLY WITH REGARD TO THE PAYMENT OF LEGAL FEE AND RENT T O DEEPAK NANWANI AND IN THE SET ASIDE PROCEEDINGS LD. AO SHOULD EXAM INE THESE TRANSACTIONS IN THE LIGHT OF THE PROVISION OF SECTI ON 40A(2)(A) OF THE ACT. III. AS REGARD TO 3 RD ISSUE HIGHER TURNOVER REPORTED IN SERVICE TAX RETURN COMPARED TO ITR AND ASSESSEE HAS DEPOSITED L ARGE AMOUNT OF CASH IN SAVING BANK ACCOUNT , IT COMPRISES OF TWO PARTS; FIRSTLY, THE HIGHER TURNOVER REPORTED IN SERVICE TAX RETURN COMP ARED TO ITR AND SECONDLY LARGE CASH DEPOSITED IN SAVING BANK AC COUNT. SO FAR AS MISMATCH OF TURNOVER IN THE SERVICES TAX RETURN AND ITR IS CONCERNED, WE OBSERVE THAT IN THE PROFIT AND LOSS A CCOUNT SERVICE CHARGES OF RS.66,95,750/- IS SHOWN ON CREDIT SIDE B EING SERVICE CHARGES RECEIVED. IN THE SERVICES TAX RETURNS WE FI ND THAT THE RETURN FOR FIRST SIX MONTHS SHOWS A TAXABLE RECEIPT OF RS. 26,47,323/- AND FOR SECOND HALF OF THE YEAR SERVICE RECEIPT OF RS.1 5,19,842/- WHICH TOTAL TO RS.42,38,165/-. BUT APART FROM THE TAXABLE SERVICES ASSESSEE ALSO RECEIVED NONTAXABLE SERVICE AMOUNTING TO RS.24,72,851/-. IF BOTH TAXABLE AND NONTAXABLE SERV ICES ARE ADDED UP THEY WOULD ALMOST MATCH TO THE SERVICE CHARGES S HOWN IN THE PROFIT AND LOSS ACCOUNT. THESE DETAILS OF SERVICE T AX RETURNS WERE FILED BEFORE THE LD. AO.ON THE STRENGTH OF THESE DO CUMENTS LD. AO WAS SATISFIED WITH THE SUBMISSIONS AND WAS OF THE V IEW THAT THERE IS NO MISMATCH IN TURNOVER AS PER THE SERVICE TAX RETU RN AND ITR. WE THEREFORE ARE OF THE VIEW THERE IS A COMPLETE ENQUI RY AND APPLICATION SURJEET AUTO AGENCY 19 OF MIND BY THE LD. AO ON THIS WHICH THUS DO NOT CAL L FOR INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. IV. THE OTHER LIMB OF 3 RD REASON IS A LARGE CASH DEPOSIT IN SAVING BANK ACCOUNT. THOUGH ASSESSEE IS A PARTNERSHIP FIRM AND IS NOT ENTITLED TO OPEN A SAVING BANK ACCOUNT, BUT COMPLET E DETAILS OF ALL BANK ACCOUNT HELD BY THE ASSESSEE FIRM (INCLUDING L OAN ACCOUNTS) ARE PLACED ON RECORD. SINCE THE ASSESSEE FIRM WAS N OT HOLDING ANY SAVING BANK ACCOUNT, NO SUCH DETAILS WERE REQUIRED TO BE FILED AND THEREFORE, DETAILS OF BANK ACCOUNT FILED BY THE ASS ESSEE WERE ACCEPTED AS IT IS BY THE ASSESSING OFFICER. 20. NOW WHEN MATTER WAS AGAIN REEXAMINED BY THE LD. PR. CIT, BEFORE SETTING ASIDE THE ISSUE TO THE LD. AO FOR CO NDUCTING FURTHER ENQUIRY, PROVISION OF SECTION 263 OF THE ACT REQUIR ES THAT PRIMARY ENQUIRY SHOULD FIRST BE CONDUCTED BY THE LD. PR. CI T/CIT SO AS TO FIND THAT WHETHER THE ORDER IS ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF REVENUE. HON'BLE DELHI HIGH COURT IN TH E CASE OF ITO VS. D.G. HOUSING PROJECT LTD. (2012) 20 TAXMANN.COM 587 , AFTER EXAMINING THE PROVISION OF SECTION 263 OF THE ACT H ELD AS UNDER: 16. THUS, IN CASES OF WRONG OPINION OR FINDING ON M ERITS, THE CIT HAS TO COME TO THE CONCLUSION AND HIMSELF DECIDE THAT THE ORDER IS ERRONEOUS, BY CONDUCTING NECESSARY ENQUIRY, IF REQUI RED AND NECESSARY, BEFORE THE ORDER UNDER SECTION 263 IS PASSED. IN SUCH CASES, THE ORDER OF THE ASSESSING OFFICER WILL BE E RRONEOUS BECAUSE THE ORDER PASSED IS NOT SUSTAINABLE IN LAW AND THE SA ID FINDING MUST BE RECORDED. CIT CANNOT REMAND THE MATTER TO THE ASS ESSING OFFICER TO DECIDE WHETHER THE FINDINGS RECORDED ARE ERRONEOUS. IN CASES WHERE THERE IS INADEQUATE ENQUIRY BUT NOT LACK OF EN QUIRY, AGAIN THE CIT MUST GIVE AND RECORD A FINDING THAT THE ORDER/IN QUIRY MADE IS ERRONEOUS. THIS CAN HAPPEN IF AN ENQUIRY AND VERIFIC ATION IS SURJEET AUTO AGENCY 20 CONDUCTED BY THE CIT AND HE IS ABLE TO ESTABLISH AND S HOW THE ERROR OR MISTAKE MADE BY THE ASSESSING OFFICER, MAKING TH E ORDER UNSUSTAINABLE IN LAW. IN SOME CASES POSSIBLY THOUGH RARELY, THE CIT CAN ALSO SHOW AND ESTABLISH THAT THE FACTS ON RECORD OR INFERENCES DRAWN FROM FACTS ON RECORD PER SE JUSTIFIED AND MANDATE D FURTHER ENQUIRY OR INVESTIGATION BUT THE ASSESSING OFFICER HAD ERRONEOUSLY NOT UNDERTAKEN THE SAME. HOWEVER, THE SAID FINDING MU ST BE CLEAR, UNAMBIGUOUS AND NOT DEBATABLE. THE MATTER CANNOT BE REMITTED FOR A FRESH DECISION TO THE ASSESSING OFFICER TO CONDUCT FU RTHER ENQUIRIES WITHOUT A FINDING THAT THE ORDER IS ERRONEOUS. FIND ING THAT THE ORDER IS ERRONEOUS IS A CONDITION OR REQUIREMENT WHICH MU ST BE SATISFIED FOR EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE ACT. IN SUCH MATTERS, TO REMAND THE MATTER/ISSUE TO THE ASSESSING OFFICER WOULD IMPLY AND MEAN THE CIT HAS NOT EXAMINED AND DECIDED WHETHER OR NOT THE ORDER IS ERRONEOUS BUT HAS DIRECTED THE ASSESSING OF FICER TO DECIDE THE ASPECT/QUESTION. 17. THIS DISTINCTION MUST BE KEPT IN MIND BY THE CIT WHILE EXERCISING JURISDICTION UNDER SECTION 263 OF THE ACT AND IN THE ABSENCE OF THE FINDING THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE, EXERCISE OF JURISDICTION UNDER THE SAID SECT ION IS NOT SUSTAINABLE. IN MOST CASES OF ALLEGED 'INADEQUATE I NVESTIGATION', IT WILL BE DIFFICULT TO HOLD THAT THE ORDER OF THE ASSES SING OFFICER, WHO HAD CONDUCTED ENQUIRIES AND HAD ACTED AS AN INVESTIGATO R, IS ERRONEOUS, WITHOUT CIT CONDUCTING VERIFICATION/INQUI RY. THE ORDER OF THE ASSESSING OFFICER MAY BE OR MAY NOT BE WRONG. C IT CANNOT DIRECT RECONSIDERATION ON THIS GROUND BUT ONLY WHEN THE ORDE R IS ERRONEOUS. AN ORDER OF REMIT CANNOT BE PASSED BY THE CIT TO ASK THE ASSESSING OFFICER TO DECIDE WHETHER THE ORDER WAS ERRONEOUS. THI S IS NOT PERMISSIBLE. AN ORDER IS NOT ERRONEOUS, UNLESS THE C IT HOLD AND RECORDS REASONS WHY IT IS ERRONEOUS. AN ORDER WILL N OT BECOME ERRONEOUS BECAUSE ON REMIT, THE ASSESSING OFFICER M AY DECIDE THAT THE ORDER IS ERRONEOUS. THEREFORE CIT MUST AFTER REC ORDING REASONS HOLD THAT THE ORDER IS ERRONEOUS. THE JURISDICTIONAL PRECONDITION STIPULATED IS THAT THE CIT MUST COME TO THE CONCLUSI ON THAT THE ORDER IS ERRONEOUS AND IS UNSUSTAINABLE IN LAW. WE MAY NOT ICE THAT THE MATERIAL WHICH THE CIT CAN RELY INCLUDES NOT ONLY TH E RECORD AS IT STANDS AT THE TIME WHEN THE ORDER IN QUESTION WAS P ASSED BY THE ASSESSING OFFICER BUT ALSO THE RECORD AS IT STANDS A T THE TIME OF EXAMINATION BY THE CIT [SEE CIT VS. SHREE MANJUNATHESWARE PACKING PRODUCTS , 231 ITR 53 (SC)]. NOTHING BARS/PROHIBITS THE CIT F ROM SURJEET AUTO AGENCY 21 COLLECTING AND RELYING UPON NEW/ADDITIONAL MATERIAL/E VIDENCE TO SHOW AND STATE THAT THE ORDER OF THE ASSESSING OFFI CER IS ERRONEOUS. 18. IT IS IN THIS CONTEXT THAT THE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME TAX , (2000) 243 ITR 83 (SC), HAD OBSERVED THAT THE PHRASE PREJUDICIAL TO THE INT EREST OF REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDE R PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSE QUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF REVENUE. THUS, WHEN THE ASSESSING OFFIC ER HAD ADOPTED ONE OF THE COURSES PERMISSIBLE AND AVAILABLE TO HIM, AND THIS HAS RESULTED IN LOSS TO REVENUE; OR TWO VIEWS WERE POSSI BLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE CIT MAY NOT AGREE; THE SAID ORDERS CANNOT BE TREATED AS AN ERRONE OUS ORDER PREJUDICIAL TO THE INTEREST OF REVENUE UNLESS THE V IEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. IN SUCH MATTERS, THE CIT MUST GIVE A FINDING THAT THE VIEW TAKEN BY THE ASSE SSING OFFICER IS UNSUSTAINABLE IN LAW AND, THEREFORE, THE ORDER IS E RRONEOUS. HE MUST ALSO SHOW THAT PREJUDICE IS CAUSED TO THE INTEREST O F THE REVENUE. 19. IN THE PRESENT CASE, THE FINDINGS RECORDED BY THE TRIBUNAL ARE CORRECT AS THE CIT HAS NOT GONE INTO AND HAS NOT GIV EN ANY REASON FOR OBSERVING THAT THE ORDER PASSED BY THE ASSESSING OFF ICER WAS ERRONEOUS. THE FINDING RECORDED BY THE CIT IS THAT ' ORDER PASSED BY THE ASSESSING OFFICER MAY BE ERRONEOUS'. THE CIT HA D DOUBTS ABOUT THE VALUATION AND SALE CONSIDERATION RECEIVED BUT TH E CIT SHOULD HAVE EXAMINED THE SAID ASPECT HIMSELF AND GIVEN A FIND ING THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS. HE CAME TO THE CONCLUSION AND FINDING THAT THE ASSESSING OFFICE R HAD EXAMINED THE SAID ASPECT AND ACCEPTED THE RESPONDENT S COMPUTATION FIGURES BUT HE HAD RESERVATIONS. THE CIT IN THE ORDER HAS RE CORDED THAT THE CONSIDERATION RECEIVABLE WAS EXAMINED BY THE ASSESSIN G OFFICER BUT WAS NOT PROPERLY EXAMINED AND THEREFORE THE ASSESSMEN T ORDER IS 'ERRONEOUS'. THE SAID FINDING WILL BE CORRECT, IF TH E CIT HAD EXAMINED AND VERIFIED THE SAID TRANSACTION HIMSELF AND GIVEN A FINDING ON MERITS. AS HELD ABOVE, A DISTINCTION MUST BE DRAWN IN THE CASES WHERE THE ASSESSING OFFICER DOES NOT CONDUCT AN ENQU IRY; AS LACK OF ENQUIRY BY ITSELF RENDERS THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND CASES WHERE THE ASSE SSING OFFICER CONDUCTS ENQUIRY BUT FINDING RECORDED IS ERRONEOUS AN D WHICH IS ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN LATT ER CASES, THE CIT HAS TO EXAMINE THE ORDER OF THE ASSESSING OFFICER ON MER ITS OR THE SURJEET AUTO AGENCY 22 DECISION TAKEN BY THE ASSESSING OFFICER ON MERITS AN D THEN HOLD AND FORM AN OPINION ON MERITS THAT THE ORDER PASSED BY T HE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THE SECOND SET OF CASES, CIT CANNOT DIRECT THE ASSES SING OFFICER TO CONDUCT FURTHER ENQUIRY TO VERIFY AND FIND OUT WHETHE R THE ORDER PASSED IS ERRONEOUS OR NOT. 21. AS HELD ABOVE BY HON'BLE DELHI HIGH COURT REVIS IONARY POWERS BY LD. PR. CIT/CIT CAN BE HELD TO BE CORRECT IF THE LD. PR. CIT HAD EXAMINED AND VERIFIED THE SAID TRANSACTIONS HIMSELF AND GIVEN A FINDING ON MERIT. 22. IN THE INSTANT CASE, THIS ASPECT WAS COMPLETELY MISSED OUT. THE INFORMATION OF LARGE CASH DEPOSIT IN SAVING BANK AC COUNT HAD COME BEFORE LD. PR. CIT. HE SHOULD HAVE CALLED FOR THE R ECORDS SO AS TO FIND OUT THE DETAILS OF SAVING BANK ACCOUNT IN WHIC H ALLEGED LARGE CASH WAS DEPOSITED. IT WAS NOT DONE SO. FURTHER LD. PR. CIT SHOULD HAVE NOTED THAT HOW A PARTNERSHIP FIRM CAN OPEN A S AVING BANK ACCOUNT, IT WAS AGAIN NOT DONE SO. IT IS QUITE POSS IBLE THAT THE REASONS ON THE BASIS OF WHICH CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ITSELF HAD SOME SHORT COMINGS OR ERROR WHI CH AT LEAST WHEN LD. PR. CIT WAS ISSUING THE SHOW CAUSE NOTICE SHOUL D HAVE TAKEN NOTE OF. GOING THROUGH IMPUGNED ORDER WE FIND THAT THE LD. PR. CIT HAS ONLY MENTIONED THE REASONS AND THE BRIEF SUBMIS SION MADE BY THE ASSESSEE AND WITH A VERY BRIEF ANALYSIS OF FACT S JUST REFERRED TO PLETHORA OF JUDGMENTS AND HELD THE ORDER OF THE LD. AO AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E WHICH IN OUR VIEW WAS NOT CORRECT TO A CERTAIN EXTENT. SURJEET AUTO AGENCY 23 23. WE, THEREFORE, IN TOTALITY OF FACTS AND VARIOUS DECISIONS REFERRED HEREINABOVE ARE OF THE CONSIDERED VIEW THAT THE IMP UGNED ORDER U/S 263 OF THE ACT IS PARTLY HELD TO BE CORRECT AND THE DIRECTION FOR SETTING ASIDE THE ORDER OF THE LD. AO DATED 26.04.2 017 IS HELD TO BE CORRECT ONLY LIMITED TO SINGLE ISSUE OF EXAMINING T HE PAYMENT OF RENT AND LEGAL FEES MADE TO RELATED PERSON NAMELY DEEPAK NENWANI (SON OF PARTNER ) DURING THE YEAR AS PROVIDED IN SECTION 40A(2)(A) OF THE ACT REGARDING THE REASONABLENESS OF THE SAID EXPEN DITURE INCURRED BY THE ASSESSEE. 24. IN RESULT, GROUNDS RAISED BY THE ASSESSEE ARE P ARTLY ALLOWED AND APPEAL FILED BY THE ASSESSEE IN ITANO.189/IND/2 020 IS PARTLY ALLOWED. ORDER WAS PRONOUNCED AS PER RULE 34 OF I.T.A.T. RUL ES 1963 ON 25.05.2021. SD/- (MADHUMITA ROY) SD/- (MANISH BORAD) JUDICIAL MEMBER A CCOUNTANT MEMBER INDORE; DATED : 25/05/2021 PATEL/PS COPY TO: ASSESSEE/AO/PR. CIT/ CIT (A)/ITAT (DR)/GUA RD FILE. BY ORDER ASSISTANT REGISTRAR, INDORE