SHRI SATISH JAIN, Indore V. THE CIT-2, Indore

ITA 342/IND/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5999 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 21-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALCHAND
• Assessee Lawyers: G J SHAH CAS
• Keywords: Opportunity of being heard; Principle of natural justice; Difference of opinion; Change of opinion
• Section: 263

Judgement Text

SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 1 OF 14 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE . . , . . , ' BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER SHRI SATISH JAIN , PP. SATISH AGRO INDUSTRIES , 1/1 SHRINATH CHAMBERS, MAHARANI ROAD INDORE VS. PR. CIT - 2 INDORE / APPELLANT / RESPONDENT . . ./ PAN:ABVPJ0983D / APPELLANT BY SHRI PANKAJ SHAH & SHRI G. J. SHAH CA`S / RESPONDENT BY SHRI LAL CHAND CIT (DR) / DATE OF HEARING 20.12.2016 / DATE OF PRONOUNCEMENT 1 3 .01.2017 / O R D E R PER O.P.MEENA, ACCOUTANT MEMBER. THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2010-11 FILED AGAINST THE ORDER UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 , DATED 30.03.2015, PASSED BY THE PRINCIPAL COMMISSIONER OF INCOME-TAX- 2, INDORE. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- GROUND I: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. COMMISSIONER OF INCOME-TAX-2, INDORE, [ THE CIT] ER RED IN INVOKING . . ./ I.T.A. NO. 342 /IND/2015 '$ $ / ASSESSMENT YEAR:2010-11 SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 2 OF 14 PROVISIONS OF SECTION 263 OF INCOME TAX ACT,1961 ( THE ACT) AND DIRECTING REVISION OF ASSESSMENT ORDER PASSED UNDER SECTION 143 (3) OF THE ACT BY THE ASSISTANT COMMISSIONER OF INCOME TAX , CIRCLE 4(1), INDORE (THE AO) ON THE ALLEGED GROUND THAT THE ASS ESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 2. THE APPELLANT PRAYS THAT SINCE THE ASSESSMENT ORDER PASSED BY THE AO WAS AFTER MAKING SPECIFIC AND FULL ENQUIRIES THERE FORE, THE ASSESSMENT ORDER CANNOT BE REGARDED AS ERRONEOUS AND ACCORDING LY THE ACTION OF THE CIT IN INVOKING PROVISIONS OF SECTION 263 AND R EVISING ASSESSMENT ORDER BE HELD AB-INITIO AND / OTHERWISE VOID AND B AD-IN-LAW. 3. THE APPELLANT FURTHER PRAYS THAT ORDER PASSED U/S. 263 OF THE ACT PURSUANT TO AN ADDITION MADE IN SUBSEQUENT ASSESSME NT YEAR OUGHT TO BE, IN THE FACTS AND CIRCUMSTANCES, STRUCK DOWN AS NULL AND VOID-AB- INITIO. GROUND II WITHOUT PREJUDICE TO GROUND I 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT ERRED IN PARTLY SETTING ASIDE THE ORDER AND DIRECT ING THE AO TO MAKE A FRESH ASSESSMENT ON ISSUE OF COMMISSION PAYM ENTS BASED ON EVIDENCES PRESENTED BY THE AO AND THAT THE ASSES SEE TO THE SATISFACTION OF RESPECTIVE PARTIES. 2. THE APPELLANT PRAYS THAT THE ORDER PASSED U/S. 263 OF THE ACT BE STRUCK DOWN AS NULL AND VOID AND ASSESSMENT ORDER O F THE AO BE RESTORED AND IT BE HELD THAT ON THE FACTS AND CIRCU MSTANCES, NO DISALLOWANCES OF COMMISSION EXPENSES IS CALLED FOR AT ALL. GROUND III: WITHOUT PREJUDICE TO GROUND I 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT ERRED IN OBSERVING THAT COMMISSION PAYMENT IS LIABL E TO BE DISALLOWED INSPITE OF THE FACT THAT DETAILS OF NAME , ADDRESS, AND PAN WERE PROVIDED TO THE AO AND THE AO HAD EXAMINED THE COMMISSION AGENTS DURING THE ORIGINAL ASSESSMENT PR OCEEDINGS. 2. THE APPELLANT PRAYS THAT THE ORDER PASSED U/S. 263 OF THE ACT BE STRUCK DOWN AS NULL AND VOID AND ASSESSMENT ORDER O F THE AO BE RESTORED AND IT BE HELD THAT ON THE FACTS AND CIRCU MSTANCES, NO DISALLOWANCE OF COMMISSION IS CALLED FOR. SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 3 OF 14 SINCE ALL THE ABOVE GROUNDS OF APPEAL ARE REVOLVED AROUND THAT THE LD. COMMISSIONER OF INCOME TAX HAS ERRED IN SETTING ASI DE THE ASSESSMENT ORDER U/S. 263 OF THE ACT ON THE GROUND THAT NO INQUIRY/ INVESTIGATION WAS MADE, HENCE, THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF THE REVENUE. HENCE, ALL GROUNDS ARE BEING CONSIDERE D TOGETHER AND BEING DISPOSED-OFF IN CONSOLIDATED MANNER. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF MANUFACTURING OF AGRICULTURAL SPRAYERS AND RELATED ITEMS. THE ASSESSEE HAS FILED RETURN OF INCOME ON 08.11.2011 DECLARING TOTA L INCOME OF RS.81,57,930/- WHICH WAS ASSESSED AT RS.89,14,320/- UNDER SECTION 1 43 (3) ON 18.01.2013. THE AO BASED ON ASSESSMENT ORDER PASSED FOR A.Y. 20 11-12 SENT A PROPOSAL U/S. 263 TO THE CIT TO TAKE REMEDIAL ACTION AS ON I DENTICAL BASIS COMMISSION PAYMENTS NOT DISALLOWED IN A.Y. 2010-11. ACCORDINGL Y, THE CIT INITIATED PROCEEDINGS U/S. 263 OF THE ACT STATING THAT IT WA S FOUND DURING ASSESSMENT PROCEEDINGS FOR A.Y. 2011-12 , THAT THE ASSESSEE HA S PAID COMMISSION EVEN SUPPLY TO GOVERNMENT DEPARTMENT I.E. MP AGRO INDUS TRIES DEVELOPMENT CORPORATION LIMITED AND MP STATE CO-OPERATIVE MAR KETING FEDERATION. FURTHER, IN RESPONSE TO NOTICE U/S. 133(6), THEY HA VE INFORMED THAT NO AGENTS REQUIRED FOR FACILITATION OF SALE BY THE ASSESSEE. THEREFORE, A SHOW CAUSE NOTICE ISSUED ON 19.01.2015 AS TO WHY PAYMENT OF CO MMISSION OF RS. 1,72,80,249/- ALLOWED IN ASSESSMENT ORDER FOR THE A SSESSMENT YEAR 2010-11 SHOULD NOT BE DISALLOWED AS GOVERNMENT HAS DISAPPRO VED THE ROLE OF MIDDLEMEN IN GOVERNMENT TRANSACTION AS FOUND DURING ASSESSMENT PROCEEDINGS IN A.Y. 2010-11. THE ASSESSEE FILED HI S REPLY DTD. 06.02.2015 STATING THAT THE ASSESSMENT ORDER HAS BEEN PASSED A FTER MAKING DETAILED INVESTIGATION AND IN REPLY TO POINT NO. 20 OF QUEST IONNAIRE DTD. 19.11.2012, THE LD.AO ASKED THE DETAILS OF COMMISSION EXPENSES AND SERVICE RENDERED SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 4 OF 14 WHICH WERE DULY COMPLIED WITH GIVING DETAILS OF NAM E, PAN SERVICE RENDERED AND SAME HAVING DISCUSSED WITH THE AO ON HEARING DT D. 04.12.2012 AND 11.01.2013. THE SAID REPLY OF THE ASSESSEE WAS FORW ARDED TO THE AO FOR HIS COMMENTS AND AFTER OBTAINING HIS COMMENTS, THE LD. CIT OBSERVED THAT SHE IS IN AGREEMENT WITH THE AO THAT COMMISSION PAYMENTS T O AGENTS IS FOR SOLE PURPOSE OF OBTAINING ORDERS FOR BUSINESS FROM GOVER NMENT DEPARTMENT IS NOT ALLOWABLE EXPENDITURE AS HELD BY TRIBUNAL INDOR E BENCH IN THE CASE OF NAUTAMAL & SONS (I.T.A. NO. 78/IND/2013) DTD. 19.07 .2013 AND SMT. GUNWANTI N SANGHVI (I.T.A. NO. 67/IND/2013-AY09-10) DTD. 17.10.2013 . THE LD. CIT WAS OF THE VIEW THAT MERE PAYMENT BY CH EQUE AND DEDUCTION OF TDS DOES NOT MAKES EXPENDITURE AS LEGALLY ADMISSIBL E. THE REPLY OF THE ASSESSEE IS FULL OF CONTRADICTION, AS THE ASSESSEE HAS DEBITED SALARY OF RS. 20, 14, 765 /- WHICH GOES TO PROVE THAT MARKET AND OFFI CE RELATED THE SALARIED EMPLOYEES HAVE DONE WORK AND THERE WAS NO FURTHER N EED TO PAY COMMISSION. 3. AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOM E TAX PASSED UNDER SECTION 263 OF THE ACT, THE ASSESSEE PREFERRED THE PRESENT APPEAL BEFORE US. 4. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THERE WAS A DETAILED APPLICATION OF MIND BY THE AO SINCE DETAILED QUESTIONNAIRE WITH RESPECT TO COMMISSION PAYMENTS WERE ISSUED EVEN FURTHER ENQUIRIES WERE MA DE BASED ON DETAILS SUBMITTED AND EVEN CERTAIN AGENTS WERE SUMMONED AN D THEIR STATEMENT ON OATH WERE RECORDED. THIS SHOWS THAT THE AO HAS APPL IED HIS MIND AND HAS TAKEN A CONSCIOUS VIEW IN THE MATTER; THEREFORE, TH E ORDER CANNOT BE TERMED AS ERRONEOUS. THE SOLE REASON ASSIGNED BY THE LEARN ED PR. CIT IS THE PRESUMPTION THAT NO COMMISSION IS REQUIRED TO BE PA ID IN CASE OF GOVERNMENT SUPPLIES. THE LD. A.R. LEARNED SUBMITTE D THAT M/S. M. P STATE SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 5 OF 14 AGRO INDUSTRIES DEVELOPMENT CORPORATION LTD. VIDE L ETTER DATED 21.02.2014 FILED BEFORE THE AO ON 25.02.2014 WHEREIN DETAILS OF VARIOUS FORMALITIES AND NATURE OF SERVICE REQUIRED TO BE CARRIED OUT BY THE ASSESSEE OR ITS REPRESENTATIVE HAVE BEEN SPELL OUT HAVE BEEN MENTI ONED. WHICH PROVES THAT THE ASSESSEE IS REQUIRED THE SERVICE OF AGENTS TO C ARRY OUT HIS BUSINESS OF SUPPLY OF GOODS TO FARMERS THROUGH GOVERNMENT NODAL AGENCY. THE LD. A.R. FURTHER SUBMITTED THAT THE REQUIREMENT OF AGENTS/ R EPRESENTATIVE IN CASE OF BUSINESS OF GOVERNMENT SUPPLIES AND PAYMENT COMMISS ION THEREIN HAS BEEN APPROVED BY JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. PURE PHARMA (P) LTD. [2005] 270 ITR 382(MP)/ [2005] 144 TAXMAN 364( MP), WHEREIN COMMISSION WAS FOUND PAID ON SUPPLIES MADE TO GOVER NMENT AND ITS AGENCIES AND ALL THE PAYMENTS WERE MADE TO VARIOUS PARTIES BY ACCOUNT PAYEE CHEQUES/ DEMAND DRAFTS, THE IDENTITY OF EACH OF THE AGENTS WAS ESTABLISHED AND THE EXPENDITURE WAS FOUND INCURRED FOR BUSINESS PURPOSES. IT WAS HELD THAT SUCH EXPENSES WERE ALLOWABLE AND CONSEQUENTLY, THE ADDITION WAS DELETED. THE LEARNED COUNSEL FOR THE ASSESSEE, SUB MITTED THAT GENUINENESS OF PAYMENTS OF COMMISSION CANNOT BE DOUBTED AS GOVERNM ENT AGENCIES HAVE CONFIRMED THE INVOLVEMENT OF REPRESENTATIVE, TDS WA S MADE ON PAYMENT OF COMMISSION MADE THROUGH CHEQUES, CONFIRMATION WERE FILED FROM AGENTS ALONG WITH TAX RETURNS AND AGENTS HAVE CALLED FOR THROUGH SUMMONS BY THE AO AND THEY HAVE EXPLAINED THE NATURE OF SERVICE RE NDERED CONFIRMING TRANSACTION. THE LEARNED AUTHORIZED REPRESENTATIVE FURTHER SUBMITTED THAT THE REVISION WAS MADE BASED ON DISALLOWANCE OF COMM ISSION IN SUBSEQUENT ASSESSMENT YEAR 2011-12, WHICH HAS BEEN DELETED BY THE LD. CIT (A). BE THAT AS IT MAY, DIVERGENT VIEWS TAKEN BY THE CIT(A) AND PR. CIT INDORE ITSELF PROVES THAT THERE ARE TWO VIEWS POSSIBLE ON THE ISS UE AND THEREFORE, REVISION SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 6 OF 14 CANNOT BE MADE ON FOLLOWING PRECEDENTS; A. CIT VS. HINDUSTAN COCA COLA 331 ITR 192(DEL) , B. ARVIND JEWELLERS 259 ITR 502 (GUJ ). THE LD. A.R. LEARNED FURTHER SUBMITTED THAT IT WAS A COMMERCIAL DECISIO N OF THE ASSESSEE NOT TO RECRUIT EMPLOYEES AND TO AVAIL SERVICES OF REPRESE NTATIVES WHICH SAVED VARIOUS FIXED COSTS LIKE SALARY, TRAVELLING ALLOWAN CE, D.A, PF, ESIC, ETC. AND WAS A PERFORMANCE ORIENTED APPROACH. 5. THE LD. A.R. HAS ALSO ELABORATELY ARGUED DISTINGUIS HING THE CASE LAW REFERRED TO AND RELIED UPON BY THE COMMISSIONER IN HIS ORDER UNDER SECTION 263 OF THE ACT. THE LD. A.R. CONTENDED THAT THE AO MADE PR OPER ENQUIRY AND EXAMINED ACCOUNTS, IT COULD NOT BE SAID THAT THERE WAS NON-APPLICATION OF MIND BY HIM. THE LD. A.R. ALSO FILED PHOTO COPIES O F ORDER SHEET OF THE AO REFLECTING THEREIN THAT THE AO HAD ASKED DETAILED O F COMMISSION PAYMENT VIDE ORDER SHEET NOTINGS (AS FILED AT PAPER BOOK PAGE -18). IT IS ALSO MENTIONED ON THE ORDER SHEET NOTING THAT THE ASSESS EE HAS PRODUCED SHRI VAIBHAV AND HIS STATEMENT IS BEING RECORDED. IN THE STATEMENT, SHRI VAIBHAV HAS CLEARLY STATED THAT HE HAD RECEIVED COMMISSION FROM THE ASSESSEE FOR THE SERVICE RENDERED. THE LD. A.R. ALSO FILED COPIES OF QUESTIONNAIRE DTD 19.11.2011 ISSUED TO THE ASSESSEE ASKING THE DETAIL S OF COMMISSION PAYMENTS. THE LD. A.R. ALSO FILED COPY OF REPLY FURNISHED IN RESPONSE TO THE SAID QUESTIONNAIRE. THUS THE LD. A.R. HAS CLAIMED THAT THE COMMISSION PAYMENTS HAVE BEEN ALLOWED BY THE AO, AFTER MAKING DETAILED INQUIRY AND AFTER WHEN THE AO HAS SATISFIED WITH THAT. THE AO ALSO EXAMINE D THE COMMISSION AGENTS. THE LD. A.R. LEARNED SUBMITTED THAT WHERE THE ASSES SING OFFICER DURING THE SCRUTINY ASSESSMENT PROCEEDING RAISED A QUERY WHICH WAS ANSWERED BY THE ASSESSEE TO THE SATISFACTION OF THE AO BUT THE SAME WAS NOT REFLECTED IN THE ASSESSMENT ORDER BY HIM, A CONCLUSION CANNOT BE DRA WN BY THE SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 7 OF 14 COMMISSIONER THAT NO PROPER ENQUIRY WITH RESPECT TO THE ISSUE WAS MADE BY THE ASSESSING OFFICER, AND ENABLE HIM TO ASSUME JUR ISDICTION UNDER SECTION 263 OF THE ACT ON THE BASIS OF FOLLOWING DECISIONS : CIT VS. ASHISH RAJPAL [2009] 320 ITR 674 (DELHI) , CIT VS. VIKAS POLYMERS [2012] 341 ITR 537(DEL) /[2010] 194 TAXMAN 57(DEL) AND CIT VS. VOD AFONE ESSAR SOUTH LTD. [2013] 212 TAXMAN 184(DEL) /28 TAXMANN.COM 273 (DEL) SUBMITTED THAT ONCE INQUIRY WAS MADE; A MERE NON DISCUSSION THEREO F IN THE ASSESSMENT ORDER CANNOT LEAD TO ASSUMPTION THAT THE ASSESSING OFFICER DID NOT APPLY HIS MIND OR THAT HE HAS NOT MADE INQUIRY ON THE SUBJECT AND THIS WOULD NOT JUSTIFY INTERFERENCE BY THE COMMISSIONER BY ISSUE N OTICE UNDER SECTION 263 OF THE ACT. LACK OF ENQUIRY CANNOT BE BASIS FOR REVISI NG ORDER PASSED BY THE AO AS HELD IN THE CASE OF CIT VS. SUNBEAM AUTO LTD. [2 009] 289 TAXMAN 436(DEL). 6. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER ARGUED THAT IT IS A SETTLED POSITION OF LAW THAT WHEN THE ASSESSING OFFICER HAS TAKEN A CERTAIN VIEW ON THE BASIS OF EVIDENCE BEFORE HIM, IN THE SHAPE OF ACCOU NTS AND INFORMATION FURNISHED BY THE ASSESSEE REGARDING THE EXTENT AND NATURE OF ITS ACIDITY IN RESPONSE TO ENQUIRIES MADE BY THE ASSESSING OFFICER , THE COMMISSIONER OF INCOME-TAX CANNOT SEEK TO REVISE THE ASSET UNDER SE CTION 263 OF THE ACT BY TAKING A DIFFERENT VIEW. THE LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT WHILE THE COMMISSIONER HAS NOT DISCUSSED OR R EFERRED TO ANY OF THE DECISIONS RELIED UPON BY THE ASSESSEE, THE DECISIO NS RELIED UPON BY THE COMMISSIONER IN THE IMPUGNED ORDER UNDER S.263, IN CLUDING NAUTAMAL & SONS (I.T.A. NO. 78/IND/2013) DTD. 19.07.2013 AND S MT. GUNWANTI N SANGHVI (I.T.A. NO. 67/IND/2013-AY09-10) DTD. 17.10 .2013 ARE CLEARLY DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE, INASMUCH AS IN THE SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 8 OF 14 PRESENT CASE IT IS NOT A MERE CHANGE OF OPINION O N THE PART OF THE COMMISSIONER, BUT IT IS A QUESTION OF FINDING OF FA CT AS REGARDS THE NATURE ASSESSEES ACTIVITY GIVEN BY THE ASSESSEE BASED ON THE EVIDENCE ON RECORD. 7. ON THE OTHER HAND, THE LEARNED D.R. SUBMITTED THAT THE PR. CIT WAS RIGHT IN INVOKING THE REVISION UNDER SECTION 263 OF THE ACT AS IT WAS FOUND DURING SUBSEQUENT ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD SUPPLIED AGRICULTURAL EQUIPMENT TO FARMERS THROUGH GOVERNMEN T NODAL AGENCIES, WHICH DO NOT REQUIRE ANY INTERMEDIARIES OR AGENTS. FURTHER THE PAYMENTS SO MADE IS AGAINST THE PUBLIC OF GOVERNMENT HENCE, SUC H PAYMENTS IS NOT ALLOWABLE AS DEDUCTION AS EXPENSES. THE LD. D.R. AL SO PLACED RELIANCE IN THE CASE OF SMT. GUNWANTI N SANGHVI (I.T.A. NO. 67/IN D/2013-AY09-10) DTD. 17.10.2013 AND NAUTAMAL & SONS (I.T.A. NO. 78/IND/2 013) DTD. 19.07.2013 IN SUPPORT OF HIS CONTENTION. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSE D THE MATERIAL AVAILABLE ON RECORD. WE HAVE GONE THROUGH ALL THE JUDGEMENTS CITED BY THE PARTIES BEFORE US. FIRST WE TAKE UP THE LEGAL ISSUE WITH R EFERENCE TO THE JURISDICTION OF INVOKING THE PROVISIONS OF SECTION 263 OF THE AC T BY THE LEARNED CIT. SECTION 263(1) OF THE ACT EMPOWERS THE COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THE ACT AND IF IT IS CONSIDERED THAT ANY ORDER PASSED BY THE ASSESSING OFFICER IS ' ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE', HE MA Y AFTER GIVING THE ASSESSEE AN OPPORTUNITY TO BE HEARD AND AFTER MAKING SUCH IN QUIRIES AS NECESSARY, PASS SUCH ORDERS THEREON AS THE CIRCUMSTANCES OF TH E CASE WOULD JUSTIFY INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSES SMENT. THUS, IN ORDER TO EXERCISE THE POWERS UNDER SECTION 263(1) OF THE ACT , THE COMMISSIONER OF INCOME TAX MUST BE SATISFIED THAT THE ASSESSMENT OR DER MADE BY THE SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 9 OF 14 ASSESSING OFFICER WAS (A) ERRONEOUS; AND (B) PREJUD ICIAL TO THE INTERESTS OF THE REVENUE. THE SUPREME COURT IN THE CASE OF MALABAR I NDUSTRIAL CO. LTD. V. CIT [2000] 243 ITR 83 (SC) HAD INTERPRETED THE PROVISIONS OF SECTION 263 (1) IN THE FOLLOWING WORDS (PAGE 87) : 'A BARE READING OF THIS PROVISION MAKES IT CLEAR TH AT THE PREREQUISITE TO THE EXERCISE OF JURISDICTION BY THE COMMISSIONER SU O 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 CO MMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS ; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT IF THE OR DER OF THE INCOME-TAX OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUERECOURS E CANNOT BE HAD TO SECTION 263(1) OF THE ACT. THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSE SSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WI LL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLI CATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOU S. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PR INCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND . . . THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE REV ENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE A SSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE. FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 10 OF 14 PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF R EVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS T AKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINAB LE IN LAW.' 9. FOLLOWING THE AFORESAID JUDGMENT, THE SUPREME COURT IN CIT V. MAX INDIA LTD. [2007] 295 ITR 282 (SC) REITERATED THAT THE PHRASE 'PREJUDICIAL TO TH E INTERESTS OF THE REVENUE' AS USED IN SECTION 263(1) OF THE ACT MUST BE READ IN CONJUNCTION WITH THE EXPRESSION 'ERRONEOUS' AND UNL ESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS FOUND TO BE UNSUSTAINABLE IN LAW, THE POWERS UNDER SECTION 263 OF THE ACT CANNOT BE INVOKED. 10. IN VIEW OF THE SETTLED LAW, AS INDICATED ABOVE, THE ISSUE TO BE CONSIDERED IS WHETHER THE CLAIM OF THE ASSESSEE FOR COMMISSION PA YMENTS IS DEDUCTIBLE UNDER THE PROVISION OF THE ACT AND IS SUSTAINABLE I N LAW. 11. IN THE CASE OF CIT VS. MAX INDIA LTD. (NO.2) [2016] 388 ITR 81(P&H) THE HONBLE SUPREME COURT HAS OBSERVED AS FOLLOWS: AT THIS STAGE, WE MAY CLARIFY THAT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA) THIS COURT HAS TAKEN THE VIEW THAT THE PHRASE 'PREJUDICIAL TO THE INTEREST OF THE REVENUE' UNDER S. 263 HAS TO BE READ IN CONJUNCTION WITH THE EXPRESSION 'ERRONEOUS' ORDER PASSED BY THE AO. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE AO CANNOT BE TREATED AS PREJUDICIAL TO THE I NTEREST OF THE REVENUE. FOR EXAMPLE, WHEN THE ITO ADOPTED ONE OF THE COURSES PE RMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGRE E, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF T HE REVENUE, UNLESS THE VIEW SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 11 OF 14 TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW (EMPHASI S BY UNDERLINING SUPPLIED BY US) 12. THE VIEW TAKEN BY THE ASSESSING OFFICER, THEREFORE, NEED NOT ONLY BE A POSSIBLE VIEW OF THE MATTER BUT ALSO A VIEW, WHICH IS NOT UNSUSTAINABLE IN LAW. WE FIND THAT THE VIEW TAKEN BY THE ASSESSING OFFICER IS SUSTAINABLE IN LAW AT THE POINT OF TIME WHEN THE ASSESSMENT ORDER WAS PASSED, THEREFORE, NOW THE SAID TO BE A VIEW OF THE AO CANNOT BE DISTU RB BY THE LD. PR. CIT IN THE REVISION PROCEEDINGS. 13. WE SHALL NOW TURN TO THE FACTS OF THE CASE TO SEE W HETHER THE CASE BEFORE US IS COVERED BY THE AFORESAID PRINCIPLES. PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER SHOWS THAT TH E AO HAS APPLIED HIS MIND TO THE CLAIM OF COMMISSION PAYMENTS AND AFTER EXAMINED THE SAME IN DETAILED HAS ARRIVED AT A FINDING THAT THE CLAIM OF THE ASSESSEE IS PERMISSIBLE IN LAW. THE AO HAS ALSO EXAMINED THE RE CIPIENT OF COMMISSION AND EXAMINED THE NATURE OF SERVICE RENDE RED BY THEM. SOME OF THE RECIPIENT HAVE ALSO APPEARED BEFORE THE AO. THUS IS A CASE WHERE, THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM AFTER THOROUGH EXAMINATION OF THE CLAIM MADE BY THE ASSESSEE. THE EVIDENCE ARE AVAILABLE ON RECORD IS ENOUGH TO HOLD THAT THE CLAI M MADE BY THE ASSESSEE WAS OBJECTIVELY EXAMINED OR CONSIDERED BY THE ASSESSING OFFICER. WE ALSO FIND THAT THE ASSESSEE HAS PRODUCE D A COPY OF LETTER DTD. 21.02.2014 ISSUED BY M/S. M. P. STATE AGRO INDUSTRI ES DEVELOPMENT CORPORATION BEFORE THE AO ON 25.02.2014 IN ASSESSMEN T PROCEEDINGS FOR THE ASSESSMENT YEAR 2001-12 , WHEREIN DETAIL OF VAR IOUS FORMALITIES AND SERVICE REQUIRED TO BE CARRIED OUT BY THE ASSESSEE HAS BEEN DISCUSSED AND SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 12 OF 14 ALSO REQUIREMENT OF AGAINST BY THE ASSESSEE FOR THE PURPOSE OF SALE OF TO FAMERS ARE ENUMERATED. SUCH COMMISSION PAYMENTS WER E ALSO FOUND ALLOWABLE IN THE LIGHT OF DECISION OF HON`BLE JURIS DICTIONAL HIGH COURT OF M. P. IN THE CASE OF CIT VS. PURE PHARMA (P) LT D. [2005] 270 ITR 382(MP)/ [2005] 144 TAXMAN 364(MP) WHEREIN COMMISSIO N WAS FOUND PAID ON SUPPLIES MADE TO GOVERNMENT AND ITS AGENCIE S AND ALL THE PAYMENTS WERE MADE TO VARIOUS PARTIES BY ACCOUNT PA YEE CHEQUES/ DEMAND DRAFTS, THE IDENTITY OF EACH OF THE AGENTS W AS ESTABLISHED AND THE EXPENDITURE WAS FOUND INCURRED FOR BUSINESS PURPOSE S. IT WAS HELD THAT SUCH EXPENSES WERE ALLOWABLE AND CONSEQUENTLY, THE ADDITION WAS DELETED. THE DECISION OF TRIBUNAL OF INDORE BENCH ( SUPRA) RELIED BY THE LD. PR. CIT ARE NOT REFERRED IN THE SAID DECISIONS. FURTHER THE SAID DECISIONS ARE DISTINGUISHABLE AS IN THE SAID CASE C OMMISSION PAID @ 20% ON SUPPLIES TO STATE PWD AND IDA FOR PROCUREMEN T OF ORDER FROM SAID DEPARTMENT OF WHICH BILLS WERE ALSO NOT PRODUC ED BY THE ASSESSEE, WHEREAS IN THE CASE IN HAND, THE COMMISSION PAYMENT IS MADE BY THE ASSESSEE TO FACILITATE THE MARKETING IN THE VILLAGE S, EDUCATING THEM THE USAGE, DEMONSTRATION, COMPLETING PAPER FORMALITIES, DOCUMENTATION AND FOLLOW UP FOR PAYMENTS AFTER SALES AND SERVICE. SUC H MANPOWER EMPLOYED BY THE ASSESSEE BY EMPLOYING LESS NUMBER O F EMPLOYEES TO THAT THE ASSESSEE COULD SAVE THE FIXED COST ON ACCO UNT OF SALARY, PF, TRAVELLING ALLOWANCE DA ETC. IT IS BECAUSE OF SU CH CONSIDERATION OF THE ISSUES ON THE PART OF THE ASSESSING OFFICER THAT TH E CLAIM BY THE ASSESSEE STOOD ACCEPTED WITH DETAILED SCRUTINY. THE ASSESSME NT ORDER PLACED BEFORE US IS CLEARLY NOT ERRONEOUS AS IT WAS PASSED WITH PROPER EXAMINATION OR ENQUIRY OR VERIFICATION OR OBJECTIVE CONSIDERATION OF THE SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 13 OF 14 CLAIM MADE BY THE ASSESSEE. THE ASSESSING OFFICER H AS COMPLETELY GONE THROUGH THE ISSUE IN QUESTION FROM CONSIDERATION AN D MADE THE ASSESSMENT IN JUDICIOUS AND HAS TAKEN A POSSIBLE VI EW. HIS ORDER IS A COMPLETELY A SPEAKING ORDER. IN OUR VIEW, IT WAS NO T A FIT CASE FOR THE LEARNED COMMISSIONER TO EXERCISE HIS REVISIONAL JUR ISDICTION UNDER SECTION 263 WHICH HE HAS NOT RIGHTLY EXERCISED BY D IRECTING THE ASSESSING OFFICER TO PASS A FRESH ORDER CONSIDERING THE PAYME NTS OF COMMISSION PAYMENTS. 14. WE FIND FORCE IN THE CONTENTION OF THE LD. A.R. THA T THE ASSESSING OFFICER HAD TAKEN A POSSIBLE VIEW IN ACCEPTING THE RETURN O F THE ASSESSEE WITH REFERENCE COMMISSION PAYMENTS AND HENCE, THE COMMIS SIONER WAS NOT JUSTIFIED IN ASSUMING THE REVISIONAL JURISDICTION U NDER SECTION 263. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE AFOR ESAID SUBMISSIONS. WE DID NOT FIND ANYTHING WRONG WITH THE ORDER OF TH E AO AS ALL THE FACTS STATED OR THE CLAIMS MADE IN THE RETURN ARE ASSUMED CORRECT. THUS, THERE IS NO FAILURE ON THE PART OF THE ASSESSING OFFICER TO MAKE THE NECESSARY INQUIRIES OR TO EXAMINE THE CLAIM MADE BY THE ASSES SEE IN ACCORDANCE WITH LAW, HENCE, THE RESULTANT ORDER IS NOT ERRONEO US AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 15. IT WAS NEXT CONTENDED BY THE LD. A.R. THAT THE ASSE SSING OFFICER HAD CONSIDERED ALL THE RELEVANT ASPECTS OF THE CASE CAR EFULLY WHILE PASSING THE ORDER. ACCORDING TO HIM, THE MERE FACT THAT THE ASS ESSMENT ORDER PASSED BY THE ASSESSING OFFICER WAS SHORT NEITHER WOULD ME AN FAILURE ON HIS PART IN NOT EXAMINING THE MATTER CAREFULLY NOR WOUL D RENDER HIS ORDER ERRONEOUS SO LONG AS THE VIEW TAKEN BY HIM WAS A PO SSIBLE VIEW. WE ALSO SHRI SATISH JAIN, INDORE / I.T.A. NO.342/IND/2015/A .Y: /10-11 PAGE 14 OF 14 FIND THAT SUCH DISALLOWANCE OF COMMISSION MADE IN T HE ASSESSMENT YEAR 2011-12 BY THE AO HAS BEEN STANDS DELETED BY THE LD . CIT (A). HENCE, WE CAN SAY THE VIEW ADOPTED BY THE AO IS CORRECT VIEW. THE REVENUE HAS ALSO FILED APPEAL FOR THE ASSESSMENT YEAR 2001-12 O N SUCH DELETION OF COMMISSION BY THE LD. CIT (A) BEFORE TRIBUNAL. WE H AVE ALSO EXAMINED THAT APPEAL AND FIND THE COMMISSION PAYMENT IS ALLO WABLE DEDUCTION FOR WHICH SEPARATE ORDER IS BEING PASSED. IN VIEW OF TH IS MATTER, WE ARE OF THE CONSIDERED OPINION THAT THE REVISION MADE BY T HE LD. PR. CIT CANNOT BE UPHELD. THEREFORE, THE AFORESAID SUBMISSION OF T HE ASSESSEE MUST ARE TO BE UPHELD AS CORRECT FOR THE REASONS ALREADY EX PLAINED IN THE FOREGOING PARAS OF THIS ORDER AS THE ORDER, WHICH IS SOUGHT TO BE REVISED UNDER SECTION 263 REFLECTS PROPER APPLICATION OF MI ND BY THE ASSESSING OFFICER AND THUS NOT AMENABLE TO REVISION UNDER SEC TION 263 OF THE ACT. IT IS IN THIS VIEW OF THE MATTER, WE FEEL THAT THE LEARNED COMMISSIONER HAS NOT CORRECTLY EXERCISED HIS REVISIONAL JURISDIC TION UNDER SECTION 263 OF THE ACT. HENCE, THE REVISION ORDER PASSED UNDER SECTION 263 OF THE ACT IS SET-ASIDE. ACCORDINGLY, THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE ALLOWED. 17. THE ORDER PRONOUNCED IN OPEN COURT ON 03.01.2017 S D / - S D / - ( . . ) (D.T.GARASIA) JUDICIAL MEMBER ( . . ) (O.P.MEENA) ACCOUNTANT MEMBER DATED: JANUARY 3 RD , 2017/ OPM