M/s Metro & Metro, Agra V. C.I.T.-1, Agra

ITA 366/AGR/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0425 (ITAT-AGRA)
• Duration Of Justice: 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-08-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 12-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NAVIN GARGH
• Keywords: Opportunity of being heard; Principle of natural justice; Period of limitation; Reason to believe; Capital expenditure; Set aside
• Section: 44AD; 143(3); 142(1); 143(2); 263

Judgement Text

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.366/AGR/2010 ASST. YEAR: 2007-08 M/S. METRO & METRO, VS. COMMISSIONER OF INCOME- TAX-I, 5/170, HALWAI KI BAGICHI, AGRA. MATHURA ROAD, AGRA. (PAN : AACFM 1909 J). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NAVIN GARGH, ADVOCATE RESPONDENT BY : NONE (APPLICATION REJECTED) ORDER PER P.K. BANSAL, A.M.: THIS APPEAL HAS BEEN FIELD BY THE ASSESSEE AGAINST THE ORDER OF THE CIT DATED 21.06.2010 PASSED UNDER SECTION 263 OF THE INCOME-TAX ACT, 196 1 (THE ACT HEREINAFTER) BY WHICH THE ASSESSEE HAS CHALLENGED THE ORDER BEING ILLEGAL AND BAD IN LAW. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE CIT ISS UED NOTICE UNDER SECTION 263 OF THE ACT TO THE ASSESSEE POINTING OUT THAT THE ORDER PASSED BY THE A.O. DATED 06.03.2009 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE DUE TO V ARIOUS REASONS REPRODUCED UNDER PARA NOS.1 TO 3 OF THE ORDER PASSED U/S.263. THE ASSESSEE SUBMITTE D THE REPLY. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE CIT ACCEPTED THE EXPLANATION OF THE A SSESSEE SO FAR TWO ISSUES WHICH ARE GIVEN 2 UNDER PARA NOS.2 & 3 OF THE IMPUGNED ORDER, IS CONC ERNED. IN RESPECT OF THE FIRST ISSUE, THE CIT DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE T HAT THE ASSESSMENT ORDER DATED 06.03.2009 IS NOT ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF TH E REVENUE. THE CIT ACCORDINGLY SET ASIDE THE ASSESSMENT FOR LIMITED PURPOSE EXAMINATION OF THE I SSUE RELATING TO THE HIGHER WASTAGE OF SOLES USED IN MANUFACTURING OF SHOES OF 1.93% AND DIRECTE D THE A.O. TO FRAME REASSESSMENT AFTER PROVIDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. THE ISSUE INVOLVED WAS THAT THE CIT NOTED FROM THE ASSESSMENT ORDER DATED 06.03.2009 THAT THE ASSESSEE HAS CONSUMED SOLE FOR 8,77,363 PAIRS WHILE THE FINISHED GOODS MANUFACTURED WERE 8, 60,471 PAIRS. THUS, THERE WAS WASTAGE OF 16,852 PAIRS WHICH WAS 1.93%. IT WAS NOTED BY HIM THAT THE ASSESSEE IN ITS REPLY DATED 19.02.2009 STATED BEFORE THE A.O. THAT THE WASTAGE DURING THE YEAR IS MORE BY 1.61% AS COMPARED TO PRECEDING YEAR IN WHICH IT WAS 0.32% OF SALES I.E. 14,085 PAIRS AND THE VALUE OF 14,085 PAIRS COMES TO RS.14,08,500/- WHICH IS 0.23% OF THE TURNOVER. THE CONTENTION OF THE ASSESSEE OF INCREASE IN THE WASTAGE OF 1.61% WAS AC CEPTED BY THE A.O. WITHOUT GIVING ANY VALID REASON. THE A.O. HAS NOT EXAMINED THIS ASPECT THAT THERE WERE NEARLY SIX TIMES INCREASE IN THE WASTAGE AS COMPARED TO THE PRECEDING YEAR. THE ASS ESSEE BEING AGGRIEVED HAS COME IN APPEAL BEFORE US. 3. BEFORE US, THE LD. A.R. VEHEMENTLY CONTENDED THA T THE CIT HAS ISSUED THE SHOW CAUSE NOTICE UNDER SECTION 263 OF THE ACT ON 3 ISSUES, OU T OF WHICH, HE ACCEPTED THE EXPLANATION OF THE ASSESSEE ON TWO ISSUES BUT DID NOT AGREE WITH THE E XPLANATION OF THE ASSESSEE SO FAR THE HIGHER WASTAGE OF SOLE USED IN THE MANUFACTURING OF SHOES ARE CONCERNED. IT WAS POINTED OUT BY THE LD. A.R. THAT THERE WAS NO ERROR IN THE ORDER OF THE A. O. THE A.O. HAS EXAMINED THIS ISSUE IN DETAIL. EVEN IN THE QUESTIONNAIRE HE HAS SPECIFICALLY ASKED FOR THE DETAILS FOR THE FALL IN G.P. AS WELL AS 3 CONSUMPTION OF THE RAW MATERIAL. THE ASSESSEE VIDE HIS LETTER DATED 19.02.2009 HAS DULY EXPLAINED TO THE ASSESSEE THAT THE WASTAGE IN THE C ONSUMPTION OF THE SOLE HAS INCREASED AS COMPARED TO THE EARLIER YEAR BY 1.61% AND THIS WAST AGE IN TERMS OF THE COST COMES ONLY TO 0.23% OF THE TURNOVER. FOR THIS, OUR ATTENTION WAS DRAWN TOWARDS PAGE NO.19 OF THE PAPER BOOK. IT WAS ALSO POINTED OUT THAT THE DETAILS OF THE CONSUMPTIO N OF THE SALES WERE DULY SUBMITTED BY THE ASSESSEE. THE A.O., AFTER EXAMINING THE CONSUMPTIO N OF THE SOLES AND THE REASONS GIVEN BY THE ASSESSEE FOR INCREASE IN THE CONSUMPTION, ACCEPTED THE CONSUMPTION OF THE SOLES DURING THE YEAR. HE CANNOT DIRECT THE A.O. TO ACCEPT THE CONSUMPTION AT A PARTICULAR RATE. IT IS NOT THE CASE WHERE THE ASSESSEE HAS NOT EXPLAINED THE REASONS FOR THE WASTAGE OF THE SOLES USED IN MANUFACTURING @ 1.93%. EVEN THE CIT WAS NOT SURE AND, THEREFORE, H E HAS SIMPLY SET ASIDE THE ASSESSMENT FOR THE LIMITED PURPOSE OF EXAMINING THE HIGHER WASTAGE OF THE SOLE USED IN MANUFACTURING. SECTION 263 DOES NOT EMPOWER THE CIT TO SET ASIDE THE ASSESSMEN T JUST FOR THE PURPOSE OF REEXAMINING THE SAME ISSUE. BY REFERRING TO PAGE 9 OF THE PAPER BO OK, IT WAS POINTED OUT THAT THE WASTAGE DURING THE A.Y. 2003-04 & 2004-05 WERE AS HIGH AS 9.01% AN D 6.31% RESPECTIVELY. THIS FACT WAS DULY EXPLAINED AND THIS WASTAGE HAS DULY BEEN ACCEPTED B Y THE REVENUE IN THE ASSESSMENT FRAMED UNDER SECTION 143(3). IT WAS FURTHER CONTENDED THA T IT IS NOT THE CASE WHERE THE A.O. HAS NOT MADE THE ENQUIRY. IF THE A.O. HAS NOT INCORPORATED THE ENQUIRY MADE, IN THE ASSESSMENT ORDER, THE ORDER PASSED BY THE A.O. WILL NOT BECOME ERRONE OUS. REFERRING TO PARA NO.2 OF THE ASSESSMENT ORDER DATED 06.03.2009, IT WAS POINTED O UT THAT THE A.O. HAS MENTIONED THAT THE ASSESSEE HAS SUBMITTED ALL THE DETAILS AS WERE REQU IRED AND ASKED FOR. THE WRITTEN SUBMISSIONS OF THE ASSESSEE WERE DULY EXAMINED. THE BOOKS OF ACCO UNT WERE ALSO PRODUCED AND EXAMINED ON TEST CHECK BASIS. THE ASSESSEE CANNOT DIRECT THE A .O. WHAT THE A.O. SHOULD INCORPORATE IN THE ASSESSMENT ORDER. IT IS PREROGATIVE OF THE A.O. TO DAFT THE ASSESSMENT ORDER IN THE MANNER IN 4 WHICH HE MAY DESIRE. THE ASSESSEE HAS SUBMITTED AL L THE NECESSARY INFORMATION AS WAS ASKED FOR. IF THE A.O. HAS TAKEN ONE OF THE VIEW WHICH IS NOT LIKED BY THE CIT, IT CANNOT BE SAID THAT THE A.O. HAS NOT MADE THE PROPER ENQUIRY AND THE ORDER PASSED BY HIM IS ERRONEOUS. THE CIT HAS ILLEGALLY SET ASIDE THE ASSESSMENT ORDER. RELIANCE WAS PLACED IN THIS REGARD ON THE FOLLOWING CASE LAWS:- I) CIT VS. RATLAM COAL ASH COMPANY, 171 ITR 141 (M. P.) II) CIT VS. ARVIND JEWELLERS, 259 ITR 502 (GUJ.) III) CIT VS. MAX INDIA LIMITED, 295 ITR 282 (SC) IV) CIT VS. R.K. CONSTRUCTION CO., 313 ITR 65 (GUJ. ) V) MALABAR INDUSTRIAL CO. LTD. VS. CIT, 243 ITR 83 (SC) 4. IT WAS ALSO CONTENDED THAT IN THE A.Y. 2004-05 A LSO THE ORDER WAS REVISED U/S. 263. ONE OF THE REASON RELATE TO CONSUMPTION OF SOLES. I.T. A.T. IN ITA NO.136/AGR/2009 VIDE ORDER DATED 16.10.2009 TOOK THE VIEW UNDER PARA 11 THAT CIT WAS NOT JUSTIFIED IN ALLEGING THAT THE SOLE/INSOLE HAS BEEN CLAIMED AT MUCH HIGHER FIGURE THAN THE PAI RS MANUFACTURED TO HOLD THE ASSESSMENT ORDER IN THIS REGARD AS ERRONEOUS. 5. LD. D.R., ON THE OTHER HAND, VEHEMENTLY CONTENDE D THAT THE A.O. HAS NOT MADE THE PROPER ENQUIRY AND THE CIT, THEREFORE, WAS CORRECT IN LAW IN SETTING ASIDE THE ASSESSMENT. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO N AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE CASE LAW AS RELIED ON AND THE ORDER OF THE CIT PASSED U/S. 263 OF THE ACT. SECTION 263 LAYS DOWN AS UNDER:- 5 263. (1) THE COMMISSIONER MAY CALL FOR AND EXA MINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE IN TERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD A ND AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING O R MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASS ESSMENT. EXPLANATION.-FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT, FOR THE PURPOSES OF THIS SUB-SECTION, - (A) AN ORDER PASSED ON OR BEFORE OR AFTER THE 1ST D AY OF JUNE, 1988 BY THE ASSESSING OFFICER SHALL INCLUDE - (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT CO MMISSIONER OR DEPUTY DIRECTOR OR THE INCOME-TAX OFFICER ON THE BA SIS OF THE DIRECTIONS ISSUED BY THE JOINT COMMISSIONER UNDER S ECTION 144A; (II) AN ORDER MADE BY THE JOINT COMMISSIONER IN EXE RCISE OF THE POWER OR IN THE PERFORMANCE OF THE FUNCTIONS OF AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR 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. 6 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. 7. FROM THE PERUSAL OF THE AFORESAID SECTION, IT IS APPARENT THAT THERE ARE FOUR MAIN FEATURES OF THE POWER OF REVISION TO BE EXERCISED U/S 263 BY THE COMMISSIONER OF INCOME-TAX. FIRSTLY, THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORDS O F ANY PROCEEDINGS UNDER THE ACT AND FOR THIS PURPOSE HE NEED NOT TO SHOW ANY REASON OR RECO RD ANY REASON TO BELIEVE. IT IS A PART OF HIS ADMINISTRATIVE POWER TO CALL FOR THE RECORD AND EXA MINE THEM RELATING TO ANY ASSESSEE. SECONDLY, HE MAY CONSIDER ANY ORDER PASSED BY THE ASSESSING O FFICER AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THIS IS EXERCISED BY C ALLING FOR AND EXAMINING THE RECORD AVAILABLE AT THIS STAGE. THERE IS NO QUESTION OF THE ASSESSEE TO APPEAR AND MAKE SUBMISSION AT THIS STAGE. THIRDLY, IF AFTER CALLING FOR AND EXAMINING THE REC ORDS THE COMMISSIONER CONSIDERS THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE I S BOUND TO GIVE AN OPPORTUNITY TO THE ASSESSEE OF BEI NG HEARD AND AFTER MAKING OR CAUSING TO BE MADE SUCH ENQUIRY AS HE MAY DEEM FIT, PASS SUCH ORD ER THEREON AS THE CIRCUMSTANCES OF THE CASE MAY JUSTIFY INCLUDING AN ORDER ENHANCING OR MODIFYI NG THE ASSESSMENT OR CANCELING ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. THIS EMPOWERS TH E CIT TO CAUSE OR MAKE SUCH ENQUIRIES AS HE DEEMS NECESSARY. FOURTHLY, THE CIT U/S 263 CAN ENH ANCE OR MODIFY THE ASSESSMENT AS A RESULT OF ENQUIRY CONDUCTED AND HEARING OF THE ASSESSEE. . 8. FOR INVOKING THE PROVISIONS OF SECTION 263, BOTH THE CONDITIONS THAT THE ORDER PASSED BY THE A.O. IS ERRONEOUS AND ALSO THAT IT IS PREJUDICI AL TO THE INTEREST OF REVENUE MUST BE SATISFIED. IF 7 ONE OF THEM IS ABSENT, THE PROVISIONS OF SECTION 26 3 CANNOT BE INVOKED. THE TERM ERRONEOUS HAS NOT BEEN DEFINED UNDER THE INCOME-TAX ACT BUT IT IS WELL SETTLED THAT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE A.O. CANNOT BE SA ID TO BE AN ERROR. AN ORDER CAN BE SAID TO BE ERRONEOUS IF THERE IS INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW IN THE ORDER BY THE A.O. IF THE A.O. AFTER MAKING THE ENQUIRIES AN D EXAMINING THE RECORDS TAKEN ONE OF THE POSSIBLE VIEW, IT CANNOT BE SAID THAT THE ORDER PAS SED BY THE A.O. WAS ERRONEOUS. THE RECORD AND THE EVIDENCE PRODUCED BEFORE US DURING THE COURSE O F HEARING REFLECT APPARENTLY THAT THE A.O. IN THIS CASE HAS CARRIED OUT ENQUIRY FOR THE CONSUMPTI ON OF SOLES BY THE ASSESSEE. THE WASTAGE BEING HIGH AS COMPARED TO THE EARLIER YEAR WAS ALSO LOOKED INTO BY THE A.O. THE A.O. HAS ISSUED THE QUESTIONNAIRE TO THE ASSESSEE. THE ASSESSEE BY HIS LETTER DATED 19.02.2009 DULY EXPLAINED THE A.O. THE REASONS FOR WASTAGE ON CONSUMPTION OF THE SOLES. HE HAS SPECIFICALLY POINTED OUT THAT DURING THE MANUFACTURING PROCESS THE SOLES ARE BROK EN AND THESE SOLES CANNOT BE USED AND HAVE TO BE THROWN OUT AS THESE SOLES DO NOT HAVE ANY COMMER CIAL VALUE. HE ALSO EXPLAINED THAT OVERALL IMPACT OF THE WASTAGE OF SOLES WAS ONLY 0.23% OF TH E TURNOVER. THE EXPLANATION OF THE ASSESSEE SUBMITTED BEFORE THE A.O. IS AVAILABLE AT PAGE NO.1 9 OF THE PAPER BOOK. THE A.O. HAD NOT MADE ANY ADDITION ON ACCOUNT OF WASTAGE OF CONSUMPTION O F SOLE AND PASSED THE ORDER ON 06.03.2009. EVEN THOUGH ADDITIONS WERE MADE ON ACCOUNT OF VARIO US OTHER DISALLOWANCES, THE A.O. HAD GIVEN UNDER PARA NO.2 OF ITS ORDER CLEAR-CUT FINDING THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS REQUIRED TO FURNISH THE DETAILS AS PER THE QUESTIONNAIRE ISSUED AND OTHER DETAILS AS PER THE ORDER SHEET ENTRIES OF DIFFERENT DATES. IT WAS ALSO MENTIONED THAT THE WRITTEN SUBMISSIONS WERE FILED BY THE ASSESSEE FROM TIME TO TIME AND THE SAME HAS BEEN PLACED ON RECORD. THE BOOKS OF ACCOUNTS WERE ALSO PRODUCED A ND WERE EXAMINED ON TEST CHECK BASIS. THIS FACT IS ALSO CLEAR FROM THE ORDER PASSED UNDER SECT ION 263. THE CIT HAS ALSO REFERRED TO THE LETTER 8 OF THE ASSESSEE DATED 19.02.2009 IN WHICH THE ASSES SEE HAS GIVEN THE REASON FOR INCREASE IN WASTAGE. THE CIT MERELY, IN OUR OPINION, TRIED TO THRUST UPON HIS VIEW ON THE A.O. AND, THEREFORE, IN THE ORDER PASSED UNDER SECTION 263 UN DER PARA NO.1, THE CIT OBSERVED IN RESPECT OF REPLY OF THE ASSESSEE DATED 19.02.2009 THE REASON GIVEN BY THE ASSESSEE FOR INCREASE IN WASTAGE IS NOT ACCEPTABLE. IN OUR OPINION, THE CIT CANNOT ENTER INTO THE SHOES OF THE A.O. IF THE A.O. HAS TAKEN ONE OF THE VIEW, UNTIL AND UNLESS THAT VI EW IS UNSUSTAINABLE IN LAW, THE CIT CANNOT TAKE ACTION UNDER SECTION 263 HOLDING THE ORDER PASSED B Y THE A.O. TO BE ERRONEOUS. THERE IS NOTHING ON RECORD HOW THE REASON GIVEN BY THE ASSESSEE WERE NOT ACCEPTABLE. THE A.O. WHO HAS BEEN EMPOWERED UNDER SECTION 143(3) TO FRAME THE ASSESSM ENT AND DETERMINE THE TAXABLE INCOME OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF L AW. THE POWERS UNDER SECTION 263, AS HAS BEEN POINTED OUT BY US EARLIER, CAN BE INVOKED BY T HE CIT IF THERE IS AN ERROR IN THE ORDER OF THE A.O. AND THE ORDER SO PASSED IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IF THE A.O. HAS DULY CONSIDERED THE ISSUE AND HAS TAKEN THE VIEW WHICH M AY BE IN FAVOUR OF THE ASSESSEE THAT WILL NOT EMPOWER THE CIT TO INVOKE THE PROVISIONS OF SECTION 263 OF THE ACT UNTIL AND UNLESS THAT VIEW IS UNSUSTAINABLE IN LAW OR ILLEGAL. AT THE TIME OF AC CEPTANCE OF THE REASONS ABOUT THE WASTAGE OF SOLES CONSUMED, THE A.O. EXAMINED THE REASONS AND A CCEPTED THE WASTAGE FROM THE ASSESSEE TO BE CORRECT AND DECIDED NOT TO MAKE ANY ADDITION OR DIS ALLOWANCE IN THIS REGARD. EVEN OTHERWISE ALSO, THERE CANNOT BE ANY TAILOR MADE THUMP RULE HO W MUCH WASTAGE BE PERMITTED DURING THE COURSE OF MANUFACTURING OF THE FINISHED PRODUCT IN A PARTICULAR INDUSTRY. THERE MAY BE A NUMBER OF REASONS IN A PARTICULAR YEAR DUE TO WHICH THE WA STAGE MAY BE HIGH. WE HAVE ALSO LOOKED INTO PAGE NO.9 OF THE PAPER BOOK AND WE NOTED THAT DURIN G THE A.Y. 2003-04 AND 2004-05 THE WASTAGE OF CONSUMPTION OF SOLES WERE AS HIGH AS 9.0 1% AND 6.31% RESPECTIVELY. THIS WASTAGE WAS DULY ACCEPTED BY THE REVENUE. THIS FACT HAS NO T BEEN DENIED BY THE LD. D.R. UNDER THESE 9 FACTS, IN OUR VIEW, THE A.O. HAS NOT COMMITTED ANY ERROR IN ACCEPTING THE HIGHER WASTAGE OF CONSUMPTION OF SOLES SHOWN BY THE ASSESSEE. THE VI EW TAKEN BY THE A.O., IN OUR OPINION, IS DULY SUPPORTED BY THE PAST RESULT OF THE ASSESSEE. IT I S NOT THE CASE OF THE REVENUE THAT THE ASSESSEE WAS ENGAGED IN THE EARLIER YEAR IN DIFFERENT BUSINE SS AS COMPARED TO THIS YEAR. THUS, ON THIS BASIS, IN OUR VIEW, THE CIT WAS NOT CORRECT IN LAW IN INVOKING THE JURISDICTION UNDER SECTION 263 OF THE ACT. 9. COMING TO THE CONTENTION OF THE LD. A.R. THAT IT IS NOT NECESSARY BY THE A.O. TO DISCUSS IN THE ORDER ALL THE CONTENTIONS BY THE ASSESSEE, WE D O AGREE WITH THE LD. A.R. THAT THERE IS NO PROVISIONS IN THE INCOME-TAX ACT WHICH PROVIDES THA T THE A.O. SHOULD PASS THE ASSESSMENT ORDER IN THE MANNER SO THAT ALL THE QUERIES RAISED BY HIM AS WELL AS THE SUBMISSIONS MADE BY THE ASSESSEE SHOULD BE INCORPORATED IN THE ASSESSMENT O RDER. IN OUR OPINION, WHERE THE A.O. DO NOT AGREE WITH THE ASSESSEE, HE SHOULD DISCUSS THE SAME IN THE ASSESSMENT ORDER SO THAT THE ASSESSEE SHOULD KNOW THE REASONS THEREOF AND FILE THE APPEAL . IN THIS CASE THE A.O. AFTER EXAMINING THE ISSUES, PREFERRED NOT TO MAKE THE ADDITION IN RESPE CT OF WASTAGE OF CONSUMPTION OF SOLES. 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 WASTAGE OF CONSUMPTION OF SOL ES IN THE ASSESSMENT 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 UNDER:- '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 10 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.' 10. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE JURI SDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MAHENDER KUMAR BANSAL, 297 ITR 0099 IN WHICH RE SPECTFULLY FOLLOWING THE DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. GOYAL PRIVATE FAMILY SPECIFIC TRUST, 171 ITR 698 (ALLD.) HAS HELD UNDER PARA NO.12 AS UNDER :- AS HELD BY THIS COURT IN THE CASE OF GOYAL PRIVATE FAMILY SPECIFIC TRUST (SUPRA,) WE ARE OF THE CONSIDERED OPINION THAT MERE LY BECAUSE THE ITO HAD NOT WRITTEN LENGTHY ORDER, IT WOULD NOT ESTABLISH THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3)/148 OF THE ACT IS ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHOUT BRINGING ON RECORD SPECIFIC INS TANCES, WHICH IN THE PRESENT CASE, THE CIT HAS FAILED TO DO. 11. A PERUSAL OF THE ORDER FRAMED BY CIT INDICATES THAT THE ASSESSMENT ORDER PASSED BY THE A.O. WAS SET ASIDE ON THE GROUND THAT THE A.O. HAS NOT MADE DETAILED ENQUIRY. THIS, IN OUR CONSIDERED OPINION, CANNOT BE SUFFICIENT GROUND FOR SETTING ASIDE THE ASSESSMENT. WHILE MAKING ASSESSMENT ORDER, IT IS THE SATISFACTION OF THE A.O . WHO MADE THE ENQUIRY AND IT SHOULD BE A TOUCHSTONE OF THE ASSESSMENT ORDER PASSED BY HIM, T HE CIT CANNOT SUBSTITUTE HIS VIEW IN PLACE OF FINDING OF THE A.O. UNTIL AND UNLESS THE VIEW TAKEN BY THE A.O. IS UNSUSTAINABLE IN LAW. NO COGENT MATERIAL OR EVIDENCE WAS BROUGHT TO OUR KNOW LEDGE BY THE LD. D.R. WHICH MAY PROVE THAT THE DECISION TAKEN BY THE A.O. IN THE CASE OF THE A SSESSEE WAS UNSUSTAINABLE IN LAW. THE ORDER 11 PASSED BY CIT IS ILLEGAL WITHOUT JURISDICTION. THE ORDER PASSED BY THE CIT CANNOT BE SUSTAINED IF THE ORDER IS SUSTAINED THEN THIS WILL PERMIT THE IL LEGALITY TO CONTINUE AND THE SUBSEQUENT ACTION CARRIED OUT ON THE ILLEGAL ORDER ARE ALSO ILLEGAL. WE HAVE GONE THROUGH THE CASE LAWS CITED BY THE LD. A.R. WE FIND THAT THE CASE OF THE ASSESSEE IS DULY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO . LTD. VS. CIT, 243 ITR 83 (SC) WHEREIN THEIR LORDSHIPS HAS HELD AS UNDER :- 'THE PRE-REQUISITE TO THE EXERCISE OF JURISDICTION BY THE COMMISSIONER UNDER SECTION 263 IS THAT THE ORDER OF THE AO IS ER RONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE CO MMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSES SING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IS PREJUDICIAL TO THE INTERE STS OF THE REVENUE. IF ONE OF THEM IS ABSENT- IF THE ORDER OF THE ASSESSING OFFICE IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE - RECOURSE CANNOT BE HAD TO SECTION 263 (1). THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EAC H AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONL Y WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT AS SUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING T HE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. THE PHRASE 'PREJUDICIAL TO THE INTEREST OF THE REVENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSE QUENCE OF THE ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, IF THE ASSESSING OFFICER HAS ADOPTED O NE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHER E TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDIC IAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE ASSESSING OFF ICER IS UNSUSTAINABLE IN LAW. WHERE A SUM NOT EARNED BY A PERSON IS ASSESSED AS I NCOME IN HIS HANDS ON HIS SO OFFERING THE ORDER PASSED BY THE ASSESSING OFFICER ACCEPTING THE SAME WITHOUT APPLICATION OF MIND AS SUCH WILL BE ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF THE REVENUE.' 12. 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:- 12 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 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 : 13 (2003) 259 ITR 502 (GUJ) AND MALABAR INDUSTRIAL CO. LTD. VS. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) RELIED ON). 13. HONBLE SUPREME COURT IN THE CASE OF CIT VS. MA X INDIA LIMITED, 295 ITR 282 (SC) HAS HELD AS UNDER :- THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE IN SECTION 263 OF THE INCOME-TAX ACT, 1961, HAS TO BE READ IN CONJUNC TION WITH THE EXPRESSION ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CA NNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, WHEN THE ASSESSING OFFICER ADOPTS ONE OF TWO COURSES PERMISSIBLE IN LAW AND IT HAS RE SULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFI CER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE REVENUE, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. 14. 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. 15. IN CIT VS. ARVIND JEWELLERS, 259 ITR 502 (GUJ), HONBLE GUJRAT HIGH COURT HAS HELD AS UNDER:- IT IS THE FINDING OF FACT GIVEN BY THE TRIBUNAL TH AT THE ASSESSEE HAS PRODUCED RELEVANT MATERIAL AND OFFERED EXPLANATION IN PURSUANCE OF THE NOTICES ISSUED UNDER S. 142(1) AS WELL AS S. 143(2) AND AFT ER CONSIDERING THOSE MATERIALS AND EXPLANATION, THE ITO HAS COME TO A DEFINITE CON CLUSION. THE CIT DID NOT AGREE WITH THE CONCLUSION REACHED BY THE ITO. SEC. 263 DOES NOT EMPOWER HIM TO 14 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. 16. IN VIEW OF THESE DECISIONS AND AFORESAID DISCUS SIONS WE ARE OF THE VIEW THAT THE CASE OF THE ASSESSEE IS DULY COVERED BY THESE DECISIONS AND THE CIT WAS NOT CORRECT IN LAW IN EXERCISING THE JURISDICTION U/S 263, AND ACCORDINGLY WE CANCEL THE ORDER PASSED U/S 263. 17. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 17.09.2010). SD/- SD/- (R.K. GUPTA) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: AGRA DATE: 17 TH SEPTEMBER, 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