M/s. Origami Cellulo Private Limited, Bengaluru V. Principal Commissioner Of Income Tax - 5, Bengaluru

ITA 394/BANG/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5973 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 02-09-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 18-05-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V. SRINIVASAN
• Keywords: Revision of order; Transfer pricing; Search and seizure; Opportunity of being heard; Principle of natural justice; International transaction; Period of limitation; Assessment record; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 263; 92C; 143(3); 142(1); 92E; 201; 143(2); 44AB; 13; 119; 22; 92CA; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER IT A NO . 394/BANG/2020 ASSESSMENT YEAR : 2015 - 16 M/S. ORIGAMI CELLULO PVT. LTD., # 126A, SRIRANGA COMPLEX, ASWATHNAGAR, ABOVE CANARA BANK, BENGALURU 560 094. P AN: AABC O 6103 C VS. THE PRINCIPAL COMMISSIONER OF INCOME-TAX 5, BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI V. SRINIVASAN, ADVOCATE RESPO NDENT BY : SHRI PRADEEP KUMAR , C IT(DR - I II )(ITAT ), BENGALURU. DATE OF HEARING : 02 . 0 9 .2021 DATE OF PRONOUNCEMENT : 15 .0 9 .202 1 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE PRINCIPAL COMMISSIONER OF INCOME TAX-5, BENGALURU [ PCIT] PASSED U/S. 263 OF THE INCOME-TAX ACT, 1961 [THE ACT] DATED 2. 3.2020 FOR THE ASSESSMENT YEAR 2015-16. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINES S OF MANUFACTURE AND SALE OF PAPER PRODUCTS. RETURN OF INCOME WAS F ILED DECLARING AN INCOME OF RS.69,18,858 ALONG WITH FORM 3CA & 3CD WI TH REGARD TO SPECIFIED DOMESTIC TRANSACTIONS UNDERTAKEN BY THE A SSESSEE DURING THE ITA NO. 394/BANG/2020 PAGE 2 OF 31 YEAR. THE CASE WAS SELECTED FOR LIMITED SCRUTINY VI DE NOTICE U/S. 143(2) DATED 13.4.2016 ON THE FOLLOWING:- (A) MISMATCH IN AMOUNT PAID TO RELATED PERSONS U/S. 40A (2)(B) REPORTED IN AUDIT REPORT AND ITR; (B) LOW INCOME SHOWN BY LARGE CONTRACTORS. (C) MISMATCH IN SALES TURNOVER REPORTED IN AUDIT REPORT AND ITR. 3. NOTICE U/S. 142(1) WAS ALSO ISSUED ON 9.6.2017 C ALLING FOR DETAILS OF LARGE SPECIFIED DOMESTIC TRANSACTIONS (FORM 3CEB) F OR LIMITED SCRUTINY PROCEEDINGS AND THE DETAILS AND EXPLANATIONS WERE P ROVIDED BY THE ASSESSEE VIDE LETTERS DATED 9.10.2017 & 12.10.2017. ASSESSMENT WAS COMPLETED U/S. 143(3) ON 30.10.2017. 4. THE PCIT NOTICED THAT ONE OF THE PARAMETERS WAS TRANSFER PRICING RISK PARAMETER WHICH WAS NOT REFERRED BY THE AO TO TPO IN ACCORDANCE WITH CBDT INSTRUCTION NO.8 OF 2015. HE WAS ACCORDI NGLY OF THE VIEW THAT THE ASSESSMENT ORDER WAS PRIMA FACIE ERRONEOUS INSO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE. NOTICE U/S. 263 WAS I SSUED TO THE ASSESSEE AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE PCIT OBSERVED THAT RISK PARAMETER WAS NOT DISPUTED BY THE ASSESS EE AT THE TIME OF ASSESSMENT PROCEEDINGS. THE PAYMENTS TO RELATED PE RSONS SPECIFIED IN SECTION 40A(2)(B) BEING IN THE NATURE OF COMMISSION , RELATED FEES, MANAGERIAL REMUNERATION, INTEREST ON LOAN, MANAGEME NT FEES, PURCHASE OF ASSETS AND REIMBURSEMENT OF EXPENSES ARE TP ISSUES LISTED IN FORM 3CEB AND FORM 3CD FILED BY THE ASSESSEE. THE ASSESSEE COMPANY ENTERED INTO INTERNATIONAL TRANSACTIONS WITH AE REFERRED TO IN S ECTION 92A(2) OF THE ACT WHICH INCLUDES INTEREST PAYMENTS, PAYMENT OF MANAGE MENT FEES AND EXPENSES FOR REIMBURSEMENT. NOT REFERRING THE ISSUE TO THE TPO RENDERED THE ORDER OF ASSESSMENT TO BE ERRONEOUS AND PREJUDI CIAL TO THE INTERESTS OF THE REVENUE, ACCORDING TO THE PCIT, HE THEREFORE SE T ASIDE THE ORDER WITH A ITA NO. 394/BANG/2020 PAGE 3 OF 31 DIRECTION TO THE AO TO MAKE A REFERENCE TO THE TPO IN RESPECT OF INTERNATIONAL TRANSACTION. AGAINST THIS, THE REVEN UE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. AR SUBMITTED THAT THE AO HAD CONDUCTED E NQUIRIES AND CALLED FOR VARIOUS INFORMATION BY ISSUE OF NOTICE U /S. 143(2) AND 142(1) ALONG WITH COMPLETE DETAILS OF THE LARGE SPECIFIED DOMESTIC TRANSACTIONS (FORM 3CEB) AND ALL THE DETAILS WERE PROVIDED DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS. AFTER CONSIDERING THESE DE TAILS, THE AO CONCLUDED THE ASSESSMENT PROCEEDINGS BY ORDER DATED 30.10.2017. THERE WERE NO FURTHER PROCEEDINGS TAKEN BY THE ASSESSEE A ND THE ORDER OF AO HAD BECOME FINAL. 6. IT WAS FURTHER SUBMITTED THAT TRANSFER PRICING R ISK PARAMETER WAS NOT ONE OF THE REASONS FOR SELECTING THE CASE FOR LIMIT ED SCRUTINY. THIS PARAMETER OF LARGE SPECIFIED DOMESTIC TRANSACTIONS WAS ADDED IN THE NOTICE U/S. 142(1) DATED 9.6.2017 WHICH WAS NOT PAR T OF THE ORIGINAL SCRUTINY NOTICE DATED 13.4.2016. IT WAS CONTENDED THAT ACCO RDING TO PARA 3.2 OF CBDT INSTRUCTION NO.3/2016 IT MANDATORILY TO REFER THE CASE TO TPO ONLY IF IT WAS A CASE SELECTED FOR SCRUTINY WITH THE TRANSFER PRICING RISK AS ONE OF THE PARAMETERS. IT WAS ARGUED THAT THE ASSESSEES CASE DID NOT FALL WITHIN THE REQUIREMENT OF PARA 3.2 OF THE ABOVE INSTRUCTION AN D THERE WAS NO REQUIREMENT FOR THE AO TO MANDATORILY REFER THE ASS ESSEES CASE TO THE TPO. IT WAS FURTHER SUBMITTED THAT THE SAID INSTRU CTION IS CONTRARY TO THE PROVISIONS OF SECTION 92CA(1) OF THE ACT WHEREIN A CLEAR DISCRETION HAS BEEN GIVEN TO THE AO TO REFER THE COMPUTATION OF AL P TO THE TPO, IF HE CONSIDERS IT NECESSARY OR EXPEDIENT TO DO SO. THE S AID INSTRUCTION CANNOT OVER RIDE THE PROVISIONS OF THE ACT. REFERENCE WAS MADE TO THE APEX COURT JUDGMENT IN THE CASE OF KERALA FINANCE CORPORATION V. CIT (1994) 210 ITR 129 (SC) AND J.K. SYNTHETICS V. CBDT, 83 ITR 33) (SC) . IT WAS CONTENDED THAT THE AO HAD CONSCIOUSLY AFTER APPLICATION OF MI ND USED THE DISCRETION ITA NO. 394/BANG/2020 PAGE 4 OF 31 VESTED ON HIM AS PER THE PROVISIONS OF SECTION 92CA OF THE ACT AND THEREFORE HIS ORDER WAS NEITHER ERRONEOUS NOR PREJU DICIAL TO THE INTERESTS OF REVENUE. 7. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT IN FO RM 3CEB UNDER PART B (INTERNATIONAL TRANSACTIONS) THE FORM HAS BEEN LE FT BLANK PERTAINING TO INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE. HOWEVER IN FORM 3CEB THE DETAILS RELATING TO LARGE SPECIFIED DOMESTIC TR ANSACTIONS ENTERED INTO DURING THE YEAR WAS DULY FILLED IN. THUS, THE PCIT ERRED IN CONCLUDING THAT ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION S. THERE WAS NO JUSTIFICATION TO HOLD THAT ASSESSEES CASE WAS SELE CTED FOR LIMITED SCRUTINY ON THE BASIS OF TRANSFER PRICING RISK BASED PARAMET ERS. IT IS SUBMITTED THAT ALL THE SPECIFIED DOMESTIC TRANSACTIONS HAVE BEEN R EPORTED BY THE ASSESSEE ARE TRANSACTIONS ENTERED BY THE ASSESSEE WITH RELAT ED PERSONS U/S. 40A(2) WITHIN THE AMBIT OF SECTION 92BA(I) WHICH WERE AMEN DED BY THE FINANCE ACT, 2017 W.E.F. 1.4.2017 WHEREIN CLAUSE (I) OF SEC TION 92BA RELATING TO EXPENDITURE IN RESPECT OF WHICH PAYMENT MADE OR IS TO BE MADE TO A PERSON REFERRED TO IN CLAUSE (B) OF SUB-SECTION (2) OF SEC TION 40A HAS BEEN OMITTED. IN OTHER WORDS, TRANSACTIONS COVERED U/S. 40A(2) OF THE ACT ARE NO LONGER REGARDED AS ' SPECIFIED DOMESTIC TRANSACTIONS AND HENCE OUTSIDE THE AMBIT AND SCOPE OF SECTION 92BA OF THE ACT. NO TRANSFER PRICING ADJUSTMENT IS PERMISSIBLE ON THIS COUNT AS HELD BY THE BANGALORE ITAT IN TEXPORT PVT. LTD. V. DCIT. RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISIONS :- EVEREADY INDUSTRIES INDIA LTD. V. PCIT (ITA NO.805/ KOL/2019) MALABAR INDUSTRIES LTD. V. CUT [20000] 243 ITR 83 ( SC) CIT V. J.L. MORRISON (I) LTD. 366 ITR 593 CIT V. SUNBEAM AUTO LTD. 332 ITR 167 ITA NO. 394/BANG/2020 PAGE 5 OF 31 8. THE LD. AR ACCORDINGLY PRAYED THAT THE IMPUGNED ORDER OF THE PCIT SHOULD BE QUASHED. 9. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT APA RT FROM THE REASONS MENTIONED IN PARA 2 HEREINABOVE FOR SCRUTINY, THER E WERE PAYMENTS TO RELATED PERSONS SPECIFIED IN SECTION 40A(2)(B) DULY REPORTED IN AUDIT REPORT AND ITR FILED BY THE ASSESSEE FILED BY THE ASSESSEE WITH THE DEPARTMENT. CERTAIN TP ISSUES WERE INCLUDED IN THIS REPORT WHIC H ARE REQUIRED TO BE DECIDED AFTER DETERMINING THE ALP WHICH WERE ACCEPT ED BY THE AO WITHOUT ANY EXAMINATION. FURTHER HE SUBMITTED THAT CBDT IN STRUCTION NO.3/16 DATED 10.3.2016 HAVE BEEN EXPRESSLY ISSUED U/S. 119 OF THE ACT WHICH RELATE TO DETERMINATION OF ALP FOR INTERNATIONAL TR ANSACTION OR SPECIFIED DOMESTIC TRANSACTIONS. IT IS MANDATORY FOR THE AO TO REFER THE TP TRANSACTIONS TO THE TPO FOR EXAMINATION AND ADOPT T HE INCOME OF ASSESSEE IN TERMS OF ALP DETERMINED BY THE TPO. IN THE PRES ENT CASE, THE AO FAILED TO DO SO. AS SUCH, PCIT INVOKED JURISDICTION U/S. 263 OF THE ACT AS THERE WAS FAILURE OF THE AO TO REFER THE MATTER TO THE TP O, THOUGH RISK PARAMETER WAS SUBJECT MATTER OF SELECTION OF ASSESSEES CASE FOR SCRUTINY. HE RELIED ON THE ORDER OF THE PCIT. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AS PER SECTION 263 OF THE ACT, THE CIT COULD EXERCI SE JURISDICTION UNDER THIS PROVISION IF THE ORDER IS ERRONEOUS INSOFAR AS IT I S PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FURTHER AN INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF ORDER BEING ERRONEOUS. IN THE SAME CATEGORY, FALLS ORDERS PASSED WITHOUT APPL YING PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. IF THERE IS ESCAPEMENT OF INCOME BY THE ACTION OF THE AO, THAT ORDER IS SAID TO BE PREJUDICIAL TO THE INTERESTS OF REVENUE. IN THE PRESENT CASE, THE CA SE WAS SELECTED FOR SCRUTINY FOR THE FOLLOWING REASONS:- ITA NO. 394/BANG/2020 PAGE 6 OF 31 (A) MISMATCH IN AMOUNT PAID TO RELATED PERSONS U/S. 40A(2)(B) REPORTED IN AUDIT REPORT AND ITR; (B) LOW INCOME SHOWN BY LARGE CONTRACTORS. (C) MISMATCH IN SALES TURNOVER REPORTED IN AUDIT RE PORT AND ITR. 11. NOW THE FINDING OF THE PCIT IS THAT IN VIEW OF THE CASE SELECTED FOR SCRUTINY TO CONSIDER THE MISMATCH IN THE AMOUNT PAI D TO RELATED PERSONS U/S. 40A(2)(B) REPORTED IN AUDIT REPORT AND THE INT ERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE WITH AE REFERRED TO IN SECT ION 92A(2) REPORTED IN FORM 3CEB, THE AO SHOULD HAVE REFERRED THE MATTER T O THE TPO SO AS TO ASCERTAIN THE ALP OF SPECIFIC DOMESTIC TRANSACTIONS WITH RELATED PARTIES. ACCORDING TO HIM, THE AO FAILED TO FOLLOW THE CBDT INSTRUCTION NO.3/16 DATED 10.3.2016, WHICH EXPRESSLY PROVIDES FOR DETER MINATION OF ALP OF INTERNATIONAL TRANSACTIONS AS WELL AS SPECIFIC DOME STIC TRANSACTIONS. HOWEVER, WE OBSERVE THAT THE CASE WAS NOT SELECTED FOR LIMITED SCRUTINY OF SPECIFIED DOMESTIC TRANSACTIONS OR INTERNATIONAL TR ANSACTIONS SO AS TO DRAW INFERENCE THAT THE CASE WAS SELECTED ON TRANSFER PR ICING RISK PARAMETER. ON THE OTHER HAND, THE CASE WAS SELECTED FOR LIMITE D SCRUTINY ONE OF THE REASONS BEING MISMATCH IN AMOUNT PAID TO RELATED PE RSONS U/S. 40A(2)(B) REPORTED IN AUDIT REPORT AND ITR. FROM A READING OF THESE REASONS, WE ARE OF THE VIEW THAT NO PRUDENT BUSINESS PERSON PROPERL Y INSTRUCTED IN LAW WOULD HAVE INFERRED THE TP RISK PARAMETER AS A REAS ON FOR SCRUTINY SO AS TO MANDATORILY MAKE REFERENCE U/S. 92C OF THE ACT IN T ERMS OF CBDT INSTRUCTION NO.3/16 AND FAILURE TO MAKE SUCH REFERE NCE MADE THE ASSESSMENT ORDER ERRONEOUS. IN OUR OPINION, THE TP RISK PARAMETER WAS NOT ONE OF THE REASONS FOR LIMITED SCRUTINY OF THE CASE AND AS SUCH THE PCIT WAS NOT JUSTIFIED IN INVOKING JURISDICTION U/S. 263 OF THE ACT SO AS TO DIRECT THE AO TO REFER THE MATTER TO THE TPO IN RESPECT OF INTERNATIONAL TRANSACTIONS AND SPECIFIED DOMESTIC TRANSACTIONS LI STED IN FORM 3CEB AND FORM 3CD. ITA NO. 394/BANG/2020 PAGE 7 OF 31 12. SIMILAR VIEW WAS TAKEN BY THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF EVEREADY INDUSTRIES LTD. V. PCIT IN ITA NO.805/KOL/ 2019 BY ORDER DATED 13.12.2019 AND THE RELEVANT OBSERVATIONS ARE AS FOLLOWS:- 8. HAVING HEARD BOTH THE PARTIES, AND ON A CAREFU L CONSIDERATION OF THE FACTS AND CIRCUMSTANCES , WE F IND THAT IN THE CASE IN HAND THE LD. PR. CIT INVOKED JURISDICTION U /S 263 OF THE ACT PRINCIPALLY ON THE BROAD ALLEGATION THAT THERE WAS FAILURE TO CONDUCT ENQUIRIES WHICH THE FACTS OF THE CASE REQUI RED THE AO TO MAKE. ACCORDING TO LD. PR. CIT ASSESSMENT ORDER SUF FERED FROM LACK OF ENQUIRY & APPLICATION OF MIND TO THE FACTS AS ALSO BY INCORRECT APPLICATION OF APPLICABLE LEGAL PROVISION S TO THE FACTS OF THE CASE. AS A RESULT, IN THE OPINION OF LD. PR. CI T, AOS ORDER WAS ERRONEOUS AND THEREFORE LIABLE FOR REVISION U/S 263 OF THE ACT. THE SAID FINDINGS OF THE LD PR. CIT HAVE BEEN SERIO USLY CONTESTED BY THE APPELLANT IN GR. NOS. 1&2. IN THE CIRCUMSTAN CES THEREFORE BEFORE ADJUDICATING THE ISSUES ARISING FROM THE IMP UGNED ORDER, WE HAVE TO FIRST EXAMINE THE SCOPE OF REVISIONAL JU RISDICTION U/S. 263 OF THE ACT. FOR THAT, LET US TAKE THE GUIDANCE OF JUDICIAL PRECEDENCE LAID DOWN BY THE HON'BLE APEX COURT IN M ALABAR INDUSTRIES LTD. VS. CIT [2000] 243 ITR 83(SC) WHERE IN THEIR LORDSHIP HAVE HELD THAT TWIN CONDITIONS SHOULD BE S ATISFIED BEFORE JURISDICTION U/S 263 OF THE ACT IS EXERCISED BY THE LD. CIT. THE TWIN CONDITIONS WHICH NEED TO BE SATISFIED ARE THAT (I) THE ORDER OF THE ASSESSING OFFICER MUST BE ERRONEOUS AND(II) AS A CONSEQUENCE OF PASSING AN ERRONEOUS ORDER, PREJUDICE IS CAUSED TO THE INTEREST OF THE REVENUE. IN THE FOLLOWING CIRCUMSTANCES, THE ORDER OF THE AO CAN BE HELD TO BE ERRONEOUS I.E. (I) IF THE ASSE SSING OFFICER'S ORDER WAS PASSED ON ASSUMPTION OF INCORRECT FACTS; OR ASSUMPTION OF INCORRECT LAW; (II) ASSESSING OFFICER'S ORDER IS IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE; (III) IF THE AO' S ORDER IS PASSED BY THE WITHOUT APPLICATION OF MIND; OR (IV) IF THE AO HAS NOT INVESTIGATED THE ISSUE BEFORE HIM. IN THE CIRCUMSTA NCES ENUMERATED ABOVE ONLY THE ORDER PASSED BY THE ASSES SING OFFICER CAN BE TERMED AS ERRONEOUS FOR THE PURPOSE OF S.263 OF THE ACT. COMING NEXT TO THE SECOND LIMB, THE AO'S ERRONEOUS ORDER CAN BE REVISED BY THE LD. CIT ONLY WHEN IT IS SHOWN THAT T HE SAID ORDER IS PREJUDICIAL TO THE INTEREST OF REVENUE. WHEN THI S ASPECT IS EXAMINED ONE HAS TO UNDERSTAND WHAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE HON'BLE SUPREME COURT IN THE CA SE OF ITA NO. 394/BANG/2020 PAGE 8 OF 31 MALABAR INDUSTRIES (SUPRA) HELD THAT THIS PHRASE I. E. 'PREJUDICIAL TO THE INTEREST OF THE REVENUE'' HAS TO BE READ IN CON JUNCTION WITH AN 'ERRONEOUS' ORDER PASSED BY THE ASSESSING OFFICER. THE HONBLE SUPREME COURT, HELD THAT FOR INVOKING POWERS CONFER RED BY S.263; THE CIT SHOULD NOT ONLY SHOW THAT THE AO'S O RDER IS ERRONEOUS AS A RESULT OF ANY OF THE SITUATIONS ENUM ERATED ABOVE BUT CIT MUST ALSO FURTHER SHOW THAT AS A RESULT OF AN ERRONEOUS ORDER, SOME LOSS IS CAUSED TO THE INTEREST OF THE R EVENUE. THEIR LORDSHIP IN THE SAID JUDGMENT HELD THAT EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT WAS FURTHER OBSERVED THAT WHEN THE ASSESSING OFFICER ADOPTS ONE OF THE C OURSE PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS TO T HE REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFI CER HAS TAKEN ONE VIEW WITH WHICH THE LD. CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAI NABLE IN LAW. IN THE CIRCUMSTANCES IT WAS NECESSARY FOR THE LD. P R. CIT TO SHOW IN THE IMPUGNED ORDER THAT THE AOS ORDER WAS ERRON EOUS BECAUSE THE VIEW FOLLOWED BY HIM IN RESPECT OF EACH OF THE REASON SET OUT IN CLAUSES (A) TO (G) OF SCN WAS UNSUSTAINABLE IN L AW AND THEREFORE THE ORDER WAS LIABLE FOR REVISION U/S 263 OF THE ACT. 9. WE ALSO NOTE THAT BOTH IN THE REASONS SET OUT I N SCN AS WELL AS IN THE IMPUGNED ORDER, THE LD. PR. CIT OBSE RVED THAT IN RESPECT OF ISSUES SET OUT IN CLAUSES (A), (B), (D), (F) AND (G), PROPER ENQUIRY WAS NOT CONDUCTED BY THE AO WHICH THE CIRCU MSTANCES OF THE CASE DEMANDED AND FOR ABSENCE OF PROPER ENQUIRY , THE ASSESSMENT ORDER WAS CONSIDERED BY THE LD. PR. CIT TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. IT IS TRUE THAT THE COURTS HAVE HELD THAT AN ORDER OF ASSESSME NT CAN BE CONSIDERED TO BE ERRONEOUS IF THERE WAS LACK OR TOT AL ABSENCE OF ENQUIRY WITH REGARD TO AN ISSUE WHICH HAS MATERIAL BEARING ON THE ASSESSMENT OF TOTAL INCOME FOR THE RELEVANT YEAR. H OWEVER IN SUCH A CASE THE CIT HAS TO FIRST DEMONSTRATE THAT NO ENQ UIRY AT ALL WAS CONDUCTED AND CONSEQUENT TO WHICH NOT ONLY THE ORDE R BECAME ERRONEOUS BUT SUCH AN ERROR ALSO CAUSED PREJUDICE T O THE REVENUE. IN OUR CONSIDERED VIEW ONE ALSO HAS UNDERSTAND THE DIFFERENCE BETWEEN 'LACK OF INQUIRY' AND 'INADEQUATE INQUIRY' AND WHEN IT CAN BE TERMED AS ERRONEOUS FOR USURPATION OF JURISD ICTION U/S 263 OF THE ACT. FOR BETTER UNDERSTANDING OF THIS ASPECT , WE CAN TAKE ITA NO. 394/BANG/2020 PAGE 9 OF 31 HELP OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL CALCUTTA HIGH COURT IN THE CASE OF CIT VS J.L. MORRISON (I) LTD ( 366 ITR 593), WHEREIN THEIR LORDSHIPS EXPLAINED THE DIFFERENCE BE TWEEN THE TWO AS FOLLOWS:- '86. WHETHER THE ASSESSMENT ORDER DATED 28TH MARCH, 2008 WAS PASSED WITHOUT APPLICATION OF MIND IS BASI CALLY A QUESTION OF FACT. THE LEARNED TRIBUNAL HAS HELD T HAT THE ASSESSMENT ORDER WAS NOT PASSED WITHOUT APPLICATION OF MIND. THE RECORDS OF THE ASSESSMENT INCLUDING THE O RDER SHEETS GO TO SHOW THAT APPROPRIATE ENQUIRY WAS MADE AND THE ASSESSEE WAS HEARD FROM TIME TO TIME. IN DECIDI NG THE QUESTION COURT HAS TO BEAR IN MIND THE PRESUMPTION IN LAW LAID DOWN IN SECTION 114 CLAUSE - E OF THE EVID ENCE ACT:-- 'THAT JUDICIAL AND OFFICIAL ACTS HAVE BEEN REGULARL Y PERFORMED;' 87. THEREFORE, THE COURT HAS TO START WITH THE PRESUMPTION THAT THE ASSESSMENT ORDER DATED 28TH MA RCH 2008 WAS REGULARLY PASSED. THERE IS EVIDENCE TO SHO W THAT THE ASSESSING OFFICER HAD REQUIRED THE ASSESSEE TO ANSWER 17 QUESTIONS AND TO FILE DOCUMENTS IN REGARD THERET O. IT IS DIFFICULT TO PROCEED ON THE BASIS THAT THE 17 QUEST IONS RAISED BY HIM DID NOT REQUIRE APPLICATION OF MIND. WITHOUT APPLICATION OF MIND THE QUESTIONS RAISED BY HIM IN THE ANNEXURE TO NOTICE UNDER SECTION 142 (1) OF THE ACT COULD NOT HAVE BEEN FORMULATED. 88. THE ASSESSING OFFICER WAS REQUIRED TO EXAMINE THE RETURN FILED BY THE ASSESSEE IN ORDER TO ASCERT AIN HIS INCOME AND TO LEVY APPROPRIATE TAX ON THAT BASIS. W HEN THE ASSESSING OFFICER WAS SATISFIED THAT THE RETURN , FILED BY THE ASSESSEE, WAS IN ACCORDANCE WITH LAW, HE WAS UN DER NO OBLIGATION TO JUSTIFY AS TO WHY WAS HE SATISFIED. O N THE TOP OF THAT THE ASSESSING OFFICER BY HIS ORDER DATED 28 TH MARCH, 2008 DID NOT ADVERSELY AFFECT ANY RIGHT OF T HE ASSESSEE NOR WAS ANY CIVIL RIGHT OF THE ASSESSEE PR EJUDICED. HE WAS AS SUCH UNDER NO OBLIGATION IN LAW TO GIVE R EASONS. 89. THE FACT, THAT ALL REQUISITE PAPERS WERE SUMMONED AND THEREAFTER THE MATTER WAS HEARD FROM T IME TO TIME COUPLED WITH THE FACT THAT THE VIEW TAKEN B Y HIM IS NOT SHOWN BY THE REVENUE TO BE ERRONEOUS AND WAS AL SO ITA NO. 394/BANG/2020 PAGE 10 OF 31 CONSIDERED BOTH BY THE TRIBUNAL AS ALSO BY US TO BE A POSSIBLE VIEW, STRENGTHENS THE PRESUMPTION UNDER CL AUSE (E) OF SECTION 114 OF THE EVIDENCE ACT. A PRIMA FAC IE EVIDENCE, ON THE BASIS OF THE AFORESAID PRESUMPTION , IS THUS CONVERTED INTO A CONCLUSIVE PROOF OF THE FACT THE ORDER WAS PASSED BY THE ASSESSING OFFICER AFTER DUE APPLI CATION OF MIND. 90. THE JUDGMENTS CITED BY MR. NIZAMUDDIN DO NOT REALLY SUPPORT HIS CONTENTION. THE JUDGMENT IN THE CASE OF MEERUT ROLLER FLOUR MILLS (P.) LTD. (SUPRA) DOES NO T APPLY BECAUSE THE HIGH COURT IN THAT CASE WAS SATISFIED T HAT THE ASSESSMENT ORDER WAS PASSED WITHOUT ENQUIRY. 91. THE JUDGMENT OF COCHIN BENCH OF INCOME TAX APPELLATE TRIBUNAL IN ITA NO. 116/COCH/2012 RELIED UPON BY MR. NIZAMUDDIN IS EVIDENTLY BASED ON AN ERRONEOU S IMPRESSION THAT 'THE PROCEEDINGS BEFORE THE ASSESSI NG OFFICER ARE JUDICIAL PROCEEDINGS'. THIS IMPRESSION, WHICH IS PATENTLY CONTRARY TO THE VIEWS EXPRESSED BY APEX COURT IN THE CASE OF S.S. GADGILL (SUPRA), WAS RESPONSIBL E FOR THE VIEWS TAKEN BY THE TRIBUNAL. WHEN THE PREMISE IS WR ONG, THE CONCLUSION IS BOUND TO BE WRONG. 92. THE JUDGMENT IN THE CASE OF INFOSYS TECHNOLOGIES LTD. (SUPRA) IS DISTINGUISHABLE ON FAC TS. THE STEP TAKEN BY THE CIT UNDER SECTION 263 IN THAT CAS E WAS JUSTIFIED BECAUSE THE INCOME TAX RECORDS PRODUCED B EFORE HIM DID NOT SHOW THAT THE ASSESSING OFFICER HAD CON SIDERED THE DOUBLE TAXATION AVOIDANCE AGREEMENT ON THE BASI S WHEREOF THE CLAIMS WERE MADE BY THE ASSESSEE. THERE FORE, THAT WAS A CLEAR CASE TO SHOW THAT THE ASSESSMENT O RDER WAS PASSED WITHOUT CONSIDERING THE RELEVANT PIECES OF EVIDENCE. 93. THE JUDGMENT IN THE CASE OF ANUSAYABAN. A. DOSHI (SUPRA) DOES NOT APPLY BECAUSE THE HIGH COURT IN THAT CASE WAS DEALING WITH THE NEED ON THE PART OF THE LEARNED TRIBUNAL TO GIVE REASONS IN SUPPORT OF ITS ORDER. 94. THE JUDGMENT IN THE CASE OF HINDUSTHAN TIN WORKS LTD. (SUPRA) ALSO DOES NOT APPLY BECAUSE THER E THE DELHI HIGH COURT WAS DEALING WITH THE DUTY OF THE L EARNED TRIBUNAL TO DISCLOSE REASONS IN SUPPORT OF ITS APPE LLATE ORDER. ITA NO. 394/BANG/2020 PAGE 11 OF 31 95. THE JUDGMENT IN THE CASE OF S.N. MUKHERJEE (SUPRA) IS CLEARLY DISTINGUISHABLE. THE POINT FOR CONSIDERATION IN THAT CASE WAS WHETHER IT WAS INCUM BENT FOR THE CHIEF OF ARMY STAFF WHILE CONFIRMING THE FI NDINGS AND THE SENTENCE OF THE GENERAL COURT MARTIAL, AND FOR THE CENTRAL GOVT. WHILE REJECTING THE POST CONFIRMATION PETITION OF THE APPELLANT, TO RECORD REASONS FOR TH E ORDERS PASSED BY THEM. 96. THE FUNCTION OF AN ASSESSING OFFICER IS TO ESTIMATE THE INCOME OF THE ASSESSEE AND TO RECOVER TAX ON THE BASIS OF SUCH ESTIMATE AS LAID DOWN BY THE APEX COURT IN THE CASE OF S.S GADGIL (SUPRA). THEIR LORDSHIPS OPINED THAT THE INCOME TAX PROCEEDINGS DO NOT PARTAKE THE CHARACTER OF A JUDICIAL PROCEEDING BETWEEN THE STAT E AND THE CITIZEN. THEREFORE, THE PRINCIPLES APPLICABLE T O A PROCEEDING BEFORE A JUDICIAL OR A QUASI-JUDICIAL AU THORITY WHERE THERE ARE TWO CONTESTING PARTIES CANNOT BE MA DE APPLICABLE TO THE PROCEEDINGS BEFORE AN ASSESSING O FFICER. 97. MR. NIZAMUDDIN CONTENDED THE JUDGMENTS CITED BY MR. PODDAR INDICATE THAT THE ASSESSING OFFICER I S NOT REQUIRED TO WRITE AN ELABORATE JUDGMENT. HE CONTEND ED THAT THE ASSESSING OFFICER MAY NOT HAVE ANY SUCH OB LIGATION BUT IT CANNOT BE SAID, ACCORDING TO HIM, THAT THE A SSESSING OFFICER IS UNDER NO OBLIGATION TO RECORD ANYTHING I N HIS ASSESSMENT ORDER. IT IS NOT IN THE FIRST PLACE A FA CT THAT HE HAS NOT RECORDED ANYTHING. FROM THE ASSESSMENT ORDE R, THE FOLLOWING FACTS AND CIRCUMSTANCES APPEAR:-- 'RETURN WAS FILED ON 29/11/06 SHOWING TOTAL INCOME OF RS.3,80,66,940/-. IN RESPONSE TO NOTICES U/S. 143(2 ) AND 142(1) OF THE I. T. ACT, 1961, SRI P. R. KOTHARI, A /R APPEARED FROM TIME TO TIME AND EXPLAINED THE RETURN . NECESSARY DETAILS AND PARTICULARS WERE FILED. THE B USINESS OF THE ASSESSEE IS MANUFACTURING AND TRADING OF COS METICS AND DENTAL CARE PRODUCTS AS IN EARLIER YEARS. IN VI EW OF ABOVE TOTAL INCOME IS COMPUTED IS UNDER:' 98. UNLESS THE AFORESAID RECITAL IS FACTUALLY INCO RRECT OR THE COMPUTATION IS LEGALLY WRONG, IT IS NOT POSS IBLE TO HOLD THAT THE ASSESSMENT ORDER WAS PASSED WITHOUT APPLICATION OF MIND. ON THE TOP OF THAT WHEN THE AS SESSING OFFICER ACCEPTED THE CONTENTION OF THE ASSESSEE THE RE WAS NO OCCASION FOR HIM TO MAKE ANY DISCUSSION IN HIS O RDER. ITA NO. 394/BANG/2020 PAGE 12 OF 31 99. IF THE ASSESSING OFFICER CANNOT BE SHOWN TO H AVE VIOLATED ANY FORM PRESCRIBED FOR WRITING AN ASSESSM ENT ORDER, IT WOULD NOT BE CORRECT TO HOLD THAT HE ACTE D ILLEGALLY OR WITHOUT APPLYING HIS MIND. THE THIRD QUESTION IS , FOR THE REASONS DISCUSSED ABOVE, ANSWERED IN THE NEGATI VE.' 10. THIS ASPECT WAS ALSO EXPLAINED BY THE HONBLE DELHI HIGH COURT IN ITS JUDGMENT IN THE CASE OF CIT VS SUNBEAM AUTO LTD (332 ITR 167). THE RELEVANT EXTRACTS OF THE JUDGMEN T IS AS FOLLOWS: 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE COUNSEL ON THE OTHER SIDE AND HAVE GONE THROUGH THE RECORDS. THE FIRST ISSUE THAT ARISES FOR OUR CONSID ERATION IS ABOUT THE EXERCISE OF POWER BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263 OF THE INCOME-TAX ACT. AS NOTED ABOVE, THE SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE WAS THAT WHILE PASSING THE ASSESSMENT ORDER , THE ASSESSING OFFICER DID NOT CONSIDER THIS ASPECT SPEC IFICALLY WHETHER THE EXPENDITURE IN QUESTION WAS REVENUE OR CAPITAL EXPENDITURE. THIS ARGUMENT PREDICATES ON TH E ASSESSMENT ORDER WHICH APPARENTLY DOES NOT GIVE ANY REASONS WHILE ALLOWING THE ENTIRE EXPENDITURE AS RE VENUE EXPENDITURE. HOWEVER, THAT BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OFFICER H AD NOT APPLIED HIS MIND ON THE ISSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPLE THAT THE ASSESSING OFFICE R IN THE ASSESSMENT ORDER IS NOT REQUIRED TO GIVE DETAILED R EASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. THEREFORE, ONE HAS TO SEE FROM THE RECORD AS TO WHE THER THERE WAS APPLICATION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. LEA RNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINCTION BETWEEN 'LACK O F INQUIRY' AND 'INADEQUATE INQUIRY'. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE, THAT WOULD NOT BY ITSELF, GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF THE ACT, MERELY BECAUSE HE HAS DIFFE RENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF 'LACK OF INQUIRY', THAT SUCH A COURSE OF ACTION WOULD BE OPE N. IN GABRIEL INDIA LTD.'S CASE (SUPRA), LAW ON THIS ASPE CT WAS DISCUSSED IN THE FOLLOWING MANNER : '. . . FROM A READING OF SUB-SECTION (1) OF SECTION , IT IS CLEAR THAT THE POWER OF SUOMOTU REVISION CAN BE EXERCISED BY THE ITA NO. 394/BANG/2020 PAGE 13 OF 31 COMMISSIONER ONLY IF, ON EXAMINATION OF THE RECORDS OF ANY PROCEEDINGS UNDER THIS ACT, HE CONSIDERS THAT A NY ORDER PASSED THEREIN BY THE INCOME-TAX OFFICER IS 'ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTE RESTS OF THE REVENUE'. IT IS NOT AN ARBITRARY OR UNCHARTERED POW ER. IT CAN BE EXERCISED ONLY ON FULFILMENT OF THE REQUIREM ENTS LAID DOWN IN SUB-SECTION (1). THE CONSIDERATION OF THE COMMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS IN SOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENU E MUST BE BASED ON MATERIALS ON THE RECORD OF THE PROCEEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATERIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT THE COMMISSIONER ACTIN G IN A REASONABLE MANNER COULD HAVE COME TO SUCH A CONCLUS ION, THE VERY INITIATION OF PROCEEDINGS BY HIM WILL BE I LLEGAL AND WITHOUT JURISDICTION. THE COMMISSIONER CANNOT INITI ATE PROCEEDINGS WITH A VIEW TO STARTING FISHING AND ROV ING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. SUCH ACTION WILL BE AGAINST THE WELL-ACC EPTED POLICY OF LAW THAT THERE MUST BE A POINT OF FINALIT Y IN ALL LEGAL PROCEEDINGS, THAT STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPS E OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI-JUDICIAL CONTROVERSIES AS IT MUST IN OTHER SP HERES OF HUMAN ACTIVITY. [SEE :PARASHURAM POTTERY WORKS CO. LTD. V. ITO[1977] 106 ITR 1 (SC) AT PAGE 10]. ****** FROM THE AFORESAID DEFINITIONS IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCOME-TAX OFFICER ACTIN G IN ACCORDANCE WITH LAW MAKES A CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE, ACCORDING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY. THIS SECTION DOES NO T VISUALISE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME-TAX OFFICER, WH O PASSED THE ORDER UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE THE INCOME -TAX OFFICER WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE IN COME EITHER BY ACCEPTING THE ACCOUNTS OR BY MAKING SOME ESTIMATE HIMSELF. THE COMMISSIONER, ON PERUSAL OF T HE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MA DE BY ITA NO. 394/BANG/2020 PAGE 14 OF 31 THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND LEF T 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 VEST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE INCOM E-TAX OFFICER HAS EXERCISED THE QUASI-JUDICIAL POWER VEST ED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT CONCLUSIO N AND SUCH A CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATIS FIED WITH THE CONCLUSION. . . . THERE MUST BE SOME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFU LLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLIC ATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED. ****** WE MAY NOW EXAMINE THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE POWERS OF THE COMMISSIONER SET OUT ABO VE. THE INCOME-TAX OFFICER IN THIS CASE HAD MADE ENQUIR IES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN DETAILED EXPLANATI ON ON THAT REGARD BY A LETTER IN WRITING. ALL THESE ARE P ART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS ALLOWE D BY THE INCOME-TAX OFFICER ON BEING SATISFIED WITH THE EXPL ANATION OF THE ASSESSEE. SUCH DECISION OF THE INCOME-TAX OF FICER CANNOT BE HELD TO BE 'ERRONEOUS' SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN TH AT REGARD . . .' (PP. 113-117) 13. WHEN WE EXAMINE THE MATTER IN THE LIGHT OF T HE AFORESAID PRINCIPLE, WE FIND THAT THE ASSESSING OFF ICER HAD CALLED FOR EXPLANATION ON THIS VERY ITEMS, FROM THE ASSESSEE AND THE ASSESSEE HAD FURNISHED HIS EXPLANA TION VIDE LETTER DATED 26-9-2002. THIS FACT IS EVEN TAKE N NOTE OF BY THE COMMISSIONER HIMSELF IN PARA 3 OF HIS ORDER DATED 3-11-2004. THIS ORDER ALSO REPRODUCES THE REPLY OF THE RESPONDENT IN PARA 3 OF THE ORDER IN THE FOLLOWING MANNER: 'THE TOOLS AND DIES HAVE A VERY SHORT LIFE AND CAN PRODUCE UP TO MAXIMUM 1 LAKH PERMISSIBLE SHORTS AND HAVE TO BE REPLACED THEREAFTER TO RETAIN THE ACCURACY. MOST OF THE PARTS MANUFACTURED ARE FOR THE AUTOMOBILE INDUSTRIE S ITA NO. 394/BANG/2020 PAGE 15 OF 31 WHICH HAVE TO WORK ON COMPLETE ACCURACY AT HIGH SPE ED FOR A LONGER PERIOD. SINCE IT IS AN ONGOING PROCEDU RE, A COMPANY HAD PRODUCED 10,75,000 SETS WHOSE SELLING R ATES IS INCLUSIVE OF THE REIMBURSEMENT OF THE DIES COST. THE PURCHASE ORDERS INDICATING THE COSTING INCLUDES THE REIMBURSEMENT OF DIES COST ARE BEING PRODUCED BEFOR E YOUR HONOUR. SINCE THE SALE RATE INCLUDES THE REIMBURSEMENT OF DIES COST AND TO HAVE THE MATCHING EFFECT THE COST OF THE DIES HAS BEEN CLAIMED AS A R EVENUE EXPENDITURE.' 14. THIS CLEARLY SHOWS THAT THE ASSESSING OFFICER HAD UNDERTAKEN THE EXERCISE OF EXAMINING AS TO WHET HER THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE REPLACEMENT OF DYES AND TOOLS IS TO BE TREATED AS R EVENUE EXPENDITURE OR NOT. IT APPEARS THAT SINCE THE ASSES SING OFFICER WAS SATISFIED WITH THE AFORESAID EXPLANATIO N, HE ACCEPTED THE SAME. THE CIT IN HIS IMPUGNED ORDER EV EN ACCEPTS THIS IN THE FOLLOWING WORDS : 'ASSESSING OFFICER ACCEPTED THE EXPLANATION WITHOUT RAISING ANY FURTHER QUESTIONS, AND AS STATED EARLIE R, COMPLETED THE ASSESSMENT AT THE RETURNED INCOME.' 15. THUS, EVEN THE COMMISSIONER CONCEDED THE POSITION THAT THE ASSESSING OFFICER MADE THE INQUIR IES, ELICITED REPLIES AND THEREAFTER PASSED THE ASSESSME NT ORDER. THE GRIEVANCE OF THE COMMISSIONER WAS THAT T HE ASSESSING OFFICER SHOULD HAVE MADE FURTHER INQUIRES RATHER THAN ACCEPTING THE EXPLANATION. THEREFORE, I T CANNOT BE SAID THAT IT IS A CASE OF 'LACK OF INQUIRY'. 11. BEFORE US THE LD. CIT, DR SUPPORTED THE INVOC ATION OF REVISIONARY JURISDICTION BY THE LD. PR. CIT U/S 263 OF THE ACT, BY RELYING ON THE AMENDMENT TO SECTION 263 WHEREBY EXP LANATION 2 TO SUB-SECTION (1) OF SEC. 263 OF THE ACT WAS INSER TED WITH EFFECT FROM 01.06.2015. THE SAID AMENDMENT INSERTED THE WO RDS IN THE OPINION OF PRINCIPAL COMMISSIONER OR COMMISSIONER. ACCORDING TO LD. CIT, DR, AFTER THIS AMENDMENT WAS BROUGHT IN TO STATUTE, THE ORDER PASSED BY THE AO CAN BE DEEMED TO BE ERRONEOU S INSOFAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE IF IN TH E OPINION OF THE PR. CIT OR CIT, THE ORDER HAS BEEN PASSED WITHOUT M AKING ENQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MA DE. ACCORDING TO US, HOWEVER, THE INSERTION OF THE AMEN DMENT WHICH ITA NO. 394/BANG/2020 PAGE 16 OF 31 INTRODUCED THE WORDS IN THE OPINION OF PRINCIPAL C OMMISSIONER OR COMMISSIONER CANNOT BE READ IN ISOLATION. IT HA S TO BE KEPT IN MIND THAT EXPLANATION CANNOT OVER-RIDE THE SUBSTA NTIVE PROVISION OF THE LAW WHICH THE EXPLANATION ONLY TRI ES TO EXPLAIN/CLARIFY. 12. BEFORE WE ADVERT FURTHER, LET US LOOK AT SECTIO N 263 OF THE ACT, WHICH IS REPRODUCED AS UNDER:- 263. (1) THE PRINCIPAL COMMISSIONER OR] COMMISSION ER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDI NG UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS 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 ORD ER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLIN G THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. [EXPLANATION 1.]FOR THE REMOVAL OF DOUBTS, IT IS H EREBY DECLARED THAT, FOR THE PURPOSES OF THIS SUBSECTION, (A) AN ORDER PASSED [ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988] BY THE ASSESSING OFFICER SHALL INCLUDE (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMISSIONER OR DEPUTY COMMISSIONER] OR THE INCOME- TAX OFFICER ON THE BASIS OF THE DIRECTIONS ISSUED B Y THE [JOINT] COMMISSIONER UNDER SECTION 144A; (II) AN ORDER MADE BY THE [JOINT] COMMISSIONER IN E XERCISE OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTION S OF AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BOARD OR BY THE [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONE R OR [PRINCIPAL DIRECTOR GENERAL OR] DIRECTOR GENERAL OR [PRINCIPAL COMMISSIONER OR] COMMISSIONER AUTHORISED BY THE BOARD IN THIS BEHALF UNDER SECTION 120; (B) 'RECORD' [SHALL INCLUDE AND SHALL BE DEEMED ALW AYS TO HAVE INCLUDED] ALL RECORDS RELATING TO ANY PROCEEDI NG UNDER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE [PRINCIPAL COMMISSIONER OR] COMMISSIONER; ITA NO. 394/BANG/2020 PAGE 17 OF 31 (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJEC T MATTER OF ANY APPEAL [FILED ON OR BEFORE OR AFTER T HE 1ST DAY OF JUNE, 1988], THE POWERS OF THE [PRINCIPAL COMMIS SIONER OR] COMMISSIONER UNDER THIS SUB-SECTION SHALL EXTEN D [AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED] TO SU CH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN S UCH APPEAL.] [EXPLANATION 2.FOR THE PURPOSES OF THIS SECTION, I T IS HEREBY DECLARED THAT AN ORDER PASSED BY THE ASSESSI NG OFFICER SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR A S IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER, (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE; (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQUIRING INTO THE CLAIM; (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WITH ANY ORDER, DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119; OR (D) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE WIT H ANY DECISION WHICH IS PREJUDICIAL TO THE ASSESSEE, REND ERED BY THE JURISDICTIONAL HIGH COURT OR SUPREME COURT IN T HE CASE OF THE ASSESSEE OR ANY OTHER PERSON.] [(2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) A FTER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL Y EAR 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 FINDIN G OR DIRECTION CONTAINED IN AN ORDER OF THE APPELLATE TR IBUNAL, [NATIONAL TAX TRIBUNAL,] THE HIGH COURT OR THE SUPR EME COURT. 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 ITA NO. 394/BANG/2020 PAGE 18 OF 31 PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROCEEDING UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUDED.' 13. FROM BARE READING OF SECTION 263 OF THE ACT AND THE EXPLANATION THERETO INTRODUCED THROUGH THE FINANCE ACT, 2015, W.E.F. 01.06.2015, WE NOTE THAT EXPLANATION -2, IS A DEEMING PROVISION. THE WELL SETTLED POSITION OF LAW IS THAT WHILE CONSTRUING A DEEMING PROVISION, IT HAS TO BE STRICT LY INTERPRETED AND THAT THE LEGAL FICTION SHOULD NOT BE STRETCHED BEYOND THE PURPOSE FOR WHICH IT IS ENACTED AND SHOULD NOT EXTE ND THAT LEGITIMATE FIELD (RAYMOND VS. STATE OF CHATTISGARH AIR 20-07 SC 2854). IT SHOULD BE KEPT IN MIND THAT DEEMING PROVI SION SHOULD BE IN RESPECT OF FACTS, FROM WHICH LEGAL CONSEQUENC ES WILL FOLLOW. HOWEVER, THE LEGAL CONSEQUENCE CANNOT BE DEEMED[DCM VS. STATE OF RAJASTHAN (1996) 2 SCC 449. AIR 1996 SC 29 30 (3 JUDGES OF HONBLE SUPREME COURT) AND SAME VIEW REIT ERATED IN STATE OF KARNATAKA VS. STATE OF TAMIL NADU (2017) 3 SCC 362. SO WHEN WE LOOK AT EXPLANATION-2, WE NOTE THAT DEEM ING FICTION OF LAW THAT THE ORDER OF THE ASSESSING OFFICER IS D EEMED TO BE ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTER EST OF THE REVENUE ONLY IF IN THE OPINION OF THE LD. CIT, WHICH NECESS ARILY HAS TO BE A FINDING OF FACT IN THE FOLLOWING FOUR EVENTS. THEN LEGAL CONSEQUENCE FOLLOWS, IF NOT, IT DOES NOT. SO, THE C IT HAS TO MAKE A FINDING OF FACT IN THE FOLLOWING: (A) THE ASSESSMENT ORDER PASSED BY THE ASSESSING OF FICER IS WITHOUT INQUIRY OR VERIFICATION, (B) THE ASSESSING OFFICER ALLOWED A CLAIM WITHOUT E NQUIRY, (C) THE ASSESSING OFFICER PASSED THE ORDER WHICH IS NOT IN ACCORDANCE WITH ANY ORDER, DIRECTIONS OR INSTRUCTIO NS ISSUED BY THE CBDT U/S 119 OF THE ACT, (D) THE ASSESSING OFFICER PASSED THE ORDER WHICH IS NOT IN ACCORDANCE TO THE DECISION OF THE HONBLE JURISDICT IONAL HIGH COURT OR THE HONBLE SUPREME COURT, WHICH IS PREJUD ICIAL TO THE ASSESSEE, WHICH IS RENDERED EITHER IN THE ASSESSEE S CASE OR ANY OTHER PERSON. ITA NO. 394/BANG/2020 PAGE 19 OF 31 14. THE AMENDMENT BROUGHT BY THE FINANCE ACT, 201 5, BY WAY OF INSERTION OF EXPLANATION-2, CAN COME TO THE AID OF THE LD. PR. CIT OR LD. CIT ONLY WHEN ANY ONE OR MORE OF THE FOU R CONDITIONS, IS SATISFIED AND A CLEAR FINDING OF FACT TO THAT EF FECT IS RECORDED BY THE LD. CIT. IT IS ONLY AFTER THE CIT RECORDS A CLE AR FINDING OF FACT BRINGING THE ASSESSEES CASE WITHIN THE AMBIT OF AN Y ONE OR MORE CONDITION SPECIFIED IN THE EXPLANATION, ONLY THEN T HE LEGAL CONSEQUENCE ENVISAGED IN THE EXPLANATION CAN BE DEE MED OR ELSE IT CANNOT BE DEEMED. ONLY IN THE CASE WHERE THE CIT RECORDS A CLEAR FINDING OF FACT ESTABLISHING ANY OF THE FOUR CONDITIONS POSTULATED ABOVE IS SATISFIED THEN THE ORDER FRAMED BY THE ASSESSING OFFICER CAN BE DEEMED TO BE ERRONEOUS INS OFAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE, AND NOT OTHERWISE. TO SAY IT DIFFERENTLY, THE OPINION OF LD. PR. CIT OR CIT CANNOT BE READ IN ISOLATION, AND IT HAS TO BE READ CO-JOINTLY WITH THE FOUR CONDITIONS STIPULATED UNDER EXPLANATION-2 CLAUSES ( A) TO (D) . IT IS ONLY IN THE EVENT THAT ANY ONE OF THE SITUATION IS SATISFIED AND THERE IS A FINDING OF FACT BY THE LD. CIT TO THAT E FFECT IN HIS REVISION ORDER, THEN ONLY THE DEEMING PROVISION OF EXPLANATION-2 CAN BE PRESSED INTO SERVICE FOR RENDERING AN ASSESS MENT ORDER AS ERRONEOUS, INSOFAR AS PREJUDICIAL TO THE REVENUE, W HICH IS THE JURISDICTIONAL FACT & LAW REQUIRED FOR THE LD. PR. CIT/CIT TO INVOKE REVISIONAL JURISDICTION U/S 263 OF THE ACT. 15. COMING TO THE EXPRESSION IN EXPLANATION -2 IN THE OPINION OF THE LD. CIT, IT MUST BE THE CONSIDERED OPINION OF THE CIT WHICH IS BASED ON THE CORRECT FACTS AND IN ACCO RDANCE WITH THE PRINCIPLES OF LAW. IT CANNOT BE AN ARBITRARY OP INION BEREFT OF FACTS OR LAW. THE AFORESAID CLAUSE ONLY PROVIDES FO R SITUATION WHERE INQUIRIES OR VERIFICATIONS SHOULD BE MADE BY REASONABLE AND PRUDENT OFFICER IN THE CONTEXT OF THE CASE. SUC H CLAUSE CANNOT BE READ TO AUTHORIZE OR GIVE UNFETTERED POWERS TO T HE COMMISSIONER TO REVISE EACH AND EVERY ASSESSMENT OR DER. THE APPLICABILITY OF THE CLAUSE IS THUS ESSENTIALLY CON TEXTUAL. IT HAS TO BE THE OPINION OF A PRUDENT PERSON PROPERLY INSTRUC TED IN LAW. THE HONBLE SUPREME COURT IN MANEKA GANDHI VS. UNION OF INDIA REPORTED IN 1978 AIR (SC) 597 HAS LAID DOWN THE LAW THAT A PUBLIC AUTHORITY SHOULD DISCHARGE HIS DUTIES IN A F AIR, JUST AND REASONABLE, MANNER AND THE PRINCIPLE OF DUE PROCESS OF LAW WAS RECOGNIZED BY THE HONBLE SUPREME COURT. THEREFORE THE OPINION OF THE LD. CIT HAS TO BE IN CONSONANCE WITH THAT OF THE WELL ITA NO. 394/BANG/2020 PAGE 20 OF 31 SETTLED JUDICIAL PRINCIPLES AND CANNOT BE ARBITRARI LY MADE DISCARDING THE JUDICIAL PRECEDENT ON THE SUBJECT. T HE OPINION OF THE LD. PR. CIT HAS TO BE REASONABLE AND THAT OF A PRUDENT PERSON INSTRUCTED IN LAW AND WHICH FOUNDED ON THE CORRECT FACTS BORNE OUT FROM RECORDS. THE CITS OPINION SHOULD BE BASED ON OBJECTIVE CONSIDERATION OF MATERIAL FACTS AND NOT ON HIS SUBJ ECTIVE NOTIONS OF THE FACTS WRONGLY PRESUMED OR INFERRED BY HIM. M OREOVER, IT HAS TO BE KEPT IN MIND THAT AN EXPLANATION TO SUBST ANTIVE SECTION SHOULD BE READ AS TO HARMONIZE WITH AND CLEAR UP AN Y AMBIGUITY IN THE MAIN SECTION AND SHOULD NOT BE SO CONSTRUED AS TO WIDEN THE AMBIT OF THE SECTION CONFERRING POWERS OR AUTHO RITY LARGER THAN WHAT IS ENVISAGED IN THE PRINCIPAL PROVISION. IT IS SO HELD BY THE HONBLE SUPREME COURT IN BIHTA COOPERATIVE DEVE LOPMENT CANE MARKETING UNION LTD. VS. BANK OF BIHAR, AIR 19 67 SC 389 AND M/S. OBLUM ELECTRICAL INDUSTRIES PVT. LTD., HYD ERABAD VS. COLLECTOR OF CUSTOMS, BOMBAY - AIR 1997 SC 3467 AT PAGE 3471 AND ALSO SEE JUSTICE G. P. SINGH, PRINCIPAL OF STAT UTORY INTERPRETATION 234 LEXUS 2016. IT HAS TO BE KEPT IN MIND THAT WHILE THE COMMISSIONER IS EXERCISING HIS REVISIONAL JURISDICTION OVER THE ASSESSMENT ORDER, HE HAS TO EXERCISE HIS P OWER IN AN OBJECTIVE MANNER AND NOT ARBITRARILY OR SUBJECTIVEL Y SINCE HE IS DISCHARGING QUASIJUDICIAL POWERS VESTED IN HIM WHIL E DOING SO. THUS ACCORDING TO US, EXPLANATION (2) INSERTED BY T HE PARLIAMENT U/S. 263 CANNOT OVERRIDE THE MAIN SECTION I.E. SEC. 263(1) OF THE ACT. THE LD. CIT CAN EXERCISE HIS REVISIONAL JURISD ICTION IN THE EVENT THE ASSESSMENT ORDER IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AS DISCUSSED ABOVE AND NOT OTHERWISE. 16. IN THE INSTANT CASE WE FIND THAT IN THE SCN, THE LD. PR. CIT SET OUT SEVEN SPECIFIC REASONS FOR WHICH HE HAD CON SIDERED THE AOS ORDER TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. WE ALSO NOTE THAT IN RESPONSE, THE ASSESSEE HAD SUBMITTED BEFORE THE LD. PR. CIT DETAILED EXPLANATI ONS SUPPORTED BY TANGIBLE DOCUMENTARY EVIDENCE TO PROVE THAT THE SCN HAD PROCEEDED ON ASSUMPTION OF SOME INCORRECT FACTS AND WRONG INTERPRETATION OF APPLICABLE LEGAL PROVISIONS. THE ASSESSEE ALSO EXPLAINED WITH COGENT MATERIAL THAT BEFORE COMPLETI ON OF ASSESSMENT, THE AO HAD INDEED MADE ENQUIRIES WITH R EFERENCE TO SPECIFIC ISSUES RAISED IN THE SCN AND THE ORDER U/S 143(3) OF THE ACT WAS PASSED ONLY AFTER CONSIDERING THE OUTCOME O F THE ENQUIRY. ACCORDING TO LD. AR, ON RECEIPT OF THE OBJ ECTIONS FROM ITA NO. 394/BANG/2020 PAGE 21 OF 31 THE ASSESSEE, THE LD. PR. CIT OUGHT TO HAVE EXAMINE D THE ASSESSMENT RECORDS AND CONDUCTED HIS OWN ENQUIRY AN D THEREAFTER SHOULD HAVE RECORDED HIS OWN FINDING PROVING THAT T HE EXPLANATIONS FURNISHED BY THE ASSESSEE SUFFERED FRO M ANY FACTUAL OR LEGAL INFIRMITY AND BECAUSE OF WHICH HE FOUND TH AT THE VIEW ADOPTED BY THE AO WAS UNSUSTAINABLE IN LAW MAKING H IS ORDER AS ERRONEOUS WITHIN THE MEANING OF SECTION 263 OF THE ACT. IN OUR OPINION, ONCE THE LD. CIT INITIATES THE PROCEEDINGS U/S 263 OF THE ACT FOR SPECIFIC REASONS AND THESE REASONS ARE MET BY THE ASSESSEE, THEN IT IS INCUMBENT UPON THE LD. CIT TO HIMSELF INDEPENDENTLY DEAL WITH THE OBJECTIONS AND RECORD H IS OWN SATISFACTION TO PROVE THAT THE AOS ORDER IS IN FAC T ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR THE REASONS OUT IN THE SCN. THE LD. CIT IN SUCH A SITUATION CANNOT MER ELY SET ASIDE THE ASSESSMENT ORDER DIRECTING AO TO PASS THE ORDER OF ASSESSMENT AFRESH, EFFECTIVELY GIVING THE AO A SECOND INNINGS WITHOUT ESTABLISHING THAT THE INITIAL ORDER WAS ERRONEOUS A S WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN THI S REGARD, IT IS PERTINENT TO REFER TO THE OBSERVATIONS AND THE DECI SION RENDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF ITO VS DG HOUSING PROJECTS LTD IN 343 ITR 329, WHICH IS REPRODUCED BE LOW: 19. IN THE PRESENT CASE, THE FINDINGS RECORDED BY THE TRIBUNAL ARE CORRECT AS THE CIT HAS NOT GONE INTO A ND HAS NOT GIVEN ANY REASON FOR OBSERVING THAT THE ORDER P ASSED BY THE ASSESSING OFFICER WAS ERRONEOUS. THE FINDING RECORDED BY THE CIT IS THAT 'ORDER PASSED BY THE AS SESSING OFFICER MAY BE ERRONEOUS'. THE CIT HAD DOUBTS ABOUT THE VALUATION AND SALE CONSIDERATION RECEIVED BUT THE C IT SHOULD HAVE EXAMINED THE SAID ASPECT HIMSELF AND GI VEN A FINDING THAT THE ORDER PASSED BY THE ASSESSING OFFI CER WAS ERRONEOUS. HE CAME TO THE CONCLUSION AND FINDING TH AT THE ASSESSING OFFICER HAD EXAMINED THE SAID ASPECT AND ACCEPTED THE RESPONDENT'S COMPUTATION FIGURES BUT H E HAD RESERVATIONS. THE CIT IN THE ORDER HAS RECORDED THA T THE CONSIDERATION RECEIVABLE WAS EXAMINED BY THE ASSESS ING OFFICER BUT WAS NOT PROPERLY EXAMINED AND THEREFORE THE ASSESSMENT ORDER IS 'ERRONEOUS'. THE SAID FINDING W ILL BE CORRECT, IF THE CIT HAD EXAMINED AND VERIFIED THE S AID TRANSACTION HIMSELF AND GIVEN A FINDING ON MERITS. AS HELD ABOVE, A DISTINCTION MUST BE DRAWN IN THE CASES WHE RE THE ASSESSING OFFICER DOES NOT CONDUCT AN ENQUIRY; AS L ACK OF ENQUIRY BY ITSELF RENDERS THE ORDER BEING ERRONEOUS AND ITA NO. 394/BANG/2020 PAGE 22 OF 31 PREJUDICIAL TO THE INTEREST OF THE REVENUE AND CASE S WHERE THE ASSESSING OFFICER CONDUCTS ENQUIRY BUT FINDING RECORDED IS ERRONEOUS AND WHICH IS ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN LATTER CASES, THE CIT H AS TO EXAMINE THE ORDER OF THE ASSESSING OFFICER ON MERIT S OR THE DECISION TAKEN BY THE ASSESSING OFFICER ON MERI TS AND THEN HOLD AND FORM AN OPINION ON MERITS THAT THE OR DER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THE SECOND SET OF CASES, CIT CANNOT DIRECT THE ASSESSING OFFIC ER TO CONDUCT FURTHER ENQUIRY TO VERIFY AND FIND OUT WHET HER THE ORDER PASSED IS ERRONEOUS OR NOT. 17. THE ABOVE VIEW IS ALSO SUPPORTED BY THE FOLLOW ING DECISIONS: - DIT VS JYOTI FOUNDATION REPORTED IN 357 ITR 388 ( DEL) - CIT VS ASHISH RAJPAL REPORTED IN 320 ITR 674 (DEL ) - CIT VS R.K. CONSTRUCTION CO. REPORTED IN 313 ITR 65 (GUJ) 18. HAVING BROADLY DISCUSSED AND SET OUT ABOVE THE SETTLED JUDICIAL PRINCIPLES FOR USURPATION OF JURISDICTION U/S 263 OF THE ACT, WE NOW PROCEED TO EXAMINE WHETHER FOR THE REAS ONS SET OUT IN CLAUSES (A) TO (G) OF THE SCN, THE LD. PR. CIT W AS ABLE TO JUSTIFY HIS FINDING IN THE IMPUGNED ORDER THAT THE AOS ORDER WAS INDEED ERRONEOUS AND PREJUDICIAL TO THE INTERESTS O F THE REVENUE NECESSITATING HIS INTERFERENCE U/S 263 OF THE ACT W ITH REFERENCE TO EACH OF THE SEVEN ISSUES SET OUT IN THE SCN. 19. IN GROUND NOS. 3 & 4 THE ASSESSEE OBJECTED TO LD. PR. CITS FINDING WITH REFERENCE TO REASONS SET OUT IN CLAUSE 3(A) OF THE SCN WHICH READ AS UNDER: ONE OF THE REASONS FOR SELECTION OF SCRUTINY WAS M ISMATCH IN TURNOVER. IT IS NOTICED FROM REPLY OF ASSESSE DA TED 16- 12-2016 THAT RECEIPTS AGAINST DEDUCTION OF TDS WAS DISCLOSED AT RS.9.72 CRS. HOWEVER, AS PER ACCOUNTS THERE WERE THREE CATEGORIES OF REVENUE EARNED BY THE ASSE SSEE DURING THE YEAR VIZ. (I) SALES OF PRODUCTS (SCH. 18 A OF P&L ACCOUNT), (II) SALES OF SCRAP (SCH. 18B OF P&L ACCO UNT), AND (III) OTHER INCOME (SCH. 19 OF P&L ACCOUNT). HENCE, INCIDENCE OF TDS CAN APPLY ONLY TO OTHER INCOME, WH ICH AS PER THE ACCOUNTS WAS TO THE TUNE OF RS. 8.40 CRORES (RS. 873.53L LESS FOREIGN EXCHANGE GAIN OF RS. 33.82L). THUS, ITA NO. 394/BANG/2020 PAGE 23 OF 31 EVEN IF TDS WAS DEDUCTED ON ENTIRE OTHER INCOME, TH ERE WAS A SHORT CREDIT INCOME. THE SAME WAS NOT PROPERL Y VERIFIED BY THE A.O. 20. IN THE IMPUGNED ORDER THE LD. PR. CIT ADMITTE D THAT THE ASSESSEE HAD FILED EXPLANATION BUT THE SAME WAS NOT REJECTED SUMMARILY ON THE GROUND THAT THE ISSUE WAS NOT LOOK ED INTO NOR WERE FULL FACTS DISCUSSED. IN THE COURSE OF HEARING , THE LD. AR DREW OUR ATTENTION TO THE FACTS AVAILABLE ON RECORD WHICH FACTUALLY DISPROVED THE REASONS SET OUT IN CLAUSE (A). AS NOT ED IN PARA 3, WE FIND THAT THE ASSESSEES CASE WAS SELECTED FOR SCRU TINY UNDER CASS INTER ALIA ON THE GROUND THAT THERE WAS A MISM ATCH IN TURNOVER AS PER AUDIT REPORT AND ITR. WE NOTE THAT THIS ASPECT WAS SPECIFICALLY ENQUIRED INTO BY THE AO AT THE TIME OF ASSESSMENT. THE ASSESSEE BY ITS LETTER DATED 09.12.2016 [PAGES 17 TO 21 OF PAPER BOOK] HAD BROUGHT TO THE AOS ATTENTION THAT IN FACT THERE WAS NO MISMATCH IN TURNOVER. THE LD. AR BROUGHT TO OUR ATTENTION THAT IN PART A OF THE RETURN OF INCOME, T HE ASSESSEE HAD REPORTED ITS TURNOVER AT RS.1153.407 CRORES WHICH MATCHED FULLY WITH THE NET SALES/ TURNOVER FIGURE WHICH APPEARED ON PAGE 37 OF THE ANNUAL PRINTED ACCOUNTS. FROM THESE FIGURES, WE NOTE THAT THE CASS REASON WAS EXAMINED BY THE AO AND DID NOT FIND ANY FACTUAL INFIRMITY IN THE ASSESSEES EXPLANATION. NO R ANY FALSITY WAS FOUND BY THE LD PCIT IN THE IMPUGNED ORDER. 21. WE FURTHER FIND THAT HAVING MADE A REFERENCE TO CASS REASON THE LD. PR. CITS NOTICE PROCEEDED TO HIGHLI GHT AN ALLEGED MISMATCH BETWEEN GROSS RECEIPTS OF RS.972 LACS REFL ECTED IN TDS CERTIFICATES WITH THE AMOUNT CREDITED IN THE P&L A/ C UNDER THE HEAD OTHER INCOME, REPORTED AT RS.873.88 LACS. WE FIND MERIT IN THE LD. ARS SUBMISSION THAT THE LD. PR. CIT PROCEE DED ON AN ERRONEOUS ASSUMPTION THAT THE TAX WAS DEDUCTED AT S OURCE ONLY FROM THE RECEIPTS, REPORTED IN THE APPELLANTS P&L A/C UNDER THE HEAD OTHER INCOME AND NO TAX WAS DEDUCTED FROM RE CEIPTS REPORTED UNDER OTHER ACCOUNTING HEADS IN THE P&L A/ C. ON THE CONTRARY, WE FIND THAT IN THE COURSE OF ASSESSMENT THE ASSESSEE WAS SPECIFICALLY REQUIRED BY THE AO TO RECONCILE TH E RECEIPTS REPORTED IN STATEMENT 26AS WITH THE AMOUNTS CERTIFI ED IN THE TDS CERTIFICATES AS ALSO WITH RECEIPTS REPORTED IN THE AUDITED ACCOUNTS FOR THE RELEVANT YEAR. IN RESPONSE, A STAT EMENT OF RECONCILIATION WAS PROVIDED TO THE AO UNDER THE COV ER OF ASSESSEES LETTER DATED 16.12.2016 WHICH FINDS PLAC E AT PAGES 40 ITA NO. 394/BANG/2020 PAGE 24 OF 31 TO 41 OF THE PAPER BOOK. WE THEREFORE FIND THAT THE RELEVANT ASPECT WAS NOT ONLY EXAMINED BY THE AO BUT BEING SATISFIED WITH THE FACT THAT THE RECEIPTS REPORTED IN STATEMENT 26AS F ULLY RECONCILED WITH THE RECEIPTS REPORTED IN THE AUDITED ACCOUNTS, THE AO HAD PASSED THE ASSESSMENT ORDER U/S 143(3) OF THE ACT. WE FURTHER FIND THAT IN RESPONSE TO THE SCN, THE ASSESSEE HAD FILED A STATEMENT, RECONCILING RECEIPTS WHICH SUFFERED TAX DEDUCTION AT SOURCE DURING THE RELEVANT YEAR WITH RECEIPTS ACCOU NTED UNDER RESPECTIVE ACCOUNTING HEADS AND WHICH WERE CREDITED IN THE RELEVANT YEARS PROFIT & LOSS ACCOUNT. COPY OF SUCH RECONCILIATION STATEMENT WAS FURNISHED BEFORE US AT PAGES 119 TO 121 OF THE PAPER BOOK. ON SCRUTINY OF THIS STATEMEN T, WE FIND THAT THE ASSESSEE HAD ESTABLISHED BEFORE THE AO AS WELL AS BEFORE THE LD. PR. CIT THAT ALL RECEIPTS CERTIFIED IN THE TDS CERTIFICATES HAD BEEN FULLY ACCOUNTED IN THE ASSESSEES BOOKS FOR TH E RELEVANT YEAR. ALTHOUGH THESE DOCUMENTS AND EXPLANATIONS WERE ADMI TTEDLY FILED BEFORE THE LOWER AUTHORITIES, NO FACTUAL INFI RMITY OR FALSITY WAS SHOWN BY THE LD. PR. CIT OR BY THE LD. CIT, DR APPEARING ON BEHALF OF THE REVENUE. THE LD. PR. CIT SET ASIDE TH E ASSESSMENT ORDER ON THIS ISSUE MERELY OBSERVING THAT THE ISSUE WAS NOT PROPERLY EXAMINED. APPLYING THE PRINCIPLES SET OUT IN PARAS 8 TO 17 ABOVE, WE THEREFORE HOLD THE ORDER U/S 263 OF TH E ACT ON THIS ISSUE TO BE UNSUSTAINABLE BECAUSE NOT ONLY DID THE AO HAD ENQUIRED INTO THIS ISSUE BUT HAD CONSCIOUSLY APPLIE D HIS MIND TO THE FACTS MADE AVAILABLE BEFORE HIM AND ADOPTED THE PERMISSIBLE VIEW IN LAW. ON THE CONTRARY THE LD. PR. CIT DID NO T BRING ON RECORD ANY MATERIAL TO DISPROVE THE ASSESSEES EXPL ANATIONS WHICH SHOWED THAT RECEIPTS CERTIFIED IN THE TDS CERTIFICA TES TOTALING RS 972 LACS WERE FULLY ACCOUNTED IN THE ASSESSEES BOO KS OF THE RELEVANT YEAR BUT MERELY RESTORED THE ISSUE FOR FRE SH EXAMINATION BY THE AO. THE ORDER OF THE LD. PR. CIT WITH REFERE NCE TO ISSUE IN CLAUSE (A) IS THEREFORE SET ASIDE. GROUND NOS. 3 & 4 ARE ACCORDINGLY ALLOWED. 22. IN GROUND NOS. 5 TO 7, THE ASSESSEE HAS OBJEC TED TO LD. PR. CITS FINDING WITH REFERENCE TO REASONS SET OUT IN CLAUSE 3(B) OF THE SCN WHICH READ AS FOLLOWS: ONE OF THE REASONS FOR SELECTION OF SCRUTINY WAS M ISMATCH IN AMOUNT PAID TO RELATED PERSONS U/S 40A (2) (B) REPORTED IN AUDIT REPORT (FORM 3CEB) AND ITR. HOWEV ER, THE CASE WAS NOT REFERRED TO TPO. AS PER PARA 3.2 O F ITA NO. 394/BANG/2020 PAGE 25 OF 31 CBDTS. INSTRUCTION NO. 3 OF 2016, THE INSTANT CASE HAD TO BE MANDATORILY REFERRED TO THE TPO (THE TRANSFER PR ICING OFFICER) BY THE A.O AFTER OBTAINING THE APPROVAL OF PRINCIPLE CIT. HOWEVER, THE A.O HAS COMPLETED ASSESSMENT U/S 143(3) OF THE ACT ON 29-12-2016 WITH OUT REFERRING THE MATTER TO TRANSFER PRICING OFFICER. 23. WE FIND THAT THE ASSESSEES CASE WAS SELECTED UNDER CASS INTER ALIA ON THE PARAMETER THAT MISMATCH IN AMOUN T PAID TO RELATED PERSONS U/S 40A (2) (B) REPORTED IN AUDIT R EPORT AND ITR. WE NOTE THAT WITH REFERENCE TO THIS CASS REASON THE ASSESSEE WAS REQUIRED TO PROVIDE ITS EXPLANATION ABOUT THE ALLEG ED MISMATCH OF THE FIGURES REPORTED IN TERMS OF SECTION 40A(2)(B) IN ITR AND TAX AUDIT REPORT. WE NOTE THAT EXPLANATION IN THAT REGA RD WAS FURNISHED VIDE PARA 9 OF ASSESSEES LETTER DATED 09 .12.2016 [ PAGE109 OF PAPER BOOK]. IT WAS EXPLAINED BEFORE THE LOWER AUTHORITIES AS ALSO BEFORE US THAT IN CLAUSE 9A OF PART A- OI OF THE INCOME-TAX RETURN IN ITR-6, THE ASSESSEE WAS REQUIR ED TO SPECIFY THE QUANTUM OF THE AMOUNTS DEBITED TO THE PROFIT & LOSS ACCOUNT ,TO THE EXTENT DISALLOWABLE U/S 40A, TO THE PERSONS SPECIFIED IN SECTION 40A(2)(B) OF THE ACT. IN OTHER WORDS IN THE ITR THE ASSESSEE WAS EXPECTED TO SPECIFY THE AMOUNT WHICH W AS DISALLOWABLE IN TERMS OF SECTION 40A(2)(B)OF THE AC T. ON THE OTHER HAND, IN CLAUSE 23 OF THE TAR READ WITH ANNEX URE IX THERETO, THE AUDITOR HAD REPORTED THE PAYMENTS ACTU ALLY MADE BY THE ASSESSEE TO THE PERSONS SPECIFIED IN SECTION 40 A(2)(B) OF THE ACT. IT WAS EXPLAINED THAT THE TAX AUDITOR, WHILE G IVING HIS REPORT IN CONFORMITY WITH THE FORM PRESCRIBED BY THE BOARD U/S 44AB OF THE ACT, WAS REQUIRED TO REPORT ONLY THE AMOUNTS PA ID TO PERSONS SPECIFIED IN S 40A(2) DURING THE RELEVANT REPORTING PERIOD AND HE WAS NOT REQUIRED TO EXPRESS HIS OPINION AS TO WHETH ER THE PAYMENTS TO THE SPECIFIED PERSONS WERE EXCESSIVE AN D FOR THAT REASON ANY PART THEREOF WAS DISALLOWABLE U/S 40A(2) OF THE ACT. THE LD. AR THEREFORE SUBMITTED THAT THE INTENT AND PURPORT OF INFORMATION DISCLOSED IN CLAUSE 9A OF PART A- OI OF THE INCOME- TAX RETURN IN ITR-6 AND CLAUSE 23 OF THE TAR BEING MATERIALLY DIFFERENT, AND THE FIGURES REPORTED IN ITR AND IN C LAUSE 23 OF TAR DID NOT MATCH. 24. THE LD. AR SUBMITTED THAT THE CASS PARAMETER REFERRED ONLY TO MISMATCH OF THE FIGURES REPORTED IN TAX AUD IT REPORT IN RELATION TO PAYMENTS MADE TO PERSONS REFERRED 40A(2 )(B) WITH THE ITA NO. 394/BANG/2020 PAGE 26 OF 31 FIGURES MENTIONED IN INCOME-TAX RETURN. THE CASS RE ASONS DID NOT MAKE REFERENCE TO THE TRANSFER PRICING AUDIT R EPORT FURNISHED IN FORM 3CEB, AS WRONGLY ALLEGED BY THE LD. PR. CIT IN HIS SCN. HE THEREFORE SUBMITTED THAT WHEN THE REASON FO R SELECTION UNDER CASS WAS EXAMINED AND THE AO WAS SATISFIED WI TH THE EXPLANATION FURNISHED FOR THE SAME, THE LD. PR. CIT COULD NOT JUSTIFY INVOCATION OF POWER U/S 263ON THE GROUND TH AT BEFORE COMPLETION OF ASSESSMENT REFERENCE TO TPO ON TRANSF ER PRICING RISK PARAMETER WAS MANDATORY IN TERMS OF PARA 3.2 O F THE CBDT INSTRUCTION NO. 3 OF 2016. 25. HAVING CONSIDERED RIVAL SUBMISSIONS WE FIND M ERIT IN THE LD. ARS PRIMARY CONTENTION THAT THE SCN PROCEEDED ON THE WRONG PRESUMPTION THAT THE ASSESSEES CASE WAS SELE CTED ON A TRANSFER PRICING RISK PARAMETER. WE NOTE THAT THE P ARAMETER FOR SELECTION WAS AS FOLLOWS: MISMATCH IN AMOUNT PAID TO RELATED PERSONS U/S 40A (2) (B) REPORTED IN AUDIT REPORT AND ITR 26. IT IS THUS NOTED THAT NOWHERE THE CASS REASON STATED THE SELECTION OF THE ASSESSEES CASE WAS ON THE GROUND OF THERE BEING LARGE VALUE OF SPECIFIED DOMESTIC TRANSACTIONS OR LARGE VALUE OF INTERNATIONAL TRANSACTIONS SO AS TO WARRANT AN INF ERENCE THAT THE CASE WAS SELECTED ON TRANSFER PRICING RISK PARAMETE R. ON THE CONTRARY, THE CASS REASON MERELY CLAIMED THAT THERE WAS MISMATCH IN THE AMOUNT PAID TO RELATED PERSONS U/S 40A(2)(B) OF THE ACT REPORTED IN AUDIT REPORT AND ITR. FROM PLAI N READING OF THE SAID CASS REASON, WE ARE OF THE VIEW THAT NO PR UDENT PERSON PROPERLY INSTRUCTED IN LAW WOULD HAVE INFERRED THAT THE AFORESAID PARAMETER CONSTITUTED TRANSFER PRICING RISK PARAME TER SO AS TO WARRANT MANDATORY REFERENCE U/S 92CA OF THE ACT IN TERMS OF THE PARA 3.2 OF CBDT INSTRUCTION NO. 3 OF 2016 AND FAIL URE TO MAKE TP REFERENCE MADE THE ASSESSMENT ORDER ERRONEOUS. W E FURTHER FIND THAT ONCE THE INCORRECT PRESUMPTION ON LD. PR. CITS PART WAS HIGHLIGHTED BY THE ASSESSEE IN ITS SUBMISSION THEN IN THE IMPUGNED ORDER THE LD. PR.CIT HIMSELF COMPLETELY DI GRESSED FROM THE REASON SET OUT IN THE SCN BUT NONE THE LES S JUSTIFIED HIS ACTION ON THE GROUND THAT THE REFERENCE TO TPO WAS NECESSARY BECAUSE THE ASSESSEES CASE WAS SELECTED FOR SCRUTI NY UNDER THE CATEGORY OF COMPLETE SCRUTINY. WE ARE HOWEVER UNA BLE TO ACCEPT AN ALTOGETHER NEW CASE MADE OUT BY THE LD. PR. CIT WHILE PASSING ITA NO. 394/BANG/2020 PAGE 27 OF 31 THE IMPUGNED ORDER, JUSTIFYING HIS INTERFERENCE THA T FOR NOT MAKING REFERENCE TO THE TPO, ORDER OF ASSESSMENT WA S ERRONEOUS IN TERMS OF SECTION 263 OF THE ACT. IN THE FIRST IN STANCE, WE NOTE THAT THE LD. PR. CIT HIMSELF GAVE UP THE REASON SET OUT IN SCN VIZ., THAT ONE OF THE CASS REASON FOR SELECTION OF SCRUTINY ASSESSMENT WAS A TRANSFER PRICING RISK PARAMETER. O NCE IT IS ESTABLISHED THAT THE TRANSFER PRICING RISK PARAMETE R WAS NOT THE GROUND FOR SELECTION OF SCRUTINY ASSESSMENT U/S 143 (3) OF THE ACT, THEN WE HAVE TO AGREE WITH THE LD. ARS SUBMISSION THAT PARA 3.2 OF THE CBDT INSTRUCTION NO. 3 OF 2016 WAS NOT APPLI CABLE IN THE GIVEN FACTS OF THE PRESENT CASE AND THEREFORE THE A OS ORDER COULD NOT HAVE BEEN HELD TO BE ERRONEOUS BY THE CIT FOR N OT MAKING REFERENCE TO THE TPO IN TERMS OF THE SAID CBDT INST RUCTION 3 OF 2016. 27. SO FAR AS THE LD. PR. CITS FINDING JUSTIFYING HIS CASE THAT THE AOS ORDER BECAME ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR NOT REFERRING THE ASSESSEES CAS E TO THE TPO U/S 92CA OF THE ACT ON THE GROUND THAT THE ASSESSEE S CASE CAME WITH THE CATEGORY OF COMPLETE SCRUTINY, WE NOTE T HAT THIS CONTENTION OF THE LD. PR. CIT IS IN FACT CONTRARY T O THE EXTANT INSTRUCTIONS OF THE CBDT CONTAINED IN PARAS 3.2 TO 3.3 OF INSTRUCTION NO.3/2016 WHEREIN THE BOARD HAVE SET OU T THE FOLLOWING SPECIFIC SITUATIONS/INSTANCES WHERE THE R EFERENCE TO TPO HAS BEEN MADE MANDATORY : 3.2 ALL CASES SELECTED FOR SCRUTINY, EITHER UNDER THE COMPUTER ASSISTED SCRUTINY SELECTION [CASS] SYSTEM OR UNDER THE COMPULSORY MANUAL SELECTION SYSTEM (IN ACCORDANCE WITH THE CBDT'S ANNUAL INSTRUCTIONS IN T HIS REGARD -FOR EXAMPLE. INSTRUCTION NO. 6/2014 FOR SEL ECTION IN F.Y 2014-15 AND INSTRUCTION NO. 8/2015 FOR SELEC TION IN F.Y 2015-16), ON THE BASIS OF TRANSFER PRICING RISK PARAMETERS [IN RESPECT OF INTERNATIONAL TRANSACTION S OR SPECIFIED DOMESTIC TRANSACTIONS OR BOTH] HAVE TO BE REFERRED TO THE TPO BY THE AO, AFTER OBTAINING THE APPROVAL OF THE JURISDICTIONAL PRINCIPAL COMMISSION ER OF INCOME-TAX (PCIT) OR COMMISSIONER OF INCOME-TAX (CI T). THE FACT THAT A CASE HAS BEEN SELECTED FOR SCRUTINY ON A TP RISK PARAMETER BECOMES CLEAR FROM A PERUSAL OF THE REASONS FOR WHICH A PARTICULAR CASE HAS BEEN SELECT ED AND THE SAME ARE INVARIABLY AVAILABLE WITH THE JURISDIC TIONAL AO. THUS, IF THE REASON OR ONE OF THE REASONS FOR S ELECTION ITA NO. 394/BANG/2020 PAGE 28 OF 31 OF A CASE FOR SCRUTINY IS A TP RISK PARAMETER, THEN THE CASE HAS TO BE MANDATORILY REFERRED TO THE TPO BY THE AO , AFTER OBTAINING THE APPROVAL OF THE JURISDICTIONAL PCIT O R CIT. 3.3 CASES SELECTED FOR SCRUTINY ON NON-TRANSFER PRI CING RISK PARAMETERS BUT ALSO HAVING INTERNATIONAL TRANSACTIO NS OR SPECIFIED DOMESTIC TRANSACTIONS, SHALL BE REFERRED TO TPOS ONLY IN THE FOLLOWING CIRCUMSTANCES: (A) WHERE THE AO COMES TO KNOW THAT THE TAXPAYER HA S ENTERED INTO INTERNATIONAL TRANSACTIONS OR SPECIFIE D DOMESTIC TRANSACTIONS OR BOTH BUT THE TAXPAYER HAS EITHER NOT FILED THE ACCOUNTANT'S REPORT UNDER SECTION 92E AT ALL OR HAS NOT DISCLOSED THE SAID TRANSACTIONS IN THE ACCOUNTANT'S REPORT FILED; (B) WHERE THERE HAS BEEN A TRANSFER PRICING ADJUSTM ENT OF RS. 10 CRORE OR MORE IN AN EARLIER ASSESSMENT YEAR AND SUCH ADJUSTMENT HAS BEEN UPHELD BY THE JUDICIAL AUTHORITIES OR IS PENDING IN APPEAL; AND (C) WHERE SEARCH AND SEIZURE OR SURVEY OPERATIONS H AVE BEEN CARRIED OUT UNDER THE PROVISIONS OF THE INCOME -TAX ACT AND FINDINGS REGARDING TRANSFER PRICING ISSUES IN RESPECT OF INTERNATIONAL TRANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS OR BOTH HAVE BEEN RECORDED BY THE INVESTIGATION WING OR THE AO. 28. FROM PERUSAL OF THE ABOVE, IT IS NOTED THAT NO NE OF THE CONDITIONS PRESCRIBED IN THESE PARAS NECESSITATING MANDATORY REFERENCE TO TPO WERE SATISFIED IN THE INSTANT CASE . IN FACT, WE FIND THAT IN THE IMPUGNED ORDER, LD. PR. CIT HIMSEL F DID NOT TO MAKE OUT A CASE THAT THE ASSESSEES CASE FELL UNDER ANY OF THE SITUATIONS PRESCRIBED IN PARAS 3.2 & 3.3 REQUIRING MANDATORY REFERENCE U/S 92CA(2) OF THE ACT. THE ONLY GROUND O N WHICH THE LD. PR. CIT ULTIMATELY JUSTIFIED HIS ORDER REQUIRIN G AO TO MAKE REFERENCE U/S 92CA MANDATORILY WAS THAT THE ASSESSE ES CASE WAS SELECTED UNDER COMPLETE SCRUTINY CRITERIA AND THERE FORE ALL POSSIBLE ENQUIRIES SHOULD HAVE BEEN MADE BY THE AO INTER ALIA INCLUDING MAKING REFERENCE TO THE TPO. WE FIND THAT ALTHOUGH IN SUPPORT OF SUCH CONCLUSION THE LD. PR. CIT HAS PLAC ED RELIANCE ON THE CBDT INSTRUCTION NO. 3 OF 2016, THE SAID INSTRU CTION NOWHERE EVEN SUGGESTS LET ALONE PROVIDES THAT EVERY CASE OF AN ASSESSEE SELECTED ON NON-TRANSFER PRICING RISK PARAMETER BUT INVOLVING ITA NO. 394/BANG/2020 PAGE 29 OF 31 COMPLETE SCRUTINY, THE REFERENCE MUST BE MADE TO THE TPO IF SUCH AN ASSESSEE HAD ENTERED INTO INTERNATIONAL TRA NSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS DURING THE RELEVANT YEAR. INSTEAD IN PARA 3.3 THE BOARD HAS ENUMERATED ONLY THREE SPE CIFIC INSTANCES/ SITUATIONS WHEN THE REFERENCE TO TPO HAS BEEN MADE MANDATORY EVEN THOUGH AS PER THE CASS, THE CASE OF AN ASSESSEE IS NOT SELECTED ON TRANSFER PRICING RISK PARAMETER . WE FIND THAT IN THE IMPUGNED ORDER THE LD. PR. CIT HAS NOT BROUG HT ON RECORD ANY MATERIAL TO SHOW THAT THE AO HAD ACTED IN VIOLA TION OF THE CBDT INSTRUCTION NO. 3 OF 2016 AND FOR THAT REASON THE AOS ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST S OF THE REVENUE. 29. EVEN WITH REGARD TO CITS ALLEGATION THAT IN COMPLETE SCRUTINY CASE, THE AO DID NOT CONDUCT ANY ENQUIRIES WHATSOEVER WITH REGARD TO TRANSACTIONS REFERRED TO IN SECTION 40A(2)(B) AS WELL AS SECTION 92CA OF THE ACT, WE FIND THAT PRIOR TO COMPLETION OF ASSESSMENT THE AO HAD INDEED CONDUCTED ENQUIRIES WITH REGARD TO CASS REASON AS ALSO THE ASSESSEES INTERNATIONAL TRANSACTIONS WITH THE AES. WE NOTE THAT BEFORE COMPLETION OF ASS ESSMENT, THE ASSESSEE WAS ASKED TO PROVIDE EXPLANATION EVEN WITH REGARD TO ITS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES. BY ITS LETTER DATED 16.12.2016 [PAGES 87 TO 89 OF PAPER BO OK], THE ASSESSEE HAD FURNISHED ITS EXPLANATION IN RESPECT O F ITS INTERNATIONAL TRANSACTIONS. IN THE SAID LETTER IT W AS PARTICULARLY BROUGHT TO THE AOS ATTENTION THAT BASED ON THE TRA NSFER PRICING AUDIT REPORT IN FORM 3CEB, WHEREIN THE AUDITORS HAD CERTIFIED ALP OF INTERNATIONAL TRANSACTIONS, THE ASSESSEE HAD SUO MOTO OFFERED ADJUSTMENTS IN THE COMPUTATION OF INCOME ON ACCOUNT OF CORPORATE GUARANTEE FEES AND INTEREST ON LOAN TO AE S WHICH WERE NOT ACTUALLY CHARGED. WE THEREFORE FIND THAT IT WAS NOT EVEN A CASE WHERE THE ORDER OF THE AO SUFFERED FROM THE CHARGE OF FAILURE TO CONDUCT ENQUIRY INTO THE RELEVANT ISSUE AS ALLEGED BY THE LD. PR. CIT IN THE IMPUGNED ORDER. 30. LASTLY, AS POINTED OUT BY THE LD. AR, IN THE S CN, THE LD. PR. CIT HAD JUSTIFIED INVOCATION OF POWER U/S 263 W ITH REFERENCE TO ASSESSEES TRANSACTIONS WITH PERSONS SPECIFIED I N SECTION 40A(2)(B) OF THE ACT. IN OTHER WORDS IN CITS OPINI ON ASSESSEES SPECIFIED DOMESTIC TRANSACTIONS COMING WITHIN THE A MBIT OF SECTION 92BA(I) OF THE ACT SHOULD HAVE BEEN REFERRE D FOR TRANSFER ITA NO. 394/BANG/2020 PAGE 30 OF 31 PRICING SCRUTINY. WE HOWEVER NOTE THAT THE RELEVANT PROVISIONS OF SECTION 92BA WERE AMENDED BY FINANCE ACT, 2017W.E.F . 01.04.2017 WHEREBY CLAUSE (I) OF SEC. 92BA RELATING TO ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAVE BEEN M ADE OR IS TO BE MADE TO A PERSON REFERRED TO CLAUSE (B) OF SUB- SECTION (2) OF SECTION 40A OF THE ACT WAS OMITTED. NOW THE QUESTIO N ARISES WHETHER AFTER THE OMISSION OF CLAUSE (I) FROM THE S TATUTE, THE CIT CAN JUSTIFIABLY SET ASIDE THE ORDER OF ASSESSMENT F OR NOT MAKING A REFERENCE TO TPO FOR EXAMINING TRANSACTIONS COMING WITHIN THE AMBIT OF SECTION 92BA(I) OF THE ACT. IN THIS REGARD , OUR ATTENTION WAS INVITED TO THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DVC EMTA COAL MINES LTD &OR S VS ACIT IN ITA NOS. 2430-2432/KOL/2017 DATED 01.05.201 9 WHEREIN IT WAS HELD THAT THE LEGAL EFFECT OF CLAUSE (I) OF SECTION 92BA BEING OMITTED BY SUBSEQUENT AMENDMENT, WOULD M EAN THAT CLAUSE (I) NEVER EXISTED IN THE STATUTE AND CONSEQU ENTLY NO ADVERSE INFERENCE WITH REFERENCE TO OMITTED PROVISION CAN B E DRAWN AGAINST AN ASSESSEE. WHILE OMITTING THE CLAUSE (I) OF SECTION 92BA OF THE ACT, NOTHING WAS SPECIFIED WHETHER THE PROCE EDING INITIATED OR ACTION TAKEN ON THIS COUNT CAN CONTINUE. THEREFO RE, THIS TRIBUNAL HELD THAT ANY PROCEEDING INITIATED OR ACTI ON TAKEN UNDER THAT CLAUSE WOULD NOT SURVIVE AT ALL AND ANY REFERE NCE MADE TO TPO UNDER SECTION 92CA IN RESPECT OF TRANSACTIONS R EFERRED TO IN CLAUSE (I) OF SECTION 92BA OF THE ACT SHALL BE INVA LID AND BAD IN LAW. 31. APPLYING THE RATIO LAID DOWN IN THE FOREGOING DECISION TO THE FACTS OF THE PRESENT CASE, WE NOTE THAT WHEN TH E IMPUGNED ORDER WAS PASSED BY THE LD. PR. CIT, CLAUSE (I) OF SECTION 92BA OF THE ACT HAD ALREADY BEEN OMITTED BY THE FINANCE ACT, 2017 AND IN THAT VIEW OF THE MATTER THE LD. PR. CIT COULD NO T SET ASIDE THE ORDER FOR ALLEGED NON-COMPLIANCE WITH PROVISION OF LAW WHICH NO LONGER EXISTED IN THE STATUTE AS ON THE DATE OF ORD ER. THE LD. PR. CITS DIRECTION REQUIRING THE AO TO CONSIDER MAKING A REFERENCE TO THE TPO IN THE SET ASIDE PROCEEDINGS IS ALSO CON TRARY TO THE VIEW EXPRESSED IN THE FOREGOING DECISION OF THE COO RDINATE BENCH(SUPRA). FOR ALL THE FOREGOING REASONS THEREFO RE, WE HOLD THAT THE AOS ORDER DID NOT SUFFER FROM ANY ERROR F OR THE REASON THAT HE DID NOT MAKE REFERENCE TO THE TPO. ACCORDIN GLY THE LD. PR. CITS ORDER FOR THE REASON SET OUT IN CLAUSE 3( B) OF THE SCN ITA NO. 394/BANG/2020 PAGE 31 OF 31 AND FOR THE ENTIRELY NEW SET OF REASONS CONTAINED I N THE IMPUGNED ORDER, IS SET ASIDE. GROUND NOS. 5 TO 7 ARE ACCORDI NGLY ALLOWED. 13. IN OUR OPINION, THE FACTS OF THE PRESENT CASE A RE SIMILAR TO THE CASE CONSIDERED BY THE KOLKATA BENCH OF THE TRIBUNAL CIT ED SUPRA . WE ARE THEREFORE INCLINED TO QUASH THE IMPUGNED REVISIONAR Y ORDER PASSED BY THE PCIT U/S. 263 OF THE ACT. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF SEPTEMBER, 2021. SD/- SD/- ( N V VASUDEV AN ) ( CHANDRA POOJARI ) VICE PR ESIDENT ACCOUNTANT MEMBER BANGALORE, DATED, THE 15 TH SEPTEMBER, 2021. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.