Ram Lal Jhariya, V. Commissioner of Income Tax-1,

ITA 45/JAB/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1134 (ITAT-JABALPUR)
• Duration Of Justice: 4 year(s) 1 month(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 28-05-2019
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 27-04-2015
• Court: TRIBUNAL
• Department Lawyers: D R LATHORIYA
• Assessee Lawyers: A P SHRIVASTAVA; SAPAN USRETHE S
• Keywords: Business income; Depreciation; Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure; Capital expenditure; Set aside
• Section: 142(1); 80HHC; 250; 27; 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JABALPUR BENCH, JABALPUR BEFORE SHRI D.T. GARASIA, J.M. AND SHRI B.C.MEENA, A.M. I.T.A.NO. 45/JAB/2015 A.Y. : 2010-11 SHRI RAM LAL JHARIYA, SHAHDOL CIT - I, JABALPUR VS APPELLANT RESPONDENT PAN NO. : ADCPJ6149E APPELLANT BY : SHRI A.P.SHRIVASTAVA AND SHRI SAPAN USRETHE, ADVOCATES RESPONDENT BY : SHRI D. R. LATHORIYA, DR DATE OF HEARING : 21 . 0 5 .201 5 DATE OF PRONOUNCEMENT : 09 . 0 6 .201 5 -: 2: - 2 O R D E R PER GARASIA, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED U/S 263 OF THE INCOME-TAX ACT, 1961, BY CIT -I, JABALPUR, DATED 11.03.2015 FOR THE ASSESSMENT YEAR 2010-11. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN AGRICULTURIST. HE IS ALSO PARTNER IN THE CONSTRUCTI ON FIRM M/S VANSHIKA CONSTRUCTIONS. THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 2.11.2010 DECLARING INCOME OF RS. 18,65,6 40/- AND AGRICULTURAL INCOME AT RS. 18,67,974/-. THE BUSINES S INCOME DECLARED IN THE RETURN OF INCOME CONSISTS OF REMUNE RATION, INTEREST, SHARE FROM M/S. VANISHKA CONSTRUCTIONS. THE ASSESSEE HAS CLAIMED EXPENSES OF RS. 3,55,704/- AGA INST THE BUSINESS INCOME. THE EXPENSE OF RS. 3,55,704/- CONS ISTS OF DEPRECIATION OF RS. 3,05,776/-, INTEREST PAID ON VE HICLE LOAN AT RS. 46,591/-, BANK CHARGES AND COMMISSION OF RS. 2, 962/- AND INTEREST PAID TO BANK AT RS. 375/-. ON EXAMINAT ION OF THE RECORDS, THE AO HAS DISALLOWED 30% OF RS. 1,06,711/ - ON -: 3: - 3 EXPENSES CLAIMED AT RS. 3,55,704/- BY THE ASSESSEE. IT WAS FURTHER NOTICED THAT THE ASSESSEE IS A WORKING PART NER IN A CONSTRUCTION FIRM M/S. VANISHIKA CONSTRUCTION AND W AS GETTING REMUNERATION, INTEREST AND PROFIT FROM THE FIRM. NO DEDUCTION ON ACCOUNT OF DEPRECIATION, INTEREST PAYM ENT ON VEHICLE LOAN, BANK CHARGES, COMMISSION AND INTEREST PAID TO THE BANK ARE ALLOWABLE FROM THE REMUNERATION. THERE FORE, THE LD. CIT HELD THAT THE ORDER OF THE AO IS ERRONEOUS IN TERMS OF LAW WHICH HAS RENDERED THE ASSESSMENT ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE. THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- 1. THE LD. CIT WAS NOT JUSTIFIED IN INVOKING SECTION 263 WHEN THE ORDER PASSED BY THE LD. AO WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST S OF REVENUE. 2. THE LD. CIT WAS NOT JUSTIFIED IN DIRECTING TO DISAL LOW EXPENSES INCURRED AGAINST THE SHARE INCOME FROM FIRM WITHOUT APPRECIATING THAT SHARE INCOME BEING BUSINESS INCOME U/S 28(V) OF INCOME-TAX ACT THE -: 4: - 4 EXPENSES ARE TO BE ALLOWED U/S 36/37 OF THE INCOME-TAX ACT. 3. THE LD. CIT HAS NOT APPRECIATED THAT AO ALREADY APPLIED HIS MIND AND DISALLOWED 30% OF EXPENSES AND AS DISCRETION WAS EXERCISED BY THE LD. AO, THE LD. CIT WAS NOT JUSTIFIED IN INTERFERING WITH DISCRETION AS IT IS NOT PERVERSE. 3. THE LD. CIT HELD THAT THE ASSESSEE IS WORKING PARTN ER IN CONSTRUCTION FIRM AND GETTING REMUNERATION, INTE REST AND PROFIT FROM THE FIRM. NO DEDUCTION ON ACCOUNT OF DE PRECIATION, INTEREST PAYMENT ON VEHICLE, BANK CHARGES, COMMISSI ON AND INTEREST PAID TO BANK ARE ALLOWABLE FROM THE REMUNE RATION. THEREFORE, THE ORDER OF THE AO IS ERRONEOUS. THE AS SESSEE HAS GIVEN SHOW CAUSE NOTICE AND AFTER CONSIDERING THE R EPLY OF THE ASSESSEE, THE LD. COMMISSIONER HAS HELD THAT THE EX PENSES INCURRED FOR PROFIT OF FIRM SHOULD HAVE BEEN CLAIME D AGAINST THE EXPENSES OF THE FIRM. THUS, THE CLAIM OF THE AS SESSEES EXPENSES ON REMUNERATION IS NOT ALLOWABLE AS PER TH E ACT. NO SUCH PROVISION TO THIS EFFECT HAS EVEN BEEN FOUND T O BE -: 5: - 5 SPECIFIED IN THE DEED OF PARTNERSHIP OF THE FIRM. T HE AO SHOULD HAVE DISALLOWED ENTIRE CLAIM OF EXPENSES OF RS. 3,5 5,704/-, WHICH HAS RENDERED THE ASSESSMENT ERRONEOUS IN SO F AR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE. 4. THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. AUTHORIZED REPRESENTATIVE HAS FILED BRIEF N OTE, WHICH IS REPRODUCED AS UNDER :- 1. THE APPELLANT DERIVES INCOME FROM 10% SHARE FROM FIRM M/S. VANSHIKA CONSTRUCTION. RETURN OF INCOME WAS FILED ON 02.11.2010 DECLARING TOTAL INCOME AT RS. 18,65,640/-. 2. THE INCOME WAS COMPUTED AS BELOW :- SHARE FROM M/S. VANSHIKA CONSTRUCTION (I) REMUNERATION 17,35,761 (II) INTEREST 3,37,387 TOTAL 20,13,148 LESS: EXPENSES (I) DEPRECIATION 3,05,776 (II) INTEREST ON VEHICLE LOAN 46,591 (III) BANK CHARGES AND COMMISSION 2,962 (IV) INTEREST TO BANK 375 3,55,704 -: 6: - 6 AFTER DEDUCTION THE NET INCOME FROM SHARE FROM FIRM COMES TO RS. 17,17,444 AND AFTER ADDING RS. 1,48,198/- INCOME FROM OTHER SOURCES TOTAL INCOME WAS COMPUTED AT RS. 18,65,640/-. GROUND NO. 1 TO 2: 3. AS SHARE FROM FIRM IS BUSINESS INCOME IN VIEW OF SECTION 28(V) AND THEREFORE EXPENSES CLAIMED ARE ALLOWABLE. 4. THE AO HOWEVER CONSIDERED THESE EXPENSES AS EXCESSIVE AND THEREFORE THE REASON GIVEN IN ASSESSMENT ORDER DISALLOWED 1/3 RD OF EXPENSES AT RS. 1,06,711/- AND COMPLETED ASSESSMENT ON TOTAL INCOME AT RS.19,72,350/-. 5. THE LD. CIT ISSUED SHOW CAUSE NOTICE U/S 263 DATED 20.2.2015 AND ASKED THE ASSESSEE TO SHOW CAUSE WHY ENTIRE EXPENSES CLAIMED SHOULD NOT BE DISALLOWED. 6. THE APPELLANT FILED REPLY AND SUBMITTED THAT SHARE INCOME FROM FIRM IN BUSINESS INCOME AND THEREFORE EXPENSES EARNED TO THAT SHARE -: 7: - 7 INCOME IS ALLOWABLE U/S 37 OF INCOME-TAX ACT, 1961. 7. THE APPELLANT SUBMITTED THAT HON'BLE MUMBAI TRIBUNAL IN 78 ITD 394 HELD THAT INTEREST PAID IN RESPECT OF AMOUNT BORROWED IS TO BE ALLOWED FROM SHARE FROM FIRM. THE HON'BLE MUMBAI TRIBUNAL IN 106 ITD 437 HELD THAT DEPRECIATION ON CAR USED BY PARTNER FROM SHARE FROM FIRM IS ALLOWABLE AS DEDUCTION. GROUND NO. 3 : 8. AS THESE EXPENSES ARE ALLOWABLE, AS THESE EXPENSES WERE DULY EXAMINED BY THE ASSESSING OFFICER, AS THE ASSESSMENT IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE, THE LD. CIT WAS NOT JUSTIFIED IN INVOKING SECTION 2263 AND ASKING THE AO TO REDO THE ASSESSMENT. THE APPELLANT SUBMITS THAT IN VIEW OF JUDGMENT OF HON'BLE M.P. HIGH COURT REPORTED IN 332 ITR 167 THE ORDER PASSED BY CIT U/S 263 MAY BE QUASHED. -: 8: - 8 6. THE LD. AUTHORIZED REPRESENTATIVE HAS ALSO FILED CO PY OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFF ICER. COPY OF THE DETAILED EXPENSES AS CLAIMED BY THE ASSESSEE . THE LD. AUTHORIZED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS :- (I) SANTOSH KUMAR AGRAWAL VS. ACIT, (2001) 78 ITD 394 (MUM TRIBUNAL ) (II) VIRENDRA K. MEHTA VS. ACIT, (2008) 296 ITR 82 (MUM. TRIBUNAL) (III) ACIT VS. RATLAM COAL ASH CO. (1988) 171 ITR 141. (IV) CIT VS. SUNBEAM AUTO LIMITED, (2011) 332 ITR 167 (DEL) (V) I.T.A.NO. 2982/DEL/2013 IN THE CASE OF VAM RESORTS & HOTELS PVT.LTD., MEERUT VS. ACIT, CIRCLE 2,MEERUT. 7. ON THE OTHER HAND, THE LD. SENIOR D.R. RELIED UPON THE ORDER OF LD. CIT AND ALSO SUBMITTED THAT THE ASSESS EE HAS SUBMITTED DETAILS REGARDING HIS CLAIM. HOWEVER, IT IS NOT ALLOWABLE AS PER LAW. IN VIEW OF THIS, THE LD. CIT WAS JUSTIFIED IN -: 9: - 9 INVOKING THE PROVISIONS OF SECTION 263 OF THE INCOM E-TAX ACT, 1961. 8. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. IN THIS CASE, THE ASSESSEE IS AN AGRICULTURIST AND HE IS AL SO PARTNER IN M/S. VANSHIKA CONSTRUCTIONS. THE ASSESSEE HAS DECLA RED BUSINESS INCOME CONSISTS OF REMUNERATION, INTEREST, SHARES IN VANSHIKA CONSTRUCTIONS AND CLAIMED THE EXPENSES AT RS. 3,55,704/-. AS PER THE LD. CIT, THE AO HAS DISALLOW ED ONLY 30% OF EXPENSES AT RS. 3,55,704/-. THE ASSESSEES C ONTENTION THAT THE AO WHILE PASSING THE ASSESSMENT ORDER IN PARA 9, HE HAS DISCUSSED THIS ISSUE AND HELD THAT THE ASSESSEE IS A PARTNER IN VANSHIKA CONSTRUCTIONS AND GETTING REMUN ERATION, INTEREST AND PROFITS FROM THE FIRM AND HE CLAIMED D EDUCTION OF RS. 3,5,704/- AS EXPENDITURE REGARDING WORK AS PART NER IN THE FIRM. THE ASSESSEE HAS FURNISHED THE DETAILS , ORIG INAL BILLS AND VOUCHERS WERE NOT PRODUCED. THE ASSESSEE CLAIMED DEPRECIATION BUT HE WAS NOT ABLE TO PROVE THAT THE VEHICLE WAS COMPLETELY USED FOR EARN TO INCOME . DUE TO IMPROPE R VERIFICATION, THE AO HAS DISALLOWED 30% OF THE TOTA L EXPENSES OF RS. 3,55,704/-. WE FIND THAT THE AO HAS CONSIDER ED THE -: 10: - 10 EXPLANATION OF THE ASSESSEE REGARDING CLAIM OF DEDU CTION. HE HAS DISALLOWED 30% OF THE EXPENSES AND HE MADE THE ENQUIRY AND HAS TAKEN ONE OF THE VIEWS. WE FIND THAT IN THI S CASE THE AO HAS MADE INQUIRY, BUT LATER ON INQUIRY ITSELF RE NDERED THE ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. THE AO HAS CONDUCTED ENQUIRY, BUT FINDING RECORDED IS ERRONEOUS AND SHOULD ALSO BE PREJUDICIAL TO THE INT ERESTS OF REVENUE. IN THIS CASE, THE LD. COMMISSIONER HAS ALS O EXAMINED THE ORDER AND DECISION TAKEN BY THE ASSESSING OFFIC ER ON MERIT AND THEN FORMED AN OPINION ON MERIT. THE ORDER PASS ED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF THE REVENUE, BUT, IN THIS CASE, THE AO HAS TAKEN ONE OF THE VIEWS MAY BE PREJUDICIAL TO THE INTERESTS OF REVENU E, BUT IT IS NOT ERRONEOUS. IN SECTION 260, WE FIND THAT :- 'A BARE READING OF SECTION 263 OF THE INCOME-TAX AC T, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCISE OF JURISDICTION BY THE COMMISSIONER SUO MO TU UNDER IT, IS THAT THE ORDER OF THE INCOME-TAX OFFIC ER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED O F -: 11: - 11 TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSES SING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT - IF THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE - RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT . THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVE RY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. 'THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE RE VENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORD ER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVE NUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFIC ER, CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE, FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND I T HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE -: 12: - 12 POSSIBLE AND THE ITA NO.2982/DEL/2013 INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED A S AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. 9. LOOKING TO THE ABOVE FACTS OF THIS CASE, WE FIND TH AT THE AO HAS TAKEN ONE OF THE VIEWS AND THE ORDER MAY BE PREJUDICIAL TO THE INTERESTS OF REVENUE, BUT THE OR DER IS NOT ERRONEOUS. THEREFORE, IN OUR OPINION, THE LD. CIT I S NOT JUSTIFIED IN RESTORING THE MATTER BACK TO THE FILE OF AO TO V ERIFY THE CLAIM AGAIN. WE ALSO GET SUPPORT FROM THE ORDER OF JURISD ICTIONAL HIGH COURT IN THE CASE OF ACIT VS. RATLAM COAL ASH COMPANY (SUPRA), WHEREIN IT WAS HELD AS UNDER :- IT IS WELL SETTLED THAT WHERE THE ITO MADE THE ASSESSMENT IN UNDUE HURRY, ACCEPTING WHAT THE ASSESSEE STATES IN THE RETURN WITHOUT MAKING ANY ENQUIRIES IN THE CIRCUMSTANCES OF THE CASE, THE CIT WOULD BE JUSTIFIED IN HOLDING THE ORDER OF THE ITO TO -: 13: - 13 BE ERRONEOUS. IN THE INSTANT CASE, HOWEVER, THE TRIBUNAL HAS FOUND THAT THE ASSESSEE HAD FURNISHED ALL THE REQUISITE INFORMATION AND THAT THE ITO, CONSIDERING ALL THE FACTS, HAD COMPLETED THE ASSESSMENT. THE TRIBUNAL FURTHER HELD THAT IN THE CIRCUMSTANCES OF THE CASE, IT COULD NOT BE HELD THA T THE ITO HAD MADE ASSESSMENT WITHOUT MAKING PROPER ENQUIRIES. IN VIEW OF THESE FINDINGS, THE TRIBUNAL WAS JUSTIFIED IN LAW IN REVERSING THE ORDE R PASSED BY THE CIT. 10. IN THE CASE OF CIT VS. SUNBEAM AUTO LIMITED, THE JURISDICTIONAL HIGH COURT HELD AS UNDER :- THE SUBMISSION OF THE COUNSEL FOR THE REVENUE WAS THAT WHILE PASSING THE ASSESSMENT ORDER, THE AO DID NOT CONSIDER THE ASPECT SPECIFICALLY WHETHER THE EXPEND ITURE IN QUESTION WAS REVENUE OR CAPITAL EXPENDITURE. THI S ARGUMENT PREDICATES ON THE ASSESSMENT ORDER, WHICH APPARENTLY DOES NOT GIVE ANY REASONS WHILE ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXPENDITURE. HOWEVER, THAT -: 14: - 14 BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE AO HAD NOT APPLIED HIS MIND ON THE ISSUE. THE AO IN TH E ASSESSING ORDER IS NOT REQUIRED TO GIVE DETAILED RE ASON 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. THE COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINCTION BETWEEN 'LACK OF INQUIRY AND INADEQUATE INQUIRY. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE CIT TO PASS ORDERS UNDER S. 263, MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATT ER. IT IS ONLY IN CASES OF 'LACK OF INQUIRY' THAT SUCH A COURSE OF ACTION WOULD BE OPEN. THE AO HAD CALLED F OR EXPLANATION ON THIS VERY ITEM FROM THE ASSESSEE AND THE ASSESSEE HAD FURNISHED HIS EXPLANATION VIDE LET TER DATED 26 TH SEPTEMBER, 2002. THIS FACT IS EVER TAKEN NOTE OF BY THE CIT HIMSELF IN PARA 3 OF HIS ORDER. THIS CLEARLY SHOWS THAT THE AO HAD UNDERTAKEN THE -: 15: - 15 EXERCISE OF EXAMINING AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE REPLACEMENT OF DYES AND TOOLS IS TO BE TREATED AS REVENUE EXPENDITURE OR NOT. IT APPEARS THAT SINCE THE AO WAS SATISFIED WIT H THE AFORESAID EXPLANATION, HE ACCEPTED THE SAME. TH E CIT IN HIS IMPUGNED ORDER EVEN ACCEPTS THIS. THUS, EVEN THE CIT CONCEDED THE POSITION THAT THE AO MADE THE INQUIRIES, ELICITED REPLIED AND THEREAFTER PASS ED THE ASSESSMENT ORDER. THE GRIEVANCE OF THE CIT WAS THAT THE AO SHOULD HAVE MADE FURTHER INQUIRIES RATH ER THAN ACCEPTING THE EXPLANATION.THEREFORE, IT CANNOT BE SAID THAT IT IS A CASE OF 'LACK OF INQUIRY'. - CIT VS, GABRIAL INDIA LIMITED, (1993) 114 CTR (BAM) 81 : (1993) 203 ITR I08 (BOM) RELIED ON. -: 16: - 16 11. WE ALSO GET SUPPORT FROM THE FOLLOWING CASE LAWS FO R HOLDING SO :- (I) IN THE CASE OF CIT VS. RAM NARAIN GOEL- 224 ITR 180 , THE HON'BLE P&H HIGH COURT HAS HELD THAT SUSPICION, HOWEVER STRONG, CANNOT TAKE THE PLACE OF EVIDENCE O R PROOF. (II) THE HON'BLE P&H HIGH COURT IN THE CASE OF CIT VS. FAQIR CHAMAN LAL - 262 ITR 295 HAS HELD THAT IT IS A WELL SETTLED PROPOSITION THAT THE PRESUMPTION HOWSOEVER STRONG CANNOT SUBSTITUTE EVIDENCE. (III) IN THE CASE OF CIT VS. EMERALD COMMERCIAL LTD. & ANR.. 250 ITR 539, THE HON'BLE CALCUTTA HIGH COURT FOLLOWING ITS OWN JUDGMENT REPORTED IN 244 ITR 422 HAS HELD THAT TRIBUNAL WAS JUSTIFIED IN HOLDING THA T THE FINDINGS OF THE INCOME-TAX OFFICER AND THE -: 17: - 17 COMMISSIONER OF INCOME-TAX ITA NO.2982/0EL/2013 (APPEALS) WERE BASED ON PRESUMPTION AND NOT WARRANTED BY THE FACTS OF THE CASE. WE WOULD ALSO LIKE TO NOTE THAT THE OBSERVATION OF THE CIT THAT THE ASSESSING OFFICER DURING THE COURS E OF ASSESSMENT PROCEEDINGS FAILED TO INQUIRE INTO TH E CORRECTNESS OF GROSS RECEIPTS, CLAIM OF EXPENSES, T HE TOTAL CONTRACT WORK TO BE EXECUTED AS PER THE WORK ORDERS AND THE DISCREPANCIES THEREIN, TOTAL RECEIPT S OF THE ASSESSEE AS PER FORM 26AS VIS-A-VIS THE RECEIPTS RETURNED IN THE PROFIT & LOSS ACCOUNT AND DID NOT RAISE A FINGER ON THE UNVERIFIABLE NATURE O F ACCOUNTS MAINTAINED BY THE ASSESSEE WAS UNJUSTIFIED. WE ALSO HOLD THAT THIS OBSERVATION IS FACTUALLY INCORRECT. THE ASSESSEE FILED DETAILED CH ART GIVING DETAILS OF WORK CONTRACTS, TOS AMOUNT, WORK CONTRACT TAX AMOUNT, BILL NUMBER WITH DATES ETC. WHICH IS PLACED AT PAGE 63 OF THE PAPER BOOK. IN PARA 2 OF THE ASSESSEE'S REPLY PLACED AT PAGE 9 OF THE -: 18: - 18 PAPER BOOK, IT HAS BEEN CLEARLY MENTIONED THAT THE TOTAL WORK CONTRACTS WERE THREE IN THE CURRENT YEAR AND ONE IN PREVIOUS YEAR. THE COPY OF CONTRACTS WAS ENCLOSED. THE ASSESSEE HAS ALSO ENCLOSED COPY OF BILLS AND PAYMENT SCHEDULE OF THE COMPANY. THESE FACTS CLEARLY SHOW THAT OBSERVATION OF THE CIT IN T HIS REGARD WAS COMPLETELY AGAINST THE FACTUAL POSITION AND, THEREFORE, THESE OBSERVATIONS WERE FACTUALLY INCORRECT. THE VARIOUS CASE LAWS RELIED UPON BY THE ASSESSEE ALSO FORTIFY THE VIEW TAKEN BY US IN THIS REGARD :- ITA NO.2982/0EL/2013 '1. 263 ITR 437, HARI IRON TRADING CO. VS. CIT (PUNJAB & HARYANA HIGH COURT) IN WHICH IT WAS HELD AS UNDER: 'HELD, THAT, WHILE FRAMING THE ASSESSMENT UNDER SECTION 143(3), THE FACT THAT THE ASSESSEE HAD NOT INCLUDED THE SURRENDERED AMOUNT HAD BEEN NOTICED BY THE ASSESSING 7 -: 19: - 19 OFFICER AND WAS RAISED BY HIM IN THE VARIOUS NOTICES ISSUED TO THE ASSESSEE. THE ASSESSEE HAD NO CONTROL OVER THE WAY THE ASSESSMENT ORDER WAS DRAFTED. THE ASSESSEE HAD EXPLAINED AND PRODUCED NECESSARY EVIDENCE THAT THERE WAS NO DISCREPANCY EITHER IN CASH OR IN THE STOCK'. 2. 259 ITR 502, CIT VS. ARVIND JEWELLERS ( GUJARAT H.C.) IN WHICH IT WAS HELD AS UNDER : 'HELD, THAT THE FINDING OF FACT BY THE TRIBUNAL WAS THAT THE ASSESSEE HAD PRODUCED RELEVANT MATERIAL AND OFFERED EXPLANATION IN PURSUANCE OF THE NOTICES ISSUED UNDER SECTION 142(1) AS WELL AS SECTION 143(2) OF THE ACT AND AFTER CONSIDERING THE MATERIAL AND EXPLANATIONS, THE INCOME-TAX OFFICER HAD COME TO A DEFINITE CONCLUSION. SINCE THE MATERIAL WAS THERE ON RECORD AND THE SAID -: 20: - 20 MATERIAL WAS CONSIDERED BY THE INCOME-TAX OFFICER AND A PARTICULAR VIEW WAS TAKEN, THE MERE FACT THAT DIFFERENT VIEW CAN BE TAKEN SHOULD NOT BE THE BASIS FOR AN ACTION UNDER SECTION 263. THE ORDER OF REVISION WAS NOT JUSTIFIED'. 3. 203 ITR 108 CIT VS. GABRIEL INDIA LTD., (BOMBAY H.C.). AT PAGE / 110, IT WAS HELD 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 LETTER IN WRITING. ALL THESE WERE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS ALLOWED BY THE INCOME-TAX OFFICER ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. THIS DECISION OF THE INCOME-TAX OFFICER COULD NOT BE HELD TO -: 21: - 21 BE 'ERRONEOUS' SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION -IN THAT ITA NO.2982/DEL/2013 REGARD. MOREOVER, IN THE INSTANT CASE, THE COMMISSIONER HIMSELF, EVEN AFTER INITIATING PROCEEDINGS FOR REVISION AND HEARING THE ASSESSEE, COULD NOT SAY THAT THE ALLOWANCE OF THE CLAIM OF THE ASSESSEE WAS ERRONEOUS AND THAT THE EXPENDITURE WAS NOT REVENUE EXPENDITURE BUT AN EXPENDITURE OF CAPITAL NATURE. HE SIMPLY ASKED THE INCOME-TAX OFFICER TO RE- EXAMINE THE MATTER. THAT WAS NOT PERMISSIBLE. THE TRIBUNAL WAS JUSTIFIED IN SETTING ASIDE THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263 4. 323 ITR 206, CIT VS. DEVELOPMENT CREDIT BANK L TD. (BOMBAY H.C.), IN WHICH IT WAS HELD AS UNDER: 'HELD, DISMISSING THE APPEAL, THAT THERE WAS NO -: 22: - 22 BASIS OR JUSTIFICATION FOR THE COMMISSIONER TO INVOKE THE PROVISIONS OF SECTION 263. THE ASSESSING OFFICER AFTER MAKING AN ENQUIRY AND ELICITING A RESPONSE FROM THE ASSESSEE CAME TO THE CONCLUSION THAT THE ASSESSEE WAS ENTITLED TO DEPRECIATION ON THE VALUE OF SECURITIES HELD ON THE TRADING ACCOUNT. THE COMMISSIONER COULD NOT HAVE TREATED THIS FINDINGS TO BE ERRONEOUS OR TO BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE OBSERVATION OF THE COMMISSIONER THAT THE ASSESSING OFFICER HAD ARRIVED AT A FINDING WITHOUT CONDUCTING AN ENQUIRY WAS ERRONEOUS, SINCE AN ENQUIRY WAS SPECIFICALLY HELD WITH REFERENCE TO WHICH A DISCLOSURE OF DETAILS WAS CALLED FOR BY THE ASSESSING OFFICER AND FURNISHED BY THE ASSESSEE. THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT RECOURSE TO THE POWERS UNDER SECTION 263 WAS NOT WARRANTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE'. -: 23: - 23 5. 323 ITR 632, CIT VS DESIGN AND AUTOMATION ENGIN EERS (BOMBAY) P, LTD (BOMBAY H.C.) OF WHICH HEAD NOTES ARE REPRODUCED BELOW: 'HELD, DISMISSING THE APPEAL, THAT IT COULD NOT BE SAID THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND WHILE GRANTING DEDUCTION UNDER SECTION 80HHC OF THE ACT AS REGARDS THE NET PROFIT EARNED BY THE ASSESSEE PERTAINING TO ITS EXPORT BUSINESS. THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE VIEW TAKEN BY THE ASSESSING OFFICER WAS A POSSIBLE VIEW AND THAT THE CONDITION PRECEDENT FOR INVOKING JURISDICTION UNDER SECTION 263 BY THE COMMISSIONER DID NOT EXIST. THE TRIBUNAL WAS ITA NO.2982/DEL/ 201 3 JUSTIFIED IN UPSETTING THE ORDER PASSED BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT. II 6. 320 ITR 674, CIT VS ASHISH RAJPAL (DELHI H.C.), AT PAGES 687-688, THE HON'BLE DELHI H.C. HAS HELD AS UNDER: -: 24: - 24 'THE FACT THAT A QUERY WAS RAISED DURING THE COURSE OF SCRUTINY WHICH WAS SATISFACTORILY ANSWERED BY THE ASSESSEE BUT DID NOT GET REFLECTED IN THE ASSESSMENT ORDER, WOULD NOT BY ITSELF LEAD TO A CONCLUSION THAT THERE WAS NO ENQUIRY WITH RESPECT OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE. THE FACT THAT THERE WAS AN ENQUIRY CAN ALSO BE DEMONSTRATED WITH THE HELP OF THE MATERIAL AVAILABLE ON RECORD WITH THE ASSESSING OFFICER. THE MATERIAL, TO WHICH A REFERENCE HAS BEEN MADE IN THE IMPUGNED JUDGMENT, WOULD SHOW THAT THERE WAS NO 'UNDUE HASTE' IN EXAMINING THE MATERIAL PRIOR TO THE PASSING OF THE ASSESSMENT ORDER DATED MARCH 24, 2005. AT LEAST FOUR LETTERS DATED APRIL 27, 2004, FEBRUARY 22,2005, FEBRUARY 28, 2005 AND MARCH 18, 2005 WERE ADDRESSED BY THE ASSESSEE TO THE ASSESSING OFFICER GIVING DETAILS, DOCUMENTS AND INFORMATION PERTAINING TO VARIOUS QUERIES RAISED BY THE ASSESSING OFFICER. -: 25: - 25 THESE HAVE BEEN EXAMINED BY THE TRIBUNAL. WE HAVE NO REASON TO BELIEVE THAT EXAMINATION WAS LESS THAN EXACTING. THEREFORE, THE CONCLUSION OF THE COMMISSIONER THAT THERE WAS 'LACK OF PROPER' VERIFICATION IS UNSUSTAINABLE'. 7. 171 ITR 141, CIT VS. RATLAM COAL ASH CO. (M.P. HIGH COURT), IN WHICH IT WAS HELD AS UNDER: 'AN ORDER OF ASSESSMENT WAS REVISED BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961,ON THE GROUND THAT THE INCOME- TAX OFFICER HAD NOT MADE PROPER ENQUIRIES. THE ORDER OF REVISION WAS SET ASIDE AND THE INCOME-LAX OFFICER'S ORDER WAS RESTORED BY THE TRIBUNAL BECAUSE IT FOUND THAT THE ASSESSEE HAD FURNISHED THE REQUISITE INFORMATION AND THE INCOME-TAX OFFICER HAD COMPLETED THE ASSESSMENT AFTER CONSIDERING ALL THE FACTS. ON A REFERENCE: ITA NO.2982/DEL/2013 - HELD, THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE -: 26: - 26 TRIBUNAL WAS JUSTIFIED IN LAW IN REVERSING THE ORDER OF THE COMMISSIONER OF INCOME-TAX MADE UNDER SECTION 263 AND RESTORING THAT OF THE INCOME-TAX OFFICER.' 8. 111 ITR 326, J.P. SRIVASTAVA & SONS VS. CIT, (JURISDICTIONAL ALLHD. H.C).: 'WE ARE OF OPINION THAT THE APPROACH OF THE COMMISSIONER IS ERRONEOUS. THE FAILURE OF THE INCOME- TAX OFFICER TO DEAL WITH THE CLAIM OF THE ASSESSEE IN THE ASSESSMENT ORDER MAY BE AN ERROR, BUT AN ERRONEOUS ORDER BY ITSELF IS NOT ENOUGH TO GIVE JURISDICTION TO THE COMMISSIONER TO REVISE IT UNDER SECTION 338. IT MUST FURTHER BE SHOWN THAT THE ORDER WAS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IT IS NOT EACH AND EVERY ORDER PASSED BY THE INCOME-TAX OFFICER WHICH CAN BE REVISED UNDER SECTION 33B. -: 27: - 27 SECTION 33B CONTEMPLATES A NOTICE TO THE ASSESSEE. IN RESPONSE TO THE NOTICE THE ASSESSEE MAY SHOW TO THE COMMISSIONER THAT THE ORDER SOUGHT TO BE REVISED IS NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN THAT EVENT, THE COMMISSIONER WOULD HAVE NO JURISDICTION TO TAKE ANY FURTHER ACTION. HE WOULD BE COMPETENT TO TAKE ACTION ONLY IF HE REJECTS THE PLEA OF THE ASSESSEE. IT THUS BECOMES NECESSARY FOR THE COMMISSIONER TO EXAMINE THE MERITS OF THE OBJECTION RAISED BY THE ASSESSEE. HE CANNOT DELEGATE THAT POWER TO THE INCOME-TAX OFFICER BY SETTING ASIDE THE ASSESSMENT ORDER AND DIRECTING HIM TO MAKE A FRESH ASSESSMENT AFTER TAKING INTO CONSIDERATION THE OBJECTION OF THE ASSESSEE.' 9. 343 ITR 329, CIT VS, D G HOUSING PROJECTS LTD. (DELHI H.C) IN WHICH IT WAS HELD AS UNDER: -: 28: - 28 'A DISTINCTION MUST BE DRAWN IN THE CASES WHERE THE ASSESSING OFFICER DOES NOT CONDUCT AN ENQUIRY; AS LACK OF ENQUIRY BY ITSELF RENDERS THE ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE AND CASES WHERE ITA NO.2982/DEL/2013 THE ASSESSING OFFICER CONDUCTS AN ENQUIRY BUT THE FINDING RECORDED IS ERRONEOUS AND WHICH IS ALSO PREJUDICIAL TO THE INTERESTS OF REVENUE. IN THE LATTER CASES, THE COMMISSIONER HAS TO EXAMINE THE ORDER OR THE DECISION TAKEN BY THE ASSESSING OFFICER ON THE MERITS AND THEN FORM AN OPINION ON THE MERITS THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN THE SECOND SET OF CASES, THE COMMISSIONER CANNOT DIRECT THE ASSESSING OFFICER TO CONDUCT FURTHER ENQUIRY TO VERIFY AND FIND OUT WHETHER THE ORDER PASSED IS ERRONEOUS OR NOT'. -: 29: - 29 10. 344 ITR 554, CIT VS. INTERNATIONAL TRAYEL HOUS E LTD (DELHI H.C) IN WHICH AT PAGE 555, IT WAS HELD AS UNDER: ' HELD, DISMISSING THE APPEAL, THAT AS WAS EVIDENT FROM THE ORDER OF THE TRIBUNAL, NO ADDITION TO THE INCOME OF THE ASSESSEE COULD BE MADE MERELY BECAUSE OF THE DIFFERENCE IN THE ACCOUNTING TREATMENT OF THE COMMISSION IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AS BOTH ACCOUNTING SYSTEMS WERE ACCEPTABLE. THE ASSESSING OFFICER HAD DULY APPLIED THIS MIND AND WAS SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSESSEE AND DID NOT MAKE ANY ADDITION IN THAT, REGARD. THE ASSESSING OFFICER HAD NOT INCORPORATED THE FACTS IN DETAIL IN THE ORDER BUT THAT WOULD NOT MEAN THAT THERE HAD BEEN NO APPLICATION OF MIND. THE TRIBUNAL NOTED THE FACT THAT THE DETAILS OF TAX DEDUCTED AT SOURCE DURING THE FINANCIAL YEAR HAD BEEN SHOWN AND THE INCOME THAT WAS SHOWN AS -: 30: - 30 COMMISSION INCOME WAS REFLECTED IN DETAIL IN THE SHOW CAUSE AND IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER HAD ALREADY EXAMINED THIS ASPECT BUT THE COMMISSIONER HAD DIRECTED A RE-INQUIRY FOR MERELY A CHANGE OF OPINION WHICH WAS IMPERMISSIBLE UNDER SECTION 263 OF THE ACT. HE WAS REQUIRED TO ARRIVE AT A DEFINITE CONCLUSION BUT HE HAD NOT DONE SO. THERE WAS NO REASON TO INTERFERE WITH THE ORDER OF THE TRIBUNAL'. 11. 343 ITR 342, CIT VS HERO AUTO LTD. (DELHI H C.) IN WHICH IT WAS HELD AS UNDER: ITA NO.2982/DEL/2013 'HELD, DISMISSING THE APPEAL, (I) THAT THERE WAS NO DISCUSSION IN THE ORDER OF THE COMMISSIONER AS TO HOW AND IN WHAT MANNER THE ENQUIRY WAS LACKING AND WHAT WAS THE FAULT AND DEFAULT COMMITTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER -: 31: - 31 HAD EXAMINED THIS ASPECT IN THE ORIGINAL ASSESSMENT PROCEEDINGS AND ACCEPTED THE STAND OF THE ASSESSEE. THERE WAS NO FINDING OF THE COMMISSIONER THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE QUESTION OF WARRANTY CLAIM WAS REOPENED IN THE ASSESSMENT YEAR 1999-2000 AFTER AN ORDER UNDER SECTION 263 OF THE ACT. THIS ORDER PASSED WAS STRUCK DOWN BY THE TRIBUNAL AND THAT DECISION HAD BEEN UPHELD BY THE HIGH COURT. (II) THAT THE CLAIM FOR DEDUCTION UNDER SECTION 35DDA WAS MADE BY THE ASSESSEE FOR THE FIRST TIME IN ASSESSMENT YEAR 2002-03. ONE-FIFTH OF THE AMOUNT PAYABLE UNDER THE VOLUNTARY RETIREMENT WAS ALLOWED AS A DEDUCTION. IN THIS YEAR, THE ASSESSING OFFICER HAD FOLLOWED THE EARLIER ASSESSMENT ORDERS. THE COMMISSIONER -: 32: - 32 OBSERVED THAT NOTE 2 IN THE AUDIT REPORT DID CREATE DOUBT AS TO WHETHER EXPENDITURE TO ESS WAS ACTUALLY INCURRED OR NOT. THE ASSESSEE HAD CLARIFIED THAT THE NOTE WAS WRITTEN BY THE AUDITOR AS A PRECAUTIONARY MEASURE FOR REPORTING THAT THE AMOUNT HAD BEEN CLAIMED UNDER SECTION 35DDA. THE COMMISSIONER IN THE ORDER DID NOT APPRECIATE AND DEAL WITH THIS ASPECT. HE HAD WRONGLY INTERPRETED AND OBSERVED THAT THE CLAIM ITSELF WAS MADE AS A PRECAUTIONARY MEASURE. THE TRIBUNAL, WAS, THEREFORE, RIGHT IN SETTING ASIDE THIS PART OF THE ORDER.' 12. 341 ITR 81 (SC) CIT VS GREEN WORLD CORPORATIO N WHEREIN IT HAS BEEN HELD THAT THE ASSESSMENT ORDER CANNOT BE INTERFERED ONLY BECAUSE ANOTHER VIEW IS POSSIBLE . 13. 332 ITR 167 (DELHI), WHEREIN IT HAS BEEN HELD T HAT IF THERE IS AN ENQUIRY, EVEN INADEQUATE, THAT WOULD NO T BY -: 33: - 33 ITSELF GIVE OCCASION TO THE CIT TO PASS ORDER UNDER SECTION 263 MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTE~ ITA NO.2982/DEL/2013 14. 341 ITR 537 (DELHI), CIT VS. VIKAS POLYMERS WHE REIN IT HAS BEEN HELD THAT IF QUERY IS RAISED DU RING THE S CRUTINY BY THE AO, WHICH WAS ANSWERED TO THE SATISFACTION OF T HE AO, BUT NEITHER THE QUERY NOR THE ANSWER WAS REFLECTED IN THE ASSESSMENT ORDER, THIS WOULD NOT BY ITSELF LEAD TO THE CONCLUSION THAT THE ORDER OF THE AO CALLED FOR INTE RFERENCE AND REVISION. 15. 335 ITR 83, CIT VS. ANIL KUMAR SHARMA (DELHI), WHEREIN IT HAS BEEN HELD THAT TRIBUNAL HAS ARRIVED AT A CONCLU SIVE FINDING THAT THOUGH THE ASSESSMENT ORDER DOES NOT PATENTLY INDICATE THAT ISSUE OF THE TAXABILITY OF THE COMPENSATION HA S BEEN CONSIDERED BY THE AO, THE RECORD SHOWS THAT THE AO HAD APPLIED HIS MIND.' -: 34: - 34 12. IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS, WE AL LOW THE APPEAL OF THE ASSESSEE. 13. IN THE RESULT, THE APPEAL IS ALLOWED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 9 TH JUNE, 2015. SD/- (B. C. MEENA) ACCOUNTANT MEMBER SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED :9 TH JUNE, 2015. CPU* 46