Asian Tubes Ltd., Ahmedabad V. The Dy.CIT.,Circle-1, Ahmedabad

ITA 505/AHD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60540 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 27-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B K
• Assessee Lawyers: J P SHAH
• Keywords: Capital asset; Revision of order; Depreciation; Assessment record; Revenue expenditure
• Section: 143(3); 263

Judgement Text

ITA NO.505/ AHD/2012 A.YR. 2007- 08. 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, A HMEDABAD (BEFORE SHRI MUKUL KR.SHRAWAT JM & SHRI ANIL CHATUR VEDI A.M.) I.T.A. NO.505 /AHD/2012. (ASSESSMENT YEAR: 2007-08) ASIAN TUBES LTD., 101, SAKAR-III, OPP. OLD HIGH COURT, ASHRAM ROAD, AHMEDABAD. (APPELLANT) VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, 3 RD FLOOR, KENDRIYA PRATYAKSHA BHAVAN, NEAR PANJARA POLE, AM,BAWADI, AHMEDABAD. (RESPONDENT) PAN: AABCA 2797E APPELLANT BY : SHRI J.P. SHAH RESPONDENT BY : SHRI B.K.S. PANDYA, CIT (D.R.) ( )/ ORDER DATE OF HEARING : 26-4-2012 DATE OF PRONOUNCEMENT : 22-6-2012 PER: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF COMMISSIONER OF INCOME TAX-I, AHMEDABAD DATED 23-1- 2012 FOR THE ASSESSMENT YEAR 2007-08 PASSED UNDER SECTION 263 O F THE I. T. ACT, 1961. 2. THE ONLY EFFECTIVE GROUND TAKEN BY THE ASSESSEE READS AS UNDER:- 1. THE LD. CIT-1, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN PASSING THE ORDER U/S. 263 DATED 23-1-2012 FOR ASSE SSMENT YEAR 2007-08 IN THE CASE OF APPELLANT. ITA NO.505/ AHD/2012 A.YR. 2007- 08. 2 3. BRIEF FACTS ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF M.S. BLACK PIPES AS WELL AS GALVAN IZED PIPES. FOR ASSESSMENT YEAR 2007-08, ASSESSEE FILED RETURN OF I NCOME ON 2.11.2007 DECLARING TOTAL INCOME OF RS 5,72,78,390. CASE WAS TAKEN UP FOR SCRUTINY. ASSESSMENT WAS COMPLETED U/S 143(3) VIDE ORDER DATE D 29.4.2009 AND AFTER MAKING ADDITIONS THE TAXABLE INCOME WAS DETER MINED AT RS.5,73,65,628/-. THEREAFTER COMMISSIONER OF INCOME TAX ISSUED A SHOW CAUSE NOTICE DATED 16-12-2011(PAGE 8 & 9 OF THE PAP ER BOOK) TO ASSESSEE REQUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER U/S 143(3) SHOULD NOT BE TREATED AS ERRONEOUS AND PREJ UDICIAL TO THE INTEREST OF THE REVENUE AND ACCORDINGLY BE MADE SUBJECT MATTER OF REVISION U/S 263 FOR THE REASON THAT THE ASSESSEE HAD INCURRED INTER EST EXPENSES OF RS.1,49,85,496/- ON SECURED AND UNSECURED LOANS DUR ING THE YEAR AND THE ASSESSEE HAD ALSO CAPITAL WORK IN PROGRESS OF RS 1 3,17,94,960/-. THE WORK IN PROGRESS WAS OF ASSETS OF CR MILLS WHICH WA S UNDER IMPLEMENTATION DURING THE YEAR. ACCORDING TO CIT AS THE INTEREST PAID ON CAPITAL BORROWED WAS FOR THE ACQUISITION OF CAPITAL ASSETS (WIP) THE SAME WAS NOT ALLOWABLE UNDER PROVISO (III) TO SECTION 36 (1) AND THEREFORE THE ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE. 4. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESS EE REPLIED VIDE LETTER DATED 19.1.2012 (COPIES PLACED AT PAGE NO 10 & 11 OF THE PAPER BOOK) WHEREIN INTERALIA IT WAS SUBMITTED THAT THE A SSESSEE HAD HUGE FUNDS OF ITS OWN IN THE FORM OF SHARE CAPITAL AND FREE RE SERVES WHICH WERE SUFFICIENT AND WERE ACTUALLY USED TO FINANCE ITS CA PITAL ASSETS. IT WAS FURTHER SUBMITTED THAT NO PART OF THE INTEREST BEARING FUND S WERE UTILISED FOR THE ITA NO.505/ AHD/2012 A.YR. 2007- 08. 3 PURPOSE OF ACQUISITION OF CAPITAL ASSETS. FURTHER, THE ASSESSEE HAD NOT AVAILED ANY TERM LOAN FOR THE FINANCING OF FIXED AS SETS. THE SECURED LOANS AVAILED BY THE ASSESSEE WERE TO MEET ITS WORKING CA PITAL REQUIREMENTS AND WERE NOT USED FOR THE ACQUISITION OF CAPITAL ASSETS . THE ASSESSEE ALSO FURNISHED ITS BALANCE SHEET TO SUPPORT ITS CONTENTI ON. IT WAS THUS CONTENDED THAT SINCE NO INTEREST BEARING FUNDS HAVE BEEN UTIL ISED FOR ACQUISITION OF ASSETS THERE CAN BE NO DISALLOWANCE U/S. 36(1)(III) . THE ASSESSEE FURTHER SUBMITTED THAT THE AO DURING THE COURSE OF ASSESSME NT PROCEEDINGS HAD CALLED FOR THE DETAILS OF INTEREST EXPENSES AND THE SAME WAS FURNISHED TO HIM. AFTER GOING THROUGH THE SUBMISSIONS AND ON BEI NG SATISFIED THAT NO DISALLOWANCE WAS CALLED FOR MADE NO DISALLOWANCE AN D THEREFORE ON THIS COUNT ALSO THE ORDER OF THE AO CANNOT BE SAID TO BE WITHOUT APPLICATION OF MIND AND THEREFORE THE ORDER OF THE AO WAS NOT ERRO NEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE ASSESSEE THUS REQUE STED THE CIT TO DROP THE PROCEEDINGS U/S. 263. 5. THE SUBMISSIONS OF THE ASSESSEE WERE NOT FOUND C ONVINCING BY CIT. CIT WENT AHEAD AND VIDE REVISION ORDER DATED 23-1-2 012 HELD AS UNDER: 10. I HAVE CAREFULLY GONE THROUGH THE AFORESAID WR ITTEN SUBMISSION OF THE ASSESSEE AND I DO NOT FIND ANY MERIT IN THEM FOR THE FOLLOWING REASONS:- (1) AT THE OUTSET, IT WOULD BE PERTINENT TO MENTION HERE THAT THE AFORESAID DETAILS FILED BY THE LD. COUNSEL OF THE A SSESSEE BEFORE THE UNDERSIGNED SHOULD HAVE BEEN FILED ALONG WITH THE RETURN OF INCOME OR ALONG WITH THE SUBMISSIONS MADE AT THE TIME OF ASSESSMENT BEFORE THE A.O. ITA NO.505/ AHD/2012 A.YR. 2007- 08. 4 (2) THERE IS NO MERIT IN THE SUBMISSIONS GIV EN BY THE LD. COUNSEL. ON THE OTHER HAND, IT IS QUITE EVIDENT THAT UNDER P ROVISO (III) TO SECTION 36 (1) OF THE IT ACT, ANY AMOUNT OF INTERES T PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN A SSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION, (WHET HER CAPITALIZED IN THE BOOK OF ACCOUNT OR NOT) FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BO RROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUC H ASSET WAS FIRST PUT TO USE SHALL NOT BE ALLOWED AS DEDUCTION. (I) AS PER PARA-1 OF ASSESSEES SUBMISSION DATED 27 -3-2009 IT WAS STATED THAT THE WIP (RS.13,17,94,960/-) REFLECT ED IN THE BALANCE SHEET WAS WITH REGARD TO THE ASSETS OF CR M ILLS. THE SAME WAS UNDER IMPLEMENTATION DURING THE YEAR AND T HEREFORE, NO DEPRECIATION HAD BEEN CLAIMED. APPARENTLY THE AS SET HAD NOT BEEN PUT TO USE. (II) IT WAS FURTHER SEEN FROM SCHEDULE O TO P & L ACCOUNT THAT BANK AND OTHER INTEREST (NET) EXPENSES DEBITED WAS RS.1,49,85,496/-.OBVIOUSLY THE SAME WAS WITH REFERE NCE TO SECURED/UNSECURED LOANS FOR THE CAPITAL WORK. UNDER THE ABOVE CITED PROVISION, INTEREST PAID IN RESPECT OF CAPITA L BORROWED FOR ACQUISITION OF ASSET FOR ANY PERIOD BEGINNING FROM THE DATE OF CAPITAL BORROWED FOR THE ACQUISITION OF ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE IS NOT AN ALL OWABLE DEDUCTION. ACCORDINGLY, THE INTEREST PAYMENT OF RS.1,49,85,496/- SHOULD NOT HAVE BEEN ALLOWED AS A DEDUCTION. OMISSION TO DO SO, RESULTED IN UNDERASSESSMENT OF I NCOME TO THAT EXTENT. THE SHORT LEVY OF TAX AND INTEREST WOR KS OUT TO RS.63,05,149/-. (3) THE PROCEEDINGS U/S.143(3) OF THE I.T. ACT,1961 ARE TOTALLY DISTINCT FROM THE PROCEEDINGS U/S.263 OF THE I.T. A CT,1961 BEFORE THE UNDERSIGNED. IT IS NOT THE DUTY OF THE CIT U/S. 263 TO FILL IN THE MISSING GAPS OF THE ERRONEOUS ASSESSMENT ORDER PASS ED BY THE A.O. (4) IT WOULD ALSO BE RELEVANT TO MENTION HERE THAT THE A.O. HAS NOT MADE ANY ENQUIRIES BEFORE PASSING THE ASSESSMENT OR DER, THE ITA NO.505/ AHD/2012 A.YR. 2007- 08. 5 ASSESSMENT CAN BE TERMED AS ERRONEOUS AND PREJUDICI AL TO THE INTEREST OF REVENUE. THIS VIEW GETS SUPPORT FROM TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF TOYOTO MOTOR CORPORATION VS. CIT 306 ITR 52 (SC) WHICH HAS BEEN REFERRED TO BY ITAT, AHMEDABAD B BENCH IN THE CASE OF KIRAN M. SHELAT IN APPEAL NO.965/AHD/2006. 11. FROM THE AFORESAID FACTS AND CIRCUMSTANCES, JUD ICIAL DECISIONS, REASONING, A FORTIORI, IT IS QUITE EVIDENCE THAT TH E ASSESSING OFFICERS ASSESSMENT ORDER DATED 29-04-2009 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY, THE ASSESSMEN T ORDER U/S.143(3) OF THE I.T. ACT,1961 DATED 29-4-2009 IS CANCELLED W ITH A DIRECTION TO MAKE A FRESH ASSESSMENT BY CORRECTLY VERIFYING THE ISSUES IN QUESTION AND ALSO BY AFFORDING REASONABLE OPPORTUNITY TO THE ASSESSEE. 6. AGGRIEVED BY THE AFORESAID ORDER OF CIT, THE ASS ESSEE IS IN APPEAL BEFORE US. 7. BEFORE US, THE LD. A.R. REITERATED THE SUBMISSIO NS MADE BEFORE CIT. THE LD. A.R. PLACED ON RECORD THE COPY OF THE COVER ING LETTER DATED 27.1.2009 WHICH CONTAINED THE DETAILS FURNISHED BEF ORE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE FURN ISHED THE DETAILS OF INTEREST RECEIVED AND INTEREST PAID. IT WAS SUBMITT ED BY THE LD. A.R. THAT THE ASSESSEE ALSO FURNISHED EXPLANATION WITH REFERENCE TO THE CAPITAL WORK IN PROGRESS BEFORE THE AO. THE LD. A.R. ALSO PLACED ON RECORD THE COPY OF ITS ANNUAL ACCOUNTS FOR THE YEAR ENDED 31 ST MARCH 2007. FROM THE BALANCE SHEET HE POINTED OUT THAT THERE HAS BEEN INCREASE I N ITS OWN FUNDS (COMPRISING OF SHARE CAPITAL AND RESERVES AND SURPL US) FROM RS.1793.82 LACS TO RS.2236.04 LACS I.E. BY RS 442.22 LACS. PLU S DEPRECIATION OF RS.212.98 LACS. THUS THE AGGREGATE OWN FUNDS WERE T O THE EXTENT OF RS.655.20 LACS. DURING THE SAME PERIOD THERE HAS BE EN INCREASE IN CAPITAL ITA NO.505/ AHD/2012 A.YR. 2007- 08. 6 WORK IN PROGRESS FROM RS. 770.66 LACS TO RS.1317.95 LACS I.E BY RS.547.29 LACS. FROM THE BALANCE SHEET HE POINTED THAT THE IN CREASE IN SECURED LOANS WAS DUE TO INCREASE IN CLEAN USANCE BILL DISCOUNTED FACILITY THAT WAS AGAINST THE HYPOTHECATION OF DEBTORS. IT WAS THUS CONTENDED ON BEHALF OF THE ASSESSEE THAT SINCE THE ASSESSEE WAS HAVING ENOUGH INTEREST FREE FUNDS, THE INCREASE IN CAPITAL WORK IN PROGRESS WAS MET O UT OF OWN INTEREST FREE FUNDS AND NO BORROWED FUNDS WERE USED FOR FINANCING THE CAPITAL WORK IN PROGRESS. HE ALSO PLACED ON RECORD THE COPY OF THE LEDGER ACCOUNT AS APPEARING IN ITS BOOKS OF ACCOUNTS. FROM THE COPY O F LEDGER ACCOUNT HE POINTED OUT THAT THERE HAS BEEN NO PAYMENT OF INTER EST FOR THE ACQUISITION OF ASSETS. IT WAS THUS CONTENDED THAT SINCE THE ASSESS EE WAS HAVING SUFFICIENT INTEREST FREE FUNDS FOR ACQUISITION OF ASSETS THE A SSESSEE HAD USED THE INTEREST FREE FUNDS FOR ACQUISITION OF CAPITAL ASSE TS AND THEREFORE THERE WAS NO QUESTION OF DISALLOWANCE OF INTEREST ON THE PRES UMPTION THAT INTEREST BEARING FUNDS HAVE BEEN UTILISED FOR THE PURPOSE OF PURCHASE OF FIXED ASSETS. HE ALSO RELIED ON THE DECISION OF CIT VS RE LIANCE UTILITIES AND POWER LTD (2009) 313 ITR 340 (BOM) WHEREIN IT WAS H ELD THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST FREE AND OVER DRAFT A ND OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. HE ALSO RE LIED ON THE DECISION OF CIT VS PREM HEAVY ENGINEERING WORKS (P) LTD (2006) 150 TAXMAN 90 (ALL). 8. THE LD. A.R. FURTHER STATED THAT FOR THE PURPOSE OF INVOKING THE PROVISIONS OF SECTION 263 TWO CONDITIONS ARE REQUIR ED TO BE SATISFIED NAMELY, THE ORDER IS PREJUDICIAL TO THE INTEREST OF REVENUE AND THE ORDER IS ERRONEOUS. BOTH THE CONDITIONS HAVE TO BE SIMULTANE OUSLY FULFILLED. IF ONLY ITA NO.505/ AHD/2012 A.YR. 2007- 08. 7 ONE CONDITION IS FULFILLED, THEN ALSO PROVISIONS OF SECTION 263 CANNOT BE INVOKED. THE LD. A.R. FURTHER SUBMITTED THAT THE LD . CIT HAS NOT STATED AND GIVEN A FINDING AS TO HOW THE ORDER PASSED BY THE A O IS ERRONEOUS AND IS ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. IN VIE W OF THESE FACTS, IT WAS SUBMITTED THAT THE ORDER OF CIT BE QUASHED. 9. ON THE OTHER HAND THE LD. D.R. CONTENDED THAT TH E CIT WAS RIGHT IN INVOKING THE PROVISIONS OF SECTION 263 AS THE AO HA D NOT MADE ANY INQUIRY. ACCORDING TO THE LD. D.R. THERE IS NOTHING ON RECOR D TO PROVE THAT THE AO HAS CALLED FOR THE DETAILS WITH REFERENCE TO INTERE ST EXPENSES INCURRED ON CAPITAL WORK IN PROGRESS AND THE SAME WAS EXAMINED BY HIM. ACCORDING TO THE LD. D.R. THE QUESTION OF APPLICATION OF MIND BY THE AO COMES ONLY AFTER THE RELEVANT FACTS HAVE BEEN EXAMINED AND VERIFIED BY THE A.O. UNLESS AND UNTIL THE ISSUE HAS BEEN EXAMINED, THERE IS NO QUES TION OF APPLICATION OF MIND. THUS, ACCORDING TO THE LD. D.R, SINCE THE AO HAD FAILED TO MAKE ANY INQUIRY, THE CIT WAS FULLY JUSTIFIED IN INVOKING TH E PROVISIONS OF SECTION 263. IN SUPPORT OF HIS CONTENTIONS, HE RELIED ON THE FOL LOWING DECISIONS: (A) MALABAR INDUSTRIAL CO. LTD. VS CIT (2000) 243 I TR 83 (SC) (B) RISHI GAGAN (1989) 31 ITD (BOM) 515 - WHERE IT WAS HELD THAT IN A CASE WHERE THE ITO PASSED ORDERS WITHOUT PROPER ENQ UIRIES, THE ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E AND THEREFORE PROVISION OF S. 263 CAN BE INVOKED. (C) GEE VEE ENTERPRISE 99 ITR 375 - WHERE IT WAS HE LD THAT IT IS THE DUTY OF THE AO TO ASCERTAIN THE TRUTH OF THE FACTS STATE D IN THE RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE AN INQUIRY. THE MEANING TO BE GIVEN TO THE WORD ERRONEOUS IN S. 263 EMERG ES OUT OF THIS CONTEXT. IT IS BECAUSE IT IS INCUMBENT ON THE ITO TO FURTHER IN VESTIGATE THE FACTS STATED ITA NO.505/ AHD/2012 A.YR. 2007- 08. 8 IN THE RETURN WHEN CIRCUMSTANCES WOULD MAKE SUCH AN INQUIRY PRUDENT THAT THE WORD ERRONEOUS IN S. 263 INCLUDES THE FAILURE TO MAKE SUCH AN INQUIRY. THE ORDER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE IS ANYTHING WRONG WITH THE OR DER IF ALL THE FACTS STATED THEREIN ARE ASSUMED TO BE CORRECT. (D) NAHAR POLYFILMS VS CIT (2011) 201 TAXMAN 304 (P &H) FOR THE PROPOSITION THAT THE EFFECT OF PROVISO TO S. 36(1)( III) INSERTED BY THE FINANCE ACT 2003 W.E.F. 1 ST APRIL 2004 RELATING TO AY 2004-05 AND SUBSEQUENT Y EARS IS TO DISALLOW INTEREST ON MONEYS BORROWED FOR ACQU IRING A CAPITAL ASSET TILL THE DATE ON WHICH THE ASSET WAS BROUGHT TO USE EVEN IF IT IS FOR EXTENSION OF EXISTING BUSINESS. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE BEFORE US IS WHETHER THE CIT WA S JUSTIFIED RESTORING THE ISSUE OF DISALLOWANCE OF INTEREST TO THE A.O. BY PA SSING AN ORDER U/S. 263 OF THE ACT. WE OBSERVE THAT THE CIT AFTER VERIFYING TH E ASSESSMENT RECORDS WAS OF THE VIEW THAT THE ASSESSEE HAS USED BORROWED FUNDS FOR ACQUISITION OF CAPITAL ASSETS AND ACCORDINGLY THE INTEREST PAID BY THE ASSESSEE CANNOT BE ALLOWED AS REVENUE EXPENSES BUT SHOULD HAVE BEEN CAPITALIZED. 11. THE BOMBAY HIGH COURT IN THE CASE OF CIT VS . GABERIEL INDIA LTD. [1993] 203 ITR 108 (BOM.) HAS DISCUSSED THE EXERCIS E OF POWER OF CIT TO MAKE REVISION SUO MOTO. THE HONBLE HIGH COURT HAS HELD AS UNDER: THE POWER OF SUO MOTU REVISION UNDER SUB-SECTION (1 ) OF SECTION 263OF THE INCOME TAX ACT,1961, IS IN THE NA TURE OF SUPERVISORY JURISDICTION AND CAN BE EXERCISED ONLY IF THE CIRC UMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMSTANCES MUST EXIST TO ENAB LE THE ITA NO.505/ AHD/2012 A.YR. 2007- 08. 9 COMMISSIONER TO EXERCISE THE POWER OF REVISION UNDE R THIS SUB- SECTION VIZ. (I) THE ORDER SHOULD BE ERRONEOUS; AND (II) BY VIRTUE OF THE ORDER BEING ERRONEOUS PREJUDICE MUST HAVE BEEN CAUS ED TO THE INTERESTS OF THE REVENUE. AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCO ME-TAX OFFICER ACTING IN ACCORDANCE WITH LAW MAKES CERTAIN ASSESSMENT, TH E SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE, ACCORDING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTE N MORE ELABORATELY. THIS SECTION DOES NOT VISUALIZE A CASE OF SUBSTITUTION OF THE JUDGEMENT OF THE COMMISSIONER FOR THAT OF THE I NCOME TAX OFFICER, WHO PASSED THE ORDER, UNLESS THE DECISION IS HELD T O BE ERRONEOUS. CASES MAY BE VISUALIZED WHERE THE INCOME TAX OFFICE R WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, MAKES ENQUIRIE S, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOUNTS OR BY MAKIN G SOME ESTIMATES HIMSELF. THE COMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFF ICER CONCERNED WAS ON THE LOWER SIDE AND LEFT TO THE COMMISSIONER HE W OULD HAVE ESTIMATED THE INCOME AT A HIGHER FIGURE THAN THE ON E DETERMINED BY THE INCOME TAX OFFICER. THAT WOULD NOT VEST THE COM MISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. THIS IS BECAUSE THE INCOME TAX OFFICER HAS EXERCISED THE QUASI-JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSI ON CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIO NER DOES NOT FEEL SATISFIES WITH THE CONCLUSION. IT MAY BE SAID IN SUCH A CASE THAT IN THE OPINION OF THE COMMISSIONER THE ORDER IN QUESTI ON IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BUT THAT BY ITSELF WO ULD NOT BE ENOUGH TO VEST THE COMMISSIONER WITH THE POWER OF SUO MOTU RE VISION BECAUSE THE FIRST REQUIREMENT, NAMELY, THAT THE ORDER IS ER RONEOUS, IS ABSENT. SIMILARLY IF AN ORDER IS ERRONEOUS BUT NOT PREJUDIC IAL TO THE INTERESTS OF THE REVENUE, THEN THE POWER OF SUO MOTTO REVISION C ANNOT BE EXERCISED. ANY AND EVERY ERRONEOUS ORDER CANNOT BE THE SUBJECT- MATTER OF REVISION BECAUSE THE SECOND REQUIREMENT M UST BE FULFILLED. 12. IT IS ALSO WELL-SETTLED THAT ORDER PASSED BY THE ASSESSING OFFICER WOULD BE ERRONEOUS ONLY IF THE ASSESSING OFFICER HA S NOT CONSIDERED ALL MATERIALS OR HAD NOT DONE PROPER EXAMINATION OR ENQ UIRY OR VERIFICATION OR IF ITA NO.505/ AHD/2012 A.YR. 2007- 08. 10 THE ASSESSING OFFICER HAD COMPLETELY OMITTED THE IS SUE, IN QUESTION, FROM CONSIDERATION AND MADE THE ASSESSMENT IN AN ARBITRA RY MANNER. IN THE CASE OF CIT VS. HERO AUTO LTD. (2012) 343 ITR 342 ( DEL.). THE HONBLE HIGH COURT HAS HELD AS UNDER:- (PAGE 344) THEREAFTER, HE HAS REFERRED TO THE S ECOND CLAIM OF THE RESPONDENT ASSESSEE AND HAS OBSERVED THAT THERE WAS LACK OF INQUIRY AND THIS VITIATED THE ASSESSMENT ORDER. REF ERENCE WAS MADE TO THE DECISION OF THIS COURT IN GEE VEE ENTERPRISE (1975) 99 ITR 375 (DEL.).THERE IS NO DISCUSSION IN THE ORDER OF THE C OMMISSIONER AS TO HOW AND IN WHAT MANNER THE ENQUIRY WAS LACKING AND WHAT WAS THE FAULT AND DEFAULT COMMITTED BY THE A.O.THE A.O. HAD EXAMINED THE SAID ASPECT IN THE ORIGINAL ASSESSMENT PROCEEDINGS AND ACCEPTED THE STAND OF THE ASSESSEE. THERE IS NO FINDING OF THE C IT THAT THE ORDER PASSED BY THE A.O. WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE QUESTION OF LACK OF INQUIRY AND INADEQUATE INQUIRY HAS BEEN EXPLAINED BY THIS COURT IN THE CA SE OF CIT VAS. SUNBEAM AUTO LTD. (2011) 332 ITR 167 (DEL.) AND IT HAS BEEN OBSERVED AS UNDER ( PAGE 179): THERE ARE JUDGEMENTS GALORE LAYING DOWN THE PRIN CIPLE THAT THE A.O. IN THE ASSESSMENT ORDER IS NOT REQUIRED TO GIV E DETAILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION ETC. THEREFORE, ONE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLICATION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. IF THERE WAS ANY INQUIRY, EVEN INADEQU ATE, THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE CIT TO PASS ORDER U/ S. 263 OF THE ACT MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MA TTER. IT IS ONLY IN CASES OF LACK OF INQUIRY THAT SUCH A COURSE OF AC TION WOULD BE OPEN. 13. AFTER REFERRING TO THE SAID DECISIONIN THE CASE OF ITO VS. DG HOUSING PROJECTS LTD. DECIDED ON MARCH 1, 2012 (2012) 343 I TR 329 (DEL.) WE HAVE RECENTLY OBSERVED AND HELD AS UNDER (PAGES 338 -340 ): ITA NO.505/ AHD/2012 A.YR. 2007- 08. 11 THUS IN CASES OF WRONG OPINION OR FINDING ON MERIT S, THE CIT HAS TO COME TO THE CONCLUSION AND HIMSELF DECIDE THAT THE ORDER IS ERRONEOUS, BY CONDUCTING NECESSARY ENQUIRY, IF REQU IRED AND NECESSARY, BEFORE THE ORDER U/S. 263 IS PASSED. IN SUCH CASES, THE ORDER OF THE A.O. WILL BE ERRONEOUS BECAUSE THE ORD ER PASSED IS NOT SUSTAINABLE IN LAW AND THE SAID FINDING MUST BE REC ORDED. THE CIT CANNOT REMAND THE MATTER TO THE A.O. TO DECIDE WHET HER THE FINDINGS RECORDED ARE ERRONEOUS. IN CASES WHERE THERE IS INA DEQUATE ENQUIRY BUT NOT LACK OF INQUIRY, AGAIN THE CIT MUST GIVE AN D RECORD A FINDING THAT THE ORDER/INQUIRY MADE IS ERRONEOUS. THIS CAN HAPPEN IF AN ENQUIRY AND VERIFICATION IS CONDUCTED BY THE CIT AN D HE IS ABLE TO ESTABLISH AND SHOW THE ERROR OR MISTAKE MADE BY THE A.O. MAKING THE ORDER UNSUSTAINABLE IN LAW. IN SOME CASES, POSSIBLY THOUGH RARELY, THE CIT CAN ALSO SHOW AND ESTABLISH THAT THE FACTS OR R ECORDS OR INFERENCES DRAWN FROM THE FACTS ON RECORD PER SE JU STIFIED AND MANDATED FURTHER ENQUIRY OR INVESTIGATION BUT THE A .O. HAD ERRONEOUSLY NOT UNDERTAKEN THE SAME. HOWEVER, THE S AID FINDING MUST BE CLEAR, UNAMBIGUOUS AND NOT DEBATABLE. THE MATTER CANNOT BE REMITTED FOR A FRESH DECISION TO THE A.O. TO CONDUC T FURTHER INQUIRIES WITHOUT A FINDING THAT THE ORDER IS ERRONEOUS. FIND ING THAT THE ORDER IS ERRONEOUS IS A CONDITION OR REQUIREMENT WHICH MUST BE SATISFIED FOR EXERCISE OF JURISDICTION U/S. 263 OF THE ACT. IN SU CH MATTERS, TO REMAND THE MATTER/ISSUE TO THE A.O. WOULD IMPLY AND MEAN T HE CIT HAS NOT EXAMINED AND DECIDED WHETHER OR NOT THE ORDER IS ER RONEOUS BUT HAS DIRECTED THE A.O. TO DECIDE THE ASPECT/QUESTION. TH IS DISTINCTION MUST BE KEPT IN MIND BY THE CIT WHILE EXERCISING JURISDI CTION U/S. 263 OF THE ACT AND IN THE ABSENCE OF THE FINDING THAT THE ORDE R IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, EXERCIS E OF JURISDICTION UNDER THE SAID SECTION IS NOT SUSTAINABLE. IN MOST CASES OF ALLEGED INADEQUATE INVESTIGATION, IT WILL BE DIFFICULT TO HOLD THAT THE ORDER OF THE A.O. WHO HAD CONDUCTED ENQUIRIES AND HAD ACTED AS AN INVESTIGATOR, IS ERRONEOUS, WITHOUT THE CIT CONDUCT ING VERIFICATION/INQUIRY. THE ORDER OF THE A.O. MAY BE OR MAY NOT BE WRONG. THE CIT CANNOT DIRECT RECONSIDERATION ON THI S GROUND BUT ONLY WHEN THE ORDER IS ERRONEOUS. AN ORDER OF REMIT CAN NOT BE PASSED BY THE CIT TO ASK THE A.O. TO DECIDE WHETHER THE ORDER WAS ERRONEOUS. THIS IS NOT PERMISSIBLE. AN ORDER IS NOT ERRONEOUS UNLESS THE CIT HOLDS AND RECORDS REASONS WHY IT IS ERRONEOUS. AN O RDER WILL NOT BECOME ERRONEOUS BECAUSE ON REMIT, THE A.O. MAY DEC IDE THAT THE ORDER IS ERRONEOUS. THEREFORE, THE CIT MUST AFTER R ECORDING REASONS ITA NO.505/ AHD/2012 A.YR. 2007- 08. 12 HOLD THAT THE ORDER IS ERRONEOUS. THE JURISDICTIONA L PRECONDITION STIPULATED IS THAT THE CIT MUST COME TO THE CONCLUS ION THAT THE ORDER IS ERRONEOUS AND IS UNSUSTAINABLE IN LAW. WE MAY NO TICE THAT THE MATERIAL WHICH THE CIT CAN RELY INCLUDES NOT ONLY T HE RECORD AS IT STANDS AT THE TIME WHEN THE ORDER IN QUESTION WAS P ASSED BY THE A.O. BUT ALSO THE RECORD AS IT STANDS AT THE TIME OF EXA MINATION BY THE CIT (SEE CIT VS. SHREE MANJUNATHESWARE PACKING PRODUCTS AND CAMPHOR WORKS) (1998) 231 ITR 53 (SC). NOTHING BARS /PROHIBITS THE CIT FROM COLLECTING AND RELYING UPON NEW/EVIDENCE T IO SHOW AND STATE THAT THE ORDER OF THE A.O. IS ERRONEOUS. 13. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HA D MADE WRITTEN SUBMISSIONS AND SUBMITTED THE DETAILS BOTH BEFORE C IT & AO WHEREBY IT WAS CONTENDED THAT THOUGH THE ASSESSEE HAD MADE ACQ UISITION OF ASSETS DURING THE YEAR UNDER CONSIDERATION BUT HAD NOT BOR ROWED FUNDS FOR ITS ACQUISITION AND HENCE THE PROVISIONS OF SEC 36(1)(I II) ARE NOT APPLICABLE AND ACCORDINGLY NO PART OF INTEREST WAS REQUIRED TO BE CAPITALISED. WE FIND THAT EVEN THOUGH THESE FACTS WERE BROUGHT TO THE NOTICE OF THE COMMISSIONER AND IT WAS SUBMITTED THAT IT WAS BECAUSE OF THE ABO VE MENTIONED FACTS NO DISALLOWANCE U/S 36(1)(III) WAS CALLED FOR, THE CO MMISSIONER DID NOT ADEQUATELY DEAL WITH THESE CONTENTIONS, AND REJECTE D THE SAME BY OBSERVING THAT THE INTEREST PAYMENT OF RS 1,49,85, 495/- SHOULD NOT HAVE BEEN ALLOWED AS A DEDUCTION. OMISSION TO DO SO RESU LTED IN THE UNDER ASSESSMENT OF INCOME TO THAT EXTENT. 14. IN THE CASE BEFORE US, IT IS SEEN THAT T HE A.O. HAS AFTER CONSIDERING ALL THE FACTS AND AFTER SATISFYING HIMSELF ACCEPTED THE CONTENTIONS OF ASSESSEE AND MADE NO DISALLOWANCE U/S. 36(1)(III). CIT HAS NOT BEEN ABLE TO ESTABLISH AND PIN POINT UNEQUIVOCALLY THE ERROR OR THE MISTAKE MADE BY THE A.O. WHICH MAKES THE ORDER UNSUSTAINABLE IN LAW . AS HELD BY THE ITA NO.505/ AHD/2012 A.YR. 2007- 08. 13 HONBLE DELHI HIGH COURT, THE FINDING OF THE CIT MU ST BE CLEAR, UNAMBIGUOUS AND NOT DEBATABLE. FINDING THAT THE ORD ER IS ERRONEOUS IS A CONDITION OR REQUIREMENT WHICH MUST BE SATISFIED FO R EXERCISE OF JURISDICTION U/S. 263 OF THE ACT. THE CASE LAWS RELIED BY THE RE VENUE ARE ON DIFFERENT FACTS AND HENCE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE A ND ALSO IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS WE ARE OF THE FIRM VIEW THAT THE A.O. HAVING EXERCISED HIS MIND OVER THE ISSUE, IT CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE REFORE THE ORDER OF CIT IS QUASHED AND THE APPEAL FILED BY THE ASSESSEE IS ALL OWED. 15. IN THE RESULT, THE ASSESSEES APPEAL IS ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON 22 - 6 - 2012. SD/- SD/- (MUKUL KUMAR SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT-I, AHMEDABAD. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. ITA NO.505/ AHD/2012 A.YR. 2007- 08. 14 1.DATE OF DICTATION 16 - 5 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 22 / 5 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 19 - 6 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 22 - 6 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 22 - 6 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2 2 - 6 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..