TMI Blog2014 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... eply or to show that the questions in this regard were asked by the AO - the order of the Tribunal upholding the order of CIT passed u/s 263, cannot be sustained - the Tribunal has not considered the factual matrix or the various documents on record and has not examined the scope of Section 36(1)(ii), the matter is remitted back to the Tribunal for re-examination and re-hearing of appeal – Decided in favour of Assessee. - Income Tax Appeal No. 447/2013 - - - Dated:- 13-8-2014 - Sanjiv Khanna And V. Kameswar Rao,JJ. For the Appellant : Mr. S. Krishnan For the Respondent : Mr. Kamal Sawhney, Sr. Standing Counsel, And Mr. Sanjay Kumar Jr, Standing Counsel JUDGMENT Sanjiv Khanna, J. (Oral): Counsel for the respondent-Revenue has not been able to ascertain the correctness of the documents filed along with the present appeal. We are not inclined to grant any further time to the counsel for the respondent-Revenue as notice in the appeal was issued on 28th October, 2013 and sufficient time has been granted. Further, a very limited issue arises for consideration. 2. By order dated 28th July, 2014, the following substantial question of law was framed:- Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed:- 4. As per Section 36(1)(ii) of IT Act, it has been provided that the admissible deduction is of any sum paid to an employee as bonus or commission for services had not been paid as bonus or commission. This section has been specifically laid down to ensure that the companies do not avoid tax by distributing their profit to their members/shareholders as bonus or commission instead of dividend. From the submissions of the Ld. A/R of the assessee company, it is not clear as to whether the concerned directors of the company were shareholders/stake holders entitled to profits or dividend of the company and accordingly, it is not possible to comment as to whether mischief of section 36(1)(ii) of IT Act is attracted towards the payment of commission to such directors. As a result, the assessment made by the AO accepting such commission payment without verifying as to whether provisions of section 36(1)(ii) are attracted, is set-aside on this limited issue with a direction to the AO to verify as to whether the concerned directors were stake holders/shareholders in the company, entitled to profits/dividend of the company and if these facts appear to be correct then the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue with a direction to the AO to cause sufficient inquiries in order to ascertain the actual expenses relatable to the manufacturing and trading activity separately and allow the claim of such expenses after due verification. 8. The appellant-assessee was maintaining separate books of accounts for the manufacturing unit receipts and expenditure which was exempt under Section 80-IC; and the trading activities. However, there were certain common expenses, which were to be segregated. Common expenses were/are not unusual, abnormal or unique in such cases. In order to carry out the said segregation, the appellant-assessee had made apportionment and the ratio thereof was indicated and informed to the Assessing Officer. The details of the said apportionments are reproduced below:- S. No. Particulars Total Expenses During the Year Apportioned to Trading activities Apportioned to manufacturing activities Apportionment Ratio Basis 1 Freight Cartage Outward 169,360 101,616 67,744 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,687,588 14,533,502 6154,086 The aforesaid figures stand reproduced in the order passed by the Commissioner. 9. The Commissioner, instead of commenting upon or giving a final finding whether aforesaid apportionment was acceptable or not, observed that it was possible that there was an attempt to inflate expenses on trading activity and an attempt might have been made to reduce actual expenses of the exempt unit. The use of the word possible would indicate that there was no finding and adjudication by the Commissioner and his observations were based on mere suspicion and certainly uncertain. Yet, the Commissioner proceeded further and figmented that this would mean that the Assessing Officer had passed an erroneous order and consequently it was prejudicial to the interest of the Revenue. Direction was issued to the Assessing Officer to carry out fresh inquiries to do the exercise once again and decipher whether the actual expenses relatable to the manufacturing and trading activities were correctly separated. Thus the Commissioner was unsure; whether or not the bifurcation were right or wrong. This does not sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question of apportionment on merits. Mere statement that it was possible that the Assessing Officer was erroneous, is not sufficient and does not meet the requirement stipulated by law. On the said aspect, we would like to reproduce observations of the Delhi High Court in Income Tax Officer Vs. DG Housing Projects Limited, (2012) 343 ITR 329 (Delhi) wherein reference was made to CIT Vs. Sunbeam Auto Limited, (2011) 332 ITR 167, and it has been held:- 14. The aforesaid observations have to be understood in the factual background and matrix involved in the said two cases before the Supreme Court. In the said cases, the Assessing Officer had not conducted any enquiry or examined evidence whatsoever. There was total absence of enquiry or verification. These cases have to be distinguished from other cases (i) where there is enquiry but the findings are incorrect/erroneous; and (ii) where there is failure to make proper or full verification or enquiry. 15. In the case of Commissioner of Income Tax vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del), Delhi High Court was considering the aspect, when there is no proper or full verification, and it was held as under:- We have consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres 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 acting 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue. 12. Income Tax Appellate Tribunal, in the impugned order dated 26th April, 2013, did record and has reproduced the relevant portions of the notice under Section 143(2) wherein details of the commission paid to related parties, etc. were mentioned. However, it did not notice the letters/ replies dated 22nd June, 2009, 2nd July, 2009; and, 17th August, 2009, filed before the Assessing Officer and has observed that the appellant-assessee was unable to furnish the details enclosed with the reply or to show that the questions in this regard were asked by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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