TMI Blog2003 (5) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... iissued show-cause notice to the assessee dt.30th May, 1997, pointing out that a sum of Rs. 1,14,90,200 has been paid to M/s Nova Corporation Ltd. as service charges and the same have been allowed by the AO. According to the CIT, the recipient company is not capable of rendering any services for designing and manufacturing of sugar plants and, therefore, service charges have been wrongly allowed. The assessee made written submissions before the CIT vide letters dt.1st July, 1997and21st Feb., 1998, which are placed in the paper book at pp. 2 to 11. The assessee explained before the CIT that service charges have been paid to M/s Nova Corporation Ltd. amounting to Rs. 81.39 lacs and such charges have been paid for procurement of orders for design, manufacture and supply of sugar plant machinery by the assessee. The assessee further stated that payments have been made by account payee cheques and duly confirmed by the party. According to the assessee, the AO has allowed the deduction of commission after making detailed enquiries during the assessment proceedings and on the basis of information and details furnished during assessment proceedings. The assessee further pointed out that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to make full enquiries and to make full investigation in this case so as to establish that the commission/service charges paid to M/s Nova Corporation Ltd. had direct linkage with the efforts made by them and the orders procured by them for the assessee, thus, giving it character of the expenditure incurred for the purpose of the business and giving it a character of allowable expenditure." The CIT further concluded vide para 6 as under: "On the basis of the facts as described above, I arrive at the conclusion that the AO has failed to make proper enquiries and investigation so far as to prove that whatever orders purposes to have been procured by M/s Nova Corporation were as a result of the efforts made by them. The case is, therefore, set aside and the AO is directed to make detailed enquiries on this issue so as to establish the linkage between the efforts made by M/s Nova Corporation as an allowable expenditure in this case. At this point I...........the case of the assessee before the customers so as to convince them on the fitness of the assessee s products as far as their technical supremacy and efficiency is concerned. While passing the fresh order, the AO sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion to p. 33 of the paper book containing the Schs. XIV, XV and XVI of the balance sheet of the Nova Corporation Ltd. for the year ended31st March, 1993. From these schedules, it is evident that service charges amounting to Rs. 2,98,77,570 have been credited to P L a/c for the asst. yr. 1993-94. This indicates that M/s Nova Magnetics Ltd. is a genuine concern assessed to tax and carrying out substantial activity as a commission agent. (6) Since the AO had already initiated proceedings under s. 148, the jurisdiction assumed by the CIT under s. 263 on similar issue is bad, in, law and is liable to be quashed. (7) Learned counsel submitted that merely because the AO has not dealt with the specific issue of payment of commission to M/s Nova Corporation Ltd. in the assessment order would not by itself imply that there was no application of mind to the facts and details submitted during assessment proceedings and CIT cannot assume jurisdiction under s. 263 on this ground. Learned counsel placed reliance on the following decisions: (i) CIT vs. Ratlam Coal Ash Co. (1987) 65 CTR (MP) 305 : (1987) 171 ITR 141 (MP); (ii) CIT vs. Shri Govindram Seksariya Charity Trust (1987) 65 CTR ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under s. 263 and restore the issue to the AO for fresh investigation. The learned Departmental Representative argued that under s. 263, the CIT has power to set aside the assessment order and sent the matter for fresh assessment if he is satisfied that further enquiry is necessary and the order of the AO is prejudicial to the interest of the Revenue. 7. We have carefully considered the rival submission and gone through the orders of tax authorities below as well as documents and paper contained in the paper book to which our attention has been invited during the course of hearing. Various judicial authorities cited before us by the learned representatives of both sides have also been carefully perused by us. A bare reading of the provisions of s. 263 makes it clear that the pre-requisite to the exercise of jurisdiction by the CIT under it is that order of the AO is erroneous insofar as it is prejudicial to the interest of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the Revenue. The revisional jurisdiction of the CIT as a supervisory authority is intende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance. We have not been informed by the Revenue as to whether the appellate order of the CIT for asst. yr. 1992-93 has been accepted by the Revenue or not. Be that as it may, such commission payment of M.S. Nova Magnetics Ltd. have been allowed in the preceding assessment years. The commission has been paid to Nova Magnetics Ltd. on the basis of a memorandum of understanding arrived at between the assessee and the commission agent, copy of such memorandum has been duly placed before the Revenue authorities. Genuineness of such agreement has not been questioned or doubted by the Revenue at any stage. It is significant to note that for asst. yr. 1993-94, the assessee has filed details of commission payments during assessment proceedings along with debit notes issued by the commission agents. Such debit notes are placed at pp. 23 24 of the paper book which indicate that commission payment aggregating to Rs. 81,39,000 have been made on account of procurement of orders from M/s Venus Sugar Ltd., Darya Ganj, New Delhi as well as M/s Rana Sugar Ltd., Sector 17-E, Chandigarh. These debit notes submitted during assessment proceedings are duly confirmed and sent by the commission agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission provide justification for deduction of commission as business expenditure. In our opinion, the CIT(A) has assumed jurisdiction without fulfilling the requisite conditions as contained in s. 263. The fact that the AO has already reopened the proceedings under s. 148 has been brushed aside by the CIT while passing the impugned order. Once the AO has already reopened the proceedings on the ground of payment of commission and issued notice to the assessee under s. 148 on10th March, 1997, there is absolutely no justification for the CIT to embark upon proceedings under s. 263 and pass the impugned order on2nd March, 1998. The learned counsel of course informed the Bench that proceedings under s. 148 have subsequently been dropped by the AO. However, at what stage these proceedings have been dropped and whether the same have been dropped after passing of the impugned order by the CIT is not borne out from record. Be that as it may, the impugned order of the CIT is, in our opinion, clearly without jurisdiction since the requisite conditions as contained under s. 263 are not satisfied. 9. For the aforesaid reasons, we cancel the impugned order of the CIT and allow the appeal o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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