TMI Blog2006 (3) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... /s Vijay Trading from assessees own wheat account and appears in the copy of arath account of 1983-84. The assessee had purchased 110 bales of cotton for Rs. 7,12,280 from Oriental Cotton Traders, for and on behalf of the arathies and the same did not appear in the trading account of the assessee. The assessee had also filed datewise copies of arath account, which revealed datewise receipt of arath. The observation of the CIT that the assessee received arath of Rs. 6,90,738 while net income is Rs. 1,31,085 which was neither reflected in the audit report nor was enquired into by the AO, is not correct. The audit report contained P L ale, copy of which is placed at p. 24 of the paper book and it shows total receipt of Rs. 9,30,58 (sic) from arath and GP in dealing in these commodities. Against this gross income, the assessee had shown the debit of Rs. 4,80,000 towards interest and Rs. 3,18,489 towards expenses like salary, telephone expenses, vehicle expenses and depreciation etc. Therefore, P L a/c shows the net income of Rs. 1,31,085. The audit report contained all these details duly examined by the AO and, therefore, did not find any discrepancy therein. Thus, we come to conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l submissions and perused the evidence available on record. 4. Before we come to the factual facts of this case, to ascertain as to whether the requirements of s. 263 of the Act are fulfilled or not, we would like to discuss in bird's eye view the relevant scheme of the revisionary powers of the CIT. Under the scheme of the Act the CIT has revisionary jurisdiction under ss. 263 and 264. We are only concerned with the revision done under s. 263 of the Act, to adjudicate the subject under appeal. Under s. 263 of Act, the CIT has power of revision of the erroneous assessment order which is also prejudicial to the Revenue, because there is no provision in the IT Act whereunder the Department can appeal to the learned CIT(A) against any order passed by the AO. Therefore, this section has been enacted to arm the CIT with the power of revising any order of the AO when the order is erroneous and the error has resulted into a prejudice to the interest of the Revenue. Under this section the CIT may call for and examine the records of any proceedings under the Act. For this purpose he does not need to show any reason, as it is a part of his administrative control. Here a question may arise as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pe of mistake or error committed by the AO. It is only when an error is erroneous that the section would be attracted. An incorrect assumption of facts or an incorrect application of law would definitely satisfy the requirement of the order being erroneous. In the same category falls the order passed without applying principle of natural justice or without application of mind. To assume jurisdiction under s. 263, the learned CIT has to satisfy, himself, objectively, that the order in question is prejudicial to the interest of the Revenue being erroneous. This satisfaction has to be based on evidences available on record. The Hon'ble Allahabad High Court in the case of CIT vs. Bhagat Shyam Co. (1991) 98 CTR (All) 109 : (1991) 188 ITR 608 (All) quashed the revisionary proceedings because the learned CIT had initiated the proceedings under s. 263 without properly considering all the facts and the circumstances of the case. Likewise, the Hon'ble Calcutta High Court in the case of Jeevan Lal vs. Addl. CIT (1977) 108 ITR 407 (Cal) also quashed the order of the CIT by holding that the revision was made without exercising his own discretion and judgment and acted only on the suggestion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposed action to be taken by him. From the language of s. 263 it is imperative on the part of the CIT to point out the exact error in the order in which he proposes to revise, so that the assessee could have adequate opportunity of rebuttal. After hearing the assessee, a speaking order has to be passed in which the relevant error and consequent prejudice must be detailed. This is what exactly is said by the Hon'ble Supreme Court in the case of Dwarka Nath vs. ITO (1965) 57 ITR 349 (SC). 8. The CIT can enhance, modify, and set aside erroneous order passed by the AO. But in case the order of the assessment is carried into appeal before the CIT(A), the jurisdiction of the CIT shall be. limited only to the matter which was not the subject-matter of decision by the first appellate authority. The simple reason for the above proposition being that the order of the AO does not survive and becomes the order of the first appellate authority with relation to the issues taken in the first appeal. But with regard to such matters as has not been considered and decided in the first appeal, according to cl. (c) of the newly substituted Explanation to s. 263(1) w.e.f. 1st June, 1988, the jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 was declared. The copy of arath account was also filed even before the CIT. The AO seems to have verified the purchases and sales of goods on which the assessee earned 'arath'. The assessee purchased agricultural produce on behalf of the parties and such goods were either dispatched out of station or stocked by the party and sold at a later date. Goods were purchased as directed, from the market and journal entries were passed. This is reflected from the specimen entries, which are placed at pp. 81-82 of the paper book. The sales and purchases made by assessee considered as sales for the purpose of monetary limit of Rs. 40,00,000 in respect of obtaining audit report under s. 44AB and also for sales-tax purposes. But such sales/purchases are not in respect of assessee's own trading and, therefore, not included in the trading account. From the records it is revealed that the AO has fully verified the purchases/sales of the goods, on which the assessee had earned 'arath'. We are not convinced that the accounts of the assessee were not correct and complete. The AO had desired from the assessee to file the copies of accounts of parties who have made purchases from the assessee or sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31,912 and instead he had paid interest of Rs. 35,133. Again, the explanation of the assessee is that, in the account of Vijay Traders, interest was credited on their deposit of Rs. 10,00,000 and interest was not payable on the debit and credit of Rs. 20,63,750. Regarding purchase and sale of goods, the assessee had filed confirmation and copies of account of the parties who have confirmed the receipt of interest from the assessee as shown by him. In these circumstances, it could not be stated that the AO has not applied his mind. More than one view may be possible on a particular issue but the CIT cannot substitute his view unless the twin conditions of s. 263 are fulfilled. As mentioned in the foregoing paragraphs, this does not amount to an error. Therefore, this ground also taken by the CIT to revise the assessment order, does not fall under purview of s. 263 of the Act. 17. The next ground in respect of which the assessment order has been revised relates to cash credits. The assessee had filed the list and copies of accounts of the creditors. Most of the credits were old balances and the new deposits from regular traders who were assessed to income-tax and their confirmation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. 18. The assessee was purchasing goods on behalf of the parties and also sending goods to them after purchasing from his own account. The transaction of sale and purchase of wheat from M/s Vijay Trading from assessees own wheat account and appears in the copy of arath account of 1983-84. The assessee had purchased 110 bales of cotton for Rs. 7,12,280 from Oriental Cotton Traders, for and on behalf of the arathies and the same did not appear in the trading account of the assessee. The assessee had also filed datewise copies of arath account, which revealed datewise receipt of arath. The observation of the CIT that the assessee received arath of Rs. 6,90,738 while net income is Rs. 1,31,085 which was neither reflected in the audit report nor was enquired into by the AO, is not correct. The audit report contained P L ale, copy of which is placed at p. 24 of the paper book and it shows total receipt of Rs. 9,30,58 (sic) from arath and GP in dealing in these commodities. Against this gross income, the assessee had shown the debit of Rs. 4,80,000 towards interest and Rs. 3,18,489 towards expenses like salary, telephone expenses, vehicle expenses and depreciation etc. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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