TMI Blog2010 (9) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... aim with the insurance company. This claim had not been approved as the insurance company had neither accepted the same nor given any assurance for making payment. Therefore, no income had "accrued" which could be taxed. - In respect of deduction u/s 80HHC, it was totally uncalled for on the part of the Commissioner to say that the AO did not make requisite inquiries because of the simple reason that the AO had, in fact, declined and rejected this claim of the assessee. If the AO himself disallowed the deduction claimed by the assessee on this account under Section 80 HHC of the Act, we fail to understand what further inquiries were needed by the AO. - In respect of income of Rs. 1.61 crores, The Commissioner has only observed that in the immediate previous year no such gain was shown and therefore, it needed examination by the AO. However, the moot question would be examination for what purpose? In the entire order emphasis laid by the Commissioner is that in respect of four issues mentioned by him, no queries were raised by the AO - Decided in favour of The assessee and against the Revenue - 1165/2007 - - - Dated:- 14-9-2010 - CORAM : HON'BLE MR. JUSTICE A.K. SIKRI HON ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods in the closing stock to the tune of Rs.5.28 crores. Considering the facts that the total turnover of the assessee was only Rs.6.13 crores, it was necessary to obtain the details of the closing stock, but no details were called for from the assessee; b) The assessee has shown insurance claim receivable amounting to Rs.1.21 crores but no details have been furnished by the assessee. The Assessing Officer has also not made any inquires in respect of this issue, from the insurance company which would be having the details of the claim; c) The assessee has shown M/s Meghna Overseas as a Sundry Debtors to the extent of Rs.6.99 crores. It appears that export have been made to this firm, but no details are on record, which would details the export sales made. It is pertinent to point out that the requirements of section 80 HHC (4) is as follows: "(4) The deduction under sub-section (1) shall not be admission unless the assessee furnishes in the prescribed form, alongwith the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned, that is regarding its purchase of stock, sundry debtors on account of export sales etc. With regard to income of Rs.1.61 crores on account of difference of rate of foreign exchange on the date of booking the export sales vis- -vis date of realization of export proceeds the Tribunal held that the view that there was no occasion for doubting the income offered by the assessee only because of the reason that in the immediately preceding year the assessee was not in receipt of any such income. With regard to making additions in respect of the amount of insurance claim, loss of goods/loss in transit, the Tribunal observed that by mere filing of a claim with the insurance company, there does not accrue any income in favour of the assessee as the assessee had not claimed any right to receive such income. More so, when neither the claim was accepted nor any assurance given by the insurance company for making payment on account of such loss. Therefore, by mere filing of a claim no income had accrued, which was taxable. 5. In this factual backdrop, present appeal was admitted on 26.7.2010 on the following substantial question of law:- "Whether the learned Income Tax Appellate Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r failed to apply his mind to the case in all perspective and the order passed by him was erroneous. If appears that the resolution passed by the board of the appellate-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under Section 263(1) was justified." 7. It is also well-settled principle that provisions of Section 263 of the Act would not be invoked merely to correct a mistake or error committed by the AO unless it has caused prejudice to the interest of the Revenue. If an order is based on incorrect assumption of facts or on incorrect application of law or without applying the principle of natural justice and without application of mind, it would be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d pass fresh orders. This is how the principle was explained:- "These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as regards the controversial points." 10. At the same time it is also recognised that there is no universal power with the Commissioner to provoke an inquiry as held in Commissioner of Wealth-tax v. Prithvi Raj and Co., 199 ITR 424 as under:- "It is true that ordinarily the Commissioner has been given jurisdiction to examine, under section 25(2), whether the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, but in the instant case, however, the Commissioner has nowhere formed an opinion that the assessment order was prejudicial to the interests of the Revenue. Apart from that jurisdictional infirmity, the Commissioner overlooked the fact that the rate of Rs.1,800 per square yard was in respect of commercial property. The Commissioner himself has referred to two different rates fixed by the D.D.A. in respect of industrial land and commercial land. This clearly shows that the rate of the commercial land is not necessarily the same as the rate of an industrial plot of land. Furthermore, the rate for an industrial plot is lower than that of the land for commercial use. What is more striking is that the two Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discuss the issue at hand. It was argued by the learned counsel for the assessee that in the entire order passed by the Commissioner under Section 263 of the Act it is not mentioned as to how the order was erroneous and prejudicial to the interest of the Revenue. After scrutinising the said order minutely we are inclined to agree with the aforesaid argument of the learned counsel. In the entire order emphasis laid by the Commissioner is that in respect of four issues mentioned by him, no queries were raised by the AO. On this premise, though it is observed that there was no application of mind on the part of the AO and the AO has not recorded any reasons to justify the omission to consider the said facts, the Commissioner does not take the said order to its logical conclusion which was the prime duty of the Commissioner in order to justify exercise of power under Section 263 of the Act. There is not even a whisper that the order is erroneous. Even if we infer that non-consideration of the issues pointed out by the Commissioner would amount to an erroneous order, it is not stated as to how this order is prejudicial to the interest of the Revenue. The penultimate paragraphs of the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished. The AO had also not made any inquiries. In the detailed discussion on this aspect the Tribunal has observed that insurance clam was lodged for the goods lost in transit. The assessee at that time had merely filed a claim with the insurance company. This claim had not been approved as the insurance company had neither accepted the same nor given any assurance for making payment. Therefore, no income had "accrued" which could be taxed. The Tribunal rightly held that ordinarily the income is said to have accrued to a person when he acquires the right to income and this should be enforceable right, though actual quantification or receipt may follow in due course. The mere claim to income without any enforceable right cannot be regarded as an accrued income for the purpose of Income-Tax Act. The Tribunal referred to the following judgments in support:- i) In CIT Vs. Finance (P) Ltd. 124 ITR 619(P H High Court), held as under: "Income-tax is levied on income whether the accounts are maintained on mercantile system or on cash basis. If income does not result at all, there cannot be levy of tax. Even if an entry of hypothetical income is made in the books of accounts, where th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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