TMI Blog2009 (11) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... at reason the CIT held his order to be erroneous. This is not envisaged under s. 263 of the Act. - The various points noted by him are mere illustrations which according to him should have been looked into by the AO. As a matter of fact, while dealing with the aspect of profits, the CIT has not been able to show a single error in the order of the AO. - Revision us/ 263 set aside. - - - - - Dated:- 27-11-2009 - Member(s) : PRADEEP PARIKH., U. B. S. BEDI., SHAMIM YAHYA. ORDER-SHAMIM YAHYA A.M.: November, 2008 This appeal by the assessee is directed against the order of the CIT, Chennai-III, Chennai, dt. 27th March, 2006 for the asst. yr. 2001-02. 2. The issue raised is that the CIT erred in passing a revision order under s. 263 of the IT Act. 3. In this case, in the order passed under s. 263 of the IT Act, the learned CIT dealt with several issues and concluded that, "The entire assessment is set aside for de novo consideration and arrive at true and correct profits of the assessee as per IT Act for the year under consideration." 3.1 We have heard both the counsel and perused the relevant records. The relevant provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eheard under the proviso to s. 129 and any period during which any proceeding under this section is stayed by an order or injunction of any Court shall be excluded." 3.2 Further, the landmark decision of the Hon'ble apex Court on this issue in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) can be referred to as under: "The prerequisite to the exercise of jurisdiction by the CIT under s. 263 is that the order of the AO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the AO is erroneous but is not prejudicial to the Revenue-recourse cannot be had to s. 263(1). There can be no doubt that the provision cannot be invoked to correct each and -every type of mistake or error committed by the AO; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned CIT in this regard. 6. Property at Adyar: 6.1 On this issue, the learned CIT noted that the Adyar House was let out on a monthly rental of Rs. 3,500 to a group concern. However, the ALV of the property was fixed by the municipal corporation at Rs. 2,04,968. Hence, he directed the AO to examine the issue from all angles keeping in view the provisions of ss. 23 and 24 of the IT Act to arrive at the correct ALV of Adyar house and recompute the income from house property after allowing correct amount of municipal tax. In this regard, assessee's contention is that the property was let out for an annual value of Rs. 42,000 and was so assessed in assessee's hands for earlier years. Further, the said concern was having financial difficulties. Even if notional income was treated as receivable from them, balance has to be allowed as irrecoverable under s. 24(1)(x). 6.2 We have carefully considered the issue. We find that it is the case of the assessee that rental value of Rs. 42,000 was returned by the assessee in earlier years and the same was accepted by the Revenue. Under such circumstances, in our opinion, the order of the AO cannot be said to be erroneous if he follows the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le only from asst. yr. 2002-03 onwards and CBDT, vide its Circular No. 5 had clarified that no proceedings under s. 263 or 147 should be initiated for the assessment year prior to asst. yr. 2002-03. Hence, the assessee claimed that the impugned asst. yr. being 2001-02, r. 7B was not applicable. As regards the sale of land and trees, the assessee admitted that it was due to inadvertence. 7.2 The learned CIT was of the opinion that since the assessee had not paid any agricultural income-tax, the provisions of r. 7B were applicable. The learned CIT finally concluded that, "As many new issues have cropped after enquiry, the AO is directed to examine in detail all the issues relating to agricultural income and taxability of non-agricultural portion of income and computation of capital gains if any on the sale of agricultural estate and shade trees." 7.3 We have heard both the counsel and perused the relevant records. The learned counsel of the assessee submitted that the order of the learned CIT under s. 263 on this issue is clearly in violation of CBDT Circular No. 5. It was further claimed that assessee had incurred loans and therefore it should be deemed to have paid tax on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he study of each division, the sugar division in which the assessee has claimed deduction under s. 80HHC is actually a loss of Rs. 14,23,09,836.26. However, the assessee has claimed this deduction on the basis of overall profits of its business. This is prima facie against the provisions of the Act and also the judgment of the Hon'ble Supreme Court in the case of IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC). Consequently, the deduction of Rs. 12,76,334 has been wrongly allowed because of inaccurate furnishing of details. The learned CIT further held that with regard to deduction under s. 80-IB on the profits of special chemicals division, all the sales are to the group company, viz., SPIC Ltd. Whether the provisions of s. 80-IB(13) r/w s. 80-IA(9)(a) relating to group company transactions, its pricing, allocation of expenses and other eligibility conditions have not at all been looked into as no details were furnished by the assessee. The learned CIT concluded that both these issues are also sent back to the AO for de novo consideration and redetermination and computation of both the deductions. 9.3 We have heard both the counsel and perused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of shares and the nature of income arising on that account i.e., whether business profits or short-term capital account. Again in the construction division no profits have been shown though substantial construction activity is undertaken by the assessee as a developer. There are unclaimed dividends of Rs. 37,53,627.14 since many years. Can they be recognised as revenues? In agriculture business, miscellaneous expenses of Rs. 1.88 crores have been incurred on aquaculture and marine account and Rs. 2.77 crores for interest amortisation. No notes or information is available. Why interest expenditure has gone up? Have the borrowals been made for earning tax-free or exempt income?" 10.2 Hence, the learned CIT concluded that, "In all these and many other crucial issues, no information has been given by the assessee. Hence, the AO had no opportunity to look into them and examine. Therefore, the entire assessment is set aside for de novo consideration and arrive at true and correct profits of the assessee as per IT Act for the year under consideration." 10.3 In this regard, it is the submission of the assessee that the learned CIT has merely expressed suspicion and surmises reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a review of a subordinate's order in exercise of the supervisory power but it is to be invoked and employed only for the purpose of setting right distortions and prejudices to the Revenue which is a unique conception which has to be understood in the context of and in the interests of Revenue administration. Such a power cannot in any manner be equated to or regarded as approaching in any way the appellate jurisdiction or even the ordinary revisional jurisdiction conferred on the CIT under s. 264." 10.6 Further, the Hon'ble Calcutta High Court in the case of Jai Kumar Kankaria vs. CIT (2001) 171 CTR (Cal) 483 : (2001) 251 ITR 707 (Cal) had held that, "The term 'erroneous' will be looked into from the facts and circumstances and the materials which were placed before the AO at the time of assessment. There is no scope under s. 263 to reopen an assessment on subsequent event nor any new material." 10.7 We also find that Hon'ble apex Court in the case of CIT vs. C.M. Mittal Stainless Steel (P) Ltd. (2003) 179 CTR (SC) 553 : (2003) 263 ITR 255 (SC) had held that, "The power of the CIT under s. 263 had to be exercised on the basis of the material that was available to him when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this property has been let out to a group concern, viz., MCC Finance Ltd. Therefore, the rental received are not on the basis of an agreement entered into at arm's length. The minimum ALV that could be adopted for this property is Rs. 2,04,968 which is equivalent to the ALV fixed by Municipal Corporation of Chennai. Therefore, the AO is directed to examine this issue from all angles, keeping in view the provisions of ss. 23 and 24 of the IT Act and arrive at the correct ALV of Adyar House and recompute the income from the house property after allowing correct amount of municipal tax paid." 12.3 In appeal against such order, the assessee filed written submissions and contended in para II under the head "Property at Adyar" which reads as under: "The property was let out to MCC Finance for annual rent of Rs. 42,000. This amount has been 'assessed in the assessee's hands for all the years. Further, MCC Finance was having financial difficulties. Even if the notional income is treated as receivable from them, the balance amount has to be allowed as irrecoverable under s. 24(x). Hence, the rental income assessed is proper and not erroneous." Whereas, the learned Departmental R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from property-Tribunal accepting ALV shown by assessee based on municipal valuation-No question of law arises-IT Act, 1961, ss. 23 and 256(2)." To the same effect, the Hon'ble Delhi High Court, in the case of CIT vs. R. Dalmia (Decd.) (1987) 163 ITR 517 (Del) has held that "the municipal valuation can be taken as the ALV of the property" and in the Appendix III, enclosed with the judgement, has opined as under: "We have also been referred to the judgment of the Supreme Court in Shiela Kaushish vs. CIT (1981) 24 CTR (SC) 351 : (1981) 131 ITR 435 (SC) wherein it was held that the annual value had to be determined under the IT Act on the basis of the standard rent and if it was not done, then the assessment was erroneous. We may point out that this holds true only till the amendment made subsequently in the provisions of ss. 22 and 23 of the IT Act, 1961. As the present case is an old case arising under the Indian IT Act, 1922, the judgment would have full force and accordingly the standard rent would determine the annual value for the purposes of the income-tax. Similarly, the Supreme Court has held in Dewan Daulat Rai Kapoor vs. New Delhi Municipal Committee (1980) 122 ITR 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate previous year. In response to such notice, the assessee enclosed the statement showing the analysis of income and expenditure of 1999-2000 and financial year 2000-01 in respect of various divisions. Subsequently, they enclosed the reconciliation statement together with division-wise P L a/c etc. and further submitted as under: "From the working sheet annexed you may find that there has been an increase in the operating profit by Rs. 1.08 crores. Also there was considerable reduction of Rs. 1.01 crores in cost of expenditure for self-consumption. There was dip in non-cash expenses like depreciation and miscellaneous expenses written off during the year to the extent of Rs. 1.54 crores. In toto we had ended up with an increase of Rs. 3.63 crores in cash profit for the year. Incidentally, there has also been an increase in the administration expenses to the extent of Rs 4.43 crores mainly attributable to freight outwards and increase in interest cost of Rs. 11.45 crores, which has eaten away the operating profits. The increase in interest cost is attributable to increase in secured loans. Decrease in profit to the extent of Rs. 12.57 crores has been compensated by an increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VI under the caption "Reconciliation of profit" reads as under: "In para 8, the CIT has merely expressed suspicion and surmises regarding profit and loss. The accounts have been audited and accepted in the regular assessment and the order of the CIT is in the nature of roving enquiry calling for second assessment without pointing any error. Such direction are not permissible in an order of revision under s. 263. (1) The assessee relied on the following decisions for the proposition if the two views are possible; revision under s. 263 is not permissible. (i) Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC); (ii) CIT vs. Mepco Industries Ltd. (2007) 207 CTR (Mad) 642 : (2007) 294 ITR 121 (Mad). (2) The CIT cannot pass an order requiring the AO to carry out roving enquiry based on suspicion and surmises. (i) Smt. Zubi Kochar vs. Asstt. CIT (2007) 112 TTJ (Del) 297; (ii) Bajaj Auto Employees' Welfare Fund No. 1 vs. ITO (1987) 27 TTJ (Pune) 64; (iii) Jhulelal Land Development Corporation vs. Dy. CIT (1996) 56 ITD 345 (Bom); (iv) Indexco International vs. Dy. CIT (2004) 89 TTJ (Mumbai) 56 : (2004) 88 ITD 293 (Mumbai). 3. Part of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r exercised by the learned CIT (Admn.) is arbitrary in as much as the assessee has failed to report the extent of income and the AO has failed to make proper investigation/enquiry to make proper and justifiable assessment and the Hon'ble Madras High Court in the case of Express Newspapers (P) Ltd. vs. CIT (2002) 175 CTR (Mad) 409: (2002) 255 ITR 137 (Mad) has held as under: "The CIT has the discretion to set aside the assessment in whole or in part The exercise of that discretion is not to be ordinarily interfered with unless the facts show that the exercise of the discretion itself is required to be characterized as arbitrary." Similarly, the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) has opined as under: "...........He accepted the entry in the statement of 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 ITO was erroneous was irresistible. The High Court had rightly held that the exercise of jurisdiction by the CIT under s. 263(2) was justified." Yet, in the case of CIT vs. Kohinoor Tobac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper enquiry after giving due notice of hearing and considering the reply of the assessee. Non-conducting of proper enquiry renders the order erroneous and prejudicial to the interest of the Revenue and record, as referred to in the relevant provisions, means the record available at the time of examination by the learned CIT, therefore, in view of the precedents relied upon and the decisions as held above, the action of the learned CIT is liable to be sustained. Accordingly, in view of the facts, circumstances and the discussions held in the light of the above precedents cited, it is held that invoking of provisions of s. 263 by the learned CIT in setting aside the matter to the AO to be decided afresh in view of the direction issued, in relation to reconciliation of profits is correct and therefore, his order in this regard is upheld. 14. As regards, the issue relatable to relief under s. 80HHC/80-IB is concerned, it is seen that at para 9.4 from line 6, following observations have been made by the learned AM in the proposed order: "...........However, as regards computation of relief under ss. 80HHC and 80-IB, with reference to provisions of s. 80-IA(9) are concerned, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted under s. 143(3) of the IT Act, 1961 (the Act) at a total income of Rs. 30,66,599.39. The CIT invoking his powers under s. 263 of the Act issued a show-cause notice to the assessee as he found the assessment order to be erroneous and prejudicial to the interests of Revenue on several grounds. Out of the several grounds, the difference between the Members is in respect of two grounds which I proceed to discuss one by one. 3. Property at Adyar House: This property was let out by the assessee on a monthly rental of Rs. 3,500 and hence the sum of Rs. 42,000 was offered for tax. The annual value fixed by the corporation of this property was Rs. 2,04,968 for the purpose of levy of property tax. It was observed by the CIT that the property was let out to a group concern viz., MCC Finance Ltd. Therefore, the rental received by the assessee was not determined on arm's length basis. According to him, the minimum ALV that could be adopted was Rs. 2,04,968. Accordingly, he directed the AO to examine this issue from all angles, keeping in view the provisions of ss. 23 and 24 of the Act. 4. The learned AM upheld the contention of the assessee on the ground that the value of Rs. 42,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her figure than the rent receivable. This valuation fixed by the corporation can be taken as the sum for which the property can be reasonably let out. Even though in the earlier years the valuation of Rs. 42,000 has been accepted by the Revenue authorities, the same being in violation of law, such an error cannot be permitted to be perpetuated. Therefore, on the issue of determination of ALV of Adyar property I am in agreement with the view taken by the learned JM. So far as the claim of loss under s. 24 is concerned, the said issue is not before me and as a Third Member I cannot enlarge the scope of the matter beyond what is referred to the Third Member. In any case, while setting aside the matter, the CIT has given appropriate directions to the AO to examine the issue from all angles keeping in view the provisions of ss. 23 and 24 and hence no further adjudication on this point is required. 8. Reconciliation of profits: In the show-cause notice issued under s. 263 of the Act, the CIT requested the assessee to explain that in spite of additional extraordinary income of more than Rs. 8 crores, why the total income has come down especially when compared to the immediate previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons given by the assessee to the CIT should have been examined by the AO. He refuted the argument of the learned counsel about fishing and roving enquiries by stating that the CIT had raised specific issues which were not considered by the AO. The order was set aside for the determination of correct income of the assessee and which proposition cannot be disputed by anyone. The learned Departmental Representative relied on the judgments of the Supreme Court in the ease of Smt. Tara Devi Aggarwal vs. CIT 1973 CTR (SC) 107 : (1973) 88 ITR 323 (SC) and in the case of CIT vs. Shree Manjunathesware Packing Products Camphor Works (1997) 143 CTR (SC) 406 : (1998) 231 ITR 53 (SC). 11. I have duly considered the rival contentions and the material on record. The perception of the CIT that the profit is low prompted him to issue show-cause notice to the assessee. Profit before taxation of the company as a whole for the year under consideration is Rs. 3,303.42 lakhs as compared to Rs. 3,561.15 lakhs for the immediate preceding year. Thus, there is a fall in profits by Rs. 257.73 lakhs. On the other hand, the total revenue has increased from Rs. 1,93,946.48 lakhs to Rs. 2,19,195.88 lakhs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities, commission etc. Having probed into the details as he thought fit, the AO never felt the necessity to call for division-wise P L a/c and balance sheet. However, the CIT called for such separate accounts and wants the AO to examine them in detail. I fail to understand as to where is the error in the assessment order. Is it an error not to conduct any enquiry into the accounts the way the CIT wants it? In my opinion, the answer to this question has to be NO in block letters. In the case of CIT vs. Kanda Rice Mills (1990) 85 CTR (P H) 5 : (1989) 178 ITR 446 (P H), the Punjab Haryana High Court held that mere observation by the CIT in his order that these were the points which deserved consideration, was beyond the provisions of s. 263. In the instant case also, the CIT wants the AO to make the assessment in a particular manner. Madras High Court, in the case of CIT vs. Sakthi Charities (2000) 160 CTR (Mad) 107 held that the power of revision is not meant to be exercised for the purpose of directing the AO to hold another investigation when the order of the officer is not found to be erroneous. And it is in this context that the Bombay High Court held in the case of CIT vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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