TMI Blog2011 (1) TMI 1161X X X X Extracts X X X X X X X X Extracts X X X X ..... e who is getting a sum of Rs.2,000/- per month would be given the duty of going abroad and be permitted to spend Rs.23,17,100/- during foreign travel which is almost 100 times his annual salary, Further the assessee had availed bank credit limit of 40 lakhs but the interest expenditure had not been deposited in the profit and loss account of the Baddi unit. This clearly shows that the books were not being maintained in a proper manner, Tribunal has totally misread the provisions of Section 263 and has wrongly held that the initiation of the proceedings under Section 263 was not justified in the present case, order Tribunal set aside and reaffirm the order of the Commissioner, questions are answered in favour of the revenue and against the assessee. The appeal is disposed of - Income Tax Appeal No. 14 of 2008 - - - Dated:- 7-1-2011 - Deepak Gupta, Sanjay Karol, JJ. Vandana Kuthiala, Adv. for the Appellant Vishal Mohan with Goverdhan Sharma, Advs. for the Respondent JUDGEMENT Deepak Gupta:- 1. This Income-tax Appeal was admitted on some other questions of law but after hearing the parties we are of the considered opinion that the following questions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuineness of the abnormally high gross profit rates and net profit rates shown by the assessee firm. It was also alleged that the Assessing Officer had failed to look into the legal requirements of maintaining separate books of account laid down in Sections 80I(A) and 801(B) of the Act before allowing the deduction. 6. The Commissioner was of the view that the order passed under Section 143(3) on 2.4.2003 was erroneous and prejudicial to the interest of the revenue. The show cause was replied to by the assessee firm. Various hearings took place and more information was asked for from the assessee but it appears that the assessee firm was not present at most of the hearings. When the assessee was directed to produce the books of accounts of the Baddi unit it reported that the books had been lost. Thereafter, the Commissioner after considering the matter came to certain findings. 7. The Commissioner held that whereas the profit declared for the Baddi unit was abnormally high the loss declared for the Delhi unit was also not justified. According to him it appeared that the profits of the trading unit at Delhi had been transferred to the Baddi unit. The Commissioner came to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d down its operations and then closed the units also after the enquiries were initiated by the Department. iv) No reasons have been given for closing down the Unit particularly when it had been yielding very-very rich dividend to the assessee for the last 3-4 years. When it became known to the assessee that the fake nature of its operations had come to the deparment's notice, it deemed it fit to show the unit as closed because it thought that it would not be able to survive the hard scrutiny its case will be put to." 9. On this basis the Commissioner found that the assessee was using the unit at Baddi as a fa ade to route his undisclosed income earned elsewhere. The Commissioner also found that the total plant and machinery at Baddi was of Rs.2,74,985/-. The assessee did not have even essential tools and equipments and on the basis of this small machinery such huge profits could not have been earned. The Commissioner also found that on comparison of the records of the assessee with that of the sister concern at Delhi the Electrical Stampings were sold at huge profit by the Baddi Unit but in case of the sister concerned these have been sold at a loss. 10. The Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Baddi the interest could not have been debited to the Delhi unit. According to the Commissioner the assessee had artificially inflated the income of the Baddi unit and reduced the income of the Delhi unit. 14. The Commissioner also found that in the profit and loss account the assessee firm had deposited a sum of Rs.23,71,100/- on account of foreign travel by only one person Shri Himanshu Singhal to various countries. Himanshu Singhal was shown as an employee of the Delhi unit and his salary was only Rs.2,000/- per month. According to the Commissioner it did not stand to reason that such a lowly paid employee could be entrusted with the task of visiting foreign countries and incurring a huge expenditure of Rs.23,71,100 on foreign tours. He also found that the export of the Baddi unit was only to UAE and therefore, the visit of Himanshu Singal who was a close relative of the partners to other foreign countries was not in connection with the business work. Hence, he disallowed this expenditure also. The Commissioner also found that whereas the assessee claimed more than 90% of his production was exported but no bills of lading, shipping evidence and the sale consideration was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 263 of the Incometax Act, relevant portion of which reads as follows:- "263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment." 17. The Bomaby High Court in Commissioner of Incometax vs. Gabriel India Ltd., (1993) 203 ITR 108 held as follows:- "The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz. (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the exact nature of the claim or the unreasonableness thereof. The Madras High Court held that non performance of such a duty cast upon the Income-tax Officer entitled the Commissioner to invoke his power under Section 263. Relevant observation of the Madras High Court reads as follows:- "The non-performance of such a duty on the part of the Income-tax Officer culminated in distortions and prejudices to the Revenue. Such distortions and prejudices to the Revenue for being set right, the Commissioner of Income-tax invoked his power under Section 263 and in exercise of such power he cancelled the assessment passed by the Income-tax Officer with a direction to him to make a fresh assessment, according to law." 20. The Apex Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income-tax, (2000) 243 ITR 83, has dealt with the revisional powers under Section 263 in detail. The Apex Court held as follows:- "A bare reading of this provision makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Incometax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law." 24. The Apex Court in Commissioner of Incometax vs. Greenworld Corporation, (2009) 314 ITR 81, while dealing with Section 263 held as follows:- "jurisdiction under Section 263: The scope of the provisions of section 263 of the Act is no longer res integra. The power to exercise suo motu power of revision in terms of section 263(1) is in the nature of supervisory jurisdiction and same can be exercised only if the circumstances specified therein, viz., (1) the order is erroneous; (2) by virtue of the order being erroneous prejudice has been caused to the interest of the Revenue, exist." 25. In Commissioner of Income-tax vs.Development Credit Bank Limited (2010) 323 ITR 206 the Bombay High Court held that the Commissioner of Income-tax was not justified in invoking the provisions of Section 263 when the Assessing Officer after making an inquiry and getting a response from the assessee came to the conclusion that the assessee was entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Officer, Parwanoo dated 22.10.2001 wherein the said officer reported that the factory premises gave a deserted look and it appeared that no work had been conducted, the Assessing Officer only relied upon the statement of the Chowkidar to the effect that he had been working with the assessee for the last five years. This Chowkidar was confronted by the statement recorded by Shri R.P.Chandel, in which the same Chowkidar had stated that the factory was lying closed for two years. The Assessing Officer has merely accepted the report of the Chowkidar but has given no reasons to discard the statement of Shri R.P.Chandel. The perusal of the order of the Assessing Officer shows that it is not at all a well reasoned or detailed order. The Assessing Officer has made very general observations in para 6 and 7 of his order whereby he has just accepted everything which the assessee produced before him without making any attempt to find out whether the records produced by the assessee were correct or not. This was a case where the return was being examined under Section 143(1). We feel that the Assessing Officer was required to go into the matter in much greater detail. It is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, which works out to 529 units per month or little more than 17 units a day. Surprisingly, out of this consumption almost little more than half i.e.3,457 units were consumed during the period March, 2000 to August, 2000 when there was neither any consumption of raw material nor any production. This shows even when there was no production there was electricity consumption of about 576 units per month. Interestingly, for the months of September 2000 to March, 2001 when huge production took place the total consumption of electricity is 3,416 units which works out to bare 488 units per month. This clearly shows that the electricity was not being consumed for manufacturing any article. According to the information supplied by the assessee there was a night watchman as well as a day watchman. About 500 units of electricity would be used by a watchman for one electricity connection and one heater to be used about 10 hours a day especially during winter month of January and February when the electricity consumption was only 890 and 1159 units. The electricity consumption also has no correlation with the raw material consumed or the production. In January, 2001 when only 390 Kg. of raw ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r months the number of working days if 10 employees were employed comes to between 19 to 20 days. No factory works for only 19 and 20 days in a month. The employment of the workmen is also not in accordance with the production. Whereas in October, 2000 and November 2000 the production was 28,398 Kg and 33,136 Kg. total number of mandays are only 191 and 235. In the months of April and June when there was nil production the mandays were 192 and 193. Therefore, it is apparent that these records have been cooked up. Even the parentage or the addresses of the workmen are not given anywhere. 33. Though the assessee had tried to show that it had engaged 10 workers during each month, in April, May, June and July, some of these workers worked for less than 15 days in a month. To take benefit under Section 80-1A to (v) the industrial undertaking should employ at least 10 or more workers in a manufacturing process carried on with the aid of power and 20 and more workers carried on without the aid of power. Even as per the chart supplied by the assessee 10 or more workers were not working for the purpose of manufacturing. If the watchman is excluded who was not directly engaged in the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en properly noted by him. He has worked out the net profit 7.54%, whereas the Commissioner has rightly noted that the gross turn over was of Rs.2,59,69,820/- and net profit was of Rs.1,23,08,053, which works out to 58.17%. The calculations of the assessing officer are apparently wrong because if the net sales had been Rs.11,95,72,283/- the net profit would have been much much higher. This also shows that there is total non application of mind and he has not actually verified the books of account of the assessee. 36. Another important factor is why the assessee had closed the unit immediately after five years if it was earning such high profits. The unit was closed at the end of the five year when benefits of Section 80-1A and 80-1B were to be reduced. No explanation worth the name has been given by the assessee for closing the unit. 37. The assessing officer had in our opinion totally misdirected himself in accepting the statement of the Chowkidar made before him. Here is a Chowkidar who made a different statement before the Income-tax Officer and a different statement before the Assessment Officer. The Income-tax Officer is an educated person and in his report he had clear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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