TMI Blog2013 (11) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is against the order of the Commissioner of Income-tax-I, Ludhiana, dated March 29, 2011 relating to the assessment year 2006-07 against the order passed under section 263 of the Income-tax Act, 1961. The issue arising in the present appeal is against order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act holding the assessment framed by the Assessing Officer to be both erroneous and prejudicial to the interests of the Revenue. The brief facts of the case are that the assessee had filed return of income declaring net loss of Rs. 49,20,430 on October 28, 2006. The assessee had declared income from profits of business. The case of the assessee was picked for scrutiny by issue of requisite notice and the assessment was completed under section 143(3) of the Act. During the course of assessment proceedings the Assessing Officer issued questionnaire. The assessee in addition to the other queries raised was asked to give clarification of the insurance expenses charged to the profit and loss account. The assessee in reply placed at pages 1 to 4 of the paper book vide paragraph 3 explained that out of the total charges of Rs. 33,16,223, sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee, expenditure of Rs.36,61,644 was only required to be allowed being relatable to the year under reference. The copy of show-cause notice is placed at pages 13 and 14 of the paper book. The reply of the assessee is placed at pages 15 to 22 of the paper book. The Commissioner of Income-tax invoking jurisdiction under section 263 of the Act observed that the order of the Assessing Officer was erroneous as far as it was made on an incorrect assumption of facts as well as incorrect application of law. The order of the Assessing Officer was held to be erroneous because of allowance of the said expenses, the same was held to be prejudicial to the interests of the Revenue. The Commissioner of Income-tax held the expenses to be not allowable and was to be added to the total income of the assessee. The Assessing Officer was directed to recompute the income and the taxes accordingly. The learned authorised representative for the assessee pointed out that even the assessment relating to the preceding year, i.e., the assessment year 2005-06 was completed under section 143(3) of the Act and the nature of the said expenditure was enquired into and was allowed in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. CIT [2000] 243 ITR 83 (SC) held as under (page 87): There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, 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 same category falls orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the Revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy and Co. v. S. P. Jain [1957] 31 ITR 872, the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd [1993] 203 ITR 108 and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81 treated loss of tax as prejudicial to the interests of the Revenue. Mr. Abraham relied on the judgment of the Division Bench of the High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer was unsustainable. In the facts of the present case before us, the assessment in this case was completed under section 143(3) of the Act. During the course of assessment proceedings the Assessing Officer requisitioned the assessee to explain the nature of expenditure claimed on account of insurance charges. Further query was raised regarding the admissibility of the said expenses. The assessee in reply stated that the said expenditure was laid out on account of keyman insurance charges paid on the lives of the partners of the assessee-firm. The claim of the assessee was that the said expenditure was allowable in view of the Central Board of Direct Taxes Circular No. 762 dated February 18, 1998 issued in this regard. The claim of the assessee was allowed in entirety by the Assessing Officer after discussion. Thereafter notice under section 154 of the Act was issued to the assessee that in view of its following mercantile system of accounting, why the said expenditure should be allowed in totality. The explanation of the assessee was that part of the expenditure was disallowed in the preceding year, i.e., the assessment year 2005-06. If the same is considered to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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