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2015 (4) TMI 436 - ITAT CHENNAI

2015 (4) TMI 436 - ITAT CHENNAI - [2015] 39 ITR (Trib) 624 - Revision u/s 263 - unaccounted interest payments - Held that:- In this present case, the Assessing Officer completed assessment u/s.143(3) on 30.11.2011 which means that the Assessing Officer applied his mind and came to the conclusion that the assessee had properly accounted interest payments in his books of accounts. After he came to the conclusion that the whole expenditure incurred by the assessee towards interest payment of D48,39 .....

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d for making deposits is to be allowed as expenditure. Further, if there is any loss under the head “Income from other sources” it is to be set off against income from any other head of Income as per provisions of section 71 of the Act. Then also, there is no revenue loss to the department. From this point of view, the order passed by the Assessing Officer cannot be prejudice to the interests of Revenue. Thus Commissioner of Income Tax is not justified in exercising his jurisdiction u/s. 263 of .....

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case are that the assessment in this case was completed u/s.143(3) on 30.11.2011. Later on observing all the assessment records, the Commissioner of Income Tax was of the opinion that there was certain errors in the assessment order which are prima facie prejudicial to the interest of the Revenue as such he issued notice u/s. 263 dated 24.01.2014. According, to the Commissioner of Income Tax, the assessee has taken loans from banks and out of which made bank deposits to the tune of D3,09,76,817/ .....

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not used for the purpose of business. Against this, the assessee preferred this appeal before us. 3. We have heard both the parties and perused the material on record. We have carefully considered the rival submissions in the light of material placed before us and also gone through all the judgments cited by the parties before us. First we take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the learned CIT. The scheme of the IT Act i .....

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revised is (i)erroneous; and also (ii) prejudicial to the interests of the revenue. The word 'erroneous' has not been defined in the Income Tax Act. It has been however defined at page 562 in Black's Law Dictionary (seventh Edition) thus; ' erroneous, adj. Involving error, deviating from the law'. The word 'error' has been defined at the same page in the same dictionary thus: 'error No. 1 : A psychological state that does not conform to Objective reality; a brief .....

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termes de la ley). Something incorrectly done through ignorance or inadvertence S.99 CPC and S.215 Cr.PC. 'Error, Fault, Error respects the act; fault respect the agent, an error may lay in the judgement, or in the conduct, but a fault lies in the will or intention." 3.2 At page 650 of the aforesaid Law Lexicon, the scope of Error, Mistake, Blunder, and Hallucination has been explained thus: "An error is any deviation from the standard or course of right, truth, justice or accuracy .....

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ounteract. Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgement or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those o .....

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was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue. 3.4 Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on r .....

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, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. .....

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ny scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. He should be fair not only to the assessee but also to the Public Exchequer. The Assessing Officer has got to protect, on one hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on the other hand, he .....

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m has no place. The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have bee n made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim mad e therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it conta .....

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), and Malabar Industrial Co. Ltd's case ( 243 ITR 83) (SC). 3.5 In Malabar Industrial Co. Ltd. case the Hon'ble Supreme Court has held as under: "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 erro .....

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tion 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under Section 263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness in the actions of the Assessing Officer. It is the duty of the Assessing Officer to adequately protect the int .....

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the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon'ble Supreme Court as follows: "Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial funct .....

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n the process of decision- making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a co .....

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agrees with the reasons contained in the order under challenge." 3.6 Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi- judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally .....

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ous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case. 3.7 In view of the foregoing, it can safely be said that an order passed by the Assessing Officer beco .....

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