TMI Blog2015 (4) TMI 439X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned amount of expenditure claim has been taxed in the hands of respective payee companies. The present case is squarely covered in favour of the revenue by the decisions of Gee Vee Enterprises vs ACIT (1974 (10) TMI 29 - DELHI High Court) and CIT vs Nagesh Knitwears P. Ltd. (2012 (6) TMI 65 - DELHI HIGH COURT ) as in the present case, the AO did not raise any query or make any inquiry pertaining to the claim of expenses submitted by the assessee in its books and statements of accounts submitted along with return and this is a clear case of "lack of inquiry". We may also point out that if the AO fails to conduct the said investigation, he commits the error and the word "erroneous" includes failure to make inquiry. In such cases, the order becomes erroneous because necessary inquiry or verification has not been made and not because a wrong order has been passed on merits. We further hold that if from the detailed investigation conducted by the Investigation Wing of the department, it is revealed that the bogus expenses have been claimed by the assessee with the intention to reduce its tax liability, then the order is also prejudicial to the interest of revenue. The argument of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese appeals are that a search operation u/s 1342(1) of the Act was conducted on 3.3.2010 on Bhushan Steel Group of cases. The premises of M/s Bhushan Steel Ltd. were covered along with other companies of this group. Subsequently, the assessment orders were passed u/s 143(3) r/w section 153A of the Act on 29.12.2011 for AY 2004-05 to AY 2008-09 for AY 2009-10 and AY 2010-11 on 1.5.2013 in the case of M/s Bhushan Steel Ltd. whereas assessment order in the case of M/s Bhushan Energy Ltd. was passed u/s 143(3) r/w section 153A of the Act on 27.12.2011 for AY 2004-05 to AY 2010-11. During the course of search action, it has been noticed that the assessee company was involved in inflating some of the expenses using various parties which were not genuine and thereby reducing the tax liability of the assessee company. These companies were M/s Elegant Security Services Pvt. Ltd., M/s Dependable Transport Pvt. Ltd., M/s Terrific Steel Pvt. Ltd. and Ms/ Stylish Construction Pvt. Ltd. which had provided such entries to the assessee company for AY 2006-07 to 2010-11. A survey action was also conducted on the premises of these companies along with other Bhushan Steel Group of cases and it had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d details were filed before the AO and the same were also filed before the CIT(A) during the proceedings u/s 263 of the Act. Ld. Counsel also contended that both the conditions viz. erroneous and prejudicial to the interest of revenue have to be fulfilled and in this case the order of the AO may be erroneous but the same cannot be said to be prejudicial to the interest of revenue as the parties who have received amount of claimed expenses are also tax payees and they have paid due tax to the department on these receipts and therefore the expenses claimed by the assessee company and offered to tax by the recipient company become revenue neutral and, therefore, it cannot be said that the order of the AO was prejudicial to the interest of revenue. 7. Placing reliance on the decision of Hon'b le Supreme Court in the case of Gee Vee Enterprises vs ACIT(1975) 99 ITR 375 (SC), ld. Counsel submitted that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, the ITO should have made further inquiries before accepting the statement made by the assessee in his return but merely on the basis that some more inquiry was to be conducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (supra) while passing the order in favour of the revenue in the case of CIT vs Nagesh Knitwears Pvt. Ltd. (supra). 9. Ld. counsel of the assessee also submitted rejoinder to the above submissions and contentions of the ld. DR and submitted that in the case of Realest Builders and Services Ltd. (2008) 307 ITR 202 (SC) submitted that if the AO comes to the conclusion that there is under estimation of profits, then he must give facts and figures in that regard and demonstrate that the impugned method of accounting adopted by the assessee results in under-estimation of profits. Otherwise the presumption would be that the entire exercise is revenue neutral. Ld. Counsel reiterating its earlier argument submitted that when the payments have been made by the assessee to the respective service provider companies and the same receipts were also taxed in the hands of recipient/payee companies, then the whole exercise is revenue neutral and in this situation, the assessment orders passed u/s 153 r/w section 143 cannot be considered to be erroneous or prejudicial to the interest of revenue, therefore, the same deserves to be quashed. 10. On careful consideration of above rival submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt upon the ITO to further investigate the facts stated in the return when circumstances would make such an inquiry prudent with the word erroneous in Section 263 includes failure to make such an inquiry. It was further held that the order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are asummed to be correct. The relevant operative part of this decision reads as under:- In Rampyari DJvi Saraogi v. Commissioner of Income tax, the Income-tax Officer accepted the return of the assessee in respect of the initial capital, the gift received and the sale of jewellery, the income from business, etc., without any inquiry or evidence whatsoever. For this reason the Commissioner held the order to be erroneous. In revision, he cancelled the order and ordered the Income- tax Officer to make a fresh assessment. In his order the Commissioner had used certain new grounds which had not been disclosed to the assessee in the notice given to him to show cause why the order of the Income-tax Officer should not be revised. But, apart from these new grounds, the Supreme Court observed at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same grounds. 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 word erroneous in section 263 emerges out of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in Gee Vee Enterprises v. Additional Commission of Income-Tax, Delhi-I, (1975) 99 ITR 375, has observed as under:- 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 ITA No. 591/2008 and connected matters 29 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 word erroneous in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word erroneous in section 263 includes the failure to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113):ITA No. 591/2008 and connected matters 31 ... From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion ... There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed ... We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged inadequate investigation , it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the ITA No. 591/2008 and connected matters 34 Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion conducted by the Investigation Wing of the department, it is revealed that the bogus expenses have been claimed by the assessee with the intention to reduce its tax liability, then the order is also prejudicial to the interest of revenue. The argument of the ld. Counsel of the assessee about revenue neutrality is not applicable to the facts and circumstances of the present case. 15. In the case of ITO vs Ch. Atchaiah (1996) 218 ITR 239(SC), speaking for Hon'ble Apex Court their lordships held as follows:- In our opinion, the contention urged by Dr. Gauri Shankar merits acceptance. We are of the opinion that under the present Act, the Income Tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By right person , we mean the person who is liable to be taxed, according to law, with respect to a particular income. The expression wrong person is obviously used as the opposite of the expression right person . Merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. This i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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