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Bhushan Steel Ltd Versus Asstt. Commissioner of Income Tax

2015 (4) TMI 439 - ITAT DELHI

Revision u/s 263 - Bogus expenditure - earlier assessment order passed u/s 143(3) r/w Section 153A quashed - 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 as submitted by assessee - Held that:- It is well-settled principle that the Revenue authorities are duty bound to tax right person and right person alone. By "right person" is mean .....

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aim of expenditure then the assessee cannot avail immunity from tax liability by stating that the impugned 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 inquir .....

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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 the ld. Counsel of the assessee about revenue neutrality is not applicable to the facts and circumstances of the present case. Hence, we are of the view that the CIT(A) invoked provisions of s .....

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CIT DR ORDER Per Chandra Mohan Garg, JUDICIAL MEMBER The above captioned appeals have been preferred by the assessee against the order of CIT(A), Central-I, New Delhi dated 20.02.2014 pertaining to AY 2006-07, 2007-08, and 2008-09, and order dated 18.2.2014 for AY 2008-09, 2009-10 and 2010-11 passed u/s 263 of the Income Tax Act, 1961. The assessee has raised similar grounds in all these appeals except calculation of alleged bogus expenses. The grounds raised by the assessee in ITA No.1641/Del/2 .....

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e interests of the Revenue; b) to set aside the assessment order dated 29-12-2011 in as much as the twin conditions as laid out in Section 263 of the Income-tax Act, 1961 were not fulfilled; c) to direct the Assessing Officer to examine the taxability of the amount of ₹ 20,19,7341- on account of alleged bogus expenses booked without appreciating the factual position and the detailed submissions made on behalf of the Appellant Company." 2. We may also point out that the grounds in othe .....

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8-09 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 wer .....

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pany for inflating its expenses for reducing its tax liability. The DDIT(Inv) had also highlighted these facts and findings in the appraisal report prepared in pursuance to the search operation. 4. Subsequently, the CIT issued notice u/s 263 of the Act to M/s Bhushan Steel Ltd. on 24.1.2011 for AY 2006-07 to 2008-09 and to M/s Bhushan Energy Ltd. on 20.1.2014 for AY 2008-09 to 2010-11. After allowing due opportunity of hearing, the CIT passed impugned orders and held that the order passed by the .....

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eved by the above orders of the CIT(A) passed u/s 263 of the Act quashing the earlier assessment order passed u/s 143(3) r/w Section 153A of the Act in the respective assessment years, the assessee has preferred these appeals with similarly worded grounds reproduced hereinabove. 6. We have heard arguments of both the sides and carefully perused the relevant material placed on record. Ld. counsel of the assessee submitted that a search was conducted on 3.3.2010 on Bhushan Steel Group Company. In .....

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e assessment was completed before search operation. Ld. Counsel fairly accepted that this plea was not raised before the CIT(A) during the course of proceedings u/s 263 of the Act. Ld. Counsel of the assessee vehemently contended that all the accounts and 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 r .....

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cial 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, the assessment order cannot .....

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different opinion in the matter. Ld. Counsel further placing reliance on the decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs Hindustan Marketing & Advertising Co. Ltd. [2012] 341 ITR 180(Del) submitted that the revisional powers of the Commissioner u/s 263 of the Act are limited and when assessment has been framed after inquiry and there is no error in the order, then the order cannot be revised on the ground that inquiry should have been more detailed or ela .....

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of no inquiry, the assessment order is not only erroneous but also prejudicial to the interest of revenue. Ld. DR further pointed out that the order of assessment has to be a speaking order and when the fact of others' view has not been mentioned and the claim of expenses pressed by the assessee has been allowed without making any inquiry, then the order must be held as erroneous and prejudicial to the interest of revenue. Ld. DR further submitted that Hon'ble Jurisdictional High Court h .....

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. (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 presumpti .....

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, the same deserves to be quashed. 10. On careful consideration of above rival submissions and vigilant perusal and consideration of ratio of the decisions and legal propositions relied by both the parties, at the very outset, we note that on perusal of the relevant assessment orders passed on 29.12.2011 for AY 2006-07 to 2008-09 in the case of M/s Bhushan Steel Ltd. and assessment orders passed on 27.12.2011 for AY 2007- 08 to 2010-11 in the case of Bhushan Energy Ltd., we clearly observe that .....

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s 143(3) r/w section 153 of the Act, therefore, the AO could not have made any addition out of ambit of incriminating material found during the course of search, however, the ld. Counsel fairly accepted that the AO had not raised any query and has not made any inquiry in regard to alleged expenses booked by the assessee in the respective assessment years against alleged companies. 11. Under these facts and circumstances, we respectfully hold that the benefit of the decisions of Hon'ble Juris .....

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& Others (supra) and by the landmark decision of Hon'ble High Court of Delhi in the case of Gee Vee Enterprises (supra). 12. In the case of Gee Vee Enterprises speaking for High Court of Delhi their lordships made a clear distinction between the cases of "inadequate inquiry" and "lack of inquiry" by also considering the ratio of the decision of Hon'ble Apex Court in the case of Rampyari Devi Sarogi vs CIT (supra) and Tara Devi Aggarwal vs CIT (supra) and held tha .....

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:- "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 grou .....

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s received from her father-in-law, etc., which should have put any Income-tax Officer on his guard. But the Income tax Officer without making any inquiries to satisfy himself passed the assessment order.... A short stereo-typed assessment order was made for each assessment year ... No evidence whatsoever was produced in respect of the money- lending business done ... No names were given as to the parties to whom the loans were advanced ...." In Tara Devi Aggarwal v. Commissioner of Income-t .....

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sources but assessed the assessee on a total income of ₹ 9,037. The inquiries made by the Commissioner revealed that the assessee did not reside or carry on business at the address given in the return. The Commissioner was also of the view that the Income-tax Officer was not justified in accepting the initial capital, the sale of ornaments, the income from business, the investments etc., without any inquiry or evidence whatsoever and that the order of assessment was erroneous and prejudici .....

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Court followed their previous decision in Rampyari Devi's case and upheld the decision of the High Court precisely on the 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 .....

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ain 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 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 inquir .....

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153 held as under:- "36. As far as Section 263 is concerned, we have examined the said Section in depth and detail in ITO Vs. D G Housing Projects Ltd. decided on 1 st March, 2012, in ITA No. 179/2011 and observed as under:-ITA No. 591/2008 and connected matters 28 "10. Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any o .....

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The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he co .....

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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 .....

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omes 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 assumed to be correct." 13. In the said judgment, Delhi High Court had referred to earlier decisions of the Supreme Court in Rampyari Devi Sarogiv. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal v. CIT (1973) 88 ITR 323 (SC), wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or .....

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e accepting the statements made by the assessee in his return." 14. The aforesaid observations have to be understood in the factual background and matrix involved in the said two cases before the Supreme Court. In the said cases, the Assessing Officer had not conducted any enquiry or examined evidence whatsoever. There was total absence of enquiry or verification. These cases have to be distinguished from other cases (i) where there is enquiry but the findings ITA No. 591/2008 and connected .....

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t the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. .....

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e 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), .....

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trary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in subsection (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the .....

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si-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10) ... From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written mor .....

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some estimate himself. 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 v .....

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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 detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held t .....

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he said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings ITA No. 591/2008 and connected matters 33 recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, .....

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g Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 17. This distinction must be k .....

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/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 .....

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by the CIT [see CIT v. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase prejudicial to the interest of Revenue‟ has to be read in conjunction with an e .....

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o the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue." 14. In view of foregoing discussions, we are inclined to hold that the present case is squarely covered in favour of the revenue by the decisions of Hon'ble Jurisd .....

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uot;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 .....

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n, 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 is so irr .....

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