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2015 (8) TMI 713 - ITAT DELHI

2015 (8) TMI 713 - ITAT DELHI - TMI - Revision u/s 263 - interest free advances and proportionate disallowance of interest - Held that:- Assessing Officer conduct the assessment proceeding and passed impugned assessment order accepting the return of income of the assessee we clearly observe that the Assessing Officer has not made inquiry on the issue of interest free advances and proportionate disallowance of interest thereon, on the issue of verification on TDS and on the claim and calculation .....

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also prejudicial to the interest of Revenue. We may further point out that the assessment order suffers lack of necessary enquiry on certain important issues which have been raised by the CIT in the notice issued to the assessee and impugned order u/s 263 of the Act. Therefore, we reach to a conclusion that the assessment order is not sustainable and in accordance with the provisions of the Act which is not only erroneous but also prejudicial to the interest of the Revenue.

Hence, we .....

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.S. REDDY AND SHRI CHANDRA MOHAN GARG, JJ. For The Assessee : Sri Sunil Kumar, FCA For The Respondent : Sri Vivek Wadekar, CIT. D.R. ORDER PER CHANDRA MOHAN GARG, JUDICIAL MEMBER 1. This appeal by the assessee has been directed against the order of the Commissioner of Income Tax, Meerut dated 25.03.2013 passed u/s 263 of the Income Tax Act, 1961 (for short the Act ) for AY 2008-09. 2. The Ground Nos. 1 & 7 of the assessee are of general in nature, which need at no adjudication. Remaining gro .....

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interest of revenue. b. That the Ld CIT had no jurisdiction to invoke the provisions of section 263 of the IT Act, 1961. c. That the Ld. Assessing officer has passed the assessment order dated 29.12.2010 after proper application of mind and after verifying all records either filed during assessment proceedings or produced before him during assessment proceedings. d. That various observations and directions made by the Ld. CIT in her order u/s 263 are either factually incorrect or are not tenable .....

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to verify the TDS deducted or not on the payments made for building repairs & Maintenance on the basis of facts and circumstances of the case. 5. That the Ld. CIT was not correct and justified in directing the assessing officer to disallow the deduction u/s SOIB (7A) of the IT Act, 1961 proportionately on profit on sale of shopping area of Multiplex and interest on FDR on the basis of facts and circumstances of the case. 6. That the impugned order 0 the Ld. CIT passed by her u/s 263 deserve .....

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by the assessee vide letter dated 04.03.2013. Finally, the CIT passed impugned order on 25.03.2013 setting aside the impugned assessment order on three issues for proportionate disallowance on interest paid by the assessee of interest free advances for non business purposes, for verification of TDS on certain payments and to exclude income on sale of shops and FDR interest from business income for the purpose of calculation of deduction u/s 80IB(7A) of the Act. Now the aggrieved assessee is befo .....

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CIT in reply to notice u/s 263 of the Act dated 04.03.2013 submitted that the Ld. CIT is not legally justified in issuing notice u/s 263 of the Act and in holding that the validity of the notice when specifically challenged by the assessee on the basis of relevant facts and circumstances and a provisions of the Act. The Ld. AR vehemently contended that the impugned order dated 29.12.2010 was passed by the AO after due enquiry on all important issues by issuing a detail questionnaire dated 11.06. .....

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shable on the facts and circumstances of the present case. 6. Ld. AR also pointed out that the CIT was not correct and justified in directing the AO to disallow the proportionate interest with higher low advance given by the assessee on the basis of facts and circumstances of the case as the assessee had sufficient interest free funds in its hands for advancement of interest free advances which were given out of business purposes. Ld. AR further drawn our attention towards issue of TDS agitated .....

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this contention. The Ld. AR also drawn our attention towards reassessment order dated 18.03.2014 passed in pursuant to the impugned order of CIT u/s 263/154, 143(3) of the Act wherein no addition on the issue of TDS has been made by the AO. The Ld. AR further submitted that the CIT was not correct and justified in directing the AO to disallow the deduction u/s 80IB(7A) of the Act proportionately on profit of sale of shop area of multiplex on interest of FDR in the peculiar facts and circumstance .....

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110 ITD 337 and submitted that the rental income earned by the assessee in the business of running multiplex is assessable as business income and not as income from house property. However, Ld. AR fairly submitted that this issue was mentioned by the CIT at serial no.(b) in the notice dated 12.12.2013 issued u/s 263 but in the final order u/s 263 this issue has been dropped and conclusion of the AO has been impliedly accepted by the CIT, Meerut. 8. Replying to the above, Ld. Departmental Represe .....

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fied in fair in passing the order wherein she dropped issue of treatment rental income and on the issue of assessee s claim for deduction u/s 80IB(7A) of the Act and only disturbed the assessment order on the issue of interest paid on interest free investment, advances and loan, on the issue of TDS and on the issue of claiming deduction u/s 80IB(7A) of the Act incurred to income earned from sale of shop and interest on FDR. The Ld. DR placing reliance on the various orders/judgments of the Hon b .....

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venue. Ld. DR supporting the action of the CIT, strenuously contended that when the Assessing Officer takes a view but the view is not correct and is erroneous according to the findings recorded by the commissioner with the findings that the order passed by the AO was also prejudicial to the interest of Revenue. Then the order of the commissioner cannot be set aside on the ground that the two views are possible or probable. The Ld. DR also pointed out that in the present case, the Assessing Offi .....

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the word erroneous includes failure to make the enquiry and in such cases, the order becomes erroneous because enquiry or verification has not been made by the AO and not because a wrong order has been passed on merits. 9. The Ld. AR placed a rejoinder to the above submissions and contention of the DR and kind drawn our attention towards copy of the questionnaire dated 13.07.2010, 16.09.2010 and 11.11.2010 available from pages 28to37 of the assessee s paper book paper book-2 and submitted that .....

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377; 18,00,000/-given to Rajpur Residency Dehradin and all related facts. The Ld. AR further submitted that the assessee in its reply dated 11.10.2010 in para 5 submitted details of investment of ₹ 19,15,000/- made in the shares of M/s Tuffest Safty Glasses (P) Ltd and all details have been submitted. 10. The Ld. AR supporting the assessment order submitted that the Assessing Officer was quite justified and correct while granting deduction to the assessee u/s 80IB(7A) of the Act and conclu .....

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Act. 11. On careful consideration of above rival submissions of both the sides and carefully perusal of relevant paper book filed by both the sides, at the very outset, we note that the CIT issued notice u/s 263 of the Act agitating five issues in the impugned order of the CIT and partly set aside the assessment order on three issues directing the AO to work out interest free advances for non business purposes and disallowances of proportionate interest free thereon, for verification of TDS on c .....

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the issue of verification of TDS on certain payments noted by the CIT. However, we note that the assessee in its reply dated 16.09.2010 at para 10 and in reply dated 11.10.2010 in para 5 has given details of advance to Rajpur Residency Dehradun and investment made in the shares of M/s Tuffest Safty Glasses (P) Ltd. to bed there is no query or verification or examination by the AO to work out interest free advances for non business purposes and for making in proportionate disallowance of interes .....

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der dated 18.03.2014 at page 2 in para 4 has noted that the assessee has submitted details of TDS of bill on challan no adverse inference drawn against the assessee on the third issue of exclusion of income on sale of shop and FDR interest from business income for the purpose calculation of deduction u/s 80IB(7A) of the Act. We note that in the questionnaire issued by the AO (supra) there is no specific query about the claim of deduction u/s 80IB(7A) of the Act. However, in reply dated 16.09.201 .....

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is of calculation and claim of deduction under the said section and the AO has not paid any heal of deduction towards treatment of income on sale of shops and FDR interest accrued to the assessee during the relevant assessment period which was included by the assessee for the purpose of calculation of deduction u/s 80IB(7A) of the Act. In this situation, on the logical analysis for the facts and circumstances of the present case and vigilant consideration of submission of contention of both the .....

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y the Ld. AR at the very outset, we note that since the CIT dropped the issue of treatment of rental income as business income by the assessee in the final impugned order passed u/s 263 of the Act, therefore, benefit of the ratio of the order of the ITAT Kokatta A Bench in the case of PFH Mall & Retail Management Ltd. (Supra) is not available for the assessee in the facts and circumstances of the present case. On careful consideration of the ratio laid down by the Hon ble jurisdictional High .....

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se in his order he did not make elaborate discussion in this regard in the case of CIT Vs. Anil Kumar Shama (supra) their lordship also held that being the position and facts and circumstances of that case would not be held lack of inquiry and even if the inquiry was termed inadequate that would not by itself give occasion to the Commissioner to pass orders u/s 263 of the Act, merely because he has a different opinion in the matter. 13. On careful and respectful consideration of these judgments .....

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pra) held as follows:- In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the Assessing Officer, the record showed that the Assessing Officer had applied his mind. Once such application of mind is discernable from the record, the proceedings under Section 263 would fell into the area of the Commissioner having a different opinion. We are of .....

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question of law arises for our consideration. 14 When we analyise the facts and circumstances of the present case, in the light of ratio laid down by the Hon ble High Court in the judgment of CIT Vs. Sunbeam Auto Ltd. (Supra) we note that the present case is not a case of lack of inquiry or inadequate inquiry but present case is the case wherein the Assessing Officer has not made required inquiry on the issue of interest free advances for non business purposes and consequently proportionate dis .....

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a) is not available for the assessee as the facts and circumstances of the present case are clearly distinguishable from these cases. 15. When we proceed to consider the ratio of judgment of the Hon ble jurisdictional High Court of Delhi relied by the Ld. DR in the case of CIT Vs. Nagesh Knitwears P. Ltd. (Supra) and in the recent judgment in the case of CIT Vs. Goetze (India) Ltd. (Supra) we observe that their lordship after considering and referring the ratio of the land mark judgments of Hon .....

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ng Officer was erroneous and prejudicial to the interest of Revenue then the Tribunal was wrong in holding that the order passed by the Commissioner u/s 263 of the Act was passed in contrary to the provisions of the Act. The relevant operative part of the order of Hon ble Delhi High Court in the case of CIT Vs. Nagesh Knitwears P. Ltd. (Supra) reads as under:- 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 .....

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e expression prejudicial to the interest of the Revenue‟ is of wide import and is not confined to merely loss of tax. The term erroneous‟ means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. 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 .....

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ed on merits. The Delhi High 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 evi .....

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r 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 such an inquiry. 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 assumed to be correct. In the said judgment, Delhi High Court had referred to earlier decisions of the Supreme Court in Rampyari Devi Sarogiv. C .....

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f 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 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 .....

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ions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Incometax 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 .....

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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 inqui .....

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e interests of the Revenue‟. It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub-section (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 reasona .....

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ust induce repose in and set at rest judicial and quasi-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, accordi .....

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y making 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 .....

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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 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 Office .....

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d finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings 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, making the order unsustainable in Law. In some c .....

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e 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. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of t .....

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round 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 Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition s .....

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al material/evidence to show and state that the order of the Assessing Officer is erroneous. 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 erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to th .....

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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. 16. In the case of CIT Vs. Goetze (India) Ltd. (Supra) their lordship after referring to the ratio laid down by it in the case of CIT Vs. Nagesh Knitwears P.Ltd. held as follows:- The first question raised is whether the order under Section 263 of the Act is justified and in accordance with law. Section 263 has been elucidated and ex .....

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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 order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression prejudicial to the interest of the Revenue‟ is of wide import a .....

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cumbent 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 commits an error and the word erroneous‟ includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. The Delhi High Court in Gee Vee Enterprises v. Additional Commission .....

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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 context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would m .....

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served that where the Assessing Officer had accepted a particular contention or issue without inquiry whatsoever, the order was erroneous and prejudicial to the interest of Revenue. These two decisions were explained in the case of DG Housing Project Limited (supra) in the following words:- 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 erro .....

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to be distinguished from other cases (i) where there is enquiry but the findings are incorrect/erroneous; and (ii) where there is failure to make proper or full verification or enquiry. In Nagesh Knitwears Private Ltd. (supra), reference was made to CIT Vs. Sunbeam Auto Ltd. (2011) 332 ITR 167, with the following quote from the later decision:- In the case of CIT v. Sunbeam Auto Ltd (2011) 332 ITR 167 (Delhi), the Delhi High Court was considering the aspect, when there is no proper or full verif .....

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diture 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. 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 a .....

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e 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): … From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed the .....

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d 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 very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale iss .....

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ent, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and c .....

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t 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 int .....

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essary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings 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 en .....

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d not debatable. The matter cannot be remitted for a fresh decision to the Assessing 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 .....

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s 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 becaus .....

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at the time of examination 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. 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 .....

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us order prejudicial to 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. 17. In view of above, if we analyise facts and circumstances of the present case, wherein the Assessing Officer conduct the assessment proceeding and p .....

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