TMI Blog2015 (9) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... ion without first finding the order erroneous and that too such an extent that it is prejudicial to the interests of the Revenue. Pointing out of an error by the Commissioner is not an empty formality. These twin requirements which the Ld. Commissioner is required, fulfilled cannot be said to be met because the Commissioner is of the view that another view may be possible. The decision of Duggal & Co. [1994 (8) TMI 6 - DELHI High Court] strongly relied upon by the Ld. CIT it is seen is distinguishable on facts and the principle arrived at in those facts cannot be selectively picked and applied to facts which are entirely distinguishable. In the facts of that case the assessee company was found to be paying higher rate of interest to the extent of 9 to 12 % on its borrowing while it charged lesser rate of interest on advances made to a particular firm. It was in these circumstances where diversion of a part of its borrowings for its investments for considerations other than that of business that the action of the Commissioner in invoking the provision of Section 263 was consistently upheld. In the facts of the present case there is no such error and it is only a case of suspicion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present proceedings. 3. The Ld. AR inviting attention to the order under challenge in the context of the grounds raised submitted that in the facts of the present case, the impugned order deserves to be set aside. The said prayer it was submitted is based on the fact that no error has been pointed by the CIT and further there is nothing to show that the order is prejudicial to the interests of the Revenue. The law mandates it was submitted that both these requirements are to be met by the Commissioner. 3.1. It was his submission that the impugned order suffers from multiple errors of law. As per the settled legal position it was submitted the CIT was required to address what was the error in the order which was required to be addressed by resorting to section 263 of the Act. 3.2. The Commissioner it was submitted instead of pointing to any error has merely held that the matter required a proper enquiry and properly to be considered . The usage of these words it was submitted itself demonstrates the fact that the CIT was convinced that in the facts of the present case, an enquiry had been made. In the said background it was his argument that the Commissioner should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tude that it is pre-judicial to the interests of the Revenue. These are the twin conditions which as per the legal precedent the Commissioner in the exercising of her powers was required to meet. Referring to the afore-said judgement specific attention was invited to the following extract therefrom which illustrated the argument advanced:- A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns cited by the Ld. CIT, Meerut in the order were of no relevance as in the facts of the present case as per the Commissioner herself the issues were enquired into by the AO and her only grievance was that the enquiry according to her was not proper . Why it was not proper it was submitted has not been addressed by the Commissioner. 3.8. As a further illustration, reference was made to the facts of Jagdish Kumar Gulati vs CIT 269 ITR 71 (All.) relied upon by the ld. Commissioner. The assessment in the facts of that case it was submitted was completed in haste without making any enquiries as it was becoming time barred consequently the jurisdiction assumed by the CIT(A) u/s 263 was held to be correctly invoked. 3.9. Addressing the reliance placed upon by the Ld. Commissioner on the principle laid down by the Hon ble Delhi High Court in the case of Gee Vee Enterprises vs ACIT 99 ITR 375 (Del.) , it was submitted it needs to be considered in the context of the consistent judgements of the Hon ble Delhi High Court where the proposition/principle laid down in the said judgement was examined elaborately in great detail by the decision rendered on 10.09.2013 in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as submitted has been completely left unaddressed by her. 4. Inviting attention to the Paper Book filed, it was his submission that as far as the first issue was concerned, it has been enquired into and replied to in detail before the AO as per Paper Book pages 17, 19, 20, 22, 27 28 on record. 4.1. Similarly on the second issue of sundry creditors, the detailed queries of the AO and replies of the assessee it was submitted can be found at Paper Book pages 17, 20, 27 28 made available to the AO. 4.2. On the 3rd issue the reply of the assessee to the queries of the AO it was submitted is at pages 8, 9, 18, 24, 20, 25, 27 28 and similarly on the fourth issue the assessee s response before the AO on queries is at Paper Book page 9 onwards. 4.3. Pages 17 -18 it was submitted contain the reply dated 19.05.2010 to the notice u/s 142(1) and at pages 19-21 the reply of the assessee dated 07.09.2010 is placed to the queries raised in notice u/s 142(1). Referring to Paper Book pages 22-23 it was submitted is the reply to the notice u/s 142(1) dated 09.11.2010. The chart relating to the expenditure and GP rate as filed before the AO in reply to the notice u/s 142(1) dated 19. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as submitted that if not before initiating atleast after issuance of notice these pleadings by the assessee which were placed before the Commissioner, it can be presumed that these facts must have been looked into. It was submitted that if it had been looked into then it was incumbent on the commissioner to point out the error and there should have been no reason for the Commissioner to use vague and general words like needs to be properly enquired not properly enquired . The fact that no error has been pointed out it was submitted is because after looking carefully even the Commissioner could find no error. In such a position the exercise of power mechanically without pointing error without reason to justify the vague conclusion and infact is a fishing and roving exercise which the law does not permit. It was submitted that the law mandates that the Commissioner before putting the assessee through the rigours of Revisionary Powers atleast makes the effort to bring out in her order the error committed by the AO. As per settled legal jurisprudence it was submitted the law further requires the Commissioner to bring out the fact that the error is prejudicial to the interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned order deserves to be upheld. Inviting attention to the brief and cryptic assessment order which was read out by her, it was her submission that on a reading of the same, it was clearly evident the AO has blindly accepted what the assessee has returned as its income. 6.1. Addressing the replies given by the assessee before the AO so as to justify that the 4 issues were enquired into, it was her submission that they have not been sufficiently enquired into by the AO. It was also her submission that without making any effort to enquire into the evidence of the third party, how can the AO be satisfied. It was submitted that where the satisfaction is arrived at without making any further enquiry the Commissioner has the power to re-open the assessment exercising her Revisionary powers. The Ld. CIT DR submitted that the intention of the legislature was not to merely accept a situation where the AO calls for evidence and fails to look into the same. 6.2. it was submitted that the judgement of the Hon ble High Court in the case of Duggal Companies 220 ITR 456 was heavily relied upon by the Revenue. It was submitted that in the facts of that case, it has been held that the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ositions of law in Gee Vee Enterprises it was submitted that the decision being latest in point of time should be preferred. Apart from this principled objection it was submitted that even otherwise on facts the decision is distinguishable. In the facts of that case, it was submitted the assessee s firm was paying interest on its borrowings at varying rates from 9 to 12 % while the assessee charged interest @ 4 % only from M/s Atul Glass Industries. The matter as per record was not enquired into by the AO and thus where the firm was probably diverting a part of its borrowings for its investment for consideration other than that of business, the Revisionary powers of the Commissioner it was submitted was held to be correctly invoked. In the facts of the present case it was argued there is no such allegation or finding. 7.1. Addressing the proposition laid down by the Delhi High Court in the case of Gee Vee Enterprises (cited supra) it was submitted the ratio laid down therein has consistently been considered by the Hon ble Delhi High Court in the case of DG Housing (cited supra) and again re-affirmed in the case of NDTV Ltd.(cited supra). 7.2. Addressing the second limb of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has canvassed that the law mandate that the Commissioner in her order is bound to address the error committed by the AO and needs to demonstrate that the error is of such a magnitude which also meets the test of being pre-judicial to the interests of the Revenue. Referring to the order it has been canvassed that since there is no such finding of any error being point out on record, the order under challenge has been passed mechanically invoking the powers without any legal mandate on facts. On the basis of the Paper Book filed and the various papers referred to therein, the Ld. AR has sought to canvass that on each of the issues, now sought to be properly enquired into by the Commissioner the AO has already raised queries and has required the assessee to explain the same and only after considering the replies of the assessee available on record the AO has been satisfied with the explanation offered and has passed the order after due application of mind. The Ld. CIT DR referring to the cryptic order has canvassed that it does not reflect whether the issues were actually enquired into as there is no discussion in the order. The Ld. AR on the basis of the queries raised and replies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sitancy in holding that there is an error coupled with the usage of words not properly looked into needs to be properly enquired makes the Ld. Commissioner ran foul of the settled legal position that the Revisionary powers cannot be invoked on the reasoning that the manner in which the AO has enquired be substituted by how the Ld. Commissioner would want the issues to be enquired into. The Ld. Commissioner is to address the error which she intends to correct the error should be such which is prejudicial to the interests of the Revenue. A reference to paras 2 3 of the impugned order would illustrate how the issue has been addressed:- 2. On examination of records, it was found that the assessment was done without proper enquiry in so far as discussed in subsequent paras. 3. Accordingly, notice under section 263 of the Income-Tax Act, 1961 was issued pointing out as follows:- (a) Unsecured loans of ₹ 4,65,16,878/- have not been enquired into properly before accepting the same. (b) Similarly A.O. did not properly investigate the reason what decrease in net profit rate in comparison to last year and also reasons for so low profit rate. (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d which was considered by the AO. In the afore-mentioned peculiar facts and circusmtnaces in the absence of any rebuttal on this factual position, we find that in the facts of the present case the power u/s 263 have been wrongly invoked by the ld. Commissioner, Meerut. 8.6. As we have already discussed in great detail in the earlier part of this order the decision relied upon in the facts of the present case are of no help to the Revenue. The Ld. CIT DR has sought to press into action the decision of the Co-ordinate Bench in the case of Shri Virendra Kumar Gupta vs CIT (cited supra), a perusal of the same shows that it was a case of no enquiry . This fact is brought on from the following para which was relied upon by the Ld. CIT DR herself:- 6. We have considered the facts and the submissions made before us. The facts are that the assessee had filed its return on 31.10.2005 declaring total income of ₹ 3,41,860/-. THE case was selected for scrutiny on account of low profit, high sundry creditors, advances and loans. The assessee sought a number of adjournments. However, books of account and vouchers were produced before the Assessing Officer. Confirmations of creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to the interests of the Revenue. Pointing out of an error by the Commissioner is not an empty formality. These twin requirements which the Ld. Commissioner is required, fulfilled cannot be said to be met because the Commissioner is of the view that another view may be possible. 8.8. The decision of the Delhi High Court namely Duggal Co. strongly relied upon by the Ld. CIT DR it is seen is distinguishable on facts and the principle arrived at in those facts cannot be selectively picked and applied to facts which are entirely distinguishable. In the facts of that case the assessee company was found to be paying higher rate of interest to the extent of 9 to 12 % on its borrowing while it charged lesser rate of interest on advances made to a particular firm. It was in these circumstances where diversion of a part of its borrowings for its investments for considerations other than that of business that the action of the Commissioner in invoking the provision of Section 263 was consistently upheld. In the facts of the present case there is no such error and it is only a case of suspicion that if proper enquiry is done a different picture may result. Such suspicious do not justify ..... X X X X Extracts X X X X X X X X Extracts X X X X
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