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2015 (9) TMI 223 - ITAT DELHI

2015 (9) TMI 223 - ITAT DELHI - TMI - Validity Revision u/s 263 by CIT(A) - Held that:- Commissioner exercising the powers u/s 263 cannot shirk the legal mandate of pointing out the error in the assessment order coupled with the requirement to point out that the error is prejudicial to the interests of the Revenue. It is not each and every error which the law permits the Commissioner to revise as is settled by the Apex Court in Malabar Industries [2000 (2) TMI 10 - SUPREME Court] and consistentl .....

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ng enquiry based on suspicions and surmises. The Commissioner exercising the powers u/s 263 of the Act cannot direct a second investigation 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 b .....

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ular 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 the invokes of the power u/s 263. Thus we hold the section 26 .....

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8-09 assessment year on the following grounds:- A. On the facts and in the circumstances of the case and in law the order of the Commissioner of Income-tax passed after invoking Sec. 263 of the Income-tax Act, 1961 in the subject case and in setting aside the assessment order dated 16.11.2010 framed u/s 143 (3) of the Act and directing a fresh assessment is devoid of jurisdiction and is misconceived, erroneous, illegal and unwarranted and must be quashed. B. Additionally, on the facts and in the .....

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assessee declared an income of ₹ 79,08,143/- by way of filing its return on 23.09.2008 which was processed u/s 143(1). Subsequently the said return was selected for scrutiny assessment by issuance of notice u/s 143(2) etc. The assessment was concluded by the AO vide his order dated 16.11.2010 u/s 143(3) accepting the returned income. 2.1. Subsequently, the said order was revised by the CIT, Meerut exercising her powers u/s 263 of the Income Tax Act, 1961. The Ld. CIT, Meerut after hearing .....

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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 Commission .....

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the assessment order. The exercise cannot be undertaken on casual whims. In the absence of any reasoning to demonstrate that the assessment order was erroneous the attempt to re-look at the issues without assigning any cogent reasons, it was submitted should not be allowed. 3.3. It was his submission that CIT, Meerut has referred to various decisions without caring to address how on facts they were applicable. The decisions, it was submitted are entirely distinguishable. The conclusion arrived a .....

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is submission that certain principles have been extracted by the CIT, Meerut selectively and incorporated in her order so as to justify the stand. As an illustration It was submitted that the decision in Malabar Industries case (cited supra) was cited by the Commissioner for the following propositions:- i. An incorrect assumption of facts or incorrect application of law will suffice the requirement of the order being erroneous. ii. If the order is passed without application of mind, such order w .....

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claimed to not be aware of the fact that the judgement quoted by her is more often quoted for another important principle i.e. the fulfillment of the twin requirements of establishing that there is an error in the order and that the error is of such a magnitude 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 .....

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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 an order is erroneous that the section will be att .....

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s); and Swarup Vegetable Products Industries Ltd. vs CIT (1991) 187 ITR 412, 415-416 (All.), it was submitted is misplaced. Whereas a perusal of the decision rendered by the Hon ble Madras High Court, it was submitted would show that the order therein was passed in ignorance without taking into consideration the relevant facts and in that background it lays down the proposition that if finding arrived at is affected by irrelevant facts then the order become erroneous. 3.5.1. In the facts of the .....

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laced as after the judgement of the Apex Court in the case of Malabar Ind. Co.Ltd. vs CIT (2000) 243 ITR 83 (SC), the principle laid down in the case of Swarup Vegetable Products Industries Ltd. (cited supra) would not be of much help to the Revenue. 3.6.1. Notwithstanding the said argument it was his submission that even otherwise the judgement rendered by the Hon ble Allahabad High Court proceeded on facts peculiar to its own wherein admittedly the refund of excise duty was received by the ass .....

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nly 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 2 .....

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CIT vs NDTV Ltd. (2013) 262 CTR 604 (Del.) where the view taken in another recent decision in ITO vs DG Housing Projects Ltd. [2012] 343 ITR 329/20 taxmann.com 587/[2013] 212 Taxman 132 (Del.) was again examined as herein also the decision rendered in Gee Vee Enterprises (cited supra) had been considered. Specific attention was invited to para 10 of the decision in the case of CIT vs NDTV Ltd. (cited supra) which would show that the decisions referred to by the CIT in para 5.3 have been fully t .....

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evenue that it is a case of the no-enquiry the order necessarily can be Revised. However it was his submission that where on facts an enquiry has been done as is the case in the present proceedings the Revenue is restrained from revising the order. 3.11. In the situation where an enquiry has been made by the AO as per the settled legal position it was submitted the Revisionary powers can not be invoked merely because the Commissioner is of the view that the enquiry should be done in some other m .....

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. Inviting further attention to the impugned order at page 8, it was submitted that the Commissioner has again assailed the AO for not properly enquiring into the negligible profit rate and also for not examining and enquiring properly into each and every aspect relating to manufacturing, trading and P&L A/c of the assessee. What was improper in the enquiry made it was submitted has been completely left unaddressed by her. 4. Inviting attention to the Paper Book filed, it was his submission .....

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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 G .....

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g these facts and evidences which the AO required the assessee to explain it was submitted that the replies would demonstrate that the queries on each of the issues raised by the Commissioner were raised by the AO. The record it was submitted would also show that they were replied to and there is nothing on record to show that these replies were not considered by the AO before passing the order. On a consideration of the same, it was submitted that it cannot leave any doubt in the minds of the m .....

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y of the same placed at pages 2 -3 of the Paper Book it was submitted that on behalf of the assessee it was brought to the notice of the Commissioner that the AO before the passing of the order u/s 143(3), had carried out a detailed enquiry and examination of books of accounts covering each and every aspect of the case which were sought to be looked into by the Commissioner again. Inviting attention to para 3 of the said reply it was submitted that on behalf of the assessee it had been stated th .....

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iating 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 submitte .....

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ettled 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 the Revenue. The powers it was submitted cannot be invoked on mere whims and fancies. 5.3. Referring to the detailed reply before the Commissioner it was submitted the Commissioner s omission in pointing out error is very clear as there is no error. For ready-reference, paras 3-5 from the said letter dated 15.03.2013 are extracted:- 3. Besid .....

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assessment records which to assessee belief have already been gone through by your goodself before issuing the impugned notice. 4. You have also required the assessee to produce complete books of accounts and supplementary records on the date of hearing vide this notice itself which is really surprising since it indicates that you have already made up your mind to reopen the assessment u/s 263 even without considering the assessee s explanation and reply to your impugned show cause notice. 5. A .....

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IT 99 ITR 375 and the judgement of the Apex Court in the case of Malabar Ind. Co.Ltd. (cited supra), the impugned order deserves to be quashed. 6. The Ld. CIT DR, Smt. Sulekha Verma on the other hand relying upon the judgement of the Delhi High Court in the case of Duggal & Co. vs CIT 7 Taxman 331 and Gee Vee Enterprises (cited supra) alongwith the order of the Tribunal order dated 21.01.2011 in ITA no.-2595/Del/2009 in the case of Sh. Virendra Kr. Gupta vs. CIT (copy provided in the Court) .....

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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 sub .....

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s correct or not shall be found out only after the inquiry of the AO and the assessee has no basis to object to the order at this stage. 6.3. Assailing the arguments of the Ld. AR it was submitted that in the facts of the present case that the Commissioner has correctly relied upon the decision of the Jurisdictional High Court in the case of Gee Vee Enterprises (cited supra) as the matter was required to be enquired into further. 6.4. Inviting attention to the decision of the ITAT in the case of .....

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under consideration dated 16.11.2010. Referring to the same, it was submitted that the two paged order does not inspire any confidence whatsoever and clearly shows that the AO blindly accepts the assessee s claims as he has not even cared to address the discussion on any issue which he is presumed to have considered. Accordingly it was her argument that the impugned order deserves to be upheld. 7. In reply the Ld. AR submitted that apart from relying upon the arguments advanced and the decisions .....

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he Delhi High Court in the case of NDTV and DG Housing case which both have considered the principle and the propositions 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 as .....

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gh 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 arguments of the Ld. CIT DR it was submitted that the law is well-settled as addressed by the decision of the Punjab & Haryana High Court in the case of Hari Iron Trading Companies vs CIT .....

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Anil Kumar Sharma 335 ITR 083 (Del.) which affirmed the position taken up by the Hon ble Delhi High Court in the case of CIT vs Sunbeam Auto Ltd. 332 ITR 0167 (Del.) it was submitted that like these cases the present case also is not a case of lack of enquiry as evidently enquiry has been made. Their Lordship of the Delhi High Court it was submitted have consistently held in the afore-mentioned decisions that if the enquiry is inadequate, revision can not be resorted to. Accordingly it was his .....

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o the interest of the Revenue as per the departmental stand. Considering this order it is seen that the Ld. Commissioner has passed the order under challenge dated 18.03.2013 setting aside the afore-said assessment order directing the AO to properly enquire into the four issues notified by her. 8.1. The Ld. CIT DR relying upon the said order has taken the position that the enquires made were not carried to the logical conclusion by the AO on the four issues of unsecured loans, the net profit of .....

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een 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 afte .....

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order. The fact that the assessment order is cryptic the Ld. AR has taken the stand that it is not for the assessee to dictate how the assessment order is to be written. Relying upon the case of Hari Iron Trading Companies decision of the Punjab & Haryana High Court (cited supra) and the decisions of the Hon ble Delhi High Court in the case of Anil Kumar Sharmaji; and Sunbeam Auto Ltd., it has been pleaded that in the absence of any demonstration by the Revenue merely because the assessment .....

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disputed it has been argued makes it a case of enquires being made and this position not disputed by the Commissioner. Accordingly the order under challenge it has been stated is not maintainable. Various other decisions and propositions have been argued by both the sides so as to contend that legally the issues is covered in their favour. 8.3. Before we proceed to address the same, it is considered necessary to first refer to the order under challenge. A perusal of the 10 paged order of the Ld. .....

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he order is to be revised as per settled legal jurisprudence the Ld. Commissioner should have atleast somewhere in the order on the issues considered by her ought to have addressed what was the error. We have carefully gone through the order and have found that there is no such conclusion. Infact the hesitancy 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 t .....

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he 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) The assessee has made addition .....

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be pari-materia. Reference to the arguments advanced on behalf of the assessee is made in paras 6 & 6.1 at pages 5 & 6 of the order however to support the conclusion that why arguments on behalf of the assessee were not agreed to is ducked and the conclusion is arrived at that the assessment order is passed without proper enquiry. The insistence of the assessee to consider the replies given to the AO in the assessment proceedings and the reply given before the Commissioner to the notice .....

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g vide notice itself, it indicated that the CIT has made her mind to reopen the assessment under section 263 even without considering the assessee s explanation and reply to the show cause notice. The legal position in this regard is again absolutely clear as per which no show cause notice needs to be given for initiation of proceedings under section 263 of the Income Tax Act, 1961 an assessment order is subject to revision under section 263 of the I. T. Act which has been found to be erroneous .....

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e 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 enqu .....

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ssessing Officer. Confirmations of creditors and sundry creditors were filed on or about 17.05.2007. The case was discussed on 30.05.2007 and the assessment order was passed on the same day. There is no evidence that any inquiry was conducted in respect of creditors and sundry creditors and the truthfulness of the confirmation letter was accepted without demur. The question is-whether the order is erroneous and prejudicial to the interest of revenue? 8.7. The replies on the issues before AO it i .....

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tic orders is to be addressed in house by the Department; the tax payers at large cannot be made to pay for the lapses of the Assessing Officer and it would not be out of place to refer to the pointed reference made to the knowledge and experience of the tax assessors as made by the Apex Court in Parshuram Pottery Works. The Ld. Commissioner exercising the powers u/s 263 cannot shirk the legal mandate of pointing out the error in the assessment order coupled with the requirement to point out tha .....

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t first meeting the twin conditions. The enquiry of the AO cannot be substituted by the Commissioner. The law permits the doing of a thing in a particular manner and the law does not permit a fishing and roving enquiry based on suspicions and surmises. The Commissioner exercising the powers u/s 263 of the Act cannot direct a second investigation 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 b .....

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