TMI Blog2015 (10) TMI 1515X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) TMI 516 - ITAT MUMBAI) wherein held as under: "The CIT by deciding the fate of the issues himself has pre-empted the assessee company in agitating the matter before the various authorities right from the assessment onwards in a systematic and consistent manner. Therefore, that part of the conclusion of the revision order is not sustainable". Thus the assessment framed by the Assessing Officer was not erroneous and prejudicial to the interests of revenue so as to attract the proceedings u/s. 263 - Decided in favour of assessee. - I.T.A. No. 2726/DEL/2013 - - - Dated:- 1-10-2015 - Shri H. S. Sidhu, Judicial Member And Shri O. P. Kant, Accountant Member For the Petitioner : Sh. Sandeep Sapra, Adv For the Respondent : S h. Sujit Kumar, Sr. DR ORDER Per H. S. Sidhu : JM This appeal by the Assesse is directed against the Order of the Ld. Commissioner of Income Tax, Meerut dated 18.3.2013 passed u/s. 263 of the I.T. Act pertaining to assessment year 2008-09 on the following grounds:- 1. That the impugned order as passed by the Id. CIT u/s 263 of the Income Tax Act, 1961 is arbitrary, unjust illegal on various factual and legal grounds includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn declaring net income at ₹ 2,55,46,190/- on 21.8.2008 which was processed u/s. 143(1) on the returned income. The case has been selected to be completed under scrutiny through Selective scrutiny and accordingly, notice u/s. 143(2) dated 22.9.2009 was issued. Thereafter various notices u/s. 143(2) and 142(1) alongwith questionnaire were issued and served upon the assessee. In response to the aforesaid notices Authorised Representative of the assessee attended the hearing from time to time and the case was discussed with him. Books of accounts, bills / vouchers etc. produced which were examined by the AO. After considering all the facts, details submitted by the assessee and after examination of books / documents and after discussion of the various issue, the assessment was completed on returned income vide order 15.11.2010 passed u/s. 143(3) of the I.T. Act, 1961. 3. Ld. CIT, Meerut examined the record and found that the assessment was completed without proper enquiry on the following counts:- a) The case was selected for scrutiny since the assessee had shown ₹ 2.50 crores as any other income' while NIL sales, gross receipts of business were shown. This as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e partners of the assessee firm are the directors. The AO has not looked into this aspect as well. 4. In view of above, Ld. CIT is of the view that the order passed by the AO is erroneous and prejudicial to the interest of revenue. He also held that in the case of M/s. Malabar Industries, the Hon'ble Apex court has held that incorrect assumption of facts or incorrect application of law, will satisfy the requirement of the order being erroneous; order passed by the AO is without applying the principles of natural justice or without application of mind. The Ld. CIT has passed the impugned order u/s. 263 dated 18.3.2013 directing the AO to make addition of ₹ 38,48.050/- and partly set aside the assessment order with the direction to frame a fresh assessment order after examining the issues discussed in the order u/s. 263 of the I.T. Act. 5. Against the order of the Ld. CIT dated 18.3.2013 passed u/s. 263 of the I.T. Act, the assessee appealed before the Tribunal. 6. Ld. Counsel of the assessee relied upon the original assessment order dated 15.11.2010 passed u/s. 143(3) of the I.T. Act in the case of the assessee as well as the documentary evidence filed by him in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in motion. It is an important decision and the same cannot be based upon the whims and the fancies or the caprice of the revising authority. There must be material(s) available from the records called for by the Commissioner. The Commissioner must give reasons for passing an order. He is bound by the decisions of the Hon ble Supreme Court and jurisdictional High Court. The Commissioner must come to a firm conclusion on the point that error in the order has resulted in prejudice to the interests of the Revenue. He has to apply his mind for coming to a firm conclusion which should be based on proper material and he must mention that material in his order. The Commissioner may under this section pass such an order as the circumstances of the case justify, including an order enhancing or modifying the assessment or canceling the assessment and directing a fresh assessment, or any other order to the detriment of the assessee. But a mistake or omission in the assessment order would not justify the setting aside of the whole order. 7.2 From the plain reading of the above provision it is manifestly clear that an order can be revised if and only if the twin conditions, viz., one that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as erroneous if it was passed in utter ignorance or in violation of any law; or passed without taking into consideration all the relevant facts or by taking into consideration irrelevant facts. The prejudice that is contemplated under S. 263 is the prejudice to the Income Tax administration as a whole. The revision has to be done for the purpose of setting right distortions and prejudices caused to the Revenue in the above context. The fundamental principles which emerge from the several cases regarding the powers of the Commissioner under section 263 may be summarized below:- (i) The Commissioner must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interests of the revenue. Both the conditions must be ful- filled. (ii) Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous, that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice for the requirement of order being erroneous. (iv) If the order is passed without application of mind, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase prejudicial to the interest of the Revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The Scheme o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /11/2010 passed u/s. 143(3) of I. T. Act. Subsequently, show cause notice uls 263 dated 12/02/2013 was issued by the Ld. CIT. Vide impugned order uls 263 dated 18/03/2013, the Ld. CIT directed the AO to make addition of Rs, 38,48,050/- and partly set aside the assessment order with the direction to frame a fresh assessment order after examining the issues discussed in the order u/s 263. In pursuance to order uls 263, AO passed assessment order dated 28/02/2014 uls 263/143(3), addition of ₹ 38,48,050/- has been made by the AO as directed by the Ld. CIT vide impugned order uls 263. 7.8 We note that the Ld. CIT in the impugned order uls 263 vide para 7 at pages 6-7 has observed as under: As regards the points on the basis of which the proceedings under section 263 of the Income-tax Act, 1961 were taken, the assessee has shown an income of ₹ 2.5 crores as any other income' while there were Nil sales, gross receipts of business. As per the records, the assessee had claimed a sum of ₹ 12, 11,5001- along with interest at 18% per annum from Mls Charms India Pvt. Ltd. Vide an Award by sole arbitrator dated 1.10.2007, the assessee was awarded a sum of ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annexures: (i) List of Directors with their addresses, copy placed at page 27. (ii) List of shareholders with their addresses, copy placed at page 28. (iii) Memorandum of Understanding (MOU) dated 16/1/2006 between M/s Charms India Pvt. Ltd. and the Appellant, copy placed at pages 30-35. In such MOU, Mls Charms India Pvt. Ltd. approached the Appellant for development of a housing project on its land situated in Village Kanawani Mohidinpur, Tehsil Dadri, District, Gautam Budh Nagar. (iv) Arbitration award of Shri B.B.L Hajelay (Retd. District Judge) dated 01/10/2007, copy placed at pages 36-43 in which Mls Charms India Pvt. Ltd. was directed to pay compensation/award of ₹ 2,88,48,0501- to the Appellant for breach of MOU. (v) Copy of ITR and computation of income of Mls Charms India Pvt. Ltd. (vi) Copy of audited balance sheet, P L Alc of Mls Charms India Pvt. Ltd. for the year under consideration placed at pages 49-65 from which it is evident that 'other project expenses' of ₹ 2,88,48,050/- (which included ₹ 2,50,00,000 paid as compensation to the Appellant on account of arbitration award) were debited to P L Alc (refer to page 58) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vouchers etc. produced which were examined on test check basis. Considering all the facts, detailed submitted by the assessee and after examination of account books/documents and after discussion of the various issues, the assessment is completed on returned income. 7.14 In our considered opinion, the revisional jurisdiction u/s 263 of I.T. Act cannot be exercised even where enquiry as made by the AO is considered as inadequate enquiry in the opinion of the Ld. CIT. 7.15 In view of above, the Assessee received only ₹ 2,50,00,000ltowards compensation from M/s Charm India Pvt. Ltd. during the year under consideration and as the Appellant was following cash system of accounting, as is apparent from clause (11a) of tax audit report i.e. Form 3CD copy placed at pages 4-14 {relevant page 4} of the paper book, the Appellant rightly accounted for the actual amount of receipt of compensation on receipt basis and therefore, there was no justification on the part of the Id. CIT to make addition of ₹ 38,48,050/- to the income of the Assessee on accrual basis. 7.16 Keeping in view of the above, the impugned order u/s 263 is also illegal as the Ld. CIT has not condu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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