TMI Blog2015 (10) TMI 1758X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial period. The CIT has not brought out any fact to establish that the assessee had not undertaken any inquiry in regard to the alleged cash deposited to his bank account and the CIT has not brought out any fact to this effect that in absence of amount and other records, which were lost by the assessee, the AO was not correct in making estimation of business income @8% of gross receipts and the conclusion drawn by the AO was not in accordance with the provisions of the Act and thus, the same was unsustainable in law. Per contra, as we have already noted that the AO inquired from the assessee about the amount of cash deposited during the relevant financial period and after considering the reply of the assessee wherein the assessee stated that he had lost his books of accounts and other records, then the AO had no alternative but to estimate the business income of the assessee by taking a reasonable and appropriate recourse. Thereafter, the AO proceeded to estimate the business income of the assessee @8% of gross receipts by merely referring to section 44AF of the Act. We cannot ignore this fact that in the letter dated 20.12.2013, the assessee pressing into service his revise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the AO has passed order u/s 143(3) of the Act on 20.12.13 and on examination of relevant assessment record, it was noticed that the order passed by the AO is prejudicial to the interest of revenue and erroneous, hence, the CIT issued notice u/s 263 of the Act on 9.9.2014. After considering the reply and explanation of the assessee, the CIT held that impugned assessment order is erroneous and prejudicial to the interest of revenue as not only assessment order has been passed in utmost haste and in a cryptic manner but the AO has also allowed benefit of section 44AD/AF of the Act erroneously without considering whether conditions thereto are fulfilled, and also not by applying provisions of section 69A of the Act. The CIT further held that the assessment order passed by the AO resulting into non-application of correct provisions of law, though the said issues were most crucial issues for the current assessment scrutiny process. Finally, the CIT held that the order passed by the AO u/s 143(3) of the Act deserves to be cancelled and he directed the AO to make a fresh assessment after considering correct and legal and factual position in this regard. Now, the aggrieved assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the revenue and took 8% of gross receipts of trading business of cloth for estimation of business income of the assessee. The AR has further drawn our attention towards contents of the notice issued to the assessee u/s 263 of the Act and reply of the assessee to the said notice and submitted that while the AO is adopting higher percentage of profit for estimation of business income of the assessee, then the order cannot be held as erroneous and prejudicial to the interest of revenue because for invoking provisions of section 263 of the Act, twin conditions are required to be fulfilled, viz. the assessment order should be erroneous and secondly, the assessment order should be prejudicial to the interest of revenue and in the present case, the assessment order cannot be held as erroneous and prejudicial to the interest of revenue. Ld. Counsel finally submitted that as per dicta laid down by Hon ble Jurisdictional High Court of Delhi in the case of ITO vs D.G. Housing Projects Ltd. dated 1.3.2012 in ITA 179/2011, when the AO had adopted one of the courses permissible and available to him and this has resulted in loss to revenue; or two views are possible and the AO has taken one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court in the case of Malabar Industrial Co. Ltd. vs CIT (2000) 243 ITR 83 (SC), the phrase prejudicial to the interest of revenue has to be read in conjunction with an erroneous order passed by officer. Ld. AR contended that every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of revenue and in the present case, the AO has taken a view by adopting 8% instead of 5% for making estimation of business income of the assessee which was not prejudicial to the interest of revenue and hence notice u/s 263 of the Act and impugned order may kindly be quashed. 9. On careful consideration of above submissions of both the sides, at the outset, we find it appropriate to consider the ratio laid down by Jurisdictional High Court of Delhi in the case of ITO vs D.G. Housing Projects Ltd. (supra) wherein their lordships after considering the ratio of all previous relevant judgements/orders have held that in the case of wrong opinion or finding on merit, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary inquiry, if required and necessary before the order u/s 263 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub- section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.--In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to Section 129 and any period during which any proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voke 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 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. 13. In the said judgment, Delhi High Court had referred to earlier decisions of the Supreme Court in Rampyari Devi Sarogi vs. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal vs. 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 evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. After reference to these two decisions, the Delhi High Court observed:- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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), 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 therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the 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 reasonable manner could have come to such a conclusion, the very initiation of proceedings b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We may now examine 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 Officer cannot be held to be erroneous‟ simply because in his order he did not make an elaborate discussion in that regard. 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, 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 inad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. 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. vs. 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 the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. However, it is clear that when the gross receipts of the assessee were more than ₹ 40 lakh, then the provisions of section 44AF(1) of the Act are not applicable but the AO made estimate of profit earned by the assessee during the relevant financial period for trading of cloth by estimating 8% of total gross receipts, then the recourse adopted by the assessee is more than beneficial to the revenue and which cannot be held as prejudicial to the interest of revenue. 11. From the operative part of the impugned order passed u/s 263 of the Act, we clearly note that the CIT has directed the AO to make a fresh assessment after considering the correct legal and factual position and he has not drawn any definite conclusion that the view taken by the AO is not sustainable and in accordance with law and therefore, the same is erroneous and prejudicial to the interest of revenue. At this stage, at the cost of repetition, we find it appropriate to reproduce relevant operative part of the impugned order which reads as under:- 4. In the instant case, the assessee during the financial year relevant to the assessment year under consideration deposited cash amounting to ₹ 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire cash deposits in different bank accounts of the assessee should be treated as unexplained money of the assessee u/s 69A of the I.T. Act. 5. In CIT vs Raja Industries (2012) 340 ITR 344 (P H), it has been held that where enquiry is warranted but not made, it would certainly constitute prejudice to revenue, so that jurisdiction for the Commissioner is available for remanding the matter for such enquiry. 6. In Jyoti Electric Motors Ltd. vs CIT (1999) 237 ITR 280 (Guj), it was held that even where facts are disclosed by the assessee, the order of assessment can be the order of assessment can be revised if the correct provisions of law are not examined. In the instant case even the facts are not disclosed by the assessee in his return of income as regards maintenance of bank accounts and deposit of cash in the said bank accounts. 7. It has been held in CIT v. Active Traders (P) Ltd (1995) 214 ITR 583 (Cal) that the CIT can also regard an assessment order to be erroneous when on the circumstances of the case, he finds that it has been made in undue haste and without proper enquiry. It is incumbent on the Assessing Officer to investigate the facts stated in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry and it was incumbent upon the AO to investigate the fact stated in the return particularly when the circumstances suggest that inquiry would have been necessary and prudent. In para 8, the CIT without drawing any conclusion about the outcome of the impugned assessment order has held that the assessment made by the AO u/s 143(3) of the Act dated 20.12.13 is treated as erroneous and prejudicial to the interest of revenue as not only assessment order has been passed in a cryptic manner but the AO has also the benefit of section 44AD/44AF of the Act erroneously without considering whether the conditions are fulfilled or not. The CIT also held that the assessment order has been passed by not applying the provisions of section 69 of the Act resulting in non-application of correct provisions of law though the said issues were most crucial issues for the concerned scrutiny assessment proceedings. Finally, the CIT, without drawing any conclusion about the correctness and sustainability of the impugned assessment order, directed the AO to cancel the impugned assessment order and directed the AO to make a fresh assessment after considering correct legal and factual position. As we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n if an inquiry is conducted by the CIT and thereafter he is able to establish and shows the error or mistake made by the AO, making the order unsustainable in law. It was further held that the matter cannot be remitted for a fresh decision to the AO to conduct further inquiry without a finding that the order is erroneous is a condition or requirement which must be satisfied for valid exercise of jurisdiction u/s 263 of the Act. Lastly, their lordships, speaking for the jurisdictional High Court, made it clear that in such matters, to remand the matter/issue to the AO would imply and mean that the CIT has not examined and decided whether or not the order is erroneous but has directed the AO to decide the aspect/question. 14. In para 17 of this order, their lordships enlightened us by explaining that this distinction must be kept in mind by CIT while exercising jurisdiction u/s 263 of the Act and in absence of the finding that the order is erroneous and prejudicial to the interest of revenue, the exercise of jurisdiction under the said section is not sustainable. It was also held that in most cases of alleged inadequate investigation it will be difficult to hold that the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per said provision, the business income has to be assessed @5% of the total turnover during the previous year on account of such business provided total turnover of the assessee does not exceed an amount of ₹ 40 lakh in the relevant previous year. 17. Furthermore, in the present case, the AO has not taken total turnover of assessee in the trading of cloth and the AO has adopted higher figure taking total amount of gross receipts of ₹ 76,40,380 during the relevant financial period. The CIT has not brought out any fact to establish that the assessee had not undertaken any inquiry in regard to the alleged cash deposited to his bank account and the CIT has not brought out any fact to this effect that in absence of amount and other records, which were lost by the assessee, the AO was not correct in making estimation of business income @8% of gross receipts and the conclusion drawn by the AO was not in accordance with the provisions of the Act and thus, the same was unsustainable in law. Per contra, as we have already noted that the AO inquired from the assessee about the amount of cash deposited during the relevant financial period and after considering the reply of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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