TMI Blog2009 (7) TMI 1254X X X X Extracts X X X X X X X X Extracts X X X X ..... 0th Jan., 2005. The order was passed on 13th Dec., 2006. Thus there was a time of two years for investigation of the case. The details on the order sheet are placed in the paper book at pp. 8 to 17. We find that the questionnaire has been issued and that too under the direction of the Addl. CIT which is evident from p. 9 of the paper book which is a note sheet dt. 19th Jan., 2005. The various notings in the note sheets show that the assessee has produced the books of account, bills and vouchers which have been verified by the AO. The questionnaires issued to the assessee calling details are also evident from pp. 18, 19, 20, 21, 53, 54 and 55 of the paper book. Thus these facts show that the AO has issued the details of questionnaires on the various issues which had been replied by the assessee which is evident from pp. 56 and 57 of the paper book. Sundry creditors - we find that the AO has himself verified these sundry creditors by calling information u/s. 133(6) and they have replied to the AO by confirming the transaction. Thus after inquiry the AO has reached to the conclusion not to make addition on this issue. Thus the AO has adopted one course of two courses permissib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent from page No. 53 of the paper book. After the verification the AO made same addition and this issue cannot be made a basis to invoke the revisionary powers u/s. 263. regarding the genuineness of the sub-contracts - we find that the amount was paid and the AO in his questionnaire dt. 19th Oct., 2006 has specifically made a query in this regard which is evident from page No. 54 of the paper book and the assessee submitted details and information in this regard. Audited accounts also show that the sub-contract made to the sister concern M/s M.K. Agarwal Co. was made on the prevailing market price. As far as TDS on this account is concerned, the assessee has submitted TDS return which was also verified by the AO which is evident from page No. 55 of the paper book. Regarding the payments made to the persons as specified in s. 40A(2)(b), we find that there was no deviation from the policy followed by the assessee in the past years. Thus from the above facts we are of the view that the invoking of the provisions of s. 263 by the CIT is not justified. In holding so, we also get the strength and support from the following decisions : CIT vs. Max India Ltd [ 2007 (11) TMI 12 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 before him. 4. On the facts and in the circumstances of the case and in law, the learned CIT erred in holding that the assessment order passed by the AO was erroneous insofar as it was prejudicial to the interest of Revenue and in that view in passing an order under s. 263 of the Act, setting aside the assessment order and directing to make further enquiry. 5. The appellant craves leave to amend, alter, modify, revise, add to abridge or rescind any or all of the above grounds. 3. The issue involved is against the invoking of the provisions of s. 263 of the IT Act, 1961 by the CIT, Siliguri by which the order passed by the AO was held to be erroneous and prejudicial to the interest of the Revenue and the same was set aside with a direction to make inquiries on the issue and pass a speaking order based on the merits of the case. 4. While pleading on behalf of the assessee, the learned Authorised Representative submitted that there was a survey operation under s. 133A of the IT Act on 11th Sept., 2003 at the business premises of M/s Vohra Brothers and M/s Vohra Auto Parts which are the proprietorship concerns of Sri C.S. Vohra. Sri C.S. Vohra is also a director in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total expenses. ₹ 71,339 (on the basis that the said expenses were in cash and they were supported by self-vouchers only) The assessee filed appeal against this order of the AO before the CIT(A). The CIT(A) granted certain reliefs vide his order dt. 6th Dec., 2007. Regarding labour expenses disallowed @ 1 per cent by the AO; the CIT(A) granted full relief after verification. The CIT(A) also granted full relief in respect of disallowances from the fuel charges, after detailed examination of the bills and vouchers and the ledger copy submitted before him. The CIT(A) partially allowed the relief from disallowance from carrying charges paid to C.S. Bohra where TDS was deducted. The AO disallowed ₹ 71,339 and the CIT(A) sustained only ₹ 26,399. This order of the CIT(A) has been asserted by the Department as well as by the assessee. 6. In the show-cause notice issued under s. 263 of the IT Act by the CIT, the main issues raised are as under : 1. Cross-verification of the information gathered under s. 133(6) regarding the balances of the following sundry creditors reveal inconsistency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding an order enhancing or modifying the assessment, or cancelling the assessment and directing afresh assessment. 7. Thus the bare reading of the section makes it clear that the exercise of jurisdiction by the CIT is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT before invoking the provisions has to satisfy himself about the existence of the following two conditions : (1) The order of the AO sought to be revised is erroneous. (2) It is prejudicial to the interest of the Revenue. 8. If any condition of them is absent then the CIT cannot take recourse under s. 263 of the IT Act, 1961. The erroneous order does not mean a wrong order and also does not mean an order by which the CIT is unable to agree. An erroneous order would be an order which suffered from a patent lack of jurisdiction, the error must be with reference to the jurisdiction. The provisions cannot be invoked to correct each and every type of mistake or error committed by the AO. Similarly prejudicial to the interest of the Revenue would mean an order which is against the interest of the revenue collection. However, every loss of revenue as a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record from V.B. Construction (P) Ltd. ₹ 4,72,600.......... only against the supply of river bed materials during 2003-04.' ' Shri Subhas Sharma : ₹ 1,87,400 (copy enclosed at p. 48 of the paper book) 'An amount of ₹ 1,87,400 was due from V.B.C. (P) Ltd. for the year 2003-04. I have received the said amount in full later on.' ' Shri Keshol Gurang : ₹ 1,77,400 (copy enclosed at p. 40 of the paper book) 'It is to inform you that I have received ₹ 1,77,400............ only from V.B. Construction (P) Ltd. outstanding payment of 2003-04 for the supply of Bazri, boulder and sand.' ' Shri Shankar Lamichani : ₹ 2,00,000 (copy enclosed at p. 43 of the paper book) 'I am informing you that as per my books for the year 2003-04, I have supplied sand and Bazri to M/s V.B. Construction. I have received the payment of ₹ 2,00,000 from V.B. Construction.' In connection to the above it is submitted by the assessee as also submitted in its reply to the notice under s. 133(6) that the said sundry creditors were petty, illiterate suppliers of river bed materials, i.e. Bazri, boulder and sand at the sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e his findings over that arrived at by the AO. It was held by the apex Court in the case of CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266: (2007) 295 ITR 282(SC) that 'when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law. Reference is again made to the decision of the Delhi High Court in the case of CIT vs. Ashish Rajpal (2009) 23 DTR (Del)266, wherein it was held that 'It would be important to remind one than while the supervisory power of CIT is wide, it cannot be invoked to substitute the view of the AO'. 5.1.4 However, it is further mentioned here that the AO in spite of having conducted full enquiries into the said issue has not made a specific mention of the same in his assessment order. It is hereby mentioned that the AO while framing his assessment order under s. 143(3) of the Act has however noted down only those areas where certain irregularities were observed by him. There was no mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 'Once the matter has been examined and considered the fact that it is not mentioned in the assessment order does not render the assessment order erroneous insofar as prejudicial to the interest of the Revenue. The power of revision is not meant to be exercised for the purpose of directing the officer to hold another investigation when the order of the AO is not found to be erroneous. For making a valid order under s. 263(1), it is essential that the CIT records an express finding of fact that the order sought to be revised, is erroneous as well as prejudicial to the interest of the Revenue'. Thus it is concluded that in view of the various detailed examination process followed by the AO as detailed above such an allegation of the CIT is totally against the natural principles of law. 5.2 The second point raised by the CIT is regarding the cash payments made by the assessee. The CIT has raised the following objections with relation to the following cash expenses. The submission of the assessee issue-wise with regard to each of the said expenses is submitted herewith as follows : (i) Land and building : ₹ 8,93,337 The learned CIT has alleged that the sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above issue on merits it is submitted that a detailed account of land and building was maintained in the regular books of accounts of the assessee. The said detailed account was also submitted before the learned CIT in response to his notice under s. 263 of the Act wherein the position of the said account was duly explained. The account was detailed as under : Opening balance as on 1-4-2003 ₹ 4,11,862 Add : Additions during the year (i) Labour (paid in cash) ₹ 3,37,780 (ii) Marble (paid in cheque) Rs, 57,000 (iii) Glass (paid in cheque) ₹ 36,500 (iv) Building materials (paid in cheque) ₹ 50,195 ₹ 4,81,475 ₹ 8,93,337 On the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned CIT has again alleged that the source of the above payments which was once again in cash, remained unverified by the AO. In connection to the above it is firstly submitted that the allegation of the learned CIT that the said account was unverified by the AO is totally wrong and not based on the facts of the case of the assessee. In fact the AO had in his assessment proceedings analysed the said account in great details as follows : On 15th Feb., 2006 the AO has specifically asked the assessee to furnish the ledger account of the carrying charges. The same is evidenced vide the noting of the AO made in his order sheet, copy of which is enclosed and can be seen at p. 12 of the paper book. The said account was duly furnished by the assessee on 20th Feb., 2006 again noted by the AO in his order sheet (at p. 12 of the paper book). Further, additional details and information regarding the carrying charges were filed during the assessment proceedings and can be evidenced at pp. 60 and 62 of the paper book. It was duly submitted as also stated in the reply to the show-cause notice stated that the said carrying charges were paid to various truck owners, the details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .............. (c) where any order referred to in this sub-section and passed by the AO had been the subject matter of any appeal, filed on or before or after the 1st day of June, 1988 the powers of the CIT 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.' Also in connection to the above total reliance is placed on the decision of the apex Court in the case of CIT vs. Shri Arbuda Mills Ltd. (1998) 147 CTR (SC) 474: (1998) 231 ITR 50(SC) wherein it was held that 'the Explanation to s. 263(1) which was substituted by the Finance Act, 1988, w.e.f. 1st June, 1988, was again amended by the Finance Act, 1989, with retrospective effect from 1st June, 1988, to the effect that where any order referred to in the sub-section and passed by the AO had been the subject-matter of any appeal (filed on or before or after the 1st day of June, 1988), the powers of the CIT under the 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. The consequence of the amendment made with retrospective effect is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further it is submitted that the AO while framing his assessment order under s. 143(3) of the Act has however noted down only those areas where certain irregularities were observed by him. There was no mention of each and every investigation carried out by him. The AO did notice irregularities in the labour payment and this was duly pointed out by the AO. However since no irregularity was noticed by the assessee with regard to the site Peditar expenses, no specific mention of the same was made in black and white. The CIT has however, while cancelling the assessment order of the AO, taken recourse to this fact and alleged that the AO had not examined the said account. (v) Labour expenses : ₹ 15,44,900 Once again the learned CIT has pointed out to the labour charges paid in cash. The learned CIT has alleged that the total labour payment was to the tune of ₹ 15,44,900 as submitted by the assessee himself and thus the disallowance by the AO should be of ₹ 15,449 @ 1 per cent instead of ₹ 8,346 as added back by the AO. It is once again submitted that the matter was taken up in appeal before the learned CIT(A) wherein full relief was granted to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther observed from the TDS return that a total TDS of ₹ 1,82,745 was paid on payments of ₹ 1,65,87,755 made by the assessee to various parties. He however alleged that out of the above TDS payment of ₹ 1,82,745 only a sum of ₹ 1,640 was relatable to the payment to the chartered accountant of the assessee. He thus assumed that the remaining amounts paid by the assessee remained unverified by the AO. In connection to the above it is submitted that a copy of the TDS return was duly filed along with the return of income. The same was verified by the AO and was duly found to be correct. The AO has again in relation to this matter also raised specific query before the assessee vide query No. 10 of his questionnaire dt. 19th Oct., 2006 (at p. 55 of the paper book). The details of the same were produced before the AO and are reproduced as below as also submitted by the assessee in its response to the show cause under s. 263 : Details of sub-contract and TDS Sub-contract : Payments TDS ' M.K. Agrawal Co. (sister concern) ₹ 80,20,075 ₹ 87, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the detailed submissions made by the AO. and he also relied on the following decisions : (1) CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266 : (2007) 295 ITR 282 (SC); (2) Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC); (3) CIT vs. Clough Engineering Ltd. (2008) 300 ITR 435 (Uttarakhand); (4) CIT vs. Ganpat Ram Bishnoi (2005) 198 CTR (Raj) 546 : (2008) 296 ITR 292 (Raj); (5) CIT vs. Mepco Industries Ltd. (2007) 207 CTR (Mad) 642 : (2007) 294 ITR 121 (Mad); (6) CIT vs. Pathy Cine Enterprises (2007) 207 CTR (Mad) 507 : (2007) 292 ITR 495 (Mad); (7) Infosys Technologies Ltd. vs. Jt. CIT (2006) 105 TTJ (Bang) 802 : (2006) 287 ITR 211 (Bang)(AT); (8) CIT vs. Mangilal Didwania (2006) 206 CTR (Raj) 472 : (2006) 286 ITR 126 (Raj); (9) CIT vs. Ashish Rajpal (2009) 23 DTR (Del)266. 9. The learned Departmental Representative relied on the order of the CIT and also submitted that although the details and the books of accounts have been submitted before the AO, but he had not examined them thoroughly. He had not made adequate enquiries. Hence, the order is erroneous and prejudicial to the interest of the Revenue. He also reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Thus after inquiry the AO has reached to the conclusion not to make addition on this issue. Thus the AO has adopted one course of two courses permissible in law. The AO had taken one view where two views are plausible and such view cannot make the order erroneous and prejudicial to the interest of the Revenue. The CIT's view cannot be invoked to substitute the view of the AO. The assessment also does not become erroneous where queries raised during the assessment proceedings are not recorded in the final assessment order. The queries were raised during the assessment proceedings which have been answered by the assessee and the AO has taken a view and on that the order passed by the AO does not become ipso facto erroneous and prejudicial to the interest of the Revenue. 12. The second issue regarding the payments made in cash,we find that the AO has made specific queries in respect of the land and building expenditure which is capital in nature of ₹ 8,93,337 in his questionnaire dt. 11th Jan., 2005 which is evident from page No. 18 of the paper book. Thus the necessary inquiry in this regard appears to have been made by the AO and after examination he has not made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e past years. Thus from the above facts we are of the view that the invoking of the provisions of s. 263 by the CIT is not justified. In holding so, we also get the strength and support from the following decisions : ' CIT vs. Max India Ltd. (supra) : The phrase 'prejudicial to the interests of the Revenue' in s. 263 of the IT Act, 1961, has to be read in conjunction with the expression 'erroneous' order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law. ' Malabar Industrial Co. Ltd. vs. CIT (supra) : The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO 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 ITO i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pass a fresh order in accordance with law after holding a detailed enquiry. Jurisdiction under s. 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something'. ........when enquiry had been conducted and the AO had reached a particular conclusion, though reference to such enquiries had not been made in the order of assessment, it was apparent from the record, without anything to show how and why the enquiry conducted by the AO was not in accordance with law, the invocation of jurisdiction by the CIT was unsustainable. The finding of the Tribunal that the AO had passed the assessment order after relevant enquiries and considering the aspects of the matter required by the CIT to be considered by him was a finding of fact. The basis on which the jurisdiction was assumed by the CIT being non-existent his order must be held to be not sustainable. ' CIT vs. Mepco Industries Ltd. (supra) : It was held that the CIT while exercising power under s. 263 of the Act, had not rendered an independent finding to the effect that the course adopted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In a very recent judgment of the Delhi High Court dt. 14th May, 2009, which applies totally to the case of the assessee firm, it was held that : In the course of scrutiny, several communications were addressed by the assessee to the AO whereby, the information, details and documents sought for, were adverted to and filed. The Tribunal in order to satisfy itself as to whether the AO had sought for details and carried out an enquiry in respect of transactions which were entered into by the assessee in the course of his business, called for the assessment record and scrutinized the same. The Tribunal returned a finding of fact that the assessee had submitted copies of documents and details with regard to various matters, including in particular, with respect to the properties at MN as well as those located at GE and DC. The issue that has been raised is that, since the assessment order adverted to only MN property and was silent with respect to the properties located at GE and DC: on this short ground alone the revisional order of CIT ought to be sustained. 14. We, therefore, set aside the order of the CIT and the appeal of the assessee is accordingly allowed. - - T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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