TMI Blog2013 (2) TMI 746X X X X Extracts X X X X X X X X Extracts X X X X ..... HARI OM MARATHA, J.M.: These are two appeals by the same assessee for asst. yrs. 2007-08 and 2008-09, which have been filed against the separate but even dated orders of 4.11.2011 passed by the ld. CIT, Bikaner. In both the appeals almost identical issues are involved. Therefore, for the sake of convenience and brevity, these are being disposed of by this common order. ITA No. 410/JU/2011 [asst. yr. 2007-08] 2. This appeal emanates from the order of revision passed under s. 263 of the IT Act, 1961 [hereinafter referred to as 'the Act', for short] by the ld. CIT, Bikaner, dt. 4.11.2011. The ld. CIT called for records of the assessment for asst. yr. 2007-08 passed on 27.4.2009 and after verification has found that the AO has allowed the deduction of interest paid to third party and has treated the income from bank interest on FDRs as business income without making necessary enquiries regarding the allowance of interest paid to third parties while estimating net profit and regarding the question of allowability of interest received on FDRs. Accordingly, a show-cause notice dt. 28.6.2011 was issued under s. 263 of the Act to the assessee which reads as under: A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted to kindly adjourn the case fixed for hearing on 05.07.2011 Without prejudice to the above it is stated that what I have able to understand that how you want to rely upon the judgment of Hon'ble Rajasthan High Court in case of Sri Ram Jhanwarlal, Bikaner. The fact mentioned by your good self is in respect of the judgment seems to be under some wrong impression or without going through the complete judgment. First of all, I want to draw you kind attention towards the fact that the issue of allowability of interest paid to third party was not at all the subject matter of order of Hon'ble Rajasthan High Court. The issue was in respect of allowability of depreciation only. Not only in the order but also in the appeal itself there was no relief claimed in respect of the interest I am also producing herewith the judgment of Hon'ble Rajasthan High Court. From the perusal of both the appeal and the judgment, you will not find the word of the interest paid to third party. The issue in the appeal was in respect of the judgment was in respect of allowability of depreciation under s. 32 of the IT Act. In such circumstances you will observe that the issue was not at all a iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test orders in respect of the interest paid to third party. As per the rule of precedent later judgment has to be followed even if there are two types of judgments. In case of an assessee the interest paid to third party was rightly allowed by the then AO while passing the order. I also want to draw your kind attention towards the order of Tribunal, special Bench, Allahabad (sic-Delhi) in case of Dy. CIT vs. Allied Construction (2007) 106 TTJ (Del)(SB) 595: (2007) 105 ITD 1(Del)(SB). In this case the Hon'ble Tribunal held that past history has to be followed. In case of the assessee in the immediately various years the interest paid to third party has been allowed as deduction after application of rate of profit, therefore, the ITO committed no mistake in respect of allowing the interest paid to third party. Therefore, the order passed by the ITO is having no irregularity/illegality/mistake which is falling under the definition of erroneous as well as prejudicially to the interest of the revenue. The issue of allowability of interest paid to third party remained a precedent after application of rate of profit. The ITO, The Commissioner of Income-tax (Appeals) and Tribunal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee as approved contractor. In such circumstances there is a direct nexus between the amount of FDR and interest income thereof. From these facts and circumstances this cannot be a ground for treating the order as erroneous as well as prejudicial to the interest of revenue. In this respect it is also stated that some of the FDR's are in respect of giving the bank guarantee as desire by the awarder of the work therefore this cannot be called as voluntary investment in FDR's. In this connection I want to draw your kind attention towards the case of M/s Gopal Ram Pemaram reported in 24 Tax-World Page No.442 and Sri Ram Co. reported in 32 TW Page 225. in which the Hon'ble Tribunal by speaking complete facts treated the interest income as the interest from business. In this respect it will be worthwhile to mention here that in case of the assessee himself in the immediately preceding year the interest income from FDR was taken and treated as income from business. The AO, during the year under consideration, also committed no mistake in treating the interest from FDR as business income. You are, therefore, requested that the same may kindly be treated as in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the order of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The Hon'ble Supreme Court, in the clear terms, held that the order of the Tribunal shall be binding on the lower authorities including the Commissioner of Income-tax. The order of the A-One Appraisals is also very speaking in respect of binding nature. In these facts and circumstances you are supposed to follow the rules of precedent after considering the same you will observe that the order passed by the ITO is a valid order. The AO followed the order of Hon'ble Tribunal therefore It cannot be called as erroneous and prejudicial to the revenue. The order it self is speaking in respect of the following the past precedents. The past history has been mentioned in the order. As regards the legal position in respect of s. 263 of the IT Act it is stated as under: Sir, I want to draw your kind attention towards the fact that if two views are there and out of two views one view has been taken by the ITO that can be termed as in accordance with the law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not provide sufficient ground for the CIT to assume jurisdiction under s. 263 merely because he had a different view. Further I want to invite you kind attention in case of Grasim Industries Ltd. Vs. Commissioner of Income Tax (2010) 229 CTR (Bom) 347: (2010) 35 DTR (Bom) 142: (2010) 321 ITR 92(Bom) the relevant portion is being reproduced here under: AO can not be treated as prejudicial to the interest of the Revenue, for example when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue. The s. 263 of the IT Act does not empower to invoke or go to process of assessment again and again. In this respect your kind attention is invited towards in case of Commissioner of Income Tax Vs. Ganpat Ram Bishnoi (2005) 198 CTR (Raj) 546: (2006) 152 Taxman 242(Raj). If you are not satisfied with the order of the ITO cannot provide power to your good self so as to pass the order under s. 263 of the IT Act. In this respect your kind attention is invited t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO was not in accordance with law, the invocation of jurisdiction by the CIT was unsustainable. As the exercise of jurisdiction by the CIT is founded on no material, it was liable to be set aside. 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. The judgment of Hon'ble Rajasthan High Court is based on the basis judgment given by the Hon'ble Supreme Court in case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83(SC). As far as the notice under s. 263 issued by CIT, it is also stated that the order passed by the ITO is in accordance with the law. Neither the order is erroneous nor prejudicial with the interest of revenue. In this respect your kind attention is invited towards the following: Please refer Commissioner of Income Tax vs. Arvind Jewellers (2002) 177 CTR (Guj) 546: (2003) 259 ITR 502(Guj). In this case the Hon'ble High Court in last but one Para observed which is being reproduced as under: it is the finding of fact given by the Tribunal that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his mind to the various aspect of the matter Once enquiry in fact has been conducted and the AO has reached a particular conclusion, Though the reference to such enquiry has not been made in the order of assessment, the invocation of jurisdiction by the CIT is not sustainable Same liable to be set aside. The ratio of the judgment is applicable in toto. You are therefore requested that proceeding initiated may kindly be dropped. Your Kind attention is further invited towards the judgment of the Jurisdictional High Court in Commissioner of Income Tax vs. Shiv Hari Madhu Sudan (1998) 145 CTR (Raj) 349: (1998) 233 ITR 649(Raj). In this case the Hon'ble Jurisdictional High Court observed which are being reproduced as under: To sum-up, I am of the opinion that assessment as made by the ITO is in this way has been made by him after conducting the proper enquiry and the Commissioner of income Tax was not justified in setting aside the assessment on the grounds of same, being erroneous, prejudicial of the interest of Revenue. Your kind attention is further invited towards the case of commissioner of Income Tax vs. Girdhari Lal (2002) 176 CTR (Raj) 92: (2002) 258 ITR 331(R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). AO not verified Business receipts from property brokerage As regards your last two grounds I could not lay my hand on the grounds in the set of circumstances and in the Balance Sheet etc. You are therefore prayed that kindly let us know the basis for revision under s. 263 of IT Act taken by you and explained so that I may be able to file suitable reply. It seems that same has been mentioned which are related to some other assessee, any how you are' prayed that kindly let us know so that I may be able to file suitable reply. Meanwhile the case fixed for hearing may kindly be adjourned. Without prejudice to above it is also stated that to the best of our knowledge the action under s. 263 of the IT Act seems to have been taken so as to meet out the objection of the audit. We are writing because on the basis of audit objection rectification notice under s. 154 was issued and proceedings thereof were dropped. The action if taken under s. 263 on the basis of audit objection is not in accordance with the law. The audit party is not supposed to intervene in the power of the AO. Though, the application of rate of profit with further deduction if any is the wisdom of the AO and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the order itself that the interest paid to third party is allowable as approved by the Hon'ble Rajasthan High Court. I am submitting the order because your good self in course of hearing expressed that there is no authority in respect of allowability of the interest paid to third party after application of rate of profit. I am also enclosing herewith the order of IT AT the department not went in the appeal therefore became final. In view of judgment reported in 269 ITR Page 99 (SC) different views cannot be taken. The order referred above is an order of Jurisdictional bench of Tribunal therefore is binding on all the officers working their under. If you are the opinion that same is not having the binding nature. Please show you intimation. It will be worthwhile to mention here that without prejudice to above that even otherwise it is the Assessing authority who can allow further deduction after application of rate of profit and the Commissioner of Income-tax cannot impose his condition. If allowed by the AO in that case the order cannot be a subject matter of s. 263 of the IT Act. You are, therefore, requested that the same may kindly accepted. Regarding applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is aggrieved and has come in appeal before us. 5. We have heard rival submissions and have carefully perused the entire material placed on record. The facts of the case are that the assessee-firm is a civil-contractor. During this year, it has shown gross profit of ₹ 2,33,339/- on total turnover of ₹ 32,04,32,400/- giving gross profit rate of 7.28 percent. The gross profit rate is found to be better than the last year in which it was 5.02 percent. The assessee had not maintained proper bills and vouchers regarding expenses incurred during the course of its business. It has also not maintained site-wise details of expenses and also stock register. Accordingly, the AO after rejecting the books of account has invoked the provisions of s. 145(3) of the Act and has adopted net profit rate of 8.07 percent in the light of the Special Bench order in the case of Dy. CIT vs. Allied Construction (2007) 106 TTJ (Del)(SB) 595: (2007) 105 ITD 1(Del)(SB) to allow the impugned deductions. The AO has allowed the claim regarding third party interest. As per the ld. CIT, in the computation of income, the assessee has claimed only interest payment to partners. According to him, afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Hon'ble Jurisdictional High Court rendered in respect of the impugned issues. He has pleaded that this is a serious mistake on the part of the lower authorities who do not care for the binding precedents and without referring them pass orders with reference to decisions which are not really on the subject. It was argued that this is a serious concern, which should also be looked into. 6. On the other hand, the ld. CIT Departmental Representative Shri Khandelwal has stated that the ld. CIT has not disregarded any binding precedents either of the Tribunal or of the Jurisdictional High Court as has been contended. According to him, there are contradictory decisions on the subject and the ld. CIT has referred to and relied on a later decision of the Hon'ble High Court which is desired as per the Rule of the application of Precedents whereby the later decision has to be followed on a given subject if there are contrary decisions on an issue. The ld. CIT (DR), however, admitted that there are various decisions of this Tribunal which do support the contention of the assessee and that there are number of decisions of the Jurisdictional High Court which directly or indir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial to the interests of the Revenue. The only limitation on his powers is that he must have some material(s) which would enable him to form a prima facie opinion that the order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. Once he comes to the above conclusion on the basis of the 'material' that the order of the AO is erroneous and also prejudicial to the interests of the Revenue, the CIT is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the assessment or he may modify the assessment. He is also empowered to cancel the assessment and direct to frame a fresh assessment. He is empowered to take recourse to any of the three courses indicated in s. 263. So, it is clear that the CIT does not have unfettered and unchequered discretion to revise an order. The CIT is required to exercise revisional power within the bounds of the law and has to satisfy the need of fairness in administrative action and fair play with due respect to the principle of audi alteram partem as envisaged in the Constitution of India as well as in s. 263. An order can be treated as 'erroneous' i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a letter in writing and the AO allowed the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 10. Reverting to the facts of this case, we have found that the ld. CIT has revised the assessment order on two grounds, (1) regarding benefit of deduction given in respect of third party interest amounting to ₹ 33,79,844/- from the net profit arrived at by applying net profit rate at 8.07 percent on the gross contract receipts and ' (2) income from FDR interest which has been held to be assessed as income from other sources as against treatment by the AO the interest on FDR amounting to ₹ 19,50,875/- as income from business. In nut-shell the controversy between the parties can be decided by answering whether after the rejection of books and after applying net profit rate to business receipts deduction in respect of interest paid to third parties can be allowed and interest received on FDRs can be included in the total turnover or not? 11. After going through various decisions we have found that this Tribunal as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the AO on the above two points is unjustified. Accordingly, we set aside the impugned order and restore the order of the AO and allow the appeal. 12. Before parting, we may mention that the ground of allowance of depreciation was not a part of the show-cause notice given by the ld. CIT under s. 263 of the Act. Legally, the order is not permitted to be revised on a ground without giving notice to the assessee. Therefore, this action of the ld. CIT is not at all justifiable. We also set aside his finding on this issue. Appeal No. 411/Jd/2011: asst. yr. 2008-09 13. In this year, the order of the AO dt. 11.2.2010 was sought to be revised under s. 263 in respect of only one ground namely income from FDR interest which has been accepted as a part of the business income after applying net profit rate. As we have discussed above, in this year the order has been revised in the similar manner. The AO has investigated this issue and has found with reference to Tribunal order and High Court decisions that the interest amount of ₹ 39,27,453/- received by the assessee is to be treated as business income on which net profit rate of 8.07 percent as applied to business in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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