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Mr. Subhas Kumar Dhanuka Versus C.I.T., Kol-XIX, Kolkata

2016 (5) TMI 1186 - ITAT KOLKATA

Revision u/s 263 - lack of enquiry by the AO - Held that:- A perusal of order passed by the AO under section 143(3) clearly shows that there is no discussion whatsoever on the various issues pointed out by the ld. CIT in the notice issued under section 263. The ld. Counsel for the assessee also has not been able to bring anything on record to show that the enquiries as warranted in the facts and circumstances of the case were actually made by the AO during the course of assessment proceedings. T .....

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nt with the ld. DR that it was a case of lack of enquiry on the part of the AO while completing the assessment under section 143(3) and such lack of enquiry made the assessment order passed by the AO under section 143(3) erroneous as well as prejudicial to the interest of the Revenue giving jurisdiction to the ld. CIT under section 263 to set aside the same with a direction to the AO to make the assessment afresh. We therefore, uphold the impugned order of the ld. CIT passed under section 263 - .....

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is carrying on the business as insurance agent. The return of income for the year under consideration was filed by him on 15.07.2008 declaring total income of ₹ 8,15,179/-. In the assessment completed under section 143(3) vide an order dated 27.12.2010, the total income of the assessee was determined by the AO at ₹ 8,75,890/- after making disallowance on account of motor car expenses, telephone expenses and business promotion expenses aggregating to ₹ 60,708/-. The record of t .....

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art of the balance sheet revealed no addition on account of computer purchase. Aforesaid purchase was also not reflected in the stock-in-trade. The A.O. is found to have neither made any enquiry nor called for any explanation from the assessee regarding such huge purchase of spare-parts on the last day of the F.Y. Further the reasonableness of the expenditure appears to have not been examined by the A.O. (b) The assessee has claimed a sum of ₹ 1,57,325/- under the head "forms and circ .....

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als" stood at ₹ 2,05,129/-. This claim included purchases worth ₹ 1,04,129/- from M/s Hindusthan Sales Corporation on 03-12-2007. In this regard the A.O. is found to have not enquired about the nature of stationery purchase and as to how the materials stood consumed by the assessee during the relevant F.Y. Reasonableness of the expenditure under this head also appears to have not been verified by the A.O. at all. (d) The assessee is found to have claimed an expenditure of ₹ .....

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i.e. the LIC commission agency. The AO seems to have failed to examine this aspect. On the contrary, the A.O. only disallowed a sum of ₹ 20,000/- on estimate basis for which no rationale was discernable It is pertinent to mention that for a commission agent of LIC the question of incurring business promotion expenditure generally does not arise. (e) The assessee's total claim of expenditure under the head "salary and bonus" stands at R.4,28,000/-. Details of such expenditure .....

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re, issued a notice under section 263 requiring the assessee to showcause as to why the order passed by the AO under section 143(3) should not be revised treating the same as erroneous as well as prejudicial to the interest of the Revenue. In reply, the following explanation was offered by the assessee in writing before the ld. CIT. The learned A.O. had passed a scrutiny assessment order u/s 143(3) of I.T.Act,1961. All the details of expenses along with supporting evidences were submitted to him .....

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, 1961 may be issued only if both the following conditions are satisfied: The order passed by the AO is erroneous and The order is prejudicial to the interest of the Revenue. In the case of Malabar Industrial Company Ltd. Vs. CIT(2000) 159 CTR(SC) 1: (2000) 243 ITR 83(SC), the Hon'ble apex Court has observed that a bare reading of s. 263(1) makes it clear that the prerequisite conditions to exercise revisionary jurisdiction by the CIT, suo motu, is that the order of the AO is erroneous insof .....

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ue', have not been defined but legally it is well settled that they only mean that order should not have been passed in accordance with the provisions of law, in consequence thereof the lawful revenue, due to the state, has not been realized or cannot be realized Likewise, the expression "erroneous" has not been defined in the Act. But it's plain meaning is that the term 'erroneous' involves error or deviation from law. Therefore, an assessment order made by complying t .....

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under several heads of expenses. Thus the order of the AO cannot be said to be erroneous, as all expenses have been examined by the AO in detail including the expenses and purpose mentioned by your goodself in the notice issued. Reference is made to the judicial pronouncement by the ITAT, Jodhpur Bench in Pawan Kumar vs. Assessing Officer (2007) 106 TT J 494 where it was held that where the AO had fully verified the purchase/sale of goods and examined the audit report, it could not be said that .....

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ould not be any reason for the order to be prejudicial to the interest of the revenue. Without prejudice to the above, it is further submitted that the assessee is a LIC Commission Agent and earns LIC commission against sale of new LIC policies under different policy plans. Under the current scenario, it is very difficult to sell LIC policies. Returns against investment made in LIC policy are much lower than any other investment plan. Hence, no one becomes interested in taking any new LIC policy .....

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staff to carry on the day to day regular business. As asked by you, the various expenditures incurred by the assessee during the F.Y. 2007-08 are discussed as under: 1. Computer Stationery Expenses: - The assessee has installed computer machines for maintaining the details of policies under Magic LIC approved software. Hence the assessee has to purchase computer stationeries including computer COs and various other day-to-day computer consumable items. All such expenses are revenue in nature, he .....

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communicate about the new policies to various customers. All payments under this head are being made by cash/cheques against bills and vouchers. These payments are made wholly and exclusively for the purpose of this LIC business. 3. Printing and Stationery Expenses :- Printing and stationery expenses are incurred for the purpose of printing of various pamphlets, brochures, envelopes, visiting cards, letter heads etc. Huge papers and stationeries are regularly required to run the day, to day ope .....

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e every month. 4. Business Promotion Expenses :- In LIC Agency business, various meetings and seminars are organized from time to time by the assessee in which current existing policyholders and potential customers are invited to inform about new policies and plans. Various expenses towards venue booking charges, food arrangements etc. are incurred to organize such meetings. Distributions of sweets are made on Diwali and other festive occasions. Calendars, Personal Diaries and other free gifts a .....

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chemes to the new policyholders. It is very much necessary for every agent to offer all these gifts to increase their business. 5. Salary and Bonus :- Salary and Bonus payments are made to various regular staffs in the office. LIC office has provided a server machine in the assessee's office to collect the premium of the policyholders either by cash or cheque and issue independent receipts on behalf of LIC office to the policyholders. Permanent staffs are required to run a premium collection .....

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il proper documents are submitted to them. Sanction of loans against the running policies. Death Claim Sanctions, surrender value of policies etc. are regular activities to be provided to existing policyholders. All these activities can only be performed with the help of regular educated staffs only. Hence proper human resources are required to carry on day to day regular work for facilitating the assessee to render different categories of services to the policyholders. However, now-a-days, smar .....

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ted for verification during the course of assessment proceedings. Thus under the facts and circumstances of the case, the assessee has shown a moderate income of 20 % of total receipt during the A.Y. 2008-09. He has paid an Income Tax amount of ₹ 2,00,000/-(approx.). There is no loss to revenue. Hence the assessment order passed for A.Y. 2008-09 is not erroneous and prejudicial to the interest of the revenue. I, therefore, request your honour to drop the proceedings u/s 263 of Income Tax A .....

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nt claims. Regarding the computers stationery expenditure it is clearly noticed that a part thereof constitutes a capital expenditure, but the entire claim has been shown by the assessee as revenue expenditure. In respect of the business promotion expenses it is noticed that a significant part thereof constitutes personal expenditure in the form of jewellery purchase etc. In relation to the other heads of expenses it is seen that the claims increased abruptly in the last month of the F.Y. The ra .....

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s made by the assessee. The A.O. should have got apprehensive about the genuineness and the reasonableness of the conspicuously inflated expenditure claim. Omission/failure on the part of the AO. to conduct the necessary enquiries to unearth/unravel the ingenuine type of claim in the P & L account has undoubtedly rendered the assessment order erroneous as well as prejudicial to the interests of the revenue. All these aspects omitted to have been examined by the A.O. during the assessment pro .....

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Counsel for the assessee submitted that the so-called errors in the order of the AO have been pointed out by the ld. CIT in his impugned order passed under section 263 on the basis of details and documents furnished by the assessee during the course of assessment proceedings. He contended that the fact that these documents and details were available on record before the AO itself shows that the errors pointed out by the ld. CIT were duly examined by the AO during the course of assessment proceed .....

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IT-vs- Jyoti Foundation 357 ITR 388 (Del.) and in the case of CIT-vs- Sunbeam Auto ltd. 332 ITR 167 (Del.) as well as the decision of the Coordinate bench of this Tribunal in the case of M/s. Fairland Development (P) Ltd. -vs- CIT in ITA no.786/Kol/2012 dated 20.01.2016 to contend that the assessment cannot be held to be erroneous and prejudicial to the interest of the Revenue on the basis of inadequate enquiry. 6. The ld. DR, on the other hand, invited our attention to the assessment order pass .....

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