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2016 (6) TMI 793 - ITAT AMRITSAR

2016 (6) TMI 793 - ITAT AMRITSAR - [2016] 48 ITR (Trib) 604 - Revision u/s 263 - violation of the provisions of section 40A(3) - proceedings initiated on the basis of the audit objections - Held that:- The examination of violation of the provisions of section 40A(3) has been examined by the Assessing Officer on three occasions and he had not found any violation of such provisions. The reply filed by the assessee clearly shows that to manage his business at various places the advances were made t .....

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rder passed by the Assessing Officer was not erroneous and was not prejudicial to the interests of the Revenue. - The proceedings under section 263 were initiated on the basis of the audit objections as is noted by the learned Commissioner in his order. The honourable Punjab and Haryana High Court in the case of CIT v. Sohana Woollen Mills [2006 (9) TMI 157 - PUNJAB AND HARYANA High Court ] wherein held Commissioner of Income-tax not justified in invoking jurisdiction under section 263 on th .....

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taken by the assessee. "(i) That the order of the Commissioner of Income-tax passed under section 263 of the Income-tax Act, 1961, dated February 23, 2015, is against the facts of the case and untenable in law. (ii) That the learned Commissioner of Income-tax did not appreciate that the order passed under section 263 of the Income-tax Act, 1961, is bad in law and is liable to be cancelled. (iii) That the learned Commissioner of Income-tax failed to appreciate that the order passed by the As .....

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Assessing Officer has fully applied his mind and has passed the assessment after order having regard to the material on the record. As such the order of the learned Commissioner of Income-tax is bad in law and the same is liable to be cancelled. (v) That the order under section 263 of the learned Commissioner of Income-tax is bad in law because the audit objection cannot be made the basis for revision of an assessment. The Assessing Officer while completing the assessment has accepted the books .....

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Act, 1961. The case of the assessee was selected for scrutiny. During the assessment proceedings, after examination of books of account and after verification of other details the addition was made to the tune of ₹ 1 lakh. The learned Commissioner of Income-tax issued notice under section 263 and passed order under section 263 and set aside the order of the Assessing Officer with the directions to the Assessing Officer to decide the issue afresh on the merits in accordance with law. 4. Ag .....

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esentative in this respect invited our attention to a copy of questionnaire issued by the Assessing Officer placed at the paper book pages 12 to 14 and our specific attention was invited to question No. 19 placed at the paper book page 13. Inviting our attention to the reply to this notice, the learned authorised representative took us to the paper book pages 15 to 17 and our specific attention was invited to the reply to question No. 19 placed at the paper book page 17. The learned authorised r .....

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nted. Further, inviting our attention to the show-cause notice dated October 17, 2013, placed at the paper book page 22, the learned authorised representative submitted that after passing of the order the Assessing Officer again required the assessee to explain the so-called cash payments and a detailed reply was filed which is placed at the paper book pages 24 to 27. The learned authorised representative submitted that in this reply the assessee had elaborately explained that no payment in cash .....

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pages 30 to 38, wherein the assessee again explained that there was no violation of the provisions of section40A(3). The learned authorised representative submitted that on receipt of such reply from the assessee, the assessment proceedings under section 147 were dropped by the Assessing Officer and in this respect invited our attention to the paper book page 39 where a copy of such order dropping the proceedings under section 147 was placed. The learned authorised representative submitted that .....

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horised representative submitted that it was not open to the Commissioner to initiate proceedings under section 263, once the issue was examined by the Assessing Officer and this is a case where the issue was examined three times. Reliance in this respect was placed on the following case law. (i) Roshan Lal Vegetable Products Pvt. Ltd. v. ITO [2011] 9 ITR (Trib) 431 (Amritsar) ; [2012] 51 SOT 1 (Amritsar) (URO) ; (ii) CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom) ; and (iii) Malabar Industr .....

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of the same audit objection which was not warranted by law as held by the Punjab and Haryana High Court in the case of CIT v. Sohana Woollen Mills [2008] 296 ITR 238 (P&H) and in this respect filed a copy of the case law reported at 296 ITR 238. The learned authorised representative submitted that detailed submissions were filed with the Commissioner of Income-tax along with the relevant case law but the learned Commissioner of Income-tax ignored all the submissions and the judgments and fi .....

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that the Department had dropped the proceedings under section 147 to strengthen its case for action under section 263. 8. The learned authorised representative, in his rejoinder submitted that during reassessment proceedings under section 147 the Department had accepted that it was a change of opinion, therefore, had admitted that this issue was already examined by the Assessing Officer. Therefore, the order passed by the Commissioner needs to be quashed. 9. We have heard the rival parties and .....

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pointed out any payment in violation of the provisions of section 40A(3). We further find that a detailed reply was filed even after completion of assessment in view of the notice by the same Assessing Officer. Furthermore, we find on the same issue of violation of provisions of section 40A(3), the reassessment proceedings were initiated against which again the assessee filed detailed objections and reply which was placed at the paper book pages 30 to 38 and after going through the reply filed .....

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ails of material purchased by them and for making payments to labour and each payment was less than ₹ 20,000 and, therefore, in fact, there was no violation of the provisions of section 40A(3). The Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom), has elaborately dealt with the powers under section 263 and which, vide paragraphs 14 to 17 has held as under (page 116) : "We, therefore, hold that in order to exercise power under sub- section (1) of sect .....

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e prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on record called for by the Commissioner to satisfy him, prima facie, that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exerc .....

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a decision of Sabyasachi Mukharji J., as his Lordship then was, in Russell Properties Pvt. Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229 (Cal). In our opinion, any other view in the matter will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. As already stated it is a quasi-judicial power hedged in with limitatio .....

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an order of assessment, which has already been concluded and the controversy which has been set at rest, is set again in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from records called for by the Commissioner. 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 n .....

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issioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That, in our opinion, is not permissible. Further, inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier fi .....

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the assessee and against the Revenue. Under the facts and in the circumstances of the case, we make no order as to costs." Similarly, the decision of the honourable Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) has held as under (page 87) : "A bare reading of the provisions of section 263 makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner of Income-tax suo motu under it, is that the order of the Income-tax Off .....

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tion 263(1) of the Act. There can be no doubt that 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 ph .....

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he interests of the Revenue. The phrase 'prejudicial to the interests of the Revenue' has to 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 interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Off .....

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