TMI Blog2016 (10) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... T must come to the conclusion that the order is erroneous and is unsustainable in law. The finding of an "error" is the condition precedent for proceedings u/s. 263 of the Act which is palpably missing in his order and accordingly, the specious conclusion of the Ld. CIT without laying down any basis therefore is totally contrary to law. Therefore, the conditions precedent for invoking the provisions of sec 263 of the Act not having been satisfied, the action of the Ld. CIT of assuming jurisdiction there under is in contravention of the settled position in this regard. In view of above, we hold that the order passed by the ld. CIT is not sustainable in the law and accordingly we reverse the same. Hence the grounds of appeal of the assessee are allowed. - ITA No. 1367/Kol/2013 - - - Dated:- 24-8-2016 - Shri Waseem Ahmed, Accountant Member And Shri S.S.Viswanethra Ravi, Judicial Member By Appellant Shri Somnath Ghosh, Advocate By Respondent Shri Sachchidananda Srivastva, CIT-DR ORDER Per Waseem Ahmed, Accountant Member:- This appeal has been filed by the assessee relating to assessment year (AY ) 2008-09 is against the order passed by Commissioner of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Somnath Ghosh, Ld. Authorized Representative appeared on behalf of assessee and Shri Sachchidananda Srivastva, Ld. Departmental Representative appeared on behalf of Revenue. 2. Sole inter-connected issue raised by assessee in all the grounds of appeal is that Ld. CIT erred in holding the order of Assessing Officer erroneous and prejudicial to the interest of Revenue under section 263 of the Act. 3. Facts in brief as have been brought on record that assessee, an individual, is engaged in the trading business of potato. The assessee filed its income tax return for the year under consideration on 19.09.2008 showing total income of ₹ 1,13,464/-. Thereafter the case was selected for scrutiny assessment and accordingly notice u/s 143(2) r.w.s. 142(1) of the Act issued. The assessment was framed at ₹ 2,18,330/- after making certain disallowance / addition to the total income of assessee. 4. However, Ld. CIT u/s 263 of the Act while scrutinizing the assessment records of assessee, found that order passed by AO suffers from several deficiencies and infirmities as detailed under:- (a) The assessee for the year under consideration has shown unsecured loan for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse remarked in the audit report given by qualified Chartered Accountant u/s 44AB of the Act with regard to the loan creditors. It was submitted that loan creditors had furnished declaration in Form 15H / 15G for non deduction of TDS on the payment of interest. Therefore, assessee was not liable to deduct TDS on the payment of interest of ₹ 15,000 each paid/ payable to the four loan creditors. The assessee also submitted that the provisions of Section 194A is not applicable to it. (ii) It was submitted that the receipt of ₹ 3.5 lakh from three parties is reflecting the sale of potato. Assessee was not under any obligation to check the creditworthiness of the purchasers of potato. The sale-price was received through account payee cheques as a result of sale. None of the party, in the instant case, is a fictitious therefore propose addition u/s. 263 of the Act is not warranted. (iii) The payment of ₹ 1,50,000.00 and ₹ 1,25,000.00 was made to two parties which are the creditors of assessee and their balances were carried forward from the earlier year. The payment was made in the current year for the purchases made in the preceding year. (iv) With regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endered erroneous as well as prejudicial to the interests of the revenue. It is also pertinent to mention that the documentary evidences furnished by the Ld. AR before the undersigned in the course of hearing are not complete in nature and therefore the same only tend to vaguely support the AR/s contentions. No concrete inference can be drawn therefrom. I am, therefore, left with no other alternative but to set aside the assessment order dated 23.12.2010 u/s. 263 of the IT Act with the direction to the AO to frame the assessment de novo in the light of the observations made in the foregoing paragraphs and after conducting the requisite enquiries to that effect it is needless to say that while doing so, the AO shall afford a reasonable opportunity of being heard to the assessee. Being aggrieved by this order of Ld. CIT assessee came in appeal before us. 6. Before us ld. AR filed a paper book comprising pages from 1 to 123 and submitted that the ld. CIT has issued the notice u/s 263 of the Act on the basis of audit objection and without applying his own mind. The ld. AR drew our attention on pages 18 to 21 of the paper where the copy of the audit objection was placed. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes of Debol Angami on 28-06-2007 of Rs, 1 lakh Durlov Sharma on 02-07- 2007 of ₹ 1 lakh and Shri Balaji Comm. on 28-12-2007 of ₹ 1.50 lakh amounted to undisclosed income. During the course of assessment proceedings, the assessee had provided the details of sundry debtors which incorporates the impugned payments received on this behalf which are on account of sale price of potato from the purchasers. Since the amount of ₹ 3.50 lakh is duly considered in the receipts on which the income was computed as disclosed in the percepts of the books produced during the assessment proceedings. The specious findings of the Ld. CIT in this respect will not stand the test of judicial scrutiny. 6.2 The issue relating to the payment of ₹ 2.75 lakh is that it was found that the assessee had issued two cheques to two parties aggregating to the aforesaid amount during the previous year relevant to the assessment year under dispute who were not included in such details of purchase parties furnished by him. In course of assessment proceedings, it was apprised to the AO that such payments were made on account of discharge of liability for the preceding AY 2007-08. However, suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t attracted. It is an admitted fact that the name of Shri U. Tiwary is recorded in the salary register of the assessee which was adduced in course of the assessment proceedings. The entire amount was merely withdrawals from the bank account through his trusted employee which did not represent any expenditure and as such, the provisions of s. 40A(3) of the Act is not applicable. It is undisputed fact that the withdrawals made were deposited in the cash book were proved before the AO in the course of the assessment proceedings The provision of s. 40A(3) of the Act refers to the expenses undertaken in cash in excess of ₹ 20,000/- and not to withdrawals in excess of ₹ 20,000/- from banks. When provisions of s. 40A(3) were applied on cash withdrawal from bank it was held that such section is intended only for payments made in cash above ₹ 20,000/- and the addition resorted to on that ground was struck down [SUSHANfA SARKAR - VS- I.T.O. (I.T.A. NO. 95/KOL/09 DATED 27- 03-2009)1. In other words, the conception that cash withdrawal in excess of ₹ 20,000/- from bank has no connotation for inviting the mischief of s. 40A(3) of the Act is wrongly conceived by the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. It is true that for assumption of jurisdiction u/s 263 of the Act, the Ld. CIT should satisfy himself with regard to the order passed by the Assessing Authority is erroneous and prejudicial to the interest of revenue. In this connection we rely in the following judgments. 1) [JEEWANLAL (1929) LTD. -VS- ADDL.C.I.T. (1977) 108 ITR 407 (CAL)] where it was held : CIT issuing notice under s. 263 at the suggestion of audit without exercising his own discretion and judgment, such notice is invalid. 2) [B AND A PLANTATIONAND INDUSTRIES LID AND ANOTHER -VSC. LT. (2007) 290 ITR 395 (GAU)]. Revision-Erroneous and prejudicial order-Absence of finding/reasons by CIT-An order cannot be termed erroneous unless it can be shown to be an order which is not in accordance with law-Every error of an assessing authority is not open to exercise of powers under s. 263-Error committed by the primary authority must be an error of jurisdiction-Assessing authority allowed deduction of bonus to the assessee-Rectification proceeding initiated under s. 154 at the initiative of the audit party was dropped as the assessing authority was satisfied that there was no mistake apparent from the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiation of the instant proceedings was made on an advice of the Audit Party and not on the independent application of mind. In other words, it is the sole prerogative of the Ld. CIT which alone will be a ground for action u/s. 263 of the Act and any departure therefrom negates the jurisdiction vested in him under the law. Where it is clear that the Ld. CIT initiated the revisional proceedings influenced by the objection raised by the internal audit party and has not applied his independent mind, while passing the impugned order, such order is liable to be set aside and quashed It is also settled that the assumption of jurisdiction by the Commissioner was illegal as the order of registration passed by the ITO could not be considered erroneous on the basis of the report of the audit party Where in the impugned revision order Ld. CIT does mention about a few points, ostensibly borrowed from revenue audit objections, on the basis of which revision proceedings were initiated, but it was not even the Ld. CIT's case that he had any opinion of his own beyond this borrowed opinion to even consider the assessment order as erroneous and prejudicial to the interest of the revenue. Clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt details during assessment proceedings before the AO. Therefore it cannot be said that there was no application of mind of the AO in the matter. The only basis for invoking the provisions of s. 263 of the Act was improper examination in an appropriate perspective, i.e. lack of enquiry by the Assessing Officer. There is a distinction between 'lack of enquiry' and 'inadequate enquiry'. If there is an enquiry, even inadequate that would not by itself confer authority on the Ld. CIT to assume jurisdiction u/s. 263 of the Act merely because he has a different opinion in the matter. In this connection we rely in the following judgments. 1. [PLASTIC CONCERN -VS- A.C.I.T. (1998) 61 TTJ (CAL) 87]. Revision-Validity-Change of opinion-Confidential note, of AO reveals that revisional authority had looked into the facts of the case and material on record in coming to conclusion that no addition could be made at the stage of assessment and gave his consent to AO to proceed with assessment- Later, initiated proceedings under s. 263-Not justified-By this action, he only intended to give AO further time of two years to complete the assessment at leisure-Jurisdiction of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03 ITR 108 (Bom), Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC), CIT vs. Smt. D. Valliammal (1997) 140 CTR (Mad) 433 : (1998) 230 ITR 695 (Mad) and Andhra Valley Power Supply Co. Ltd. vs. Dy. CIT (1995) 53 TTJ (Bom) 647 : (1995) 55 ITD 24 (Bom) relied on; CIT vs. Kohinoor Tobacco Products (P) Ltd. (1998) 148 CTR (MP) 536 : (1998) 234 ITR 557 (MP) distinguished. AO, before making the assessment, having called for details and having discussed the matter with the representative of the assessee, such an order cannot be called erroneous and prejudicial to interests of Revenue only because the AO made a brief assessment order without discussing such details therein. Therefore one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. One has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate that would not by itself give occasion to the Ld. CIT to pass orders under section 263 merely because he has different opinion in the matter. It is only in cases of 'lack of inquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nywhere in the impugned order that the assessment order of the AO is erroneous as well as prejudicial to the interests of the revenue. The non-compliance with the statutory prescription as evident from the impugned order is a serious infirmity vitiating the validity of the proceedings. In a situation where the Assessing Authority as an adjudicator decides an issue and renders a wrong decision which is unsustainable in law. It can be corrected by the Commissioner in exercise of revisionary power. In such cases, the Ld. CIT has to come to the conclusion and himself decide that the order is erroneous by conducting appropriate enquiry if required and necessary before the order u/s. 263 of the Act is passed. In such cases, the order of the Assessing Authority will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. The jurisdictional precondition stipulated is that the Ld. CIT must come to the conclusion that the order is erroneous and is unsustainable in law. The finding of an error is the condition precedent for proceedings u/s. 263 of the Act which is palpably missing in his order and accordingly, the specious conclusion of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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