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TMI Blog2017 (3) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned order of Revision is wholly illegal and without jurisdiction. 1.2 The Ld.CIT has grievously erred in law and or on facts in holding that the order of assessment dt 30-5-2012 was erroneous and prejudicial to the Revenue in as much as it failed to carry out inquiry in respect of (i) office building repairs capitalized without any land shown in the assets (ii) high pitched claim of salary expense (iii) genuineness of consultancy expenses paid to Mala Ghiya and Sona Parikh (iv) allowability of donation exp. (v) initiate and levy penalty u/s.271(1)(c) in respect of claim of exemption u/s.10B which was withdrawn suo motu in the revised return. 2.1. The Ld.CIT has grievously erred in law and on facts in holding that the order of assessment dt 30-5-2012 was erroneous and prejudicial to the Revenue in as much as it failed to carry out inquiry. 2.2. That in the facts and circumstances of the case as well as in law, the Ld.CIT ought not to have held that the order of assessment dt 30-5-2012 was erroneous and prejudicial to the Revenue in as much as it failed to carry out inquiry. 3.1. The Ld.CIT has erred in law and on facts in setting aside the entire assessment and directing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led a revised return on 30.03.2012 declaring income of Rs. 74,13,630/- and thereby withdrawing its claim of deduction u/s.10B made in the original return of income. The A.O. completed the assessment u/s.143(3) on 30.05.2012. However, the AO did not initiate penalty proceedings u/s.271(1)(c) of the Act, resulting in the assessment order being erroneous and prejudicial to the interest of revenue (In this regard, Reliance is placed on the decision of Allahabad High Court in the case of CIT vs. Surendra Prasad Agarwal 42 Taxman 653). 3. Further, it was seen that the assessee has claimed to have made addition to fixed assets block amounting to Rs. 1,11,50,763, including expenditure of Rs. 61,81,270/- on office building. However, in the schedule of fixed assets, the assessee has not shown any land on which the building is constructed. The AO had not called for any details regarding addition to fixed assets amounting to Rs. 1,11,50,760/- and has not conducted any enquiries in this regard. Hence, the claim of depreciation was allowed without verification of its eligibility. 4. The Assessing Officer has also not carried out any inquiry to verify genuineness of assessee's high pitc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned notice, it was alleged by the Commissioner that examination of records revealed that assessment order so passed is erroneous in so far as its prejudicial to the interests of the Revenue for the reasons that the AO has failed to make enquiries/ verifications/examinations in respect of certain items of expenditure and deductions as noted above as warranted in the facts and circumstances of the case. Secondly, the Commissioner observed that AO did not initiate penalty proceedings under S.271(1)(c) of the Act for wrongful claim of deduction under s.10B of the Act resulting in assessment order being erroneous and prejudicial to the interest of the Revenue. In response, the assessee submitted before the CIT that various details were called for at the time of assessment as per notice issued in this regard dated 07/02/2012 and 01/03/2012 and the assessee has replied thereto. The AO was satisfied with the reply and the revised figures of income were accepted in the assessment order. In response to non- initiation of penalty proceedings, it was the case of the assessee before the CIT that penalty u/s.271(1)(c) of the Act can be initiated only when the assessee has concealed the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s nor prejudicial to the interests of the Revenue and therefore the action of the CIT under S.263 of the Act is without authority of law. 7.1. The Ld.Counsel for the assessee firstly submitted that non- initiation of penalty proceedings by the AO is not a justifiable ground for invoking revisionary power under S.263 of the Act. The Ld.Counsel for the assessee submitted on facts that assessee inadvertently claimed deduction under S.10B of the Act being under erroneous impression that it is eligible for such claim of deduction owing to it being 100% EOU. The assessee was advised by his Chartered Accountant that once the Unit is having Import and Export Code, it tends to fulfill all the conditions of section 10B of the Act. The assessee acted on the advice and claimed deduction under S.10B of the Act and did not apply for seeking approval from the Board appointed by the Central Government as contemplated under S.10B of the Act. On realizing the mistake in the course of the assessment proceedings, the assessee itself has revised the return suo motu and withdrew the claim. In the circumstances, it was submitted, where the claim for deduction was based on advice given by assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f land is not necessary for construction or other addition of capital nature under the head building. The allegation of "high pitched claim of salary" will also not a relevant consideration for invoking powers under S. 263 of the Act. The requisite details of the salary as called for was placed on record. The AO was satisfied with the details so filed. Similarly, show cause on eligibility of deduction towards donation was alleged to be very vague. It was thereafter contended that the inadequacy of enquiry by the AO per se from a perfectionist point of view of Commissioner do not permit him to invoke revisionary powers. 7.3. The Ld. AR in conclusion asserted that pre-requisites of S.263 are not fulfilled and thus the action under S. 263 is vitiated in law. 8. Per contra, the Ld. DR for the Revenue, Mr.Sanjay Agrawal CIT(DR) relied on the order of the Commissioner passed under S.263 of the Act and case-laws cited therein. The Ld. DR submitted that the reasons for issue of notice under S.263 of the Act were twofold; 8.1 Firstly, the assessee failed to initiate penalty proceedings under S.271(1)(c) of the Act during the course of assessment/reassessment proceedings in respect of ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o take notice of gross facts attracting penalty u/s.271(1)(c) of the Act while framing the assessment order causing grave prejudice to the interest of revenue owing to such error, the inaction of AO vests CIT with required jurisdiction under the provisions of S.263 of the Act read with amended provisions of S.271(1)(c) of the Act. The Ld.DR thereafter heavily relied upon the decision of Hon'ble Allahabad High Court in the case of CIT vs. Surendra Prasad Agrawal reported in (2005) 275 ITR 113 (All.), wherein Allahabad High Court was categorical in saying that in the event of the omission of the AO to initiate penalty proceedings during the course of assessment proceedings, such omission renders the assessment order erroneous and prejudicial to the interests of Revenue. The Ld. DR next referred to the decision of Hon'ble Patna High Court in the case of R.A. Himmatsingka & Co. vs. CIT reported in 340 ITR 253 (Pat.) and submitted that Patna High Court has discussed the scope of assessment order to include initiation of penalty. The Ld. DR thereafter adversed to the decision of Hon'ble Gujarat High Court in the case of CIT vs. Parmanand M. Patel reported in 278 ITR 03 (Guj.) and submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er S.263 of the Act to cancel the assessment is fully justified to protect the interest of Revenue. 8.2. Addressing the second ground for invoking section 263 of the Act, the Ld. AR contended that it is a case of lack of elementary enquiries on the expenses and deductions claimed and non application of mind on claims made. It is just not a case of inadequacy of enquiry or extended enquiry missing on the subject matter of assessment. As evident, the CIT observed lack of basic enquiries on genuineness of commission paid, salary expenses incurred or depreciation allowance, donation etc. objected by the assessee as per its grounds of appeal. The Ld.DR thus submitted that the assessment order has been passed perfunctorily even without any basic enquiry into the correctness of the claim of certain expenses; namely, consultancy expenses, high-pitched of salary expenses and office building repairs, etc.. With reference to consultancy expenses, the Ld.DR contended that there was no enquiry whatsoever, regarding the nature of services rendered by the recipients of the consultancy fees. Such expenses could not have been summarily accepted without weighing the factum of rendition of the servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view to address the revenue risks which are objectively justifiable. 11. As per the arguments, the legal issue that emerges for adjudication is whether the Commissioner under the umbrella of revisionary powers is entitled to upset the finality of assessment proceedings before the AO who has omitted to initiate penalty proceedings in respect of defaults stipulated under section 271(1)(c) when the circumstances for doing so exists. The other integral issue that arises is whether scope of assessment includes initiation of penalty proceedings under S. 271(1)(c) or not. There are long line of judicial precedents on the issue both for and contra. The Hon'ble Gujarat High also had occasion to deal with the issue relevant to assessment year 1982-83 in CIT vs. Parmanad M. Patel 278 ITR 3 (2005) wherein the decision was rendered in favour of the assessee. Riding on the decision of the Hon'ble Gurarat High Court, the co-ordinate bench of Tribunal in J. P. Construction vs. CIT ITA No. 1304/ Ahd./ 2009 order dated 24.07.2009 [ AY 2005-06] cancelled the action of the CIT under section 263 wherein the assessment order was set aside for framing assessment afresh in order to initiate penalty under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Delhi) and in Addl.CIT vs. Sudarshan Talkies (1993) 200 ITR 153 (Delhi); also by Hon'ble Madras High Court in CIT vs. C.K.K.Swami (254 ITR 158); Sarda Prasad Singh v. CIT (173 ITR 510 (Gauhati), it has been hled that if the Commissioner finds, while examining the records of an assessment order under section 263, that the Assessing Officer has not initiated penalty proceedings, he cannot direct initiation of penalty proceedings because penalty proceedings are not a part of assessment proceedings. The Commissioner cannot pass an order under section 263 p0ertaining to penalty. Hon'ble Supreme Court has dismissed special leave petition against the Delhi High Court decision in Addl.CIT vs. J.K. D'Costa [reported in (1984) 147 ITR (St) 1)]. In the case of CIT v. Dr.Suresh G.Shah (289) ITR 110 (Guj) following its earlier judgement in the case of CIT v. Parmanand M.Patel (2005) 198 CTR (Guj) 641/278 ITR 3 (Guj), Hon'ble Gujarat High Court has held that while exercising powers under Section 263, CIT is not competent to direct initiation of penalty proceedings under s.271(1)(a) or s.273(2)(c) of the Act. In the case of CIT v. Parmanand M.Patel (supra), Hon'ble jurisdictional High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be remanded to the Tribunal for deciding the appeal by considering the amendment in Section 271 [1] of the Act. Learned advocates appearing on behalf of respective sides are not in a position to dispute the same and as such are not disputing the above. In view of the above and without expressing anything on the merits on behalf of the either parties and solely on the aforesaid ground, the impugned judgment and order dated 24th June 2009 passed by the Tribunal is hereby quashed and set-aside and the matter is remanded to the Tribunal to decide and dispose of the said appeal afresh in accordance with law on merits and considering the amended Section 271 [1] of the Act. Present Tax Appeal is accordingly allowed to the aforesaid extent with no order as to costs." 12. In the wake of developments narrated above, the controversy has resurfaced again and issue has become open to debate having regard to the amendment in S. 271(1)(c), which we seek dwell upon. 13. On perusal of the decision of Hon'ble Gujarat High Court in Parmanand Patel case (pre amended law), we note that basis for holding that the CIT lacks jurisdiction under S. 263 to cancel the assessment for failure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Except for a legal bar that penalty proceedings cannot be initiated subsequent to the conclusion of assessment proceedings, there is no other perceptible dependence qua the assessment order. As a sequel thereto, in our considered view, it is not open to CIT to exercise the revisional powers to create a non existent proceedings under S. 263 by holding the assessment proceeding as erroneous in so far as prejudicial to the interest of revenue. Pertinent to say, section 263 creates, defines and regulates the revisional powers of the CIT concerned and is thus a substantive provision. Hence, the strict requirements of a jurisdictional provision can not be compromised. We are alive to the situation that in the absence of the revisional power, the revenue is probably deprived of any remedy to cure the lapse committed by the AO in appropriate cases. This however, will not alter the position of law spelt in this regard. Howsoever, clear the legislative intent may be, the requirements of a substantive provision cannot be bypassed to give effect to such intent. It is trite that legislative casus omissus cannot be supplied by judicial interpretive process. 15. The action of CIT under S. 263 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t namely CIT vs. Saraya Distillery 115 ITR 34 (All.); Addl. CIT vs. J.K, D'Costa (1981) 133 ITR 7(Del.) [ SLP dismissed against the aforesaid decision] which were referred to and followed in other decisions of Hon'ble Delhi High Court. The Hon'ble Gujarat High Court has taken note of varied decisions of different High Courts while determining the issue in favour of the assessee. The propositions laid down by the Hon'ble Gurarat High Court will prevail over the contrary propositions. We simultaneously take note the decision of Hon'ble Patna High Court in the case of R.A. Himmatsingka & Co. vs. CIT (2010) 340 ITR 253 (AY 2004-05) relied upon by revenue wherein the it was explained that expression 'proceedings' employed in section 263 is wider than the expression 'assessment'. However, in our view, nothing turns on this. The decision was rendered in a case where the penalty proceedings were duly initiated and later dropped which was subject matter of S. 263. Judicial utterances were made in the context of the case therein. 17. To sum up, in the light of various propositions culled out from decision of Hon'ble Gujarat High Court in Parmanand Patel ( supra) we are disposed to hold that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of various claims of expenditure etc. referred by the revenue as noted earlier paras with any perceptible inquiry which has been agitated by the assessee in the present appeal. 18.1 It is the case of the revenue that unlike the civil court which is neutral to give a decision on the basis of evidence produced before it, an assessing officer is not only an adjudicator but is also an investigator. He cannot remain passive on the face of a return which may be apparently in order but calls for enquiry thereon. Failure to make basic enquiry into claim of expenditure and deductions etc. would render the assessment order erroneous as well as prejudicial to the interest of revenue. The revenue contends that the assessment order is vitiated by non application of mind to the various claims of expenditure and deductions as demonstrated in the revisional order. 18.2. On appraisal of facts, we are inclined to agree with the contention of the revenue that no endeavour was made to enquire the bonafides of claims agitated. The Assessee is also not shown to have discharged onus on the correctness or otherwise of the claims before the AO in respect of disputed claims. No perceptible enquiry was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice under S. 263 on the ground that the order of assessment was erroneous in as much as the AO failed to initiate the penalty proceedings under S. 271(1)(c) in respect of wrongful claim of deduction under 10B of the Act. The order of the AO was cancelled by the CIT vide its order dated 21.01.2015 and the AO was directed to make fresh assessment of the total income of the Assessee. The assessee is aggrieved by the impugned order of the CIT. The Grounds of appeal raised by the assessee before the Tribunal reads as under. "1.1. The order passed u/s.263 on 20/01/2015 for AY 2008-09 by CIT- II, Abad is wholly illegal, unlawful and against the principles of natural justice. The impugned order of Revision is wholly illegal and without jurisdiction. 21.1. The Ld. CIT has grievously erred in law and or on facts in holding that the order of assessment dt 29/05/2012 was erroneous and prejudicial to the Revenue in as much as it failed to initiate and levy penalty u/s.27191)9c) in respect of claim of exemption u/s.10B which was withdrawn suo motu in the return filed in response to notice u/s.148 by the appellant. 2.1. The Ld.CIT has grie4vously erred in law and on facts in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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