TMI Blog2017 (8) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. If the order passed by the Commissioner of Income-tax is sustained then this will permit the illegality to continue and the subsequent action is carried out on the illegal order is also illegal per se. If there is some inquiry by the Assessing Officer in the original proceedings, even if inadequate, that cannot clothe the Commissioner with jurisdiction under section 263 merely because he can form another opinion. At the most the case of the assessee can be regarded to be the lack of inquiry in accordance with Commissioner of Income-tax if he has different opinion how to proceed with the assessment of the assessee.See CIT v. Vodafone Essar South Ltd. [2012 (12) TMI 70 - DELHI HIGH COURT] - Decided in favour of assessee. - I. T. A. No. 382/Lkw/2016 - - - Dated:- 12-4-2017 - P. K. Bansal (Vice-President) and Amarjit Singh (Judicial Member) For the Appellant : Rakesh Garg, Advocate For the Respondent : J. S. Minhas, Departmental Representative ORDER P. K. Bansal (Vice-President) 1. This appeal filed by the assessee is against the order of the Principal Commissioner of Income-tax-2, Lucknow dated May 16, 2016 passed under section 263(1) of the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 013- 14 has been called for and examined by the undersigned. The asses see was engaged in providing consultancy and contract business of cable TV and deals in channel placement business of cable TV companies. After examination of the case records, the undersigned consider that the assessment for the assessment year of 2013-14 which is completed under section 143(3) of the Income-tax Act, 1961, on June 19, 2015 at a total income of ₹ 3,29,324 is erroneous in so fact as it is prejudicial to the interests of the Revenue on the following issues : (i) The assessee has shown a total turnover of ₹ 1,79,85,012 whereas as per 26AS details the total receipts are at ₹ 1,87,85,136. Thus, there is a difference of ₹ 8,32,727 which are not disclosed. Since the deductors has credited the assessee's account by ₹ 1,87,85,136 during the financial year 2012-13 relevant to the assessment year 2013-14 and the assessee has been maintaining its account on the mercantile system of accountancy, therefore it was required to show the entire receipt in the books of account and this difference of ₹ 8,32,727 should have been shown as payment receivable, which was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 8,32,727 i.e., difference in gross receipt as per the books and as appearing in the 26AS details of the assessee, and (ii) issue of payment of consultancy charges of ₹ 10,00,000 to Ms. Anjali Arora and ₹ 5,00,000 to Shri Sidharth Srivastava. 5. The learned authorised representative of the assessee vehemently contended that the Assessing Officer has duly verified and applied his mind to both the issues, therefore, the order of the Assessing Officer is not erroneous and prejudicial to the interest of the Revenue. He has drawn our attention towards pages 42 and 43 of the paper book i.e., questionnaire dated December 9, 2014 issued under section 142(1) of the Act, in which query regarding the details and nature of business activities undertaken by the company as well as asking the break-up of the gross receipts of ₹ 1,59,77,580 and the sources of receipt of amount (receipt on which TDS has not been deducted separately and receipts on which TDS deducted) was asked for. In this regard, our attention was drawn to the reply submitted by the assessee vide its letter dated January 9, 2015 and subsequently the Assessing Officer also made enquiry on the same iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payee cheque after deducting TDS. Copy of the consultancy agreement dated April 5, 2014 between Anjali Arora and the assessee-company was submitted before the Assessing Officer vide letter dated February 16, 2015. In furtherance to reply dated February 16, 2015, it was submitted that Anjali Arora has been working as a Country Manager-India for pacific traders, an MNC with effect from April 1, 2011. Copy of her employment letter including the terms of her employment and pacific traders were also filed. For this, our attention was also drawn towards paper book, in which all the details filed in respect of Anjali Arora are given. 7. Similarly, in respect of the payment of consultancy charges paid to Sidharth Srivastava amounting to ₹ 5 lakhs, it was submitted that consultancy agreement dated April 5, 2014 was filed before the Assessing Officer vide reply dated February 16, 2015. In furtherance to letter dated February 16, 2015, it was also stated that Sidharth Srivasatava had been working as Consultant for MCN International (India) Pvt. Ltd. an MNC from April 1, 2011. Copy of this agreement was filed before the Assessing Officer, from which it was evident that he had good exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ija (I. T. A. No. 169 of 2015 dated August 11, 2015) in which the hon'ble High Court has held as under : Having heard the learned counsel for the appellant, we are of the opinion that section 263 of the Act, cannot be exercised by the authority in the instant case. We are of the opinion that once an inquiry has been made and the reply of the assessee has been considered, the same matter cannot be re-agitated on the ground that some further inquiry was necessary. In our view, section 263 can be exercised where there was a lack of inquiry by the Assessing Officer and not on the ground of inadequate inquiry. 9. Reliance was also placed on the decision of the hon'ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) ; 189 Taxman 436 (Delhi) as well as that of the hon'ble Rajasthan High Court in the case of CIT v. Jain Construction Co. [2013] 215 Taxman 127 (Raj) for the proposition of law that if the Assessing Officer has made inadequate enquiry that would not by itself give occasion to the Principal Commissioner of Income-tax-2, Lucknow to pass order under section 263 of the Act merely because he had a different opinion in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this Act if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, be may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Director or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A ; (ii) an order made by the Joint Commissioner in exercise of the power or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be exercised under section 263 by the Commissioner of Income-tax. Firstly, the Commissioner may call for and examine the records of any proceedings under the Act and for this purpose he need not to show any reason or record any reason to believe as is required under section 147 or 148(2). It is part of his administrative power to call for the record and examine them relating to any assessee which falls under his jurisdiction. Secondly, he may consider any order passed by the Assessing Officer as erroneous as well as prejudicial to the interests of the Revenue. This is exercised by calling for an examining the record available at this stage. There is no question of the assessee to appear and make submission at this stage. Thirdly, if after calling for an examining the records the Commissioner considers that the order of the Assessing Officer is erroneous in so far as it prejudicial to the interests of the Revenue, he is bound to give an opportunity to the assessee of being heard and after making or causing to be made such enquiry as he deem fit, pass such order thereon as the circumstances of the case may justify including an order enhancing or modifying the assessment or cancel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, also and submitted that inadequacy of enquiry according to the whims and caprice of Commissioner does not give jurisdiction to the Commissioner to invoke section 263 and set aside the assessment. Now, the question before us is whether the Assessing Officer has examined each and every issue relating to the question which has been raised by the Commissioner in the show-cause notice and after examining the same he has taken a conscious decision not to make the addition to the extent, he found it to be justified or he did not make the addition as he is satisfied with the disclosure made by the assessee in the returns filed by him. Whether the income in respect of which the Assessing Officer has not made any addition is duly supported by the disclosure made by the assessee in the return filed. 16. The two issues in respect of which the Principal Commissioner of Income-tax-2, Lucknow has exercised jurisdiction under section 263 of the Act consist of one relating to the difference in the total receipts. According the Principal Commissioner of Income-tax-2, Lucknow, the assessee has shown the total turnover at ₹ 1,79,85,012 whereas as per Form No. 26AS the total receipts wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f loss against the short- term capital gain on sale of shares but did not point out what type of inquiry or verification should have been carried out in this regard by the Assessing Officer. How non-examination of this aspect has resulted in under assessment. The order passed by the Assessing Officer, in our opinion, shall be deemed to be erroneous in so far as it prejudicial to the interests of the Revenue if the Principal Commissioner would have specifically pointed out which of the inquires or verification should have been carried out by the Assessing Officer in this regard and the Assessing Officer failed to carry out those inquiries and verification as desired by the Principal Commissioner. Since the Principal Commissioner has not suggested the basis of the inquiry or verification to be carried out by the Assessing Officer, the order passed by the Assessing Officer cannot be deemed to be erroneous in so far as it is prejudicial to the interests of the Revenue. 19. Similar view has been taken by the Jabalpur Bench of the Tribunal in the case of Jashn Beneficiary Trust v. Asst. CIT [2017] 57 ITR (Trib) 29 (Jabalpur) in ITA No. 100/JAB/2016 vide its order dated March 15, 2017, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, if the Assessing Officer has adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Assessing Officer is unsustainable in law. Where a sum not earned by a person is assessed as income in his hands on his so offering the order passed by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary details were furnished to the Assessing Officer, there was no reason for the Commissioner of Income-tax to invoke the revisional jurisdiction under section 263 of the Act. The Commissioner has not stopped merely by issuance of notice under section 263. Once compliance is made, he went on issuing notice after notice and certain adverse inferences were drawn by him from the details collected by him during the revisional proceedings. Those details were thoroughly checked and examined by the Tribunal and arrived at a factual finding that there was no illegality committed by the assessee in entrusting the work to sub-contractors nor was there any illegality in making all due payments to them. The Tribunal has also given a specific finding to the effect that there was no evidence on record that these contractors were related to the assessee or were associates or sister concern of the assessee. The Tribunal has also given a finding that the Revenue has not discharged the onus that the payment to the sub- contractors were not genuine. Thus, the Tribunal has come to the conclusion that no disallowances can be made merely on the basis of suspicion, howsoever strong may it be, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be the lack of inquiry in accordance with Commissioner of Income-tax if he has different opinion how to proceed with the assessment of the assessee. 26. Similar view has been taken by the hon'ble Delhi High Court in the case of CIT v. Software Consultants [2012] 341 ITR 240 (Delhi) in which it has been held as under (headnote) : The assessee-company did not file its return of income for the assessment year 1993-94. During the course of assessment proceedings for the assessment year 1997-98, it was noticed that the Central Bureau of Investigation had conducted search in the premises in which fixed deposit receipts worth ₹ 20 lakhs relating to assessment year 1993-94 were found in the possession of P, a director of the company. However, P claimed that the fixed deposits though in her name, actually belonged to the assessee. This stand was accepted by the Commissioner (Appeals) in the appeal filed by P. Thereafter, the Assessing Officer in the case of the assessee issued notice under section 148 of the Income-tax Act, 1961. In response to this notice, the assessee filed a return showing loss of ₹ 1,02,756. By assessment order the Assessing Officer accepted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order under section 263 of the Act. The assessment order was not erroneous. Thus, the Commissioner could not have exercised jurisdiction under section 263 of the Act. 27. In the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) the High Court has held that inadequacy of enquiry will not give the jurisdiction to Commissioner under section 263. In this hon'ble High Court has held as under (headnote) : The Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc. Whether there was application of mind before allowing the expenditure in question has to be seen. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Income-tax Act, 1961, merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open. An order cannot be termed erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, it cannot be branded as erroneous by the Commissioner simply bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities. Even for future assessment years, the very same accounting practice was accepted. (ii) That the dies were components of the machines. They needed constant replacement, as their life was not more than a year. The assessee also explained that since the parts were manufactured for the automobile industry, which had to work on complete accuracy at high speed for a longer period, replacement of the parts at short intervals becomes imperative to retain the accuracy. With the replacement of tools and dies no new asset comes into existence nor was their benefit of enduring nature. They did not even enhance the life of the existing machine of which the tools and dies were only parts. Therefore, the view taken by the Assessing Officer was one of the possible views and the assessment order passed by him could not be held to be prejudicial to the interests of the Revenue. The opinion of the Assessing Officer in treating the expenditure as revenue expenditure was plausible and thus there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. 28. In view of various decisions as discussed by us in the preceding paragraphs and finding given by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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