TMI Blog2017 (12) TMI 1541X X X X Extracts X X X X X X X X Extracts X X X X ..... as if from the material on record the CIT has found the transactions between the assessee and the two Trusts as sham or nominal, or any material was found revealing fraudulent nature of the transactions. He only wanted to know on a further appreciation/examination whether the transactions suffer from any such features. Therefore, the Tribunal, in our opinion, is justified in terming the order of the CIT as based on mere conjectures and surmises, and not on the facts borne out by the record. CIT has not suspected the bona fides in creation of the Trusts and their activities or that no material is found showing that the assessee had made an effort to reduce the tax liability on the transactions entered with the two Trusts. - Decided in favour of assessee - 18 OF 2001 - - - Dated:- 22-12-2017 - The Honble Sri Justice C.V. Nagarjuna Reddy And The Honble Sri Justice Challa Kodanda Ram JUDGMENT: Honble Sri Justice C.V. Nagarjuna Reddy On the direction issued by this Court by its judgment dt.18.9.2000, on the application of the Commissioner of Income Tax, Visakhapatnam, under Section 256(2) of the Income Tax Act, 1961 (for short, the Act), the Tribunal has referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.2.1996 the Tribunal has set aside the order of the CIT. In its order, the Tribunal held that the CIT failed to bring out specifically any material into the record disclosing any error in the assessment order of the AO prejudicial to the interests of the Revenue. It has further held that the order of the CIT was purely based on surmises and conjectures and that however strong such surmises and conjectures may be, they cannot take the place of proof. 5. On receipt of the order of the Tribunal, the CIT has made an application requiring the Tribunal to refer the following questions of law. 1. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that there were no materials before the Commissioner to justify his finding that the assessment order for the A.Y. 87-88 was erroneous insofar as it was prejudicial to the interests of the Revenue? 2. Whether, on the facts and circumstances of the case, the Tribunal has rightly held that the assessment order, having been passed after proper enquiries was not erroneous so as to enable the Commissioner of Income Tax to assume jurisdiction u/s.263 of the I.T. Act, 1961? 3. Whether, on the facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scope of Section 263 of the Act. (i) Commissioner of Income Tax v. Kwality Steel Suppliers Complex . [2017] 395 ITR 1 (SC) (ii) Malabar Industrial Co. Ltd. V. Commissioner of Income Tax . [2000] 243 ITR 83 (SC) (iii) Commissioner of Income Tax v. Varanasi Khanta Rao, Prop. Sri Sai Srinivasa Modern Rice Mill . [2015] 377 ITR 602 (T AP) (iv) Spectra Shares and Scrips Pvt. Ltd. V. Commissioner of Income Tax . [2013] 354 ITR 35 (AP) (v) Commissioner of Wealth Tax v. N.T. Rama Rao (Decd.) [2003] 261 ITR 611 (AP) 8. Opposing the above submissions, Mr. Mr. A.V.A. Siva Kartikeya, learned counsel for the respondent assessee commended the correctness of the decision of the Tribunal in setting aside the order of the CIT. He has submitted that as per the settled legal position, where two views are possible and the AO has taken one view with which the CIT does not agree, the assessment order cannot be treated as an order erroneous or prejudicial to the interests of the Revenue and that the approach of the CIT as reflected from the order passed by him shows that he has played the role of the appellate authority and therefore such approach not being permissible, the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not confined to mere loss of tax. That if due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue, and that this phrase has to be read in conjunction with an erroneous order passed by the Assessing Officer. 12. In C.I.T. v. Max India Ltd. [2007] 295 ITR 282 (SC) the Supreme Court held that 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 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 Income Tax Officer is unsustainable in law. 13. In C.I.T. v. Vikas Polymers [2012] 341 ITR 537 (Delhi) the Delhi High Court held that the power of suo motu revision exercisable by the Commissioner under Section 263 of the Act is supervisory in nature and that if the Income Tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner under Section 263 of the Act, as under: a) The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue - recourse cannot be had to Sec. 263 (1) of the Act. b) 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 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 Income-tax Officer is unsustainable in law. c) To invoke the suo motu revisional powers to reopen a concluded assessment under Sec. 263, the Commissioner must give reasons; that a bare reiterat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. g) The power of the Commissioner under Sec. 263 (1) is not limited only to the material which was available before the Assessing Officer and, in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. 18. Keeping in mind the settled legal position as discussed above, we need to consider the question of law framed by this Court and referred by the Tribunal. 19. A perusal of the original assessment order shows that the AO has taken into consideration the fact that the godowns were previously leased out by the assessee itself to its principals, i.e., Indian Potash Limited and State Trading Corporation and that during the current assessment year, the godowns were let out to its sister concern, namely, M/s. VBVR KGR Family Trust. He has also considered the findings rendered by the CIT (A) during the previous assessment year during which the assessee itself ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Trusts in the light of the settled position of law in Mc. Dowell Co. Ltd. Vs. C.I.T. .[1985] 154 ITR 148 (SC) 21. In our opinion, the whole premise on which the CIT has invoked his revisional powers is the purported improper and incomplete examination of the transactions between the assessee and the Trusts. No findings have been rendered by the CIT that the AO has made an incorrect assessment of facts or incorrect application of law to satisfy the requirements of the order being erroneous and prejudicial to the interests of the Revenue, as held in Malabar Industrial Company Ltd. (2 supra). In the opinion of the CIT, the AO ought to have made a further probe into the nature of the transactions between the assessee and the two Trusts. In other words, the CIT has desired a fishing and roving enquiry which is not permissible as per the settled legal position as discussed above. The CIT has arrogated to himself the role of appellate body forgetting that he was only exercising his revisional power, the scope of which is far narrower than the scope of appeal. It is not as if from the material on record the CIT has found the transactions between the assessee and the two Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X
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