TMI Blog2019 (2) TMI 987X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the ITO is erroneous and prejudicial to the interests of Revenue. Where the ITO had made enquiries in regard to the nature of the credit received by the assessee who had given detailed explanation in that regard by a letter in writing and all these are part of the record of the case and the claim was allowed by the ITO on being satisfied with the explanation of the assessee such decision of the ITO cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. We are of the considered view that the assessment passed by the AO is neither erroneous nor prejudicial to the interest of the revenue. Hence, we set aside the order passed by the PCIT and restore the assessment order passed by the AO u/s 143(3) - Decided in favour of assessee. - ITA No. 2463/Mum/2015 - - - Dated:- 13-2-2019 - Shri C.N. Prasad (Judicial Member) And Shri G Manjunatha (Accountant Member) For the Appellant : Shri Nishant Thakkar / Hiten Chande For the Respondent : Shri Awungshi Gimson ORDER PER G MANJUNATHA, AM : This appeal filed by the assessee is directed against the order of Principal CIT-6, Mumbai u/s 263 of the I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to make out independent verification, whatsoever, in respect of any of those parties except merely receiving information u/s 133(6) of the Act, in some cases and filing of receipt, copy of agreement, etc. The AO has treated this as genuine investments without conducting necessary enquiries. Therefore, he opined that the assessment order passed by the AO is erroneous insofar as it is prejudicial to the interest of the revenue. 3. In response to show cause notice, the assessee has filed submissions to argue that assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue as the issue of share premium received from Shri Anil Deshpande and others has been thoroughly examined during the course of assessment proceedings where the AO has raised a specific question for which the assessee has filed complete details. Insofar as huge investments appearing in balance-sheet, during assessment proceedings, necessary details had been filed before the AO to explain investments appearing in assets side of the balance-sheet and whatever advances were appearing in balance-sheet are normal business advances given to various parties with regard to its r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter seeing poor cash flow as well as poor returns that there be huge premium of ₹ 600/- per share for a company having authorized capital less than Rs.l crore would be justified. The high premium charged was tried to be justified on the basis of illusory projected discounted cash flow statement with rate of return of 19% per annum. The facts available on record at the time of assessment, clearly indicate that share premium was not justified to the extent of ₹ 600/- per share. 5.3. The details of listed company being available in public domain, the A.O. could have considered the P/E prevailing in the industry as well as other financial ratios before he got satisfied with regard with the justification of the premium. 5.4. I therefore, do not agree with the claim of the assessee that assessment order is not prejudicial with the interest of Revenue. 6. As mentioned in para 2.6 of the show cause notice, the A.O. did not make any enquiries with regard to subscription in preference shares of Nagarkar Developers Pvt. Ltd. as well as equity investment in Reis Magos what returns were received by the assessee from these investments, atleast by the date on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m/2013 (A.Y. 2008-09) to hold that assessment order passed without application of mind is erroneous and prejudicial to the interest of revenue. The Hon'ble Tribunal in this case held that - 2. The sole issue arising in the instant appeal is the maintainability in law of the invocation of section 263 of the Act by the competent authority in the facts and circumstances of the case....... 3.1, We shall proceed by delineating the law in the matter. The same is trite, and for which we may for reference advert to decision in the case ofMalabar Industrial Company Ltd. vs. CIT [2000] 243 ITR 83 (SC), a locus classicus on the subject. The hon'ble apex court therein laid down a four-way test for innovation of a provision. Succinctly put, there are: (a) incorrect assumption of facts; (b) incorrect application of law; (c) without applying the principles of natural justice; and (d) without application of mind. We shall, for the reason that the present case involves the application of section 263 on ground (d) above, dwell on this'aspect in some detail. An order, as explained in Malabo? Industrial Company Ltd, (supra}, is in such a case subject to revi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 (All); Tarajan Tea Co. (P) Ltd. vs. CIT [1994] 205 ITR 45 (Gau); CIT vs. Active Traders (P) Ltd. [1995] 214 ITR 583 (Cal); CIT vs. Mahavar Traders [1996] 200 ITR 167 (MP); Duggal Co. vs. CIT [1996] 220 ITR 453 (Del); K.A. Ramaswamy Chettiar vs. CIT [1996] 220 ITR 657 (Mad.); Mofussil Warehouse Trading Co. Ltd. vs. CIT [1999] 238 ITR 867 (Mad.); CIT vs. Export House, Amritsar [2002] 256 ITR 603 (P H); PT. Lashkari Ram vs. CIT [2005] 272 ITR 309 (All); CIT vs. Deepak Kumar Garg [2008] 299 ITR 435 (MP); CIT vs. Toyota Motor Corpn. [2008] 306 ITR 49 (Del.) (affirmed by the apex court, vide its judgment at [2008] 306 ITR 52(SC); C7T vs. Arunaben Sumankumar [2003] 259 ITR 386 (Guj); besides by the larger bench of the tribunal in Rajalakshmi Mills Ltd. vs. ZTO [2009J 121 ITD 343 (Chen) (SB), signifying the application of the concept in a variety of fact situations. 3.2. The question may arise as to what enquiry is considered enough, for surely one could possibly argue for scope of deeper enquiry in almost every case, and which definitely could not be the legislative or judicial intent, howsoever, wide the revisionary power u/s. 263 may be envisaged as. This is often ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducting proper enquiry. 9. I, therefore, intend to set aside the assessment order passed on 22/03/2013 and direct the A.O. to pass an assessment order afresh (de novo) after verifying the facts carefully in accordance with settled position of law. The A.O. should give reasonable opportunity of hearing to the assessee before passing the fresh assessment order. The Assessing Officer is required to examine the facts and the applicable law on facts discussed above at the time of fresh assessment without being prejudiced by the fact that assessment order has been set aside u/s. 263 after taking into account submissions of the assessee. 5. The Ld.AR for the assessee submitted that the Ld.PCIT was erred in revising the assessment order u/s 263 of the Act, on the issue of share premium of ₹ 3,55,32,000 and also on the issue of investments of ₹ 9,43,97,530 as both the issues were subject matter of deliberations by the AO during assessment proceedings, where the AO has issued specific questionnaire for which the assessee has filed complete details. The AO, on being satisfied with explanation furnished by the assessee, has completed assessment without making any addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the reason that money has been received from NRIs, addition cannot be made. Similarly, the Ld.AR further submitted that the issue of investments appearing in balance-sheet has been thoroughly examined by the AO where the assessee has filed complete details. Therefore, merely for the reason that the issue has not been discussed in the body of the order, the PCIT cannot come to the conclusion that the AO failed to carry out required enquiries. In this regard he relied upon the following judgements:- 1. Sunbeam Auto 332 ITR 167 (Del) 2. Hotz Industries 49 taxmann.com 267 (Del) 3. Gabriel India Ltd 203 ITR 108(Bom) 4. MOIL Ltd 396 ITR 244 (Bom) 5. JSW Steel 4062/Mum/2017 6. Steller Investments - 192 ITR 287 (Del) confirmed by Supreme Court in 251 ITR 263 7. Lovely Exports - 216 CTR 195 (SC) 8. Hindustan Inks Resins - 60 DTR 18 (Guj) 9. Sophia Finance - 205 ITR 98 (Del FB) 10. Jaya Investments - 206 ITR 718 (All) 11. Barkha Synthetics - 283 ITR 377 (Raj) 12. Electro Ploychem-294 ITR 661 (Mad) 13. Shakti Hardware (Elections - 6301/Mum/2014 6. The Ld.DR, on the other hand, strongly supporting the order of the Ld.PCIT submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived share premium amounting to ₹ 3,55,32,000 whereas as per the reply filed before the AO, the assessee stated to have received a sum of ₹ 35,52,000. The PCIT, taking cue from the above submission, came to the conclusion that though there is a difference of ₹ 3,19,80,000, the AO has simply accepted the explanation furnished by the assessee, without any independent application of mind which resulted in loss of revenue. 8. We find that the assessee has filed a reply in response to notice u/s 142(1) where amount received from each of the subscriber to the share capital has been mentioned as ₹ 8,88,000 whereas the total of sum has been taken as ₹ 3,54,32,000 which is matched with the amount shown in the balancesheet. This fact has been brought to the notice of the PCIT. Therefore, we are of the considered view that merely for the reason that there is a typographical error and also it was explained with necessary materials, the PCIT ought to have taken into account the said explanations before coming to the conclusion that there is a prejudice caused to the interest of the revenue. Further, the issue of share capital whether the same can be added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the officer is prejudicial to the interests of the Revenue, then again, that is not enough to confer jurisdiction on the CIT to interfere in revision. These two elements must co-exist, where the order of the ITO is not erroneous, no action can be taken by the CIT under s. 263. This is because, the first of the two requirements namely, (i) the order is erroneous and (ii) the same is also prejudicial to the interests of the Revenue, is not satisfied. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 11. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rroneous. An order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because according to him the order should have been written more elaborately. This section does not visualise a case of substitution of judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and, left to the Commissioner, he would have estimated the income at a higher figure than the one determined by the ITO. That would not vest the Commissioner with power to reexamine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as it is prejudicial to the interest of the Revenue, is a quasi-judicial act because on this consideration or opinion the whole machinery of reexamination and reconsideration of an order of assessment, which has already been concluded and controversy about which has been set at rest, is again set 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.-Parashuram Pottery Works Co. Ltd, vs. [TO 1977 CTR (SC) 32 : (1977) 106 ITR 1 (SC), Sirpur Paper Mills Ltd, vs. ITQ 1977 CTR (AP) 138 : (1978) 114 ITR 404 (AP), Dawjee Dadabhov Co. vs. S.P. Jain Anr. (1957) 31 ITR 872 (Cal) and Russell Properties 1M. Ltd, vs. A. Chowdhury, Addl. CIT (1977) 109 ITR 229 (Cal) relied on . 13. The assesse also relied upon the decision of Hon ble Delhi High Court in the case of CIT vs Sunbeam Auto Ltd (supra). The Hon ble Delhi High Court in the said judgment held that if the AO while making assessment has made an inadequate enquiry, that would not, by itself, give rise to Commissioner to pass order u/s 263, merely because he has different opinion in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;. [Para 15] The instant case was not a case where the Commissioner had concluded that the opinion of the Assessing Officer was clearly erroneous and not warranted on the facts before him, viz., the expenditure incurred was not the revenue expenditure, but should have been treated as capital expenditure. Even the Commissioner in his order passed under section 263 was not clear as to whether the expenditure could be treated as capital expenditure or it was revenue in nature. No doubt, in certain cases it may not be possible to come to a definite finding and, therefore, it is not necessary that in all cases the Commissioner is bound to express final view, but the least that was expected was to record a finding that order sought to be revised was erroneous and prejudicial to the interest of the revenue. No basis for that was disclosed. In sum and substance, accounting practice of the assessee was questioned. However, that basis of the order vanished in thin air when it was found that very accounting practice followed for a number of years had the approval of the income-tax authorities. Interestingly, even for future assessment years, the very same accounting practice was acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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