TMI Blog2020 (1) TMI 1035X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed during the year under consideration. Likewise, provision for wage arrears is also liable to be allowed, when the actual payment has been made. In this case, the assessee has made payment of the wage arrears in the subsequent years. Therefore, we are of the considered view that invocation of jurisdiction u/s 263 on these issues is also incorrect. We are of the considered view that the conditions prescribed u/s 263 are not fulfilled to invoke revisional jurisdiction by the Ld.PCIT to revise the assessment order passed by the Ld. AO u/s 143(3) of the I.T.Act, 1961. Therefore, we are of the considered view that the assessment order passed by the Ld. AO is neither erroneous, nor prejudicial to the interest of the revenue. We, therefore, quash the order of the Ld.PCIT u/s 263 of the Act, and allow the appeal of the assessee. - ITA No.2159/Mum/2018 - - - Dated:- 23-1-2020 - Shri G. Manjunatha, Accountant Member And Shri Ravish Sood, Judicial Member For the Assessee : Shri S.Ananthan, CA And Mrs. Lalitha Rameswaran, CA For the Revenue : Shri Manoj Kumar Singh And Shri Kumar Padmapani Bora, DR s ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Pr. CIT erred in interpreting the word otherwise allowable to include advance payment. 4. The learned Pr. CIT erred in holding that amount of ₹ 2,00,00,000/- paid penalty is not an allowable deduction. 4.1. The learned Pr. CIT failed to appreciate the fact that the amount imposed by RBl is not towards violation of any law. 5. The learned Pr CIT erred in holding that amount of Rs, 96,00,00,000/- being the provision for Wage Arrears is not an allowable deduction. 5.1. The learned Pr. CIT failed to appreciate the fact that the wage arrears provision is towards ascertained liability. 5.2. The learned Pr. CIT erred in holding that the wage arrears provision is a contingent liability. 6. Your appellants further reserve the rights to add, amend or alter the aforesaid grounds of appeal as they may think fit by themselves or by their represent 3. The brief facts of the case are that the assessee is a public sector bank, engaged in the banking business, filed its return of income for AY 2014-15 on 27/11/2014, declaring total income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a detailed reply and explained, how deductions claimed for bad debts is allowable under the provision of section 36(1)(vii) of the I.T.Act, 1961. The assesse, further submitted that in respect of other issues, like payment of gratuity funds, penalty payment to RBI for violation of KYC norms and provisions for wage arrears has been thoroughly examined by the Ld. AO, at the time of assessment proceedings, which is evident from the fact that the assessee has annexed a detailed note, in respect of all four items, which is part of statement of total income filed along with return of income. The Ld. AO after being satisfied with explanation furnished by the assessee has chosen to accept the claim of the assessee, insofar as, payment of contribution to gratuity fund, penalty payment to RBI for violation of KYC norms and provision for wage arrears. As regards deduction claimed for bad debt written off, in respect of non-rural advances, the Ld. AO has discussed the issue in para 7 of his assessment order and computed eligible deduction in Tabular form. Therefore, it is incorrect to say that the assessment order passed by the Ld. AO is erroneous, insofar as it is prejudicial to the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iples. The Ld. AO without considering these aspects has simply allowed deductions claimed towards amount paid to gratuity fund, even though, the same is not pertains to relevant assessment year, which rendered the assessment order erroneous, insofar as prejudicial to the interest of the revenue. 6. As regard, penalty payment for violation of KYC norms to RBI, the Ld.PCIT observed that the RBI has levied penalty for violation of KYC norms. Further, Explanation (1) to section 37 declares that any expenditure incurred by an assessee for any purpose, which is an offence or prohibited by the law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made, in respect of such expenditure. Although, penalty payment for violation of KYC norms, as per RBI regulations is in the nature of expenditure, which is incurred for an offence or prohibited by the law, the Ld. AO has allowed deduction claimed for said expenditure, which rendered the assessment order is erroneous, insofar as it is prejudicial to the interest of the revenue. As regards, provision for wage arrears of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 36(1)(vii) 36(1)(viia) has allowed deductions towards bad debt written off, in respect of non-rural advances by taking opening balance available in provision for bad and doubtful debt account, in respect of non rural advances. Further, the ld. AO had adopted one of the possible views and as such the Ld. PCIT was erred in invoking his jurisdictions u/s 263 of the I.T.Act, 1961. He, further submitted that as regards, other issues questioned by the Ld.PCIT, like payment towards contribution to gratuity fund, amount paid to RBI towards penalty for violation of KYC norms and provisions for wage arrears are all subject matter of discussions by the Ld. AO, which is evident from the fact that the assessee has annexed a detailed note to statement of total income, where each and every issue has been discussed and explained, how the deduction was permissible under respective provisions of the Act. The statement of total income is very much part of financial statement filed along with return of income. The Ld. AO after being satisfied with the explanation furnished by the assessee has chose to complete the assessment without making any additions towards those issues and he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge CASA BUILDERS PVT. LTD. 201 9 (2) TMI 987 ITAT MUMBAI 11, 14 11 14 SHRI ANIL L. TODARWAL 2018(1) TMI 660 -ITAT MUMBAI 8 20 OM FOREGOING ENGINEERING (P) LTD. 2017(12) TMI 1000 -ITAT KOLKATA 26 31-32 TORRENT PHARMACEUTICALS LTD 201 8(8) TMI 754 -ITAT AHMEDABAD 9.3 59 SHRI NARAYANA TATU RANE 2016 (5) TMI 11 62 -ITAT MUMBAI 20 71 Without prejudice lo the above, The other condition which is to be satisfied for invoking the provisions of 263 is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Commissioner is against the Law and the decision of the Hon ble Supreme Court in the case of Catholic Syrian Bank [2012] 343 ITR 270 (SC). It is our submission that the purpose behind the introduction of the Proviso to section 36(1)(vii) is that to avoid double deduction. It is a settled accounting principle that in respect of a bad debt, first provision is made in the accounts and subsequently, the debt is written off. Therefore, the allowance of a provision precedes the write off. Under this circumstance, in respect of a debt, if any deduction is allowed at the time of provision u/s 30(1Hvii#), then, when such debt is written off subsequently, deduction allowable u/s 36(1}(viI) is the amount write off which exceeds the amount allowed u/s 36(1)(viia). This can be explained with the following Example:; Amount (Rs.) Particulars Scenario 1 Scenario - 2 Amount of debt outstanding in the books 200 200 Prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of Intercontinental Consultants Technocrats (p) Ltd [20181 91 taxmann.com 67 (SC), noted the significance of the Term 'such' occurring in section 67 of the Finance Act, 1994. In that case, the issue was whether the reimbursement of expenses received by the Assessee for providing a service has to be included in the value of service The dispute arose on account of The fact that the section 67 of the Finance Act, 1994 used the term 'the value of any taxable service shall be the gross amount charged by the service provider for such services provided .....,.' The Department contended that the reimbursement of expenses should also be included in the value of taxable service. However, The Assessee contended that the reimbursement should not be included in the value of taxable service since it is not for provision of such services. In this context, the Hon'ble Supreme Court had To deal with the significance of the term 'such' In para 24 of the judgment, the Court held as follows . 24. In this hue. The expression 'such' occurring in Section 67 of the Act assumes importance In other words, valuation of taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the banks is extracted hereunder: Whether the Full Bench of the High Court has grossly erred in reversing the finding of the earlier division Bench that on a correct interpretation of the proviso to clause (vii) of section 36(1) and clause (v) to section 36(2) is only to deny the deduction to the extent of bad debts Written off in the books with respect to which provision was made under Clause (viia) of the Income-tax Act? (* emphasis applied) While deciding the above question, the Hon ble Supreme Court laid down the following Statutory pronouncements: (a) Clause 36(1)(viia)(a) applies only to rural advances (para 27) (b) The scope of the proviso to clause (vii of section 36(1) only shows that a double benefit in respect of The same debt is not given to a Scheduled Bank, (para 30) (c) The provisions of section 36(1)(vii) 36(1)(viia) are distinct and independent items of deductions and operate in their respective fields (para 41) (d) The bad debts written off, other Than those for which the provision is made under clause (viia), will be covered under the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rural debts, Based on the facts of the case before the Hon'ble Supreme Court, in which all the banks were having both rural and non rural branches, The Court held That the proviso does not control non rural debts. The decision was rendered based on the facts of the case before the Court However, it could be interpreted argued that the proviso is riot applicable even in the case of other Assessee, who are covered by the other sub clauses of section 35(1)(viia), and for whom deduction u's 36(va) is given only for non rural debts. It is to avoid this unintended mischief The Explanation was introduced to state that the proviso covers non rural debt also The Explanation therefore, has to be read in the context of the Legislative intent behind the introduction of the proviso and the unintended hardship created by the Hon ble Supreme Court In the case of Catholic Syrian Bank (supra). Even after the Introduction of the Explanation 2, the Legislative intent behind the introduction of the proviso is Unchanged. The proviso is to avoid double deduction is an accepted fact. Further, the fact that, the proviso will come into play only when an account is made under clause (viia) in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is covered by the proviso is totally against the spirit of The proviso and the Explanation and it also runs counter to the decision rendered by the Hon'ble Supreme Court Such a reading makes the applicability of the Explanation beyond its scope. It is a settled principle of Law that an Explanation cannot override the section. In fact the proviso itself does not override the section. It only creates an exception to The main section. The argument of The Department in the interpretation of Explanation 2 is in such a way that it goes beyond the proviso and the section itself. This argument is fallacious and against the settled principles of law, As submitted earlier, the proviso shall itself be attracted only when the deduction for a debt is allowed u/s 36(1)(viia). It is clearly established that in respect of non rural advances, no deduction is allowed u/s 36(1)(viia) at the provision stage. Therefore, these debts are not even covered by the proviso. Even in view of this matter, on the facts of the case, the introduction of the Explanation 2 by the Finance Act, 2013 has not altered this position. Further, there is a fallac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reading the Explanation in such a manner that it controls even a non rural debt for which no deduction was allowed u/s 3G(l)(viia) goes beyond the intenment of the proviso and enhances the applicability of the proviso not intended for. This kind of interpretation is not tenable in law as it is a settled proposition of law that an Explanation cannot go beyond the proviso or section and create a new liability on the Assessee, not envisaged by the section or proviso. 2. Ground No. - 3 - Payment to Gratuity Fund: The Appellant Bank made a contribution of ₹ 54 Cr to Gratuity Fund during the previous year relevant to the Assessment year under appeal and the same was claimed as deduction u/s 43B on payment basis However, the Appellant bank debited only an amount of ₹ 5.94 Cr to the Profit Loss Account The learned Commissioner in the impugned order held that the Assessee is following accrual system of accounting and only when the liability to pay the amount arises, the amount will be allowable deduction. He interpreted the words in section 43B that 'deduction otherwise allowable under the Act1 To reach his conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Assessing Officer is one of the possible views and as such, no revision is possible. Further, it is also a case of no prejudice to the Department since the deduction in any case is allowable to the Assessee in the subsequent years. A. Ground No.-4-Penalty paid to RBI: During the previous relevant to the year under appeal, the Appellant bank paid an amount of Rs, 2 Cr as penalty to RBI for non compliance of KYC norms. The learned Commissioner in the impugned order held that the same is not allowable as a deduction u/s 37 since it is for violation of Law. It is submitted that the penalty paid to RBI is not for violation of any law. This issue is squarely covered by the following decisions of the Tribunal: Case law relied upon Citation Reference No Para Page BAPUNAGAR MAHILA COOP. BANK LTD. 2015 (7) TIMI 472-ITAT AHMEDABAD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards bad debt written off account, in respect of non-rural advances, even though, the opening balance of provision for bad and doubtful debt accounts is in excess of amount written off during the year without considering the Explanation (2) to section 36(1)(vii), which was inserted by Finance Bill, 2013 w.e.f. 1/04/2014 and applicable to the AY 2014-15 onwards. The Ld. DR referring to the Explanation (2) to section 36(1) (vii) and the memorandum explaining the Finance Bill submitted that it is very clear from the purpose behind insertion of Explanation (2) to section 36(1)(vii), as per which the legislature was very clear in their thought keeping in mind various judicial precedents, including the decision of Hon ble Supreme court, in the case of Catholic Syrian Bank (supra) and had explained the position of law, in respect of deductions towards bad debt write off, more particularly, in the light of deductions allowed towards provision for bad debts u/s 36(1)(vii) and explained that in order to clarify the scope and applicability of provisions of clause (vii), (viia) of sub section (1) and sub section (2), it is proposed to insert an explanation in clause (vii) of section 36(1) sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es otherwise, allowable under the Act is deductible u/s 43B on payment basis, but the interpretation of the assesee that any amount paid irrespective of the fact that whether, such amount is otherwise allowable under the Act or not is deductible, even though the assessee has actually paid the amount in the relevant financial year. The ld. CIT(A) has rightly distinguished the case laws relied upon by the assessee in the case of ModiPon Ltd. (supra). Likewise, the Ld. DR has strongly supported the findings of the Ld.PCIT, in respect of payments of penalty to RBI for violation of KYC norms and submitted that said expenditure is clearly fall under the purview of section 37(1), as expenditure incurred for the purpose, which is an offence or prohibited under any law for the time being in force and such expenditure is not deductible u/s 37(1) of the I.T.Act, 1961. As regards, provisions for wage arrears, the Ld. DR, submitted that it is an admitted fact that wage revision had not occurred at the time, when the assessment order was passed. Therefore, the claim of the assessee was contingent in nature, which cannot be allowed as deduction. The Ld.PCIT after considering the facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-2 inserted reads as follows: Explanation 2,-For the removal of doubts, It is hereby clarified that for the purposes of the proviso to clause (vii) of this subsection and clause (v} of subsection. {2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause(viia) and such account shall relate to all types of advances. Including advances made by rural branches The Memorandum explaining the Finance Bill in this regard is reproduced as below: Under the existing provisions of section 36(1)(viia) of the Income-tax Act, in computing the business income of certain banks and financial institutions, deduction is allowable in respect of any provision for bad and doubtful debts made by such entities subject to certain limits specified therein. The limit specified under section 36(1)(viia)(a) of the Act restrict the claim of deduction for provision for bad and doubtful debts for certain banks (not incorporated outside India) and certain cooperative banks to 7.5% of gross total income (before deduction under this clause) of such banks and 10% of the aggregate average a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in respect of provision for bad and doubtful debt under clause (viia) for rural advances and urban advances and if the actual write off of debt relates to urban advances, then, it should not be set off against provision for bad and doubtful debts made for rural advances. There is no such distinction made in clause (viia) of section 36(1). In order to clarify the scope and applicability of provision of clause (vii), (viia) of sub-section (1) and sub-section (2), it is proposed to insert an Explanation in clause (vii) of section 36(1) stating that for the purposes of the proviso to section 36(1)(vii) and section 36(2)(v), only one account as referred to therein is made in respect of provision for bad and doubtful debts under section 36(1)(viia) and such account relates to all types of advances, including advances made by rural branches. Therefore, for an assessee to which clause (viia) of section 36(1) applies, the amount of deduction in respect of the bad debts actually written off under section 36(1)(vii) shall be limited to the amount by which such bad debts exceeds the credit balance in the provision for bad and doubtful debts account made under section 36(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etax- 9, Mumbai v.Ajanta Pharma Ltd. 2.5, It may also kindly be noted that Section 36(l)(vii)(a) provides for deduction of a blanket provision for bad and doubtful debts which is applicable only for banks, whereas, sub clause (b) and (c) relates to foreign banks and other Financial Institutions. Sub-clause (a) deals with Scheduled banks incorporated within the country and Co-operative banks and Agricultural society. Unlike the case of other taxpayers where deduction is allowed only if bad debts are written off u/s. 36(l)[vii), eligible banks are entitled to claim of deduction in respect of even provision made for bad and doubtful debts irrespective of requirement of bad and doubtful debts to be written off u/s 36(1)(viia). Further, u/s. 36(l)(viia), the amount allowed to be provided for cad and doubtful debts co'mprises of two items viz. 'an amount not exceeding 7 '/j percent of the total income and 'an amount not exceeding 10% of the aggregate advances made by the Eligible Bank'. Thus, it is dear that the provision for bad and doubtful debts is not exclusively limited to the advances made by rural branches since the section also allows provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is covered under explanation 2 subsection (a) as well as (b) of section 263. The necessary awareness and verification that should have been made by the assessing officer is conspicuously absent. 2.9. On the issue of taking one possible view, it is clear that AO has not at all taken any view, question of taking one view does not arise. As a matter of fact the AO has not at all scrutinized the claim vis-a-vis the amended section and has not noticed that the claim for deduction of bad debts write off does not exceed the opening provision u/s 36(1))(viia) and hence the claim was incorrect. Acceptance of claim without any enquiry or investigation in the context of the amended section applicable for the first time this year and merely following the earlier year assessment order by the AO during the scrutiny assessment u/s 143(3) is tantamount to non-application of mind by the AO [Malabar Inds. 243 ITR 81 (SC)], The AO is not only an adjudicator but also an investigator. He is supposed to be aware of the change in statute and apply it in the background of facts and circumstances of the case. Reliance is placed on following case laws. {1968) 67 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of advance payment towards gratuity fund. 3.2.1. In the computation of income, the assesses claimed deduction of ₹ 54 crores which was paid to gratuity fund during the year. However as per actuarial liability the amount to be allowed in the current year was only R$. 5.^4 crores and only Rs, 5.94 crores was claimed in the profit and loss account. Thus, the admitted fact is that the entire payment of Rs,54 crores was not for the AY 2014-15. The assessee claimed the amount of 48.06 crores in the returned income which W .s treated as advance in its books on the basis of sec. 43B, It has been claimed by the assesse that such payments are allowable since section 43B starts with a non-obstante clause and overrides all other sections of Income tax Act, In making such a claim the assesses has ignored the phrase a deduction otherwise allowable under this Act Thus, the interpretation sought by the assessee is to ignore the phrase (a deduction otherwise allowable under the Act) which is against the cannons of interpretation of statute which states that no phrase or words explicitly mentioned in the statue should be omitted while interpreting a statute. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the other provisions of the Act. 3.2.3. It may also be kindly noted that there are several decisions upholding this interpretation where disallowance was made by revenue in respect of unpaid sales tax or service tax liability which were not claimed by assessee in their Profit and Loss account, and it was held that section 43B would apply only if the claim is made in the P L account. 3.2.4. An amount paid in advance, can always be claimed and is allowable: in the year in which it accrues and since it is already paid, section 43B will not prohibit its allowance. Thus the claim made in respect of ₹ 48.06 crores was clearly not allowable, but was erroneously allowed by the A.O. It is urged that the ground raised by the assesee in this regard be dismissed. 3.3. Penalty of ₹ 2.00.00.000 A as penalty levied by RBI for violation of KYC Norms. 3.3.1. The assesses had claimed amount of ₹ 2 crores paid m respect of penalty levied by RBI for flouting of KYC norms. The Explanation 1 to section 37 prohibits allowance of any expenditure for any purpose which is an offence or prohib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, but was erroneously allowed by the A.O. 10. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The Ld.PCIT has revised assessment order passed u/s 143(3) of the I.T.Act, 1961 on four issues. The Ld.PCIT has questioned deductions allowed towards bad debt written off under the provision of section 36(1)(vii) (viia), including newly inserted Explanation (2) to section 36(1)(vii) of the I.T.Act, 1961. Likewise, the Ld.PCIT has questioned payment towards contribution to gratuity fund and deduction claimed u/s 43B, amount paid to RBI towards penalty for violation of KYC norms and deduction claimed towards provision for wage arrears. According to the Ld. PCIT, the Ld. AO has not conducted required enquiries to be conducted under respective provisions of the Act, which rendered the assessment order erroneous, insofar as it is prejudicial to the interest of the revenue. It is the contentions of the assessee that the assessment order passed by the Ld. AO is neither erroneous, nor prejudicial to the interest of the revenue, because the Ld. AO has completed the assessment proceedings, after thorough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with law. 11. The language used by the Legislature in s. 263 is to the effect that the Ld.PCIT may interfere in revision, if he considers that the order passed by the ITO is erroneous, in so far as it is prejudicial to the interests of the Revenue. It is quite clear that two things must coexist in order to give jurisdiction to the PCIT to interfere in revision. The order of the ITO in question must not only be erroneous but also the error in the ITO order must be of such a kind that it can be said of it that it is prejudicial to the interests of the Revenue. In other words, merely because the officer's order is erroneous, the PCIT cannot interfere. Again, merely because the order of the officer is prejudicial to the interests of the Revenue, then again, that is not enough to confer jurisdiction on the PCIT to interfere in revision. These two elements must co-exist, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are to be satisfied. The term erroneous has been subject matter of litigation and in order to put an end to the same, the legislature vide Finance Act, 2013 inserted Explanation (2) to section 263 in which it has been declared, when order shall be deemed to be erroneous. The said explanation contains four clauses (a) to (d), to determine, whether the impugned order is erroneous in the opinion of the PCIT. In light of above legal position, if you examine the facts of the present case, it can be said that it is only clause (a) and (b) are relevant and other two clauses are not relevant to decide, whether the order passed by the Ld.AO is erroneous, in light of newly inserted Explanation (2). Clause (a) deals with circumstances where the order has been passed without making enquiries or verification, which should have been made. In this case, from the facts, it can be seen that there was an enquiry by the Ld. AO, in respect of all issues and the assesee had also furnished a detailed reply. Therefore, we are of the considered view that this clause is not applicable in this case. Clause (b) of the Explanation deals with circumstances, where the order is passed allowing any relief without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interests of the Revenue unless the view taken by the ITO is unsustainable in law . An order of assessment passed by the ITO without making necessary enquiries on certain important points connected with the assessment would be erroneous and prejudicial to the interests of the Revenue When the ITO is ITA 2463/Mum/2015 expected to make an enquiry of a particular item of income and he does not make an enquiry as expected, that would be a ground for the CIT to interfere with the order passed by the ITO since such an order passed 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. 12. Coming to the case laws relied upon by the assessee. The assessee has relied upon the decision of Hon'ble Bombay High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interest of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be subject-matter c 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 eligible 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. There must be material available on record called for by the Commissioner to satisfy him, prima facie, that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the revenue was that while passing the assessment order, the Assessing Officer did not consider the aspect specifically whether the expenditure in question was revenue or capital expenditure. That argument predicated on the assessment order, which apparently did not give any reason while allowing the entire expenditure as revenue expenditure. However, that, by itself, would not be indicative of the fact that the Assessing Officer had not applied his mind to the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reasons in respect of each and every item of deduction, etc. 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 Commissioner to pass orders under section 263 merely because he has different opinion in the matter. It is only in cases of 'lack of inquiry' that such a course of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 263 when two views were possible. [Para 17] The matter could be looked from another angel. What was the material/ information available with the Assessing Officer on the basis of which he allowed the expenditure as revenue? It was disclosed to the Assessing Officer that the assessee was a manufacturer of car parts. In the manufacturing process, dyes were fitted in machines by which the car parts were manufactured. Those dyes were, thus, the components of the machines. Those dyes needed constant replacement, as their life was not more than a year. The assessee had also explained that since those parts were manufactured for the automobile industry, which had to work accurately at high speed for a longer period, replacement of those parts at short intervals became imperative to retain accuracy. Because of those reasons, those tools and dyes had a very short span of life and could produce maximum one lakh permissible shorts. Thereafter, they had to be replaced. With the replacement of such tools and dyes which were the components of a machine, no new assets came into existence, nor was their benefit of an enduring nature. It neither enhanced the life of existing machines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 and after considering the decision of Hon ble Supreme Court in the case of Malabar Industrial Company limited vs CIT (surpa) held as under:- 26. The CIT has made reference to Explanation 2 to sec. 263 of the Act introduced by the Finance Act, 2015. Explanation-2 so introduced sets out cases in which order of the AO can be deemed as erroneous. The said explanation does not dispense with compliance or existence of (i) there being no enquiry made by the Ld. AO; (ii) the AO s conclusion being contrary to CBDT Circular or (iii) against decision of jurisdictional High Court or Supreme Court. In the present case the CIT in the impugned order has not brought facts to show the existence of absence of enquiry especially when the AO has already concluded that the purchases by the assesee from four parties mentioned by the DIT (Investigation) Mumbai in its report were bogus. The decision of the Mumbai and Delhi ITAT in the case of M/s. Shri Narayan Tatu Rane (supra) and M/s. Amira Pure Foods (P) Ltd. (supra) cited by the Ld. AR clearly supports the view that Explanation-2 to sec. 263 of the Act will not be of any assistance to the plea of the revenue unl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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