TMI Blog2020 (2) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... IT from collecting and relying new/additional material which evidence to show and state that the order of the A.O. is erroneous. We find that Ld. CIT in the present case has not carried out any enquiry of his own has merely set aside the assessment to the file of the A.O. to re-examine issue of source of cash deposited by the assessee. Therefore, it is contrary to the guidelines as mandated in the Hon'ble Delhi High Court in the case of ITO Vs. DG Housing Projects Ltd. [ 2012 (3) TMI 227 - DELHI HIGH COURT] coupled with the fact that the assessee during the assessment proceedings had submitted evidences in support of sale of jewelleries and receipt of gift. Moreover, the issue of examination of source of gift was not subject matter of the scrutiny. Therefore, the decision of the Ld. CIT invoking provisions of section 263 of the Act is not justified and cannot be sustained under the facts and circumstances of the present case. We therefore, set aside the impugned order and allow the grounds raised by the assessee. - ITA No.204/Ind/2019 - - - Dated:- 29-1-2020 - Shri Kul Bharat, Judicial Member And Shri Manish Borad, Accountant Member For the Appellant : Shri Giri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the records issued a notice u/s 263 of the Act to show cause the assessee as to why the assessment so framed should not be set aside. In response to the notice, the assessee filed a reply. The submissions made by the assessee were not found acceptable by the Ld. Pr. CIT and therefore, he set aside the assessment order to examine the issue of source of cash deposit by the assessee and for initiating the penalty u/s 271D of the Act. 3. Before us, learned counsel for the assessee reiterated the submission made before revenue authorities and filed the following written submission: Following contentions are being made by the assessee for the impugned appeal. Submissions for the same are also being made. Sr. No. Contentions of the assessee challenging the order u/s 263 A Provisions of section 263 can be invoked only when twin conditions are satisfied i.e. order should be both erroneous and prejudicial to the interest of the Revenue B Lack of enquiry versus inadequate enquiry conducted by Ld. AO C Applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from various family members in cash for mitigating loss in share trading which was deposited in saving bank A/c. The assessee had deposited total cash of ₹ 31.90 lacs in his saving bank A/c out of which ₹ 4,25,000/- were out of his own source. Instead of making through inquiries into the above transactions, the AO made lump-sum addition of ₹ 1 lac on account of gift received from father and wife. 4. The AO has not examined this factor and no enquiry/investigation has been made. Therefore, the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the revenue .. 7. In response to the show cause notice assessee submitted that his case was selected for scrutiny to examine the commodity transaction. All the required details were submitted before Ld. AO. On the query from Ld. AO as to how did assessee mitigate loss incurred he submitted that gifts were received from relatives, sale of jewellery and out of personal savings. Bank statements, confirmation letter for the gifts given and ITR acknowledgment from all the relatives who gave gifts were also submitted. Ld. AO examined these documents and proceeded to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Case of assessee was selected for limited scrutiny for which notice u/s 143(2) was issued on 19.09.2016 to examine following issues a. Commodity transaction b. Derivative (futures) transaction c. Sales turnover mismatch d. Securities transaction 6. In response to which assessee submitted that he is engaged in wholesale business of furniture run under the name and style of M/s. Rakesh Steel Furniture. It was also submitted that he incurred loss during the year on account of commodity trading (MCX, NSE F O and NSE) amounting to ₹ 27,88,255. 7. To substantiate his claim of loss incurred from the commodity trading statement of the assessee from two brokers namely, Swastika Investmart Limited (NSE), Swastika Commodities Private Limited (MCX Futures). The loss from commodity trading was not claimed in return. [PB 99-105, 115-119] 8. Ld. AO being satisfied with the submission made by assessee on the commodity and derivatives transaction further enquired as to how this loss was mitigated by assessee.[AO page 1 4th para] In response to this, assessee submitted that to mitigate this loss gifts were received from relatives, sale of jewel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in relation to the limited scrutiny for which the case of assessee was selected for assessment. 11. It is a well settled law that to invoke the provisions of section 263 both the conditions that the order must be erroneous and prejudicial to the interest of Revenue must be satisfied. Reliance is placed on the following judicial precedents a. Hon ble Jurisdictional High Court of Madhya Pradesh in the case of H.H. Maharaja Raja Pawer Dewas [1983] 15 Taxman 363 order pronounced on 13.11.1981 Para 10 However, the first argument, viz., that an assessment order without compliance with the procedure laid down in section 144B is erroneous but not prejudicial to the interests of the revenue conferring revisional jurisdiction on the Commissioner under section 263(1), has force. Under section 263(1) two pre-requisites must be present before the Commissioner can exercise the revisional jurisdiction conferred on him. First is that the order passed by the ITO must be erroneous. Second is that the error must be such that it is prejudicial to the interests of the revenue. If the order is erroneous but it is not prejudicial to the interests of the revenue, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the ITO is unsustainable in law. Para 9 .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 visualize 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. [emphasis supplied] c. Hon ble Apex Court in the case of Malabar Industrial Co. Ltd. [2000] 243 ITR 83 order pronounced on 10.02.2000 HEAD NOTE Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1983-84 - Whether in order to invoke section 263 Assessing Officer's order must be erroneous and also prejudicial to revenue and if on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner cannot exercise powers for revising the order under section 263 merely on the basis that the order under consideration is erroneous. If the material in that regard is available on the record of the assessee concerned, the Commissioner cannot exercise his powers by ignoring that material which links the income concerned with the tax realization made thereon. The two questions are inter-linked and the authority exercising powers under section 263 is under an obligation to consider the entire material about the existence of income and the tax which is realizable in accordance with law and further what tax has in fact been realised under the alleged assessment orders.[emphasis supplied] e. Hon ble Karnataka High Court in the case of V. G. Krishnamurthy [1985] 20 Taxman 65 order pronounced on 19.03.1984 Para 10 Section 263 can be invoked by the Commissioner only when he prima facie finds that the order made by the ITO was erroneous and was prejudicial to the interests of the revenue.Both these factors must simultaneously exist. An order that is erroneous must also have resulted in loss of revenue or prejudicial to the interests of the revenue. Unless both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter. It is only in cases of lack of enquiry that such a course of action would be open for the Ld. Pr. CIT. 6. Reliance is placed on following judicial precedents a. Hon ble Allahabad High Court in the case of Krishna Capbox (P) Ltd [2015] 60 taxmann.com 243 order pronounced on 23.02.2015 HEAD NOTE Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue (erroneous order) - Assessment year 2008-09 - Assessee filed its return - Case was selected for scrutiny and statutory notice was issued - Assessing Officer made certain queries, which were replied by assessee and after inquiry, being satisfied in respect to queries replied by assessee, Assessing Officer accepted declared income and passed assessment order - Commissioner, however, issued a notice under section 263 on ground that Assessing Officer had not made inquiry on certain aspects and accepted version of assessee without making any inquiry or verification, which was substantially prejudicial to revenue - Accordingly, he partly set aside assessment - Tribunal held that once inquiry was made, a mere non-discussion or non-mention thereof in assessment order c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , assessment is erroneous and prejudicial to interest of revenue - Held, no - Whether it is requirement of section 263 that assessee must have an opportunity of being heard in respect of those errors which Commissioner proposes to revise - Held, yes - Whether to accord such an opportunity after setting aside assessment order would meet mandate of section 263 - Held, no - Whether where notice issued by Commissioner before commencing proceedings under section 263 referred to four issues and final order passed referred to nine issues, revisional proceedings were vitiated as a result of breach of principles of natural justice - Held, yes [emphasis supplied] d. Hon ble Mumbai Bench of ITAT in the case of Anil Shah [2007] 162 Taxman 39 order pronounced on 21.01.2006 HEAD NOTE Section 263, read with section 80HHC, of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue - Assessment year 2000-01 - Whether if all relevant details have been filed by assessee and Assessing Officer allows assessee s claim, decision of Assessing Officer cannot be held to be erroneous simply because in his order he does not make any elaborate discussion in that regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60. 2. Reliance is placed on following judicial precedents a. Hon ble Jurisdictional High Court of Madhya Pradesh in the case of Ratlam Coal Ash Co. [1987] 34 taxman 443 order pronounced on 17.08.1987 HELD It is well settled that where the ITO made the assessment in undue hurry, accepting what the assessee states in the return without making any enquiries in the circumstances of the case, the Commissioner would be justified in holding the order of the ITO to the erroneous. However, in the instant case, the Tribunal had found that the assessee had furnished all the requisite information and that the ITO considering all the facts had completed the assessment. It was further held that in the circumstances of the case it could not be held that the ITO had made assessment without making proper enquiries. Accordingly, the Tribunal was justified in reversing the order passed by the Commissioner. [emphasis supplied] b. Hon ble Delhi High Court in the case of Anil Kumar Sharma [2010] 194 Taxman 504 order pronounced on 24.04.2010 Para 7 In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is erroneous but is not prejudicial to revenue or if it is not erroneous but is prejudicial to revenue, recourse cannot be had to section 263(1) - Held, yes - Whether if due to an erroneous order of ITO, revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to interests of revenue - Held, yes - Assessee-company entered into agreement for sale of estate of rubber plantation - As purchaser could not pay instalments as scheduled in agreement, extension of time for payment of instalments was given on condition of vendee paying damages for loss of agricultural income and assessee passed resolution to that effect - Assessee showed this receipt as agricultural income - Resolution passed by assessee was not placed before Assessing Officer - Assessing Officer accepted entry in statement of account filed by assessee and accepted same - Commissioner under section 263 held that said amount was not connected with agricultural activities and was liable to be taxed under head 'Income from other sources' - Whether, where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts returns and assessments were framed - Commissioner set aside assessment orders holding that ITO had not made adequate and detailed investigations/enquiries in respect of a major area of assessee-company s operation and source of its income - Tribunal quashed revisional order passed by Commissioner - Whether in view of fact that ITO had made reasonably detailed enquiries, had collected relevant material and discussed various facets of case with assessee, order of Commissioner to direct fresh assessment by going deeper into matter would not form a valid or legal basis to exercise jurisdiction under section 263 - Held, yes - Whether, therefore, impugned order of Tribunal was to be upheld - Held, yes [emphasis supplied] g. Hon ble Delhi High Court in the case of D.G. Housing Projects Ltd [2012] 20 taxmann.com 587 order pronounced on 01.03.2012 HEAD NOTE Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 2004-05 - Assessee sold an immovable property and claimed capital loss after indexation - Commissioner had doubts about valuation and sale consideration received but he had not examined said aspect himse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration - Assessing Officer completed assessment accepting income declared by assessee - Commissioner noticed that no investigation was carried out by Assessing Officer to establish name and address, genuineness and creditworthiness of actual subscribers to FCCBs in terms of section 68 - He thus passed a revisional order setting aside assessment - Tribunal noted that Assessing Officer had made detailed enquiries about aforesaid aspect and mere fact that he did not make any reference to said issue in assessment order, could not make said order erroneous and prejudicial to interest of revenues - Accordingly, Tribunal set aside revisional order - Whether finding recorded by Tribunal being a finding of fact, no substantial question of law arose therefrom - Held, yes [Para 11] [In favour of assessee] [emphasis supplied] j. Hon ble Andhra Pradesh High Court in the case of Dr. Kodela Siva Prasada Rao [2013] 29 taxmann.com 18 order pronounced on 20.11.2012 Para 12 From the above facts it is clear that the assessee had received a gift of ₹ 22,76,750/-in U.S. dollars from an NRI, N.Mohan and the assessee had filed two confirmation letters, one in December 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which were submitted before Ld. AO and also those submitted before Ld. Pr.CIT. To invoke the provisions of section 263, Ld. Pr.CIT is required to examine all the documentary evidences including those which were before Ld. AO. 3. Ld. Pr.CIT issued show cause notice u/s 263 dated 06.07.2018 stating [PB 232] 2. The entire records were gone through by me and on perusal and examination of records it is found that the order dated 29.09.2017 for A.Y. 2015-16 is erroneous as also prejudicial to the interest of revenue on account of passing of the order without making proper enquiries/ investigations. 3. As per the information available on records, it is noted that the assessee has incurred loss in share trading. The assessee has received gifts from various family members in cash for mitigating loss in share trading which was deposited in saving bank a/c. The assessee had deposited total cash of ₹ 31.90 lacs in his saving bank A/c out of which ₹ 4,25,000/- were out of his own source. Instead of making through inquiries into the above transactions, the AO made lump-sum addition of ₹ 1 lac on account of gift received from father and wife. 4. The AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 to section 263 cannot be invoked in case of inadequate enquiry. The provision cannot be invoked to correct each and every type of mistake or error committed by assessing officer. It is only when an order is erroneous that the provisions of section 263 will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of order being erroneous. In the instant case, the fact that case of assessee was selected for limited scrutiny to examine the commodity and derivatives transactions is not under dispute. Also the fact that assessee has incurred loss from commodity and derivative transactions is not under dispute. Ld. AO further enquired as to how this loss was mitigated by assessee. Though Ld. AO travelled beyond the scope of limited scrutiny , assessee submitted that the loss was mitigated from the gifts received from relatives, sale of jewellery and out of personal savings. All the documentary evidences of how the loss was mitigated were also submitted before Ld. AO. Ld. Pr.CIT erred in invoking the provisions of section 263 as neither there is assumption of incorrect facts nor is there any incorrect application of law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Malabar Industrial Co. Ltd. V/s Commissioner of Income Tax 243 ITR 83 (SC) 2. Smt. Taradevi Aggrawal V/s Commissioner of Income Tax 88 ITR 323 (SC) 3 Rampyaridevi Saraogi V/s Commissioner of Income Tax 67 ITR 84 (SC) 4 Commissioner of Income Tax V/s Nagesh Knitwears Pvt. Ltd 345 ITR 135 (Delhi HC) 5 Gee Vee Enterprises V/s Addl. Commissioner of Income Tax 99 ITR 375 (Delhi HC) 6 Bhushan Steel Ltd. V/s Asstt. Commissioner of Income Tax ITAT A Bench Delhi 7. Commissioner of Income-tax v.Deepak Kumar Garg 299 ITR 435 (Madhya Pradesh) 8. Commissioner of Income-tax v. Mahavar Traders 220 ITR 167 (Madhya Pradesh) 9. Smt. Renu Gupta v. Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Explanation 2 to section 263 of IT Act 1961. 3. In the case of Malbar Industrial Co. Ltd., Hon'ble Supreme Court (243 ITR 83- SC) held that where A.O. had accepted the entry in the statement of account in the absence of supporting material, without making any inquiry, the exercise of jurisdiction by CIT under section 263(1) was justified. In this case the damages received by the appellate in lieu of agricultural income was wrongly allowed by the A.O. as agricultural income when the same was finally treated as income from other source. The operative part of decision is as under. In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appeared that the resolution passed by the board of the appellantcompany was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss agricultural income. He accepted the entry in the statement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bnormal increase in sell price of land, agriculture activity, agricultural Income, nature of business and legality of maintaining two portfolios and allowed the exemption claimed by the appellant without application of mind. The gist of decision of Hon'ble Supreme court in the case of Shri Amitabh Bacchan is as under:- There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. However, the above is not the situation in the present case in view of the reasons stated by the learned C.I.T. on the 3 (2000) 243 ITR 83 (SC) 4 (2007) 295 ITR 282 (SC) 22 basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voluntary returns in respect of a number of years, i.e. , from assessment years 1952-53 to 1960-61. The return for the assessment year 1953-54 was undated. The returns for the assessment years 1952-53 and 1957-58 was dated 21.03.1961 , and those for the assessment years 1958-59 to 1960-61, were dated 26.04.1961. On 21.03.1961, the assessee made a declaration giving the facts regarding initial capital, the ornaments and presents received at the time of marriage, other gifts received from her father-in-law, etc., which should have any ITO on his guard. But the ITO without making any enquiries to satisfy himself passed the assessment order on30.03.1961, for assessment years 1952-53 to 1957-58, and on 26.04.1961, for the assessment years 1958-59 to 1960-61. No bank account or any proper books of account were maintained by the assessee or produced before the ITO. A short stereotyped assessment order was made for each assessment year. Profit from speculation was shown as ₹ 3,085 and interest ₹ 600, and ₹ 500 was added for want of books of account and evidence. No evidence whatsoever was produced in respect of the money-tending business done and interest income shown to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that was not the correct approach. The Income-tax Officer should have examined the matter in the light of the conditions mentioned in both the sections before granting relief. We are of the opinion that the Commissioner of Income-tax has not given any finding, but only remanded the case back to the Income-tax Officer for reassessment after complying with the conditions laid down for grant of benefit under sections 80HH and 80J. Therefore, the finding recorded by the Tribunal appears to be not correct because all the materials which ought to have been utilised by the Income-tax Officer were not there and it is not understandable that how the Tribunal have on their own, assessed the situation. Therefore, we are of the opinion that the view taken by the Tribunal is not correct and we answer the aforesaid question in favour of the Revenue and against the assessee. The Incometax Officer may examine the matter afresh in the light of the decision of the Commissioner of Income-tax without taking notice of any adverse observations, if any, made by the Commissioner of Income-tax. 7. Similarly, Hon'ble jurisdictional MP High Court in the case of Deepak Kumar Garg (299 ITR 435 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Tribunal was carried away by the first part of the order of the Commissioner of Income-tax as a result the later part of the order escaped from the notice of the Tribunal and the Income-tax Appellate Tribunal branded the order of the Commissioner of Income-tax as based upon probabilities, surmises and conjectures. 8. In a recent decision, in the case of Rajmandir Estate Pvt. Ltd., Hon ble Kolkata High Court, (GA No. 509 of 2016 with ITAT No. 113 of 2016) had upheld the order of CIT passed u/s 263 of Income tax Act. In this case, the AO had passed the assessment order u/s 143(3) read with section 148 of income tax Act 1961. There was a huge increase in share capital by way of share premium. The AO had called for various details pertaining to increase in share capital and reserve and surpluses on account of issue of 7,92,737 shares of ₹ 10 each at a premium of ₹ 390/-. The AO had also conducted the enquiries from share subscribers u/s 133(6) of Income tax Act 1961 and most of the 39 applicants responded and the appellant had even filed complete details and sources of these companies for making share subscription. However the CIT had invoked the sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT -Vs- Nova Promoters and Finlease (P) Ltd. (supra). Similar views were expressed by this Court in the case of CIT -Vs- Precision Finance Pvt. Ltd. (supra). We need not decide in this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature. To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that the ITO may even be justified in trying to ascertain the source of depositor . Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. We find no substance in the submission that the exercise of power under Section 263 by the Commissioner was an act of reactivating stale issues. In the case of Gabriel India Ltd. (supra) the CIT was unable to point out any error in the explanation furnished by the assessee. Whereas in the present case we have tabulated the evidence which was before the assessing officer which should have provoked him to make further investigation. The assessing officer did not attach any importance to that aspect of the matter as discussed above by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings under section 263 of the Act as exemption has been granted without any application of mind. The Apex Court in the case of Malabar Indus trial Co. Ltd. (supra) while interpreting section 263 of the Act held as follows :- A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue. 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 is prejudicial to the revenue recourse cannot be had to section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and not because a wrong order has been passed on merits. We further hold that if from the detailed investigation conducted by ITA No. 1641 to 1646/Del/2014 AY: 2006-07 to 2010-11 the Investigation Wing of the department, it is revealed that the bogus expenses have been claimed by the assessee with the intention to reduce its tax liability, then the order is also prejudicial to the interest of revenue. The argument of the ld. Counsel of the assessee about revenue neutrality is not applicable to the facts and circumstances of the present case. In the case of ITO vs Ch. Atchaiah (1996) 218 ITR 239(SC), speaking for Hon'ble Apex Court their lordships held as follows:- In our opinion, the contention urged by Dr. Gauri Shankar merits acceptance. We are of the opinion that under the present Act, the Income Tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By right person , we mean the person who is liable to be taxed, according to law, with respect to a particular income. The expression wrong person is obviously used as the opposite of the expression right person . M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment with nominal addition of ₹ 28,049/- . The CIT invoked the section 263 of IT Act 1961 and set aside the order for the reasons that proper enquiry was not carried out by the A.O. and directed the A.O. to make fresh assessment after conducting independent, detailed and complete inquiries of subscription and share premium. The Hon'ble ITAT confirmed the decision of CIT with the observation that inadequate inquiry falls in the category of No inquiry which results in to making the order us erroneous and prejudicial to the interest of revenue. The relevant part of decision is as under:- Whether the enquiry conducted by the Assessing Officer in such cases can be as a proper enquiry? Though the Assessing Officer issued notices under section133(6) but it failed to comprehend the rationale or logic behind issuing shares at such a high premium, nor to examine any of the directors of the companies which were subscribers to share capital. It is highly improbable for any person having sound mind to purchase at arm's length the shares of a private limited company, hardly having any worth, with face value of ₹ 10 at a premium of ₹ 190. This mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer did not consider it prudent to examine such shareholders as to their capacity and genuineness of the transactions. Confronted with such peculiar and hair-raising circumstances, the Assessing Officer should have got alerted and dug the matter deep for unearthing the reality of the transaction. Unfortunately, nothing of this sort was done by him. It is a perfect citation for a complete non-application of mind by the Assessing Officer and of passing the assessment order in undue haste. [Para 17.h.] Thus, there can be no escape from an axiomatic conclusion that in all these cases the enquiry conducted by the Assessing Officer's is exceedingly inadequate and hence fall in the category of 'no enquiry' conducted by the Assessing Officer, what to talk of charactering it as an 'inadequate enquiry'. The highly inadequate enquiry conducted by the Assessing Officer resulting in drawing incorrect assumption of facts, makes the orders erroneous and prejudicial to the interests of the revenue. [Para 17.i.] Whether Commissioner can set aside the assessment order and direct the Assessing Officer to conduct a thorough enquiry, thereby interfering with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utside enquiry, may mean that the Assessing Officer did conduct enquiry, leaving the question open as to whether it was a proper or an improper enquiry. But, where the factual scenario of a case prima facie indicates abnormalities and cry for looking deep into it, then a mere collection of documents cannot be held as conducting enquiry, leave aside, adequate or inadequate. In such later cases, only when the Assessing Officer, after collection of the initial documents, embarks upon further investigation, that it can be said that he initiated enquiry. Where the facts of a particular transaction cry hoarse about its non-genuineness and even a casual look at such facts, prima facie, divulges foul play, then the alarm bell must ring in the mind of the Assessing Officer for making further examination. Collection of papers on record in such circumstances cannot be construed as conducting a proper enquiry. If in such circumstances, the Assessing Officer simply gathers documents and keeps them on record, then such nominal enquiry falls within the overall category of 'no enquiry' because of the inaction on the part of the Assessing Officer to read a writing on the wall. [Para 19.a.] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not obliged to positively indicate the deficiencies in the assessment order on merits on the question of issue of share capital at a huge premium ; v) the AO in the given circumstances can't be said to have taken a possible view as the revision is sought to be done on the premise that the AO did not make enquiry thereby rendering the assessment order erroneous and prejudicial to the interest of the revenue on that score itself. 12. In a recent decision of D. Bench of Hon'ble Kalkata ITAT in the case of Jubilee Commitrade (P) Ltd. Kalkata (ITA No 1179/Kal/2016), The Hon'ble bench has confirmed the order of CIT setting aside the order of A.O. In this case, the Hon'ble Bench has relied upon the order of B-Bench of Kalkata ITAT in the case of Subhlakshmi Vanijya (P) Ltd. The CIT had invoked the section 263 of IT Act-1961 for the reasons that the A.O. had failed to examine the capacity of subscribes of shares capital although most of the details and confirmations were duly called for and filed. It was held by the bench:- We have considered his submissions and are of the view that as was done in the similar group of cases which was considered by this T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully heard the rival contentions of the parties. We find that in similar type of cases in ITA Nos. 467/Ind/2016, 275/Ind/2016, 341/Ind/2016 etc. etc. this Bench of the Tribunal vide its order dated 14th July, 2016 has held as under :- 5. After hearing both the parties and perusing the material available on record and keeping in view the peculiar facts and circumstances of these cases, we are of the considered view that in short time from 29.03.2014 to 30.03.2014, it was practically impossible for the Assessing Officer to have examined the returns of the assessee vis- -vis the details and particulars filed in support of the returns and form an opinion and frame a detailed assessment order on the issues in the returns of income. Therefore, we have no hesitation in accepting the arguments of the ld. Departmental Representative and upholding the present orders passed u/s 263 of the Income-tax Act, 1961, by the Commissioner of Income-tax. Thus grounds of appeal in all the appeals under consideration are dismissed. Respectfully following the above decisions, we are of the view that there was no occasion for the Assessing Officer to make any inquiry and the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the same as having retrospective effect. It is a settled rule of construction that every statue is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. Ordinarily the court are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. However, some times what happens is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation if subsequently some amendment is carried out to clarify the real intent, such amendment has to be considered as retrospective from the date when the earlier provision was made effective. Such clarificatory or explanatory amendment is declaratory. As the later amendment clarifies the real intent and declares the position as was originally intended, it takes retroactive effect from the date when the original provision was made effective. Normally such clarificatory amendment is made retrospectively effective from the earlier date. It may also happen that the clarif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-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 powers 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 [Principal Chief Commissioner or] Chief Commissioner or [Principal Director General or] Director General or [Principal Commissioner or] Commissioner authorised by the Board in this behalf under section 120; (b) record [shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the [Principal Commissioner or] Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the [Principal Commissioner or] Commissioner under this sub-section shall extend [and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.] [Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. ] It is profitable at this stage to refer to the Memorandum to Finance Bill 2015 and notes to clauses to Finance Bill, 2015 which are as under: Further, it is essential to refer to the memorandum to finance bill 2015 and notes to clause so as to understand the real intention of the legislature in inserting Explanation 2 to section 263 of IT Act 1961 which is reproduced here under for ready reference: MEMORANDUM TO FINANCE BILL 2015 The existing provisions contained in sub-section (1) of section 263 of the Incometax Act provides that if the Principal Commissioner or Commissioner considers that any order passed by the assessing officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the assessing officer or cancell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. This amendment will take effect from 1st June, 2015. The plain reading of existing provisions of section 263 of IT Act 1961, the memorandum to finance bill 2015 and notes on clauses of finance bill 2015 as reproduced above makes it evident beyond doubt that said Explanation 2 to section 263 of IT Act 1961 was brought in just as clarificatory or explanatory to the original intent of section 263 of IT Act 1961. The intention of legislature has been to explain and clarify the originally enacted statue so as to declare the position as was originally intended. The language of the Explanation 2 starts as for the purpose of this section, it is here by declared that the order by which goes to prove that the relevant insertion of explanation has been declaratory. Therefore, taking support from decision of Hon ble B bench of ITAT Kolkata on the principles of applicability of amendments in the case of Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to claim of deduction of ₹ 17.72 crores with respect to the provisions for warranty, excise duty , sales tax and liquidated damages. Moreover, now Explanation 2 to Section 263 of the Act is inserted in the statute which is declaratory and claraficatory in nature to declare the law and provide clarity on the issue whereby if the A.O. failed to make any enquiry or necessary verification which should have been made, the order becomes erroneous in so far as it is prejudicial to the interest of revenue. A proviso added from 01-04-1988 to Section 43B of the Act from 01-04-1984 came up for consideration in Allied Motors Private Limited v. CIT (1997) 91 taxman 205(SC) before Hon ble Supreme Court and it was given retrospective effect from the inception of the section on the reasoning that the proviso was added to remedy http://www.itatonline.org 18 ITA 1994Mum/13 ITA 2836/Mum/14 unintended consequences and supply an obvious omission so that the section may be given a reasonable interpretation and that in fact the amendment to insert the proviso would not serve its object unless it is construed as retrospective . In CIT v. Podar Cement Pvt. Limited (1997) 92 Taxman 541(SC) , the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee company , is allowed as deduction while computing income under the Act. The A.O. was under duty to make necessary and proper enquiry, examination and verification s with respect to Provisions of ₹ 17.72 crores with respect to the claim of deduction of the assessee company for provisions for liquidity damages, warranty, sales tax and excise duty, while on perusal of the assessment orders u/s 143(3) of the Act dated 28.12.2010 and other documents filed before us, we have observed that the AO has not made any enquiry whatsoever with respect to the claim of deduction of expenses of ₹ 17.72 crores towards Provision for Warranty, Sales tax and excise duty and liquidated damages claimed by the assessee company while computing the income of the assessee company and the claim of the assessee company was accepted without any inquiry, examination or verification whatsoever by the AO and In the absence thereof of enquiry, examination and verification of the claim of the asssesee company for deduction of provisions for Warranty, Sales tax and excise duty and liquidated damages amounting to ₹ 17.72 crores , we find no infirmity in the order dated 06.02.2013 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order has observed that it was enquired that how this loss was mitigated by the assessee. In his reply, the assessee submitted that the loss was mitigated from gifts received from relatives, sale of jewellery and out of his personal savings. It was further observed that while going through the evidence produced in this connection, it was stated that ₹ 50,000/- from Jyoti Khandelwal and ₹ 50,000/- was received from father Shri Kailash Chandra Khandelwal. No concrete evidence was with regard to the source of these receipts could be produced by the assessee. Hence, he made addition of ₹ 1 lakh. Regarding remaining amount, the A.O. accepted the contention of the assessee. So far sale of jewellery is concerned, the assessee has filed invoices of sale of jewellery at paper book page Nos.120 to 193. From page Nos.120 to 143, the jewellery sold by the assessee are enclosed. From page Nos.124 to 159, the invoices in the name of Jyoti Khandelwal, wife of the assessee are enclosed and from page Nos.160 to 170, invoices are related to Shri Kailash Chandra Khandelwal, father of the assessee and from page Nos.171 to 192, invoices in the name of mother of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Commissioner (a) the order is passed without making enquiries or verification which should have been made (b) the order is passed allowing any relief without enquiring into the claim (c) the order has not been made in accordance with the order, direction or instruction issued by the Board u/s 119 or (d) order has not been passed in accordance with any decision, which is prejudicial to the assessee rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. In the present case, Principal CIT has revised the order on the ground that the A.O. has failed to make enquiries or verification, which should have been made. Ld. Principal CIT has not specified that what enquiries the A.O. has not made. There is no material suggesting that the Principal CIT has expressed his view about insufficiency of enquiry on the material placed on record. The issue regarding whether the assessment order is erroneous or prejudicial on the ground of insufficiency of enquiry has been dealt by the Hon'ble Delhi High Court in the judgement of ITO Vs. DG Housing Projects Ltd. (2012) 20 Taxmann.com 587, which has been followed by this Tribunal in various cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of remit cannot be passed by the CIT to ask the A.O. to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT held and records reason why it is erroneous. An order will become erroneous because on remit, the A.O. may decide that order is erroneous. Therefore, CIT must after recording reasons, hold that order is erroneous the jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It was further observed that the material, which the CIT can rely includes not only the records as it stands at the time when the order in question was passed by the A.O. but also record as it stands at the time of the examination by the CIT. Nothing appears/prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the A.O. is erroneous. We find that Ld. CIT in the present case has not carried out any enquiry of his own has merely set aside the assessment to the file of the A.O. to re-examine issue of source of cash deposited by the assessee. Therefore, it is contrary to the guidelines as mandated in the Hon'ble ..... 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