TMI Blog2020 (6) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... agents along with the list of electric items sold by them based on which the commission was claimed was placed before the AO as well as the ld. Pr. CIT. This is also a fact that the assessee has been paying and claiming as a deduction commission paid to agents, for all the previous Assessment Years as well as for the subsequent Assessment Years. It is common knowledge that in this segment of business, the competition is severe and requires special measures to boost sales. The payment of commission has been accepted as genuine by the revenue in the earlier years as well as in the subsequent Assessment Years. AO has taken a possible view that the expenditure in question claimed by the assessee as commission payment, is allowable in part. This cannot be a case of lack of enquiry or non-application of mind. The issue whether third party enquiries have to be made or not during the course of investigation, is the prerogative of the AO, as he is the investigator. The type, nature and extent of investigation is the prerogative of the Assessing Officer. Pr. CIT, cannot, in our view, invoke his power u/s 263 for revising an order passed u/s 143(3) of the Act for the reason that in his vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /AR, 20% of the total commission of ₹ 1,47,90,981/- was disallowed, without any proper verification. Apart from this, other CASS reasons were not found to be verified properly while passing the order u/s. 143(3). Absence of the proper examination/verification regarding the above has rendered the assessment erroneous and prejudicial to the interest of the revenue which deserves to be revised u/s. 263 of the I.T. Act, 1961. 2.1. The assessee replied as follows:- The assessee filed its return for A.Y. 2014-15 within due time. The case was assessed u/s 143(3) under CASS. In the show cause notice issue on the above mentioned issue of revision of the order of the Ld. Income Tax Officer, it has been alleged that the revision is warranted mainly because of the following:- 1. That the assessee has filed to substantiate the necessity for paying large amount of commission in business of sale of electric goods as well as failed to produce evidence of rendering of service. 2. Parties to whom commission was paid were not produced. 3. Irregular appearance of A/R 4. A 20% of total commission of ₹ 14790981/- was disallowed without pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank statement completed the assessment proceedings by treating the same as genuine. ..During the course of scrutiny the Ld. Income Tax Officer wanted details of commission paid to achieve the turnover. Proper details with PAN no. and address were provided to the Ld Income Tax Officer. It is submitted that the AO examined all the relevant documents and had conducted a proper enquiry. Details of commission were made available to him and based on his experience in earlier years, he was reasonably satisfied about the appropriateness of the commission paid. Other matters were looked into adequately and appropriately. It is also humbly submitted that since the A.O. had made proper enquiries in respect of the commission paid on other issues as well, the order of the A.O. is neither erroneous nor prejudicial to the interest of the revenue. 2.2. Thereafter on 5th December, 2018, the assessee replied as follows:- Sub: Written Submission in reply to the show cause notice dated 13.09.2018 issued to our client- Skan Enterprises for AY 2014-15 further to the hearing on 29-11-2018 In accordance to the directions issued and the requisition made in the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atches with the observation of the A.O. under para 4 of its order where he remarked. QUOTED:- The submission of the assessee is considered but the contention of reply is not tenable as the assessee failed, to furnish full details in support of commission paid Of ₹ 1,47,90,981/ -. However, the A/R was asked why the commission will not be disallowed as per U/s. 37 of the I.T. Act. 1961. Though u/s. 37 dearly defines In (Explanation-1) for the removal of doubt. It is hereby declared that any expenditure Incurred by an assessee for any purpose which is offence or which is prohibited by law shall not be deemed to law been incurred by purpose of business and no deduction or allowances shall be made in respect of such expenditure. In the instant case, it is observed that the assessee paid ₹ 1,47,90,981/- as commission is excessively higher in comparison to assessee s sales during the financial year 2013-14. However, evidences of such payments could not be verified fully due to inaccurate particulars. Hence, 20% of commission paid i.e., ₹ 29,58,196/- is disallowed and added back to assessee s total income. Penalty proceedings u/s. 271(1)(c) of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowability account of commission payment, which included:- a) Ledger accounts of the parties b) Details of tax deducted at source from these parties on commission payments. c) Annexures of bills raised by those parties giving the items of sale on which a claim of commission was made. d) Copy of the account of the assessee firm, in the books of the commission agents. e) Copy of form no. 16A etc. 5.1. He submitted that the commission was claimed by these agents on sale of each item of electric goods, the details of which were furnished. He submitted that the Assessing Officer has examined these documents and thereafter chose to disallow on adhoc basis @ 20% of the expenditure claimed as commission payments. He pointed out that the ld. Pr. CIT alleges that the Assessing Officer has not made proper enquiries and argued that the extent of enquiry to be made is to be determined by the Assessing Officer and cannot be a ground of revision by the ld. Pr. CIT. He further submitted that not making enquiries from third parties by the Assessing Officer, cannot also be a ground for revision u/s 263 of the Act and it cannot be classified as a case of lack of enquiry. He vehem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed u/s 263 of the Act and submitted that, no proper enquiries were made by the Assessing Officer during the course of original assessment proceedings as the Assessing Officer had not examined the genuineness of the commission claimed as paid and has not made enquiries from third parties i.e., commission agents. Thus, he submits that this is a case of lack of enquiry which makes the assessment order not only erroneous but also prejudicial to the interest of the revenue. He prayed that the order passed u/s 263 of the Act, be upheld. 7. We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 8. A perusal of the assessment order and the details filed by the assessee before the Assessing Officer, in reply to the queries raised by the Assessing Officer during the assessment proceedings demonstrate that this is not a case of lack of enquiry as stated by the ld. Pr. CIT in the last paragraph of his order. This statement is factually incorrect. The Assessing Officer has called for information on the claim of deduction of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en deposited. The judgment in the case of CIT vs. Precision Finance Pvt. Ltd. reported in 208 ITR 465 relied upon by Mr. Bhowmick does not really assist him. The aforesaid judgment is an authority for the proposition that mere payment by account payee cheque cannot establish that the transaction was genuine, but in the case before us, besides the fact that payment was made by cheque, there are other pieces of evidence available which are as follows: a) Books of Accounts maintained by the assessee in the ordinary course of business; b) Deduction of Tax at source; c) Deposit of the money deducted at source; d) Particulars of the recipient were duly furnished; We are, as such, of the opinion that the views expressed by the learned Tribunal are unexceptionable. We, therefore refuse to admit the appeal. The appeal is thus dismissed. 8.2. Similarly, the Hon ble Jurisdictional High Court in the case of CIT vs. Alpha Hydronics Pvt. Ltd. (supra), held as follows:- We find that the Tribunal while allowing the appeal of the assessee and held as under : We have considered the rival submissions and gone through the facts of the case. We find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r passed u/s 143(3) of the Act for the reason that in his view, the investigation/enquiry should be conducted in a particular manner or to a particular extent. Inadequate enquiry cannot be a ground of revision. 9.1. On facts, this is a case where an enquiry was conducted and a possible view taken based on the examination of the materials available on record. The Hone ble Andhra Pradesh High Court in the case of Spectra Shares and Scrips Pvt. Ltd. V CIT (AP) 354 ITR 35 had considered a number of judgments on this issue of exercise of jurisdiction u/s 263 of the Act by the Principal Commissioner of Income Tax and culled the principles laid down in the judgments as below : 24. In Malabar Industrial Co.Ltd. (2 Supra), the Supreme Court held that a bare reading of Sec.263 makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suomotu under it, is the order of the Income Tax Officer is erroneous in so far 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and held that when the Commissioner passed his order disagreeing with the view of the Assessing Officer, there were two views on the word profits in that section; that the said section was amended eleven times; that different views existed on the day when the Commissioner passed his order; that the mechanics of the section had become so complicated over the years that two views were inherently possible; and therefore, the subsequent amendment in 2005 even though retrospective will not attract the provision of Sec.263. 26. In Vikas Polymers (4 Supra), the Delhi High Court held that the power of suomotu revision exercisable by the Commissioner under the provisions of Sec.263 is supervisory in nature; that an erroneous judgment means one which is not in accordance with law; that if an Income Tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written differently or more elaborately; that the section does not visualize the substitution of the judgment of the Commissioner for that of the Income Tax Officer, who passed the order unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een imposed. In that case, the Delhi High Court held that the Commissioner in the exercise of revisional power could not have objected to the finding of the Assessing Officer that expenditure on tools and dies by the assessee, a manufacturer of Car parts, is revenue expenditure where the said claim was allowed by the latter on being satisfied with the explanation of the assessee and where the same accounting practice followed by the assessee for number of years with the approval of the Income Tax Authorities. It held that the Assessing Officer had called for explanation on the very item from the assessee and the assessee had furnished its explanation. Merely because the Assessing Officer in his order did not make an elaborate discussion in that regard, his order cannot be termed as erroneous. The opinion of the Assessing Officer is one of the possible views and there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. 28. In Gabriel India Ltd. (6 Supra), the Bombay High Court held that a consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake into consideration even those events which arose subsequent to the order of assessment. 30. In Rampyari Devi Saraogi (21 Supra), the Commissioner in exercise of revisional powers cancelled assessee s assessment for the years 1952-1953 to 1960-61 because he found that the income tax officer was not justified in accepting the initial capital, the gift received and sale of jewellery, the income from business etc., without any enquiry or evidence whatsoever . He directed the income tax officer to do fresh assessment after making proper enquiry and investigation in regard to the jurisdiction. The assessee complained before the Supreme Court that no fair or reasonable opportunity was given to her. The Supreme Court held that there was ample material to show that the income tax officer made the assessments in undue hurry; that he had passed a short stereo typed assessment order for each assessment year; that on the face of the record, the orders were pre-judicial to the interest of the Revenue; and no prejudice was caused to the assessee on account of failure of the Commissioner to indicate the results of the enquiry made by him, as she would have a full opportunity for showin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference and revision. e) The Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted f) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, he commits an error and the word erroneous includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under s. 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous . In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Assessing Officer is erroneous. COMMISSIONER OF INCOME TAX vs. J. L. MORRISON (INDIA) LTD. 366 ITR As regard the submission on behalf of the Revenue that power under Section 263 of the Act can be exercised even in a case where the issue is debatable, it was held that the case of CIT vs. M. M. Khambhatwala was not applicable. The observation that the Commissioner can exercise power under Section 263 of the Act even in a case were the issue is debatable was a mere passing remark which is again contrary to the view taken by the Apex Court in thecase of Malabar Industrial Company Ltd. Max India Ltd. If the Assessing Officer has taken a possible view, it cannot be said that the view taken by him is erroneous nor the order of the Assessing Officer in that case can be set aside in revision. It has to be shown unmistakably that the order of the Assessing Officer is unsustainable. Anything short of that would not clothe the CIT with jurisdiction to exercise power under Section 263 of the Act. CIT vs. M. M. Khambhatwala reported in 198 ITR 144; CIT vs. Ralson Industries Ltd. reported in 288 ITR 322 (SC), not applicable; Malabar Industrial Co. Ltd. v. CIT reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est of Revenue. Mere audit objection and merely because a different view could be taken, were not enough to say that the order of the AO was erroneous or prejudicial to the interest of the Revenue. The jurisdiction could be exercised if the CIT was satisfied that the basis for exercise of jurisdiction existed. No rigid rule could be laid down about the situation when the jurisdiction can be exercised. Whether satisfaction of the CIT for exercising jurisdiction was called for or not, has to be decided having regard to a given fact situation. In the present case, the Tribunal has held that the assessee had disclosed that out of sale consideration, a sum of ₹ 1 lakh was to be received for sale of permit. If that is so, there was no error in the view taken by the AO and no case was made out for invoking jurisdiction under s. 263. 10. In view of the above discussion and applying the proposition of law laid down in the above case law to the facts of the case on hand, we have to necessarily hold that the exercise of revisionary power by the ld. Pr. CIT, u/s 263 of the Act, is bad in law. Hence we quash the same. 11. In the result, appeal of the assessee is allowed. Kolkat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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