TMI Blog2021 (1) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... nducted more enquiries. What is the nature of further enquiries or what the AO missed to examine and what would have been the income that has escaped is not made clear by the Pr. CIT. The assessee is following percentage completion method of accounting. In this method, at best the dispute can be the year of taxation of a particular receipt as income but not the total escapement of income. The Pr. CIT is wrong in his understanding of accounting of opening work-in-progress and closing work-in-progress. The assessee maintains project-wise accounts. The assessee is determining the turnover to be disclosed in a year by following AS-7. The revenues are recognised proportionately. Order-wise, Project-wise, Year-wise details are given in a scientific manner. Pr. CIT has not pointed out as to where the error has occurred. He had a suspicion that income is not accounted for correctly. Mere suspicion is no ground for exercise of power u/s. 263 of the Act. No verification or examination of the audited accounts is done by the Pr. CIT. As he has suspicion, he simply set aside the matter to the file of the AO for fresh adjudication. This is not permitted in law. CIT should have conducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and WIP amounting to ₹ 8,99,06,298/-. Thus there was an increase in amount on account of Stock of materials amounting by ₹ 56,45,145/- and WIP amounting by ₹ 2,67,60,751/- during the F.Y. 2012-13 relevant to A.Y. 2013-14. The closing sock of WIP of ₹ 11,66,67,049/- as on 31.03.2013 was computed after deducting from the amount of list of incomplete jobs of ₹ 69,68,36,440/-, the value of WIP on the liability side of ₹ 9,59,86,121/- and value of progressive bills raised of ₹ 48,41,83,270/- in the manner ₹ 69,68,36,440/- --₹ 9,59,86,121/- -- 48,41,83,270/- = ₹ 11,66,67,049/-. ii) From the Trading Construction P/L account for the year ended 31.03.2013, it appears that although the increase in amount on the account of Stock of materials of ₹ 56,45,145/- was duly accounted for while arriving at Gross Profit for the year but no such credit was seen either in the Trading Construction account or in the P/L account for the year regarding the increase in amount of WIP by ₹ 2,67,60,751/-. Since difference in the opening and closing stock of WIP is always accounted by either debiting or crediting the Trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Assessee cannot hide behind its assertion that the accounting is as per the standards. It is the responsibility of the A.O. to scratch the surface to ensure that the correct income of the assessee is brought to tax. Thus the impugned order was obviously assessed without adequate enquiry and AO had failed to apply his mind. 11. Having regard to the facts and circumstances of the case and in the light of the aforesaid decision of Hon'ble Supreme Court and Hon'ble High Court, I hold that the impugned assessment order dated 08.07.2015 passed by the A.O. is erroneous in so far as it is prejudicial to the interests of the revenue. I further hold, after giving the assessee an opportunity of being heard, that the impugned assessment order dated 08.07.2015 is liable to set-aside. Therefore, I set aside the said assessment order directing the present A.O. to re-frame the assessment after considering the aforesaid observations, Hon'ble Supreme Court and Hon'ble High Court decisions and as per law. 7. Aggrieved, the assessee is before us. 8. The ld. Counsel for the assessee submits as follows: a) The AO had called for the details by the requisition u/s. 142(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of non-application of mind by the AO and as the Pr. CIT has not conducted any enquiry or verification by himself or pointed out any error which is prejudicial to the interest of the Revenue. He relied on a number of case laws. We will refer to the same as and when the issue arises. 9. The ld. D/R, on the other hand, relied on the order of the Pr. CIT and submitted that the ld. AO had in fact collected information on the issue of work-in-progress etc. and had just placed them in the file but has not applied his mind to the information so collected. He submitted that no prejudice is caused to the assessee in this case as the issue is remanded to the file of the AO for fresh adjudication in accordance with law and the assessee would have adequate opportunity to demonstrate the correctness of its claim. He submitted that there is no discrepancy in the view of the ld. Pr. CIT on the statement that the increase of WIP was only ₹ 2,67,16,751/-. He placed reliance on a various decisions cited by Pr. CIT in his order u/s. 263 of the Act and relied on the same as submitted that the order of the ld. Pr. CIT has to be upheld. He argued that the Pr. CIT has correctly invoked his power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;] (xi) Party wise break of the sales under trading and construction account. [Annexure 'K'] (xii) The break up of salaries and wages along with a comparative analysis. [Annexure 'L'] (xiii) Approved gratuity fund with Life Insurance Corporation. [Annexure 'M'] (xiv) Rent with copy of agreement. [Annexure 'N'] (xv) The minutes of the meeting of the directors guiding the payments of the directors. [Annexure 'O'] (xvi) Details of repairs [Annexure 'P'] (xvii) Interest on loan to directors. [Annexure 'Q'] (xviii) Details of advertisement [Annexure 'R'] (xix) Details of Donation [Annexure 'S'] (xx) Details of business promotion expenses [Annexure 'T'] Further Reply on 26.05.2015 with evidences for further query by the A.O. (i) Names of the clients for whom those jobs were being executed. [Annexure 'A'] (ii) Directors Return Acknowledgements. [Annexure 'A'] (iii) Audit report in Form Number 29B u/s. 115JB [Annexure 'C'] (iv) TDS details section wise. [Annexure 'D'] (v) Bank reconciliation statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of further enquiries or what the AO missed to examine and what would have been the income that has escaped is not made clear by the Pr. CIT. 12.1. The assessee is following percentage completion method of accounting. In this method, at best the dispute can be the year of taxation of a particular receipt as income but not the total escapement of income. The Pr. CIT is wrong in his understanding of accounting of opening work-in-progress and closing work-in-progress. The assessee maintains project-wise accounts. The assessee is determining the turnover to be disclosed in a year by following AS-7. The revenues are recognised proportionately. Order-wise, Project-wise, Year-wise details are given in a scientific manner. The Pr. CIT has not pointed out as to where the error has occurred. He had a suspicion that income is not accounted for correctly. Mere suspicion is no ground for exercise of power u/s. 263 of the Act. No verification or examination of the audited accounts is done by the Pr. CIT. As he has suspicion, he simply set aside the matter to the file of the AO for fresh adjudication. This is not permitted in law. 13. This Tribunal's Co-ordinate Bench's decision in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous and prejudicial to the interests of the Revenue. Rampyaridevi Saraogi v. CIT (1968) 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal V. CIT (1973) 88 ITR 323 (SC) . 25. In Max India Ltd. (Supra), reiterated the view in Malabar Industrial Co. Ltd. (Supra) and observed that every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. On the facts of that case, Sec. 80HHC(3) as it then stood was interpreted by the Assessing Officer but the Revenue contended that in view of the 2005 Amendment which is clarificatory and retrospective in nature, the view of the Assessing Officer was unsustainable in law and the Commissioner was correct in invoking Sec. 263. But the Supreme Court rejected the said cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. 27. In Sunbeam Auto Ltd. (Supra), the Delhi High Court held that the Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc.; that 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, a lesser tax than what was just, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner, on perusal of the record, may be of the opinion that the estimate made by the Officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer; but that would not vest the Commissioner with power to reexamine the accounts and determine the income himself at a higher figure; there must be material available on the record called for by the Commissioner to satisfy him prima facie that the order is both erroneous and prejudicial to the interests of the Revenue. Otherwise, it would amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh inquiry in matters which have already been concluded under law. 29. In M.S. Raju (Supra), this Court has held that the power of the Commissioner under Sec. 263(1) is not limited only to the material which was available before the Assessing Officer and, in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Officer is unsustainable in law. c) To invoke suo motu revisional powers to reopen a concluded assessment under Sec. 263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo motu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any right to appeal to the first appellate authority against an order passed by the Assessing Officer. S. 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression prejudicial to the interest of the Revenue is of wide import and is not confined to merely loss of tax. The term erroneous means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It may be noticed that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under Clause (e) of Section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact that the order was passed by the assessing officer after due application of mind. Meerut Roller Flour Mills Pvt. Ltd. vs. C.I.T., ITA No. 116/Coch/2012; CIT vs. Infosys Technologies Ltd., 341 ITR 293 (Karnataka); S.N. Mukherjee vs. Union of India, AIR 1990 SC 1984; A.A. Doshi vs. JCIT, 256 ITR 685; Hindustan Tin Works Ltd. Vs. CIT, 275 ITR 43 (Del), distinguished. (Paras 90-92, 102) COMMISSIONER OF INCOME TAX vs. SOHANA WOOLLEN MILLS 296 ITR 238 (P H HC) A reference to the provisions of s. 263 shows that jurisdiction thereunder can be exercised if the CIT finds that the order of the AO was erroneous and prejudicial to the interest of Revenue. Mere audit objection and merely because a different view could be tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h showed that there was any discrepancy or falsity in evidences furnished by the assessee, the order of the AO cannot be set aside for making deep inquiry only on the presumption and assumption that something new may come out. For making a valid order under s. 263 it is essential that the CIT has to record an express finding to the effect that order passed by the AO is erroneous which has caused loss to the Revenue. Furthermore, where acting in accordance with law the AO frames certain assessment order, same cannot be branded as erroneous simply because according to the CIT, the order should be written more elaborately.--Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC), Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del), CIT vs. Seshasayee Paper Boards Ltd. (2000) 242 ITR 490 (Mad), CWT vs. Prithvi Raj Co. (1991) 98 CTR (Del) 216 : (1993) 199 ITR 424 (Del) and J.P. Srivastava Sons (Kanpur) Ltd. vs. CIT (1978) 111 ITR 326 (All) relied on. (Paras 6 7) In the entire order emphasis laid by the CIT is that in respect of four issues mentioned by him, no queries were raised by the AO. On this premise, though it is ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have accrued to a person when he acquires the right to income and this should be enforceable right, though actual quantification or receipt may follow in due course. The mere claim to income without any enforceable right cannot be regarded as an accrued income for the purpose of IT Act. (Para 16) Coming to the claim under s. 80HHC, it was totally uncalled for on the part of the CIT to say that the AO did not make requisite inquiries because of the simple reason that the AO had, in fact, declined and rejected this claim of the assessee. If the AO himself disallowed the deduction claimed by the assessee on this account under s. 80HHC, one fails to understand what further inquiries were needed by the AO. (Para 17) Lastly, the observations of the CIT are in respect of the income of ₹ 1.61 crores shown by the assessee on account of variation in exchange rate. The CIT has only observed that in the immediate previous year no such gain was shown and therefore, it needed examination by the AO. However, the moot question would be examination for what purpose? It is an income shown by the assessee. Whether the CIT was of the opinion that there was no such income or he was nur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an error. Assessments cannot be set aside for fresh enquiries unless a specific error is pointed out at not making proper enquiry cannot be equated with no enquiry. In view of the above we quash the order passed u/s. 263 of the Act and allow the appeal of the assessee. 14. Applying the propositions of law laid down in these case laws to the facts of the case on hand, we hold that the Pr. CIT should have conducted enquiries and should have verified the accounts and other documents and details himself and pointed out specifically as to where an error has occurred which is prejudicial to the interest of the Revenue and which in his opinion would result in the assessee being not assessed at the correct amount of income and only after such enquiries, examination and verification he can come to a conclusion that there is an error insofar as it is prejudicial to the interest of the Revenue. The Pr. CIT is not authorized to simply set aside an assessment order by making certain general observations based on suspicion and wrong working out of the WIP and without specifically pointing out errors which are prejudicial to the interest of the Revenue. Mere suspicion of likely escapement o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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