TMI Blog2021 (2) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... of some plausible view but this is a case where the decision was a result of non-application of mind to the materials on record. Taking into consideration the reasoning of the CIT, we feel that the ITAT was not justified in interfering with the CIT's order, since, the twin conditions prescribed under Section 263 of the said Act were fulfilled. Besides, the CIT, by the impugned order, had quite fairly, granted the assessee an opportunity of being heard whilst directing the AO to verify the claim of the assessee in respect of the allowability of the expenditure and carry forward of the loss of ₹ 1,78,57,950/- in accordance with law. In similar circumstances in the case of Daniel Merchants P. Ltd. [ 2017 (12) TMI 476 - SUPREME COURT] upheld that order of the Commissioner which had directed the AO to carry a thorough and detailed inquiry. Decided in favour of the Revenue and against the assessee. - TAX APPEAL NO. 42 OF 2016 - - - Dated:- 14-1-2021 - M. S. SONAK DAMA SESHADRI NAIDU, JJ . Ms. Amira Razaq, Standing Counsel for the Appellant. Mr. Salil Kapoor along with Ms. Priyanka Kamat, Advocates for the Respondent. JUDGMENT (Per M. S. Sonak, J.): ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... questions of law. 6. Ms. Razaq, the learned counsel for the respondent submitted that in this case the twin conditions of the AO's order being erroneous and prejudicial to the interest of the respondent were satisfied and therefore, there was no legal bar to the invocation of revisional jurisdiction by the Commissioner. She submits that the record very clearly disclosed that the assessee had neither carried out any business during the relevant assessment year nor had it charged any fees from its subsidiary for technical or management services allegedly rendered during the relevant assessment year. She submits that the AO himself pointed out the error in his order dated 30.09.2011 and the Commissioner, upon independent application of mind was also satisfied with the existence of such error. She points out that on account of the erroneous view of the AO, the assessee was incorrectly permitted to carry forward losses of ₹ 1,78,57,950/- to the next assessment year and thereby avoid payment of tax to the extent of almost ₹ 60,69,917/-. She submits that in this case an audit objection was raised and therefore, despite the tax effect being less than ₹ 1 Crore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same by invoking the revisional powers under Section 263 of the said Act. He submits that in any case, the Commissioner was duty-bound to himself hold an inquiry to find out whether the losses claimed by the assessee were indeed incurred by the assessee during the relevant assessment year and the matter could not have simply being remanded by the AO for reconsideration. He relies on CIT v. Gabriel India Ltd. - 1993- (203) ITR 108 (Bom) and PCIT v. Delhi Airport Metro Express P. Ltd. - ITA No.705/2017 in support of this contention. Mr. Kapoor submits that for all the aforesaid reasons this appeal is liable to be dismissed. 11. The rival contentions now fall for our determination. 12. The record, in this case, indicates that the assessee claimed to have earned an amount of ₹ 2,31,010/- on account of interest on fixed deposits and it was the case of the assessee that this was its business income. Further, the assessee also claimed business expenses to the tune of ₹ 2,84,09,850/- as against the business income of ₹ 2,31,010/- for the relevant assessment year. This included the salary paid to the directors of the subsidiary company to the extent of ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year for earning such a paltry income. Besides, this income of ₹ 2,31,010/- was nothing but interest on certain fixed deposits and even the AO recorded a finding that this income had no nexus whatsoever with the business of the assessee. 16. According to us, it is not sufficient that the AO merely seeks an explanation from the assessee but further, the AO must apply his mind to such an explanation. If the assessment order dated 30.09.2011 is perused, then, all that transpires is that the AO has generally observed that it may be true that the assessee may have to incur certain expenditure which may be relevant to keep the company in operation. 17. As noted earlier, this type of reasoning is indicative of non-application of mind. It is also indicative of the circumstance that the AO has ignored the material on record or failed to inquire into the explanation furnished by the assessee in its letter dated 19.08.2011. Even going by the restrictive parameters of revisional jurisdiction under Section 263 of the said Act, in the facts of the present case, we feel that the twin conditions i.e. about the order of the AO being erroneous and prejudicial to the interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the assessee to carry forward losses to the extent of ₹ 1,78,57,950/-. 21. According to us, this is not a case where the Commissioner has not concluded that the order of the AO in the aforesaid circumstance was not erroneous or that it was not prejudicial to the interest of the Revenue. The only reason the Commissioner has used the expression prima facie in paragraphs 7 and 10 of the impugned order is that the Commissioner, intended to offer the assessee a reasonable opportunity of being heard by the AO, in the course of a detailed inquiry accompanied by due application of mind by the AO, in pursuance of a remand order. This is also not a case where the Commissioner failed to undertake inquiry in the course of the exercise of revisional jurisdiction. It is only in pursuance to such inquiry that the Commissioner recorded a categorical finding that the assessee had not even claimed any fees from M/s. Paradeep Phosphates Ltd. in respect of any alleged technical or management services rendered by it. 22. Though, there can be no dispute about the propositions laid down in the various rulings relied upon by Mr. Kapoor, we feel that such propositions are not attracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of showing the AO whether he has jurisdiction or not, and whether the income assessed in the assessment orders which were originally passed was correct or not. 27. In several decisions, it has been held that it is incumbent on the AO to investigate the facts stated in the return when the circumstance would make such an inquiry prudent and when the word 'erroneous' in Section 263 includes failure to make an inquiry, the order becomes erroneous when such an inquiry had been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. Duggal and Co. vs. Commissioner of Income Tax 220 ITR 456 (Delhi); CIT vs. Pushpa Devi 164 ITR 639 (Pat.) and CIT vs. Pushpa Devi 173 ITR 445 (Pat.). 28. In Amitabh Bachchan (supra), the assessee had initially claimed additional expenses of 30% of the gross professional receipts (₹ 3.17 Crores). The AO required the assessee to file requisite details. At that stage, the assessee resisted furnishing details by submitting that such details related to his security and any disclosure might be detrimental to his security. Then, by letter dated 13.03.2004, the assessee, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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