TaxTMI 
TaxTMI 
2019 (3) TMI 1878
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.... passed u/s 143(3)/144C on 01/03/2013, computing the total income at Rs. 412,94,85,880/-. Subsequently the Pr. CIT-4, Kolkata issued a notice u/s 263 of the Act, on 13/11/2015 proposing revision of the order on the ground that there were certain errors which caused prejudice to the interest of the revenue in the assessment order passed on 21/01/2014 u/s 143(3)/144C(13) of the Act. The grounds on which the ld. Pr. CIT had revised the assessment order is as follows:- a) Under assessment of income by Rs. 89,77,934/-, on account of depreciation on moulds being claimed by the company and allowed by the Assessing Officer at a higher rate of 30% instead of the rate of 15%. b) Under assessment of Rs. 9,30,00,000/-, on account of allowance of a deduction claimed by the assessee company towards "excise duty not recovered from the sales" being debited directly to the profit and loss account. 2.1. The assessee company filed its reply dt. 11/01/2016 and 11/02/2016 and contested the show cause notice issued by the ld. Pr. CIT proposing to exercise his powers u/s 263 of the Act, on the ground that there is no error which is prejudicial to the interest of the revenue in the impugned assessment....
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....d for the Sales" is not allowable." 4. Under Ground No.1 which challenges the order as invalid and not sustainable in law, the following legal arguments were raised:- "1.1.1. As per the provisions of section 263 of the Act, the Principal Commissioner or Commissioner may revise an order passed by the Assessing Officer if the same is erroneous in so far as it is prejudicial to the interest of the revenue. The Assessment order dated 21 January 2014 in as much as is passed consequent to the directions of the DRP cannot be regarded as an order of the Assessing Officers'. Further, Explanation l(a) to section 263(1) of the Act has clarified the scope of what can be constituted as an order passed by the Assessing Officer, as mentioned below: "Explanation 1. - For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the ....
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..... CIT does not have the power to revise the order passed by the Assessing Officer in conformity with the directions of the DRP u/s 144C of the Act using his revisionary powers u/s 263 of the Act. He relied on the propositions of law laid down in the order of the Mumbai Bench of the ITAT in the case of Trustees of Parsi Panchayat Funds & Properties v. Director of Income-tax [1996] 57 ITD 328 (BOM.) and submitted that when a view was taken and when an order was passed by the Assessing Officer pursuant to the directions of a superior authority the same could not be the subject matter of revision u/s 263 of the Act because:- i. The Assessing Officer could not be said to have applied his mind and merely implemented the binding directions of his superiors and, therefore, his order could not be said to be erroneous, insofar as it is prejudicial to the interest of the revenue. ii. The Act does not contain a provision by which the order of the Commissioner of Income Tax can be revised by another Commissioner of Income Tax. 5.1. He submitted that the Assessing Officer has in this case passed an order u/s 143(3) of the Act in conformity with the directions of the DRP u/s 144C of the Act....
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....e of an enabling provision u/s 263 of the Act, akin to clause (C) of explanation 1 to Section 263, the ld. Pr. CIT does not have the power to revise the impugned assessment order. Referring to the explanation to Section 144C(8) of the Act, he submitted that this explanation was brought in by the Finance Act, 2012 to overcome the judgment of the Hon'ble Karnataka High Court in the case of GE India Technology Centre Pvt. Ltd. [338 ITR 416], which had taken a view that the DRP did not have the jurisdiction to look beyond the variations proposed in the draft assessment order and pointed out that this amendment was made with retrospective effect. He argued that when the DRP has power to consider any matter arising out of an assessment proceedings and hence, even if the DRP does not consider the same, the ld. Pr. CIT does not have the power to revise such an assessment order, u/s 263 of the Act, as the DRP had the jurisdiction to consider that issue. He further submitted that members of the DRP as per Section 144C(15) of the Act, means a collegium comprising of three Principal Commissioners of Income Tax/Commissioners of Income Tax and argued that as these persons are of the same rank a....
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....judicial to the interest of the revenue and that both the jurisdictional conditions have to be satisfied for invoking this section. For this proposition he relied on the following case-law:- * Malabar Industrial Co. Ltd. vs. CIT [(243 ITR 83) (SC)] * CIT vs. G.M. Mittal Stainless Steel Pvt. Ltd. [(263 ITR 255)(SC)] He submitted that when two view are possible and the Assessing Officer has taken one view, the provisions of Section 263 of the Act, would not be attracted and for this proposition, he relied on the decision of the Hon'ble Apex Court in the case of CIT v. Max India Limited [2007] 295 ITR 282 (SC) & on the decision of the Hon'ble Gujarat High Court in CIT vs. Arvind Jewellers 259 ITR 502 (Guj.). 5.6. On merits he submitted that the assessee has furnished relevant details in connection with the issue of higher depreciation on moulds and the issue of excise duty not recovered from sales debited to profit and loss account, through submission of financial statement and tax audit report before the Assessing Officer during the course of assessment proceedings. It was contended that the relevant details were before the Assessing Officer and based on the said material, th....
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....of the company, for manufacture of various products. He contended that no distinction has been made in the Rules between manufacturing of plastic goods for internal consumption or for outside sale. He relied on the following judicial precedents for the proposition that, though the assessee is not engaged in plastic business but in other businesses such as manufacture of electrical items, batteries etc. and manufactures plastic products which were only used for internal consumption in the manufacture of their own product then also depreciation at higher rate should be made available to the assessee:- * Amco Batteries Ltd. vs. CIT (1993) 203 ITR 614 (Kar.) * BPL Refrigeration Ltd. vs. ACIT (2004) 91 ITD 203 (Bang.) * L.K. India Pvt. Ltd. vs. Department of Income Tax [ITA No. 1458/Ahd/2012 & 1459/Ahd/2012] 5.9. He further submitted that the moulds are exclusively used in the rubber factory and this fact is certified by the tax auditors. He relied on the certificate from M/s. Elin Appliances (a Job worker/Co-maker of the Company), dt. 09/12/2015, for proving that moulds were used both in their factory for exclusive development of rubber/plastic products and for the business o....
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....se duty not recovered from sales" by recognising the difference between the two. Based on this view of the ld. CIT(A), he argued that the claim of the assessee is correct and the original order of the Assessing Officer which does not disturb this claim was neither erroneous nor prejudicial to the interest of the revenue. Even otherwise, he submitted that the order of the ld. CIT(A) proves that the view in question is a possible view and that when there are two possible views, no revision u/s 263 of the Act, can be done. Thus, the ld. Sr. Advocate submitted that the order of the ld. Pr. CIT passed u/s 263 of the Act, be held as bad in law. 6. The ld. CIT D/R, Mr. P.K. Srihari, on the other hand, opposed the contentions of the ld. Sr. Advocate and submitted that u/s 263 of the Act, the ld. Pr. CIT, has the power to revise any proceedings if he considers the order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue. He argued that what was revised was an order of the Assessing Officer passed us 143(3)/144C(13) of the Act, and that it is immaterial that this order was passed by incorporating directions of the DRP. He conten....
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....onal [2015] 375 ITR 123 (Calcutta), for the proposition that if an order is passed without enquiry/investigation it is erroneous insofar as it is prejudicial to the interest of the revenue. He prayed that the order of the ld. Pr. CIT 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. The first issue that is to be adjudicated is whether ld. Pr. CIT has the power u/s 263 of the Act to revise the assessment order passed by an Assessing Officer in compliance with the directions of the DRP u/s 144C(13) r.w.s 144C(5) of the Act. Under Section 144C(10) of the Act, the directions issued by the DRP are binding on the Assessing Officer. Under section 144C(13) of the Act, the Assessing Officer is required to complete the assessment in conformity with the directions of the DRP, without providing any further opportunity of being heard to the assessee. The ld. Counsel for the assessee argues that this process results in merger of the assessment order passed u/s 143(3)/144C(13) of the Act, with the order of the DRP. ....
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.... on the issues that were not before the DRP and the issues which the DRP had not examined nor has applied its mind to, there can be no merger with the directions of the DRP. In the case on hand, both the issues that were subject matter of revision u/s 263 of the Act, were not issues considered or examined by the DRP. 9. The ld. Counsel for the assessee relied on the decision of the Bombay 'A' Bench of the Tribunal in the case of Trustees of Parsi Panchayat Funds & Properties vs. Director of Income-tax (supra). The contention of the assessee in this case was that, the order framed on the directions given by the DDIT u/s 144A of the Act, could not be revised u/s 263 of the Act, as to the extent, the Assessing Officer could not be said to have applied his mind. The Tribunal held as follows:- "7. The contention of the assessee was that the order was framed on the direction given by DDIT under section 144A of the Act and to that extent the Assessing Officer could not be said to have applied his mind and therefore, that portion of the order based on the direction of DDIT under section 144A of the Act, could not be revised under section 263. According to the counsel the amendment to sec....
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....nt jurisdiction in the framing of the assessment and this jurisdiction so exercised by that superior authority is not merely as a superior but as an Assessing Officer as well. To ensure that the assessments framed after obtaining the directions under section 144A do not go unchecked the Legislature in their wisdom had amended the section 263 to include such an order as within the ambit of revision provided of course it could be said that the order is erroneous so as to make it prejudicial to the interests of the revenue. Considering the volume and the tax involved, the CBDT from time to time had issued such notifications to the effect that Inspecting Assistant Commissioners of Income-tax, Deputy Commissioners of Income-tax would also act as Assessing Officer singly or shall have concurrent jurisdiction. The order of assessment passed by Assessing Officer or Assessing Officer under directions of Inspecting Assistant Commissioner (IAC) or by IAC all are performing the functions of an Assessing Officer. This is clearly brought out in the Notes on Clauses to the Taxation Laws Amendment Bill, 1984 by which the Explanation to section 263 was introduced covering the orders framed as per t....
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.... Hence the argument that an enabling provision such as explanation 1(a) to Section 263 of the Act, is required for the ld. Pr. CIT to revise an order passed u/s 143(3)/144C of the Act, is in our view not correct as this explanation only clarifies the powers that are inherently held by the Pr. CIT u/s 263 of the Act. In any event, the argument of the assessee cannot be applied to those issues which were not considered by the DRP. 9.2. Another limb of the argument of the ld. Counsel for the assessee is that the DRP's power extends to such matters that have not been raised in the objections filed by the assessee before it under section 144C sub-section 8 and explanation thereto, and hence the entire order of the Assessing Officer can be said to be have been passed on the directions of the DRP. Simply because there is a power in the Act provided to the DRP, to examine all issues relatable to an assessment, whether raised by the assessee before it or not, it cannot be concluded that all the issues that arise in an assessment are deemed to have been examined or considered by the DRP. Those issues which were not considered or looked into by the DRP cannot be held as decisions taken by th....
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....CIT. 9.5. The next argument is that the order passed u/s 263 of the Act is barred by limitation as what was actually being revised was a draft assessment order. We are unable to persuade ourselves to accept this argument. This is not a case where assessment order is being revised. The notice issued by the ld. Pr. CIT was to revise the order passed u/s 143(3)/144C(13) of the Act on 21/01/2014 and what was revised and what is in challenge before us is the revision of this order dt. 21/01/2014 and not the draft assessment order dt. 01/03/2013. We hold that the order passed by the ld. Pr. CIT u/s 263 of the Act is not barred by limitation. There is no dispute that both the issues on which revisionary powers were invoked by the ld. Pr. CIT were not considered by the DRP. Hence in view of the above discussion, we hold that the ld. Pr. CIT has correctly exercised jurisdiction u/s 263 of the Act. 10. We now come to the issues on merits. The ld. Pr. CIT, in the last page of the order held as follows:- "The Assessing Officer allowed the claim of the assessee without examination of the facts." 10.1. A perusal of the draft assessment order demonstrates that the Assessing Officer has passe....
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....ment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to....
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....nsactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, accordingly, it is to be presumed that the transactions were genuine. It was not for the Income-tax Officer to find out by making investigation from the bank accounts unless the assessee proves the identity of the creditors and their creditworthiness. Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine." (e) In the case of CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843/83 Taxman 643 (Raj.) it was held by the Rajasthan High Court that omission to hold necessary enquiry resulted in non-application of mind reference may be made to the following observations :- "From the assessment order framed under section 143(3) it is clear that the Inspecting Assistant Commissioner has not applied his mind at all and there is no finding in the assessment order regarding the application or non-application of Explanation 3 to section 43(1). The Inspecting Assistant Commissioner having not applied his mind at....
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.... to reduce the tax liability, but he can definitely take into consideration the relevant facts. If the view taken by the Tribunal is accepted as the correct view then the Explanation cannot be invoked in any case, and, therefore, in order to find out whether the Explanation is applicable or not, the entirety of the circumstances has to be taken into consideration and it could not be for one reason or the other. It was a case where the assessing authority has not applied his mind. That was the end of the matter for exercising power under section 263 and, therefore, the matter should have been sent back to the assessing authority for applying his mind to find as to whether the Explanation is applicable or not. The observation of the Tribunal that full facts were brought to the notice of the Inspecting Assistant Commissioner (Assessment) is also not correct inasmuch as after giving statement with regard to the actual cost of the assets and depreciation claimed thereon, the assessing authority was bound to consider the Explanation. Simply because the facts have been disclosed by the assessee, it does not give immunity from revisional jurisdiction which the Commissioner can exercise und....
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.... of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the Commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. After examining the record and after making or causing to be made an enquiry, if he considers the order to be erroneous, then he can pass the order thereon as the circumstances of the case justify. Obviously, as a result of the enquiry he may come into possession of new material and he would be entitled to take that new material into account. If the material, which was not available to the Income-tax Officer when he made the assessment could thus be taken into consideration by the Commissioner after holding an enquiry, there is no reason why the material which had already come on record though subsequent to the making of the assessment, cannot be taken into consideration by him. Moreover, in view of the clear words used in clause (b) of the Explanation to section 263 (1), it has to be held that while calling for and examining the record ....
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....d culled out 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 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 it is prejudicial to the Revenue - recourse cannot be had to Sec.263 (1) of the Act. It also held at pg-88 as follows: "The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. 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....
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....e 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 the decision is not in accordance with the law; that to invoke suomotu 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 enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous....
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.... 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 materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. It held that 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 versions which they present as to what should be the inference or pro....
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....ir 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 showing to the income tax officer whether he had jurisdiction or not and whether the income tax assessed in the assessment years which were originally passed were correct or not" 31. From the above decisions, the following principles as to exercise of jurisdiction by the Commissioner u/s.263 of the Act can be culled out: a) 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 erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue - recourse cannot be had to S....
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.... 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 been imposed. g) The power of the Commissioner under Sec.263 (1) is not Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. Now we examine the following judgements. :- DIRECTOR OF INCOME TAX vs. JYOTI FOUNDATION 357 ITR 388 (Delhi High Court ) It was held that revisionary power u/s 263 is conferred on the Commissioner/Director of Income Tax when an order passed by the lower authority is erroneous and prejudicial to the interest of the Revenue. Orders which are passed without inquiry o....
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....ecorded 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 record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under s. 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the....
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....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 in 243 ITR 83, relied on. (Para 72) As regard the third question as to whether the assessment order was passed by the Assessing Officer without application of mind, it was held that the Court has to start with the presumption that the assessment order was regularly passed. There is evidence to show that the assessing officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under Section 142 (1) of the Act could not have been formulated. The Assessing Officer was required to examine the return filed by th....