TMI Blog2003 (6) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... ad made all proper and complete enquiries at the time of original assessment, the CIT was wholly unjustified cancelling the said order under s. 263. 5. For that in view of the facts and circumstances, and even otherwise, since there were only two defects pointed out by the CIT in his order under s. 263, the CIT was wholly unjustified in setting aside complete assessment to be done de novo and thereby setting aside the entire assessment." The AO completed the assessment under s. 143(3) of the Act by order dt. 22nd Feb., 1999 assessing the total income at Rs. 10,39,543 as against the returned income of Rs. 9,89,578. 2. Learned CIT issued a notice under s. 263 of the Act dt. 20th March, 2001 stating that the GP rate declared during the assessment year under appeal has declined from 41 per cent to 31 per cent and business promotion and marketing expenses have gone up from Rs. 22.55 lakhs last year to Rs. 45.84 lakhs this year. It is further stated in the notice that a sum of Rs. 32.99 lakhs remains pending on account of commissions and installation charges which indicates that business promotion and marketing expenses include payment of commissions. CIT stated that the AO while f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors but the amount of commission payable is provided during the year at the time of sale itself. Thus, outstanding commission is carried forward to be paid at the time of receipt of payment. The copy of the said reply dt. 24th March, 2001 is placed at pp. 2 and 3 of the paper book. 4. The learned CIT after considering the above reply of the assessee has stated that the explanation given by the assessee regarding low GP rate does not explain the fall of GP rate by a massive 10 per cent. The learned CIT has further stated that while providing the details of business promotion and marketing expenses, the assessee submitted only the names of the person with no addresses or other references. The assessee could not produce any evidence to show that services were actually rendered by the persons to whom commission and such other expenses had been paid. In view of the above, the learned CIT by the impugned order dt. 30th March, 2001, has stated that he is of the opinion that the assessment has been completed without proper enquiries and investigations. The assessment is erroneous in so far as it is prejudicial to the interest of Revenue. The learned CIT set aside the assessment with dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission of Rs. 14 lakhs. The learned authorised representative of the assessee further referred to p. 257 of the paper book and submitted that the assessee also submitted the reasons by way of a note for payment of commission. The learned authorised representative of the assessee further submitted that the assessee submitted the audited accounts and referred the notes of the auditors at pp. 7 to 9 and submitted that the assessee maintained the adequate internal control procedure and following the procedure as per law. The learned authorised representative of the assessee submitted that the learned CIT has not stated as to which enquiry was to be made by the AO while completing the assessment under s. 143(3) of the Act. He further submitted that the learned CIT has not stated that the commission claimed by the assessee is bogus or not genuine. He further submitted that the learned CIT cannot dispute the finality of the assessment merely on presumptions and assumptions or for the reasons that the assessment order is small and does not explain the reasons for allowing the expenses claimed by the assessee. In support of his submission, the learned authorised representative of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increased from Rs. 1.64 crores approximately in the last year to Rs. 3.1 crores in the assessment year under appeal. He further submitted that the Department has allowed the payment of the commission to the same parties to whom the commission was paid in the assessment year under appeal, in the earlier year and in the subsequent years to the assessment year under appeal and the same has been allowed by the Department. He further submitted that the AO has passed the assessment order under s. 143(3)/263 of the Act on 27th March, 2002 and no addition has been made on the ground of fall in GP which is one of the ground on the basis of the learned CIT considered the assessment order as erroneous and prejudicial to the interest of the Revenue. In support of his submission, the learned authorised representative of the assessee has furnished a copy of the said order dt. 27th March, 2002. The learned authorised representative of the assessee submitted that the order passed by the learned CIT under s. 263 be quashed as the same is arbitrary. 7. On the other hand, learned Departmental Representative strongly supported the action of the learned CIT. He submitted that the AO passed the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sked for the details by raising 33 questions. On perusal of the said letter it is observed that the AO, inter alia sought the details from the assessee in respect of loan, sundry debtors, sundry creditors, details of statutory liabilities, party wise purchase details, details of labour charges etc. consumption of electricity details, telephone bills, details of repairs and maintenance expenses, details of advertisement, business promotion expenses, details of commission/discount/rebate payment along with the reasons of business exigencies of such expenses. Further, the AO also sought for the details of business receipt/sales and the books of accounts etc. There is no dispute also to the fact that the assessee furnished those details and also further details as called for by the AO and the copies of which are placed at pp. 36 to 57 of the paper book. We observe that the assessee also gave the details of the outstanding commission payable along with the addresses of the parties besides giving the details of the business promotion, marketing, guarantee charges, the details of which are placed at pp. 136, 158 and 159 of the paper book. In regard to exigencies of payment of commission, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inasmuch as prejudicial to the interest of the Revenue for that reason alone. The Mumbai Bench of the Tribunal has also held in the case of Indian Hotels Co. Ltd. that mere lack of discussion of an issue by the AO in his order would not render the order to be erroneous and prejudicial to the interest of the Revenue. Their Lordships of the Bombay High Court in the case of Gabriel India Ltd., while considering the power of the learned CIT under s. 263 of the Act has held that the supervisory jurisdiction of the CIT can be exercised only if two circumstances therein exist, viz., (i) the order should be erroneous; and (ii) by virtue of the order being erroneous prejudice must have been caused to the interest of the Revenue. Their Lordships have further held that an order cannot be formed 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 CIT simply because, according to him, the order should have been written more elaborately. Their Lordships of the Bombay High Court have further observed that s. 263 of the Act does not visualise a case of substitution of the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the learned CIT also simply asked the ITO to re-examine the matter. It was held that such a direction by the learned CIT for making further enquiry and/or fresh determination is not permissible under s. 263 of the Act and accordingly, the learned CIT does not get the power to set aside the assessment. It may be stated that during the course of hearing of the appeal the learned Departmental Representative also placed reliance on the aforesaid decision of the Bombay High Court viz. Gabriel India Ltd. However, we find that the said decision squarely applies to the facts of the case before us in favour of the assessee as in the instant case also the AO completed the assessment after calling for the details and making enquiries in regard to the expenses claimed by the assessee but the AO only passed a brief assessment order without making any discussion. Further, the learned CIT while setting aside the assessment has also not given any reasons as to whether the expenses claimed by the assessee on account of payment of commission and business promotion and marketing are bogus or not genuine. The learned Departmental Representative has not disputed the submission of the learned au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Madras High Court has held in the case of CIT vs. Smt. D. Valliammal (1997) 140 CTR (Mad) 433 : (1998) 230 ITR 695 (Mad) that the CIT cannot be set aside an assessment order under s. 263 of the Act on the ground that verification of accounts was needed. The Mumbai Bench of the Tribunal has held in the case of Andhra Valley Power Supply Co. Ltd. vs. Dy. CIT (1995) 53 TTJ (Bom) 647 : (1995) 55 ITD 24 (Del) that the CIT's action under s. 263 must resemble that of a surgeon's knife and he cannot open the assessment wide and direct the AO to consider everything afresh. The Supreme Court has held in the case of Malabar Industrial Co. Ltd. vs. CIT that the phrase 'prejudicial to the interest of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of an order of the AO cannot be termed as prejudicial to the interest of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of Revenue, or where two views are possible and the ITO has taken one view to which the CIT does not agree, it cannot be treated as erroneous or prejudicial to the interest of the Revenue u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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