Amit Shukla ORDER
N.K. Billaiya, Member (A)
1. This appeal by the assessee is preferred against the order of the Principal Commissioner of Income Tax [Appeals], Delhi - 7 dated 31.03.2021 framed u/s. 263 of the Income tax Act, 1961 [hereinafter referred to as 'The Act' for short] pertaining to Assessment Year 2016-17.
2. The sum and substance of the grievance of the assessee is that the Ld. PCIT erred in assuming jurisdiction u/s. 263 of the Act and further erred in holding the assessment and rectification order passed u/s. 143(3) and 154/143(3) of the Act as erroneous and prejudicial to the interest of the Revenue.
3. Representatives were heard at length. Case records carefully perused.
4. Briefly stated, the facts of the case are that for the year under consideration, the assessee filed its Return of Income Electronically on 17.10.2016 declaring total income of Rs. 4,52,68,500/- which was revised on 28.02.2018 showing same income. The return was selected for scrutiny through CASS. Accordingly, statutory notices were issued and served upon the assessee.
5. After perusing the details/documents and after making necessary enquiries, assessment was completed on 26.12.2018 at Rs. 4,55,45,110/-. Assuming the powers conferred upon him by provisions of section 263 of the Act, the PCIT issued notice u/s. 28.03.2021 which reads as under:
6. In light of the aforementioned reasons given by the ld. PCIT in his notice initiating proceedings u/s. 263 of the Act, let us now consider the notice issued u/s. 142(1) of the Act by the Assessing Officer during the course of scrutiny assessment proceedings.
7. Vide notice dated 10.10.2018, the Assessing Officer, inter alia, asked the assessee to furnish details of sundry creditors, trade payables, current liabilities alongwith complete postal address and PAN of such parties having outstanding balance of Rs. 5 lakhs or more with further details relating to interest payment and TDS thereon. This notice is placed at pages 9 to 11 of the paper book.
8. Vide reply dated 15.11.2018, the assessee inter alia, submitted the complete details as sought by the Assessing Officer. This detailed reply of the assessee is exhibited at pages 17 to 20 of the paper book. Confirmation of loan transaction with M/s. Sarvottam Securities Pvt. Ltd. and Upaj Leasing and Finance Co. Pvt. Ltd. were submitted which are placed at pages 47 to 49 of the paper book.
9. To further examine the loan transaction, the Assessing Officer issued notice u/s. 133(6) of the Act to M/s. Sarvottam Securities Pvt. Ltd. and M/s. Upaj Leasing and Finance Co. Pvt. Ltd. Such notices are placed at pages 322 to 361 of the paper book.
10. M/s. Sarvottam Securities Pvt. Ltd. responded to the notice received by it u/s. 133(6) of the Act and filed complete details sought by the Assessing Officer which included confirmation of loan, copy of ledger account, copy of their Income tax return alongwith financial statement for the year ending 31.03.2016. These details are exhibited at pages 324 to 362 of the paper book.
11. Similarly, M/s. Upaj Leasing and Finance Co. Pvt. Ltd. responded to the notice received by it u/s. 133(6) of the Act from the Assessing Officer and furnished similar details. Such details are exhibited at pages 365 to 441 of the paper book.
12. The aforementioned factual matrix clearly establish that specific queries were raised by the Assessing Officer during the course of assessment proceedings, to which specific replies were filed by the assessee/loan creditors alongwith complete documents in support of the transactions.
13. The Hon'ble Supreme Court in Malabar Industrial Co. Ltd., MANU/SC/3008/2000 : 243 ITR 83, has laid down the following ratio:
"A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that 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 is prejudicial to the Revenue-- recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous."
14. We find that the Hon'ble Delhi High Court in the case of CIT Vs. Anil Kumar reported in MANU/DE/2197/2010 : 335 ITR 83 has held that where it was discernible from record that the A.O. has applied his mind to the issue in question, the Ld. CIT cannot invoke section 263 of the Act merely because he has different opinion.
15. We further find the Hon'ble Delhi High Court in the case of Vikas Polymer reported in MANU/DE/2159/2010 : 341 ITR 537 has held as under:
"63. We are thus of the opinion that the provisions of s. 263 of the Act, when read as a composite whole make it incumbent upon the CIT before exercising revisional powers to : (i) call for and examine the record, and (ii) give the assessee an opportunity of being heard and thereafter to make or cause to be made such enquiry as he deems necessary. It is only on fulfillment of these twin conditions that the CIT may pass an order exercising his power of revision. Minutely examined, the provisions of the section envisage that the CIT may call for the records and if he prima facie considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirements of the section are manifestly for a purpose. Merely because the CIT considers on examination of the record that the order has been erroneously passed so as to prejudice the interest of the Revenue will not suffice. The assessee must be called, his explanation sought for and examined by the CIT and thereafter if the CIT still feels that the order is erroneous and prejudicial to the interest of the Revenue, the CIT may pass revisional orders. If, on the other hand, the CIT is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the Revenue, he may choose not to exercise his power of revision. This is for the reason that if a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, 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 AO called for interference and revision. In the instant case, for example, the CIT has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment. Assuming it to be so, in our opinion, this does not justify the conclusion arrived at by the CIT that the AO had shirked his responsibility of examining and investigating the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the CIT was duly reflected in the respective assessments of the partners who were I.T. assessees and the unsecured loan taken from M/s. Stutee Chit & Finance (P) Ltd. was duly reflected in the assessment order of the said chit fund which was also an assessee."
64. Since in the instant case the A.O. after considering the various submissions made by the assessee from time to time and has taken a possible view, therefore, merely because the DIT does not agree with the opinion of the A.O., he cannot invoke the provisions of section 263 to substitute his own opinion. It has further been held in several decisions that when the A.O. has made enquiry to his satisfaction and it is not a case of no enquiry and the DIT/CIT wants that the case could have been investigated/probed in a particular manner, he cannot assume jurisdiction u/s. 263 of the Act. In view of the above discussion, we hold that the assumption of jurisdiction by the DIT u/s. 263 of the Act is not in accordance with law. We, therefore, quash the same and grounds raised by the assessee are allowed."
16. The Hon'ble Bombay High Court in the case of Gabriel India Ltd. MANU/MH/0220/1993 : 203 ITR 108 has held as under:
"The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, "erroneous judgment" means "one rendered according to course and practice of court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles".
12. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. 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 more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, 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. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that 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. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power.
It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority.
The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That, in our opinion, is not permissible. Hence the provisions of section 263 of the Act were not applicable to the instant case and, therefore, the commissioner was not justified in setting aside the assessment order."
17. In our considered opinion, for exercising power u/s. 263 of the Act, there should be material on record which would satisfy the ld. PCIT in a prima facie manner that the order is not only prejudicial to the interest of the Revenue but also erroneous in nature. If any of these factors is not satisfied, he cannot assume jurisdiction to initiate suo moto power of revision.
18. A perusal of the order of the PCIT framed u/s. 263 of the Act shows that it is solely based upon the letter dated 06.10.2020 sent by the Assessing Officer proposing for invoking proceedings u/s. 263 of the Act in the case of the assessee. In that very letter, the Assessing Officer has categorically stated at Para 8 as under:
"The order passed by the Assessing Officer is erroneous, as proper enquiries to arrive at a logical conclusion in light of facts available on record could not be made".
19. The Hon'ble Bombay High Court in the case of Gabriel India Ltd. MANU/MH/0220/1993 : 203 ITR 108 has explained the meaning of "erroneous" as an order which is not in accordance with law, or which has been passed by the Income Tax Officer without making any enquiry in undue haste.
20. The Hon'ble Bombay High Court further explained the meaning of "Prejudiced" as "an order can be said to be prejudicial to the interest of the Revenue if it is not in accordance with law in consequence whereof, lawful revenue due to the state has not be realized or cannot be realized."
21. Facts mentioned elsewhere clearly show that this is not a case of lack of enquiry or assessment being framed in haste. Proper enquiries were made by the Assessing Officer during the course of assessment proceedings and after considering all the facts and evidences, the Assessing Officer took a view which is a plausible view. Therefore, it is not open to the ld. PCIT to direct a re-enquiry as he is of a different view.
22. Considering the facts of the case in hand as discussed elsewhere and in light of the judicial decisions disused hereinabove, we are of the considered opinion that the assessment order dated 26.12.2018 is neither erroneous nor prejudicial to the interest of the Revenue. Therefore, assumption of jurisdiction u/s. 263 of the Act by the ld. PCIT is bad in law. We, accordingly, set aside the order of the Ld. PCIT dated 31.03.2021 and restore that of the Assessing Officer dated 26.12.2018.
23. In the result, the appeal of the assessee in ITA No. 388/DEL/2021 is allowed.
The order is pronounced in the open court on 14.02.2022 in the present of both the rival representatives.
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