IT: An assessment order could not be said to be erroneous by Commissioner merely because, according to him, Assessing Officer should make adequate - enquiry and its order be written more elaborately
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[2013] 40 taxmann.com 104 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Shree Narayan Built Up (I) (P.) Ltd.
v.
Commissioner of Income-tax, Gwalior*
Bhavnesh Saini, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT APPEAL NO. 140 (AGRA) OF 2013
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
AUGUST 27, 2013
Section 80-IA, read with section 263, of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertaking [Revision by Commissioner] - Assessment year 2008-09 - Whether where an Income-tax Officer acting in accordance with law makes an assessment, same cannot be branded as erroneous by Commissioner simply because, according to him, Assessing Officer should make thorough enquiry and order should have been written more elaborately - Held, yes - Assessee, engaged in road construction work, claimed deduction under section 80-IA - Assessing Officer examined eligibility of assessee to claim deduction and held that assessee had fulfilled all conditions as prescribed under section 80-IA but he allowed part deduction to assessee as deduction in respect of profit earned by assessee from a contract with a builder and interest income on FDRs was inadmissible - However, Commissioner invoked its power under section 263 on ground that as per Explanation to section 80-IA, assessee was not eligible for deduction under section 80-IA and, thus, Assessing Officer did not carry out proper enquiries - Facts revealed that Assessing Officer after examination of records and recording clear facts had allowed part deduction to assessee - Whether order passed by Assessing Officer was in accordance with law and could not be said to be erroneous - Held, yes [Paras 13 & 14] [In favour of assessee]
FACTS
| ■ | The assessee, engaged in the road construction work, claimed deduction under section 80-IA. | |
| ■ | The Assessing Officer found that the receipt of assessee from a builder were not exigible to deduction under section 80-IA. Further, he disallowed the interest income on FDRs as it was not eligible for deduction under section 80-IA. Thus, he allowed deduction to the assessee in part. | |
| ■ | However, the Commissioner on examination found that as per Explanation to section 80-IA deduction was not allowable to the assessee since deduction in respect of profit and gain from undertaking or enterprise engaged in infrastructure development was to be allowed only to those industrial undertakings or enterprises which developed or operated and maintained infrastructure facility by their own funds. The assessee had not fulfilled the said condition and the Commissioner also found that the Assessing Officer did not verify the unsecured loan and he sought to revise order passed by Assessing Officer. | |
| ■ | On appeal: |
HELD
| ■ | From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous insofar as it is prejudicial to the interests of the revenue". It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar 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. 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.,(1) the order is erroneous; (2) 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. 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 that defect is jurisdictional in its nature, 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. [Para 9] | |
| ■ | 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 an assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the Assessing Officer should make thorough enquiry and 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 changes. The Commissioner, on perusal of the records, may be of the different opinion than the opinion of the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and express different opinion. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a 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. [Para 10] | |
| ■ | The Commissioner while exercising power under section 263 has formed an opinion that considering the Explanation below section 80-IA the assessee was not eligible for deduction under section 80-IA. It is relevant to note that according to the Commissioner, the Assessing Officer did not carry out adequate enquiries for the purpose of invoking section 263. It is necessary to hold by the Commissioner that the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue. Merely expressing opinion by the Commissioner does not amount to hold that the order of the Assessing Officer is erroneous. In original assessment the Assessing Officer has examined the issue by raising query letter and after recording clear facts in the order partly allowed the issue under section 80-IA. The Assessing Officer after applying mind found that the assessee was not eligible for deduction under section 80-IA in respect of income from the contract and interest income. Conscious decision of the Assessing Officer is a judicial decision. The action of the Assessing Officer is in accordance with law while making the assessment and such action of the Assessing Officer as in accordance with law cannot be provided as erroneous by the Commissioner simply because according to him the Assessing Officer should make adequate inquiry and orders should have been written more legibly. The order of the Assessing Officer has been challenged before the Commissioner though only on the issue of whether interest income is allowable for deduction under section 80-IA or not. The Commissioner allowed the grounds of the assessee for other words. The Commissioner, hence, confirmed the order of the Assessing Officer that the assessee was eligible for deduction under section 80-IA except on interest income and which has also been decided in favour of the assessee. It is not simply the prima facie case that the assessee was not eligible for deduction under section 80-IA as the Commissioner himself has considered and described various case laws cited by the assessee. In other words, whether under the facts and circumstances of the case, the assessee was eligible for deduction under section 80-IA or not is a controversial issue and on the issue there are two opinions and if the Assessing Officer has taken one then the order of the Assessing Officer cannot be cited to be erroneous order. [Para 14] | |
| ■ | Similar is the position in respect of unsecured loan and deposits. The Assessing Officer has made specific queries. The assessee submitted the relevant records. The Assessing Officer verifying the same and came to the conclusion that the loan and advances shown by the assessee was in accordance with law. When the Assessing Officer is satisfied then it is not necessary to discuss such matter in the order. The assessee has established that the assessee has furnished relevant documents in reply to the queries raised by the assessee. The view taken by the Assessing Officer is after considering the material and submission of the assessee. The order of the Assessing Officer cannot be said to be erroneous, the Commissioner merely want further verification or according to him adequate verification. Such verification is not covered under the power exercised under section 263. [Para 15] | |
| ■ | In the light of above discussion, the order of the Assessing Officer is not erroneous and this basic condition for invoking section 263 has not been satisfied. Therefore, the order of the Commissioner is not in accordance with law. [Para 16] |
CASE REVIEW
Grasim Industries Ltd. v. CIT [2010] 321 ITR 92/188 Taxman 327 (para 11) followed.
CASES REFERRED TO
CIT v. K.L. Rajput [1987] 164 ITR 197/32 Taxman 326 (MP) (FB) (para 6), CIT v. Mandsaur Electric Supply Co. Ltd. [1983] 140 ITR 677/[1982] 11 Taxman 98 (MP) (FB) (para 6), CIT v. Simplex Metalica [1987] 164 ITR 202 (MP) (FB) (para 6), CIT v. Narpat Singh Malkhan Singh [1981] 128 ITR 77/5 Taxman 133 (MP) (para 6), Kanhiram Ramgopal v. CIT [1988] 180 ITR 41/38 Taxman 41 (MP) (para 6), CIT v. Bhimraj Sunderlal [1996] 219 ITR 36 (MP) (para 6), CIT v. New Srinivasa Construction Co. [1999] 236 ITR 503 (AP) (para 6), CIT v. Palghat Shadi Mahal Trust [1995] 212 ITR 287 (Ker.) (para 6), CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC) (para 6), CIT v. R.K. Construction Co. [2009] 313 ITR 65/[2008] 175 Taxman 165 (Guj.) (para 6), CIT v. Munjal Costings [2008] 303 ITR 23/168 Taxman 241 (Punj & Har.) (para 6), CIT v. Sak Soft Ltd. [2008] 298 ITR 63 (Mad.) (para 6), CIT v. Pankaj Dhirajlal Dhruve [2008] 305 ITR 332 (Guj.) (para 6) and Grasim Industries Ltd. v. CIT [2010] 321 ITR 92/188 Taxman 327 (Bom.) (para 6).
Rajendra Sharma and Manuj Sharma for the Appellant. Anirudh Kumar for the Respondent.
ORDER
A.L. Gehlot, Accountant Member - This appeal has been filed by the assessee against the order dated 18.03.2013 passed by the learned CIT, Gwalior for A.Y. 2008-09.
2. The grounds raised by the assessee in the appeal is against the passing of order under Section 263 of the I.T. Act by the CIT.
3. The brief facts of the case are that the CIT on examination of assessment order, it was observed that in this case assessee filed return of income declaring total income at Nil, after claiming deduction under Section 80IA(4)(i) of the Act. The A.O. completed assessment under Section 143(3) of the Act allowing deduction under Section 80IA except on interest income. The CIT on examination found that deduction claim of the assessee is not allowable since deduction in respect of profit and gain from undertaking or enterprise engaged in infrastructure development is to be allowed under this section only to those industrial undertakings or enterprises which developed or operated and maintaining infrastructure facility by their own funds. Assessee has not fulfilled the condition as prescribed in the Section. As per explanation below sub-section (13) of Section 80IA inserted by Finance Act 2009 with retrospect effect from 01.04.2000 the assessee cannot claim exemption under Section 80IA because it is clearly mentioned in the aforesaid explanation. The CIT also found that the A.O. did not verify the unsecured loan of Rs.4,85,35,831/-. The CIT rejected the assessee's submission observing that as per Section 80IA and in view of sub-section 13 it is clear that assessee is not entitled to deduction because the company employee executed the work contract allowed by M.P. Rural Road Development Authority. The CIT held as under :- (CIT Page No.8 & 9)
"9. It is clear from the above amendment that an assessee can claim a deduction under Section 80IA(4) only if, it makes the investment in the eligible project and itself executes the development work. An assessee will be denied a deduction u/s 80IA (4) if it enters into a contract with another person, for executing a works contract. While those who participate in an eligible project as per the impugned section by way of investment are entitled to seek a deduction u/s 80IA(4), on the other hand those assessees who merely execute a civil construction work or other work contract are not entitled to claim such a deduction. The contracts executed by the assessee, pursuant to which it has claimed a deduction u/s 80IA(4) must therefore, be measured from the above metrics laid down by the Hon'ble Courts in the matter of works contract. I have perused the copies of the agreements with the M.P. Rural Road Development Authority which were executed by the assessee for executing the impugned contracts, which are claimed to fall within the domain of section 80IA(4). It is clear from them that the underlying status of the assessee in each of them is that of a contractor, who has been engaged in a works contract.
10. It is clear from the above that the assessee had executed a works contract in respect of each of the projects for which it has claimed a deduction u/s 80IA(4) of the Act. The assessee has also been unable to establish as to how it made an investment in the project, apart from not being able to prove that it had not executed a works contract as is evident above. The reliance placed by assessee on the judgements in cases of ACIT Vs. Bharat Udyog Ltd. (2008) 24 SOT 412 (Mum) and CIT Vs. Laxmi Civil Engineering P. Ltd. (2011) 2011 TPI 654 (ITAT-Pune) does not come to the assistance of the assessee because the issue at hand in those cases was whether merely a developer, who had not operated and maintained an infrastructure facility, was entitled to deduction u/s 80IA whereas in the case of the assessee, the agreements entered into by the assessee with the M.P. Rural Road Development Authority reveal that the assessee was not in any way a developer but was only a contractor. Thus, these case laws are not applicable to the facts of the assessee's case.
11. It is found that there is no dispute about the fact that as the law stands now in the light of retrospective insertion of explanation below to Section 80IA(13), the assessee is not eligible for deduction u/s 80IA(4).This Explanation, introduced by Finance Act, 2009 with retrospective effect from 1st April, 2000, provides that "for the removal of doubts, it is hereby declared that nothing contained in this Section (i.e. 80IA) shall apply in relation to a business referred to sub-section (4) which....(not readable)"
4. Ld. Authorized Representative submitted that the A.O. made assessment under Section 143(3) of the Act and examined the claim of the assessee. The relevant abstract pointed out by the ld. Authorized Representative from A.O's. order dated 29.12.2010 is reproduced as below:-(Paper Book Page No.26 & 27)
"The assessee was engages in the road construction work during the year under consideration. The assessee has shown contract receipt of Rs.515.41 lacs during the year whereas contract receipt was of Rs.495.65 lacs during the last year. The assessee has declared gross profit @ 15.70% during the year whereas the gross profit was @ 13.57% during the last year. Hence the assessee has declared better gross profit in comparison of last year.
The assessee has claimed deduction u/s 80IA of the Income Tax act. The reply of the assessee placed on record. It was submitted that since assessee is fulfilling all the conditions as prescribed u/s 80IA(4) of the Income Tax Act he is eligible for the deduction of its profit earned from the constructions activities. The assessee has received total contract receipts of Rs.5,15,41,796/- during the year. These receipts includes a sum of Rs.21,54,000/- received from M/s Deep Vijay Builders on which deduction U/s 80IA is not allowable. The assessee has not submitted separate calculation of profit from this activity hence profit @5% being amount Rs.1,07,250/- will be treated as income from the contract with M/s Deep Jai Builders and deduction U/s 80IA will not be allowed. Further the interest income of Rs.10,67,923/- will be not be considered which allowing deduction u/s 80IA of the Income Tax Act.
During the course of assessment proceedings the books of accounts has been produced along with the vouchers. These have been examined from time to time. It is found that certain vouchers are not proper in the case of expenses under the various heads. The details of defective vouchers have prepared and the disallowances under the various heads. The details of defective vouchers have prepared and the disallowance under the various heads made as under:—
| Vehicle Expenses & Repairs Expenses | Rs.50,000/- | |
| General Expenses & Deductions Expenses | Rs.77,589/- | |
| Total | Rs.1,27,589/- |
The details of the above defective vouchers have been prepared as per annexure separately. The total amount will be added to the income of the assessee.
In view of above, the total income of the assessee is computed as under:-
| Income from business head as Declared by the assessee | Rs.6,96,050/- | |
| Add- | ||
| 1. Addition on account of expenses disallowed as discussed above | Rs.1,27,589/- | |
| Less | ||
| Interest income considered Separately | Rs.10,67,923/- | |
| Loss From Contract Business | Rs.2,44,283/- | |
| Profit from the Business which is not eligible deduction U/s 80IA (Computed as per para supra) | Rs.1,07,250/- | |
| Loss from the business which is Eligible deduction U/s 80IA | Rs.3,51,533/- | |
| Net Loss | Rs.2,44,283/- | |
| Income from other sources Interest income as declared by the assessee | Rs.10,67,923/- | |
| Gross Total income | Rs.8,23,639/- | |
| Less deduction U/s 80IA (since loss from the eligible Business Hence it is Nil) | Rs. Nil | |
| Total Income | Rs.8,23,639/- | |
| R/O | Rs.8,23,640/-" |
5. Ld. Authorized Representative further submitted that order of the A.O. has been challenged by the assessee before CIT(A) and CIT(A) decided the appeal in favour of the assessee allowing deduction under Section 80IA vide order dated 04.07.2011. The finding of the CIT(A) is reproduced as below :—
(CIT Page No.45)
"In the result and after perusal of appellant's submissions, AO is not found justified in treating the interest income from FDRs as income from other sources for the purpose of deduction u/s 80IA. However, amount of refund from income tax department and interest earned therefrom is to be treated as income from other sources for purposes of deduction u/s 80IA."
6. Ld. Authorized Representative submitted that the CIT is not empowered to exercise the power under Section 263 of the I.T. Act. The Ld. Authorized Representative submitted that order of the A.O. was not erroneous and prejudicial to the interest of the revenue. He has submitted that when the A.O. has taken deduction under Section 80IA of the Act as Nil then there is no question of prejudice to the revenue as on Nil tax effect is Nil. As regards the sundry deposit, the ld. Authorized Representative submitted that the A.O. while making original assessment raised the queries vide letter dated 01.11.2010 wherein the Clause 5 it is clearly stated that full postal address, PAN No., Mobile No., Phone No., of all the sundry creditors and unsecured loan providers. In Clause No.6 wherein it is stated that to justify the exemption which you claimed under chapter VI-A (u/s80IA). The ld. Authorized Representative submitted that in reply to the said query letter of the A.O. the assessee furnished complete details before A.O. when he was making the original assessment. The ld. Authorized Representative submitted once the A.O. after examining the record comes to the conclusion such order cannot be stated to be erroneous order. The Ld. Authorized Representative submitted once the A.O. after examining the record comes to a conclusion such order cannot be stated to be erroneous order. The ld. A.R. submitted that when the order of the A.O. is not erroneous or prejudice to the interest of the revenue these two basic conditions has not been satisfied, therefore, the action of the CIT in exercise of power under Section 263 is not in accordance with law. The ld. A.R. relied upon the following orders :-
| (1). | Hon'ble Madhya Pradesh High Court (Full Bench) in the case of CIT v. K.L. Rajput [1987] 164 ITR 197/32 Taxman 326. | |
| (2). | Hon'ble Madhya Pradesh High Court (Full Bench) in the case of CIT v. Mandsaur Electric Supply Co. Ltd. [1983] 140 ITR 677/[1982] 11 Taxman 98. | |
| (3). | Hon'ble Madhya Pradesh High Court (Full Bench) in the case of CIT v. Simplex Metalica [1987] 164 ITR 202. | |
| (4). | Hon'ble Madhya Pradesh High Court in the case of CIT v. Narpat Singh Malkhan Singh [1981] 128 ITR 77/5 Taxman 133. | |
| (5). | Hon'ble Madhya Pradesh High Court in the case of Kanhiram Ramgopal v. CIT [1988] 180 ITR 41/38 Taxman 41. | |
| (6). | Hon'ble Madhya Pradesh High Court in the case of CIT v. Bhimraj Sunderlal [1996] 219 ITR 36. | |
| (7). | Hon'ble Andhra Pradesh High Court in the case of CIT v. New Srinivasa Construction Co. [1999] 236 ITR 503. | |
| (8). | Hon'ble Kerela High Court in the case of CIT v. Palghat Shadi Mahal Trust [1995] 212 ITR 287 (Ker.). | |
| (9). | Hon'ble Supreme Court in the case of CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188. | |
| (10). | Hon'ble Gujarat High Court in the case of CIT v. R.K. Construction Co. [2009] 313 ITR 65/[2008] 175 Taxman 165. | |
| (11). | Hon'ble Punjab & Haryana High Court in the case of CIT v. Munjal Costings [2008] 303 ITR 23/168 Taxman 241. | |
| (12). | Hon'ble Madras High Court in the case of CIT v. Sak Soft Ltd. [2008] 298 ITR 63. | |
| (13). | Hon'ble Gujarat High Court in the case of CIT v. Pankaj Dhirajlal Dhruve [2008] 305 ITR 332. | |
| (14). | Hon'ble Bombay High Court in the case of Grasim Industries Ltd. v. CIT [2010] 321 ITR 92/188 Taxman 327. |
7. On the other hand, ld. D.R. relied upon the order of the CIT and submitted that the A.O. did not make any discussion in his order regarding eligibility of the deduction under Section 80IA of the Act. As regards the contention of the ld. A.R. regarding merger of the Assessment Order with CIT's order, the ld. D.R. submitted that the order of the A.O. has been merged with order of the CIT for limited issue whether interest income is eligible under Section 80IA or not. The Ld. D.R. submitted that entire eligibility deduction under Section 80IA neither has been decided by the A.O. nor has been decided by the CIT as before the CIT, there is no such question in issue. The ld. D.R. submitted that the A.O. did not take the deduction under Section 80IA at nil only on account that there was a loss. Ld. A.R. submitted that CIT never discussed about the eligibility of the assessee for deduction under Section 80IA of the Act.
8. We have heard ld. Representatives of the parties and records perused. The issue under consideration is pertaining to section 263 of I.T. Act. The said section reads as under:—
"263. Revision of orders prejudicial to revenue—(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation.—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 Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under Section 120; |
| (b) | "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; | |
| (c) | where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. |
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.
Explanation.—In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."
9. From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue". It is not an arbitrary or unchartered power. It can be exercised only on fulfillment of the requirements laid down in sub-section (1). The 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. 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 subsection, viz.(1) the order is erroneous; (2) 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 defect that is jurisdictional in its nature, 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.
10. 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 an assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the A.O. should make thorough enquiry and 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 changes. The Commissioner, on perusal of the records, may be of the different opinion than the opinion of the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and express different opinion. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a 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.
11. To know the scope and scheme of the revision under section 263 of the Act by Commissioner we would like to refer one judgment of Hon'ble Bombay High Court in the case of Grasim Industries Ltd. (supra) wherein the Court has held as under:—
(Pages 99 to 101)
'11. Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be "erroneous insofar as it is prejudicial to the interests of the revenue". This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 831, the Supreme Court held that the provision "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer" and "it is only when an order is erroneous that the section will be attracted". The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression "prejudicial to the interests of the revenue", the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the revenue is explained in the judgment of the Supreme Court :—
". . . 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 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. . . ." (p. 88)
The principle which has been laid down in Malabar Industrial Co. Ltd.'s v. CIT [2000] 243 ITR 831 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282 while interpreting the provisions of section 80HHC(3), the Supreme Court noted that the statutory provision had been amended eleven times and different views existed on the day when the Commissioner passed his order under section 263. The Court observed that "the mechanics of the section have become so complicated over the years that two views were inherently possible". Consequently, the subsequent amendment to the statutory provision, even though it was retrospective, would not attract the provisions of section 263 particularly when the provision of law, as it stood, on the date when the Commissioner passed the order under section 263, would have to be taken into account.
12. In CIT v. Gabriel India Ltd. [1993] 203 ITR 108 a Division Bench of this Court observed that section 263 does not confer an arbitrary or uncharted power on the Commissioner. In considering as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue, the Commissioner must be guided by the material on the record. The power of suo motu revision under section 263(1), is in the nature of supervisory jurisdiction. Two circumstances must exist in order to enable the Commissioner to exercise the power, namely, (i) the order must be erroneous; and (ii) by virtue of the order being erroneous, prejudice must have been caused to the interests of the revenue. Section 263 does not empower the Commissioner to substitute his judgment for that of the Assessing Officer, unless the decision is held to be erroneous. Both the conditions for the exercise of the power must be fulfilled. The order, in other words, sought to be revised, must be erroneous and must be prejudicial to the interests of the revenue'.
12. From above discussions we find 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 an assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to CIT, the A.O. should make thorough enquiry and 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 changes. The Commissioner, on perusal of the records, may be of the different opinion than the opinion of the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and express different opinion. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a 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.
13. The admitted facts of the case are that the A.O. while making original assessment has issued a query letter dated 01.11.2010 wherein Clause 6 of the letter asked assessee to justify the exemption claimed under Section 80IA of the Act. The assessee furnished the reply to the letter the A.O. in original assessment noted the contention which has been reproduced above in ld. A.R. submission the A.O. noted that the assessee has engaged in road construction work during the year under consideration. The assessee has claimed under Section 80IA of the Act. The reply of the assessee placed on record. The A.O. found the assessee has fulfilled all conditions as per prescribed under Section 80IA(4) of the Act for which the assessee is eligible for the deduction of its profit earned from the construction activities. The assessee received total contract receipt of Rs.5,15,41,796/- during the year. He further noted that these receipts includes a sum of Rs.21,54,000/- received from M/s Deep Vijay Builders on which deduction u/s 80IA of the Act was not allowable. Thus, A.O. further noted that the assessee did not furnish separate calculation of profit from this activity hence the A.O. estimated the amount of profit applying 5% and calculated Rs.1,07,250/- and treated as income from the contract with M/s. Deep Jai Builders and deduction under Section 80IA was not allowed. Further, the A.O. while calculating interest income under Section 80IA disallowed the interest income of Rs.10,67,923/- as it is not eligible for deduction under section 80IA of the Act. The A.O. held that interest income was not considered by the A.O. while allowing deduction under Section 80IA of the Act. The A.O. accordingly made computation of total income which is reproduced as above.
14. The CIT while exercising power under Section 263 of the Act has formed an opinion considering the explanation below to Section 80IA and was of the opinion that the assessee is not eligible for deduction under Section 80IA. It is also relevant to note that according to CIT, the A.O. did not carry out adequate enquiries for the purpose of invoking Section 263. It is necessary to hold by the CIT that the assessment order passed by the A.O. was erroneous and prejudice to the interest of the Revenue. Merely expressing opinion by the CIT does not amount to hold that the order of the A.O. is erroneous. In original assessment the A.O. has examined the issue by raising query letter and after recording clear facts in the order partly allowed the issue under Section 80IA. The A.O. disallowed and after applying mind found that the assessee was not eligible for deduction under Section 80IA in respect of income from the contract with M/s Deep Jai Builders and interest income. Conscious decision of the A.O. is a judicial decision. The action of the A.O. is in accordance with law while making the assessment and such action of the A.O. as in accordance with law cannot be provided as erroneous by the CIT simply because according to him the A.O. should made adequate inquiry and orders should have been written more legibly. The order of the A.O. has been challenged before the CIT though only on the issue of whether interest income is allowable for deduction u/s 80IA or not. The CIT allowed the grounds of the assessee for other words. The CIT hence confirmed the order of the A.O. that the assessee was eligible for deduction u/s 80IA of the Act except on interest income and which has also been decided in favour of the assessee. It is not simply the prima facie case that the assessee was not eligible for deduction u/s 80IA as the CIT himself has considered and described various case laws cited by the assessee. In other words, whether under the facts and circumstances of the case, the assessee was eligible for deduction under Section 80IA or not is a controversial issue and on the issue there are two opinions and if the A.O. has taken one then the order of the A.O. cannot be cited to be erroneous order.
15. Similar is the position in respect of unsecured loan and deposits. The A.O. has made specific queries. The assessee submitted that the relevant records the A.O. verifying the same and came to the conclusion that the loan and advances shown by the assessee was in accordance with law. When the A.O. is satisfied then it is not necessary to discuss such matter in the order. The assessee has established that the assessee has furnished relevant documents in reply to the queries raised by the assessee. The view taken by the A.O. is after considering the material and submission of the assessee. The order of the A.O. cannot be said to be erroneous. CIT merely want further verification or according to him adequate verification. Such verification does not cover to exercise the power under Section 263 of the Act.
16. In the light of above discussion, we find that the order of A.O. is not erroneous and this basic condition for invoking section 263 of the Act has not been satisfied. Therefore, the order of the CIT is not in accordance with law. We, therefore, set aside the order of the CIT.
17. In the result, appeal of the assessee is allowed.
Regards
Prarthana Jalan
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