Case Details:
ITA No. 2056/Del/2013: Asstt. Year: 2008-09
Universal Product (P) Ltd (Appellant) vs CIT (Respondent)
Date of Order: 08-10-2015

Brief Facts of the Case:
Assessee Company was engaged in the business of repairs of transformers and also sale of spare parts. Assessee filed its e-return of income on 30-9-2008 declaring income of Rs 4970/- for AY 2008-09. AO completed the assessment u/s 143(3) after examining the details, explanations and the books of account at returned income. Subsequently, Commissioner of Income Tax (CIT) examined the records and issued notice under section 263 dated 4/3/2013 alleging that order passed by AO is erroneous and prejudicial to the interest of revenue on many grounds. Two of the grounds were that AO has not properly inquired Sundry creditors and Unsecured loan.

Assessee responded to above notice stating that all the details with respect to above issues were submitted before AO and same were examined properly before assessment order was passed. It was further submitted that order is neither erroneous and nor prejudicial to the interest of revenue.

However, CIT did not accept the submissions and made additions and issued directions to AO for further verification.

Before ITAT, the assessee contended that order passed by the assessing officer might not have discussed all these things in the body of the order but he has called for exhaustive details and based on that assessment is framed. Further he submitted that it is not a case of lack of inquiry but there is an inquiry made by AO and details were examined by him and Hence assessment cannot be termed as erroneous as well as prejudicial to the interest of Revenue.

Department submitted that details were not thoroughly examined by assessing officer but he had just taken the details on record and did not conduct any verification of those details. It was also submitted that order also did not show fact of inquiry conducted.

Held: Revision order set aside by ITAT

Excerpts from the ITAT Order:
It is an admitted position of law that CIT has been conferred with wide revisionary powers u/s 263 of the Act for calling for and examination of such records in order to find out that whether the order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. However, Ld. CIT before stating so must have some material to hold a prima facie opinion about the error in the order and thereby making that order prejudicial to the interest of revenue. However, if AO has made inquiries during the course of assessment proceedings on the issues covered u/s 263 notice and assessee has submitted explanation on those issues and further AO being satisfied by explanation submitted then in our view it cannot be said that the order passed by AO is erroneous. It is not material that in case of inquires made whether AO makes detail discussion on those issues. In the case before us there were specific issues covered in notice and in response to that assessee has made detailed submission producing all the relevant details called for. Ld. CIT simply stated that AO had not made proper inquiry but from the order of Ld. CIT it is not mentioned that what inquiry other than already made by AO is required to be made.

We are further of the view that all the issues involved in order of Ld. CIT, AO has made some inquiry and Ld. CIT is of the view that proper inquiry has not been made by AO, therefore this case is not the case of lack of inquiry. Ld. CIT has also not mentioned that in the facts and circumstances of the case what further inquiries AO should have made. In the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi), the Delhi High Court was considering this aspect, when there is no proper or full verification, and it was held as under (page 179) :

"We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Incometax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of 'lack of inquiry' that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113):

   ' . . . 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 fulfilment 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 Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10) . . .

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 Incometax 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 a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion . . . 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 may now examine the facts of the present case in the light of the powers of the Commissioner set out above. 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."

Now examining the facts of the present case before us, Assessee has furnished required details called for along with explanations in writing as well as all confirmations of the sundry creditors as well as lenders stating their name, address and PAN and also contra accounts along with the balance sheet and income tax returns of lenders. In case of TDS credit given to assessee AO has made inquiries from third parties. Further ld. CIT is under belief that sundry creditors and lenders remains unconfirmed which fact is not borne out from submission made by assessee and not controverted by revenue. Therefore order passed after such verification cannot be termed as erroneous.

Regarding non-mentioning of the inquiry in order Hon. Delhi high court In CIT v. Vikas Polymers 341 ITR 537 has held that :
"This is for the reason that if a query is raised during the course of scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer was reflected in the assessment order, that would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision."

Hon Bombay High court in Income Tax Appeal No. 296 of 2013 (CIT v. Fine Jewellery (India) Ltd. [2015] 372 ITR 303 (Bom)) decided on February 3, 2015, following its earlier decision in Idea Cellular Ltd. v. Deputy CIT [2008] 301 ITR 407 (Bom) has taken a similar view that :
". . . if a query is raised during the assessment proceedings and responded to by the assessee, the mere fact that it is not dealt with in the assessment order would not lead to a conclusion that no mind had been applied to it."