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Income Tax Appellate Tribunal (ITAT) Chandigarh in a recent judgment has held that the revision order u/s 263 passed by CIT directing the Assessing officer to make the specific additions/disallowances was bad in law as CIT had exceeded his jurisdiction

Case Details:
ITA No.573/Chd/2015 AY : 2010-11
Ved Parkash Contractors (Appellants) vs CIT (Respondent)
Date of Order: 03-11-2015

Case Laws Referred:
Hari Iron and Trading Co. v CIT (2003) 131 Taxman 535 (P&H)
Zamirun Bibi Vs. CIT in ITA No. 661/Kolkata/2011 (ITAT Kolkatta)
CIT Vs. Gabrial India Ltd (1992) 203 ITR 108 (Bombay HC)

Brief Facts of the Case:
Commissioner of Income Tax (CIT) observing that in the case of the assessee, the assessment order passed u/s 143(3) was erroneous and prejudicial to the interest of revenue, issued a notice to the assessee u/s 263 of the Act. In response, the assessee contended that all the queries raised in the show cause notice had been looked into by the Assessing officer while framing the assessment order and the Assessing officer (AO) was fully satisfied with the record produced before him and the contention put forth before him by the assessee with regard to the points raised by the Commissioner. The assessee also contended that it was the prerogative of the Assessing officer to make entries in the noting sheet of the record he verified and it is also his preoperative to write the wording of the assessment order as per his choice, but this does not mean that the Assessing officer did not verify the points raised in the show cause notice.

CIT, in respect of some of the issues, opined that AO has neither examined the issue nor applied his mind and has taken a decision contrary to law. Accordingly, set aside the assessment order with the direct ion to the Assessing officer to pass a fresh assessment order after making an addition of Rs. 5,95,970/- on account of understatement of closing stock, disallowance of interest u/s 36(1)(iii) in respect of investments in land and mixing plant and depreciation in respect of mixing plant and disallowance of deduction on account of interest and salary paid to the partners.

Important Excerpt from ITAT Judgment:
It appears that Ld. Commissioner has not properly appreciated the explanation of the assessee. Shri Ashwani Kumar, Ld. Counsel for the assessee vehemently argued that the points / query raised by the Ld. Commissioner have been duly looked into by the Assessing officer during the assessment proceedings. The Assessing officer was satisfied with the record produced before him and explanation given to him with regard to the above point. Shri Ashwani Kumar, Ld. Counsel for the assessee invited our attention to the queries raised by the Assessing officer vide his letter dated 18.11.2012............... Similarly, the Assessing officer vide his questionnaire dated 10.12.2010 asked the assessee to furnish details regarding valuation of opening and closing stock.

In our opinion, the Ld. Commissioner has wrongly presumed that the Assessing officer had not properly examined the issue. The order of the Assessing officer may be brief and cryptic but that by itself does not sufficient reason to brand the assessment order as erroneous and prejudicial to the interest of Revenue. It is well settled law that writing an order in details may be a legal requirement but the order not fulfilling this requirements cannot be said to be erroneous and prejudicial to the interest of Revenue. It is apparent from the records that the assessee submitted it reply and also furnished the requisite information or details to substantiate its claim during the assessment proceedings. The Assessing officer having considered al l these issues on which the assessment order is revised u/s 263, the exercise of powers u/s 263 is bad in law. It is also true that if an enquiry is made by the Assessing officer and then object ion of the CIT is that such inquiry is not adequate, the CIT would have no jurisdiction u/s 263 of the Act to revise the order of the Assessing officer.

While taking such a view we are for fei ted by the decision of Hon'ble Bombay High Court in the case of CIT Vs. Gabrial India Ltd (1992) 203 ITR 108 (Bombay) wherein it has been held that ITO had made enquires 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. Al l these are part of the record of the case. The Hon'ble High Court further observed that the claim was allowed by the Assessing officer on being satisfied with the explanation of the assessee. The Hon'ble High Court opined that such decision of the ITO cannot be held to be ‘erroneous’ simply because in his order he did not make any elaborate discussion in that regard.

In the case of CIT v Sunbeam Auto Ltd. (2011) 332 ITR 167(Delhi), the Hon’ble High Court held that where the Assessing officer al lowed the claim on being satisfied with the explanation of the assessee, such decision of the Assessing officer could not be held to be erroneous simply because in his orders he did not make an elaborate discussion in that regard.

From the above, it is abundantly clear that CIT has exceeded its jurisdiction in virtually reassessing the case. It is true that the revisional authority itself has wide power to examine the case whether the decision has been erroneous and prejudicial to the interest of Revenue and in exercise of these power modifications are permissible, and furthermore that if the Commissioner comes to this conclusion that the assessment is required to be redone, that such direction can still be issued to the Assessing officer. However, it is trite law that it is not permissible for the CIT being a revisional authority to step into the shoes of the Assessing officer and to redo the assessment and pass fresh assessment order. In the instant case, the Commissioner has set aside the order of the Assessing officer on the aforesaid issues with a direct ion to the Assessing officer to pass a fresh assessment order. At the same time, the Ld. Commissioner has directed the Assessing officer to make the addition of Rs. 5,95,970/- on account of understatement of closing stock, disallow interest u/s/36(1)(iii) in respect of mixing plant and depreciation in respect of mixing pant and disallow of deduct ion on account of interest , salary etc. paid to the partners. In our considered view, remanding the matter to the Assessing officer is of no consequence, particularly when the CIT himself has reframed the assessment . In the facts and circumstances of the present case the CIT has not left any scope for the Assessing officer to redo the assessment or pass a fresh assessment order. It is also observed that Ld. CIT has directed the Assessing officer to give an opportunity of being heard to the assessee before passing the fresh assessment order. In our view, giving opportunity of being heard to the assessee by the Assessing officer is also meaningless, particularly when the Ld. CIT himself has reframed the assessment order. The direct ions given by the Ld. CIT in para 7 of the impugned order are also contrary to the set t led position of law. When the Ld. CIT directs the Assessing officer to pass a fresh assessment order, the only proper course for the Commissioner was not to express any final opinion as regards to the controversial points. While taking such a view, we are fortified by the decision of Hon'ble Gujrat Hon'ble High Court in the case of Addl. CIT v Mukur Corporation (1978) 111 ITR 312 (Gujarat). It is also observed that in the concluding part of the order of the Commissioner he has issued a direct ion to the Assessing officer to pass a fresh assessment order then he was not required to express any final verdict as regards the controversial points. In this case, the Commissioner has directed the Assessing officer to make the specific additions/disallowances, as mentioned in the impugned order. Therefore, the directions given to the Assessing officer to frame a fresh assessment order is bad in law as this is clearly a case in which the Ld. CIT has exceeded his jurisdiction in reassessing the case. Even the direction given by the CIT to the Assessing officer to provide an opportunity of being heard to the assessee is also of no consequence.

If the CIT who is a highly placed authority of the Revenue, is to exercise the powers of which doing a fresh assessment, then the right of appeal, revision etc. is totally annihilated and this could never be the intent ion of the Legislature. We fully endorse the above submissions made by Shri Ashwani Kumar, Ld. Counsel for the assessee.

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ITAT-Revision Order u/s 263 directing Assessing Officer to make Specific Additions/Disallowances Bad in Law as CIT had Exceeded his Jurisdiction | 06-11-2015 |