1. This appeal by the assessee is directed against the order of learned CIT, dt. 30th March, 2004, passed under Section 263 relating to asst.
yr. 1999-2000.
On the facts and in the circumstances of the case, the learned CIT has erred in holding the order of, AO as erroneous and prejudicial to the interest of the Revenue and thereby setting aside the case to the AO for fresh assessment. The order under Section 263 of learned CIT is bad in law being unjustified, unwarranted and uncalled for.
3. In the order passed under Section 263 of IT Act, 1961, the learned CIT has set aside the assessment order of the AO passed under Section 143(3) of IT Act, 1961, to pass a fresh assessment order as per law after carrying out necessary verification and enquiry/investigation in respect of issues discussed in the order under Section 263. The assessee has challenged the order passed under Section 263 being not in accordance with law.
4. The learned counsel for the assessee has invited my attention to the assessment order to show that the hearings of assessee had taken place from 8th Sept., 2000 to 27th March, 2002. He submitted that the AO has completed the assessment after making complete enquiries in the case of the assessee. The AO after having applied his judicial mind to the facts of the case, has determined the income chargeable to tax. The learned CIT had issued notice under Section 263 and the main issues as stated in the said notice were that the AO has not examined the share capital raised and purchases of electrical equipment of more Rs. 70 lakhs from M/s Parro Electrica. The learned counsel for the assessee has invited my attention to the written submission filed before the CIT in the proceedings under Section 263 of IT Act, 1961. It was submitted that the AO has called for vide his query letter dt. 25th July, 2000.
In compliance to which copies of bills and detailed addresses in respect of various addition to assets by the assessee. The assessee had made complete compliance of the same. The AO after examining the details had also obtained expert opinion from the Valuation Officer.
The AO thus after considering the entire evidence available on record and after satisfying the correctness of the same, had accepted the various additions to assets in the assessment framed. It was further submitted that the learned CIT in his order under Section 263 has also not stipulated as to what enquiry as according to him is necessary on the facts of the present case. The learned CIT has merely complained that no appropriate enquiry has been made by the AO but he has not indicated as to what are such proper enquiries which are required to be made in the facts of the present case.
5. The learned counsel for the assessee has invited my attention to the written submission filed before the CIT to show that it was submitted before him that the shares have been allotted to only three parties during the year under consideration. It was also explained that the share capital issued by the assessee-company was fully verified in the assessment proceedings. In the notice under Section 263, the learned CIT has referred to heavy investment in equity of the assessee-company by 5 companies. It was explained before the CIT that during the previous year relevant to asst. yr. 1999-2000, it was only Raipur Veneers (P) Ltd. has made the investment in shares and the same was fully verified by the AO by calling their audited balance sheet and P&L a/c which was enclosed along with the written submission dt. 12th Feb., 2001, before the AO. As regards to the other investments, it was explained that they are not within the previous year relevant to asst.
yr. 1999-2000. The learned CIT has not found anything wrong with this explanation submitted before him. The learned CIT had observed that there were proceedings under Central Excise Act on 28th Jan., 1999, as is evident from the audit report filed along with the return of income.
The learned CIT observed that the AO has not enquired this aspect during the course of assessment proceedings. It was explained before the learned CIT that the assessee is not engaged in the manufacturing of goods but is producing electricity which is supplied to various outside parties. It was explained that the Central excise authorities initiated proceedings against M/s Lahari Laminates (P) Ltd. on 28th Jan., 1999, a sister concern of the assessee who is producing laminated board. The stock of the aforesaid concern was kept at the premises of the assessee as fire had taken place at the premises of M/s Lahari Laminates in December, 1998. It is on account of above fact that the premises of the assessee-company was verified by the Central excise authorities. It was explained that there is no independent action by Central excise authority in the case of the assessee.
6. As regards to purchases of electrical equipment from M/s Parro Electrica to the extent of Rs. 70 lakhs, it was explained before the CIT that the aforesaid concern is owned by M/s G.K. Engineers & Consultants (P) Ltd. The aforesaid company is also assessed by the same AO and regular assessment under Section 143(3) has been completed in the said case. The learned CIT has not found the aforesaid submission of the assesses before him to be incorrect.
7. The learned counsel for the assessee has submitted that in the order passed under Section 263, the learned CIT has referred to a report from the Investigation Wing-II, Raipur, which reflects unaccounted income of the assessee. The learned counsel for the assessee invited my attention to the notice under Section 263 to show that no such issue was referred to in the notice issued under Section 263. The learned counsel for the assessee has further submitted that even in the course of proceeding under Section 263, the assessee was not confronted with any such report. The learned counsel for the assessee strongly objected to the observation of the CIT wherein it has been observed that during the course of this proceeding, the above fact was brought to the notice of the counsel who did not offer any explanation, however, opined that as this matter is, therefore, needs to be restored back to the file of the AO. The assessee in support of his submission has invited my attention to p. 18 of the paper book wherein the assessee has denied the above fact mentioned in the impugned order under Section 263. The learned counsel for the assessee has placed reliance on the decision of the Calcutta Bench of Tribunal in the case of GEC Alsthom India Ltd. v. Dy.
CIT (2000) 112 Taxman 241 (Cal)(Mag). It has been held in the aforesaid case that the CIT would have to confine the order to the grounds mentioned in the notice and no fresh ground or plea could be taken in the order even by informing orally to the assessee. It was thus contended that the observation of CIT as regards to the report of Investigation Wing is unsustainable.
8. The learned counsel for the assessee has also relied on various authorities and, xerox copies of the judgments were placed in the paper book which are as under : (iv) Ashoke Kumar Parasramka v. Asstt. CIT (1998) 61 TTJ (Cal) 156 : (1998) 65 ITD 1 (Cal) (Bench 'E') (v) Triveni Engg. Works Ltd. v. Dy. CIT (2004) 87 TTJ (Del) 93 : (2003) 131 Taxman 32 (Del)(Mag) (Tribunal Delhi, Bench) (vi) CIT v. Mehrotra Brothers (Madhya Pradesh High Court) (vii) GEC Alsthom India Ltd. v. Dy. CIT (supra) (Tribunal, Calcutta Bench) The learned counsel for the assessee has further submitted that the order passed by the learned CIT under Section 263 does not indicate as to what is the nature of enquiry or verification which is required to be conducted by the AO.It was submitted that the assessment order couldn't be set aside by observing that the desired enquiries have not been conducted. According to the learned counsel for the assessee, the order passed by the learned CIT under Section 263 has not specified the enquiries which are required to be conducted would render the order passed as vague and not in accordance with law.
9. The learned counsel for the assessee further submitted that the AO has framed the regular assessment after detailed examination of the material available on record and after applying his judicial mind in the case of the assessee. On the basis of evidence on record, it cannot be said that the order passed by the AO is not in accordance with law.
In view of the above, the order passed cannot be branded as erroneous.
In the facts and the circumstances of the case, the requisite condition that the order should be erroneous and prejudicial to the interests of the Revenue does not get satisfied in the case of the assessee and, therefore, the order passed under Section 263 is to be set aside and the same deserves to be cancelled.
10. The learned Departmental Representative vehemently argued that the order passed under Section 263 is legal and valid. He submitted that the assessment has been set aside with specific directions as to the issues which are required to be examined as discussed in the order passed under Section 263. It was submitted that the AO has not examined the additions to assets during the course of assessment proceedings and has also not enquired into the details of action taken by the Central Excise Department. It was further submitted that the AO has failed to take note of the report of the Investigation Wing-II, Raipur, referred to in the order passed under Section 263. The learned Departmental Representative relied on the order passed under Section 263 and submitted that there is no merit in the appeal of the assessee and it is, therefore, liable to be dismissed.
11. I have considered the facts and material available on record. I find substantial force in the submission of the learned counsel for the assessee. A perusal of the written submissions before the CIT in respect of show-cause notice under Section 263, it is seen that assessee has fully explained the various issues which were raised by the CIT in the notice under Section 263 have been fully examined by the AO before completing the assessment. It is seen from the record that the requisite information on the issues raised in the notice under Section 263 by the learned CIT have been duly given by the assessee in the assessment proceedings.
12. It is a settled proposition of law that if the AO has taken one of the possible views in the matter then the order passed by him cannot be branded as erroneous and, therefore, no power under Section 263 can be invoked in such case. The above proposition is in accordance with the decision rendered by the apex Court in the case of Malabar Industrial Co. Ltd. v. CIT (supra). I find that the assessee has submitted the requisite information on the issues and the AO has framed the assessment after examining the records available as well as the evidence filed and after his satisfaction about the issues arising from such record. The jurisdictional High Court in the case of CIT v.Mehrotia Brothers (supra) has held as under : "Held, dismissing the appeal, that the Tribunal had found that when the assessee had furnished requisite information and the ITO had considered the records before him and completed the assessment after considering the evidence filed and after his satisfaction about the genuineness of cash credits, the order of revision under Section 263 of the IT Act, 1961, on the vague ground that the AO did not make proper enquiry was not valid. The Tribunal was justified in setting aside the order of revision. No substantial question of law arose from the order." The Supreme Court has dismissed the SLP filed by the Department against this judgment reported in (2004) 268 ITR (St) 215.
In the facts of present case, the assessee had submitted the requisite information and the AO had considered the records before him and completed the assessment after considering the evidence filed and after his satisfaction on the various issues. The law laid down by the jurisdictional High Court clearly supports the case of the assessee.
Respectfully following the decision of the jurisdictional High Court in the case of CIT v. Mehrothra Brothers (supra), I am of the view that the order passed under Section 263 is not in accordance with law and is unsustainable. I am also of the view that the report of the Investigation Wing-II, Raipur, cannot be considered for passing the order under Section 263 which has not been stated in the notice issued under Section 263. The above view is in accordance with the decision of Calcutta Bench in the case of GEC Alsthom India Ltd. (supra).
13. As such considering all the facts and circumstances of the case as well as the ratio laid down in the aforesaid cases, it is a settled proposition that the AO having taken possible view in the matter and the order passed by him cannot be considered to be erroneous or prejudicial to the interests of the Revenue. I am of the considered opinion that the order passed by the CIT under Section 263 is held to be not in accordance with law and the same is, therefore, set aside and the order passed by the AO under Section 143(3) is restored.