CIT v. Jain Construction Co. - Taxpublishers.in

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The Tax Publishers2013 TaxPub(DT) 0954 (Raj-HC) : (2013) 052 (I) ITCL 0445 : (2013) 257 CTR 0336 : (2013) 084 DTR 0369 INCOME TAX ACT, 1961 --Revision under section 263--Erroneous and prejudicial order Lack of proper enquiry vis-a-vis merger of order of assessing officer--Return filed was pick up for scrutiny assessment and assessing officer passed order of assessment being between judgment assessment order after rejecting books of account. Commissioner (Appeals) also passed order against order of assessing officer which was dt. 6-8-2009. However issued a notice under section 263 on 6-3-2009 and after providing on opportunity of hearing to assessee passed impugned order on 12-1-2010 setting aside order of assessment under section 143(3). Tribunal however, set aside order of Commissioner. Held : Justified. Once assessing authority rejected books of account of assessee on very defects pointed out by Commissioner and passed best judgment assessment on basis of gross profit rate of 12.5 per cent and made addition is declared total income. There was no occassion of revising assessment order on good that assessing officer did not verify closing stock of assessment a fact which assessee himself admitted and assessing officer passed, rejecting books best judgment assessment order. Moreover, AO's order was merged with Commissioner (Appeals)'s order which could not be revised by Commissioner. Settled legal position for limitation on the revisional powers of Commissioner under section 263 of the Act is that, firstly, they are limited in nature, and secondly, such revisional powers are not to be invoked merely for reviewing the order passed by the assessing authority on a mere change of opinion. The safeguard provided to the assessee in the said provision is that mere erroneous orders are not revisable but the revisional authority has to further establish with the material on record that such erroneous order is also prejudicial to the interest of Revenue. The twin conditions of assessment order being erroneous and it also being prejudicial to the interest of Revenue, keeps the initial burden on the Revenue itself, namely, the Commissioner, who invokes such jurisdiction. From the legal precedents, it would be clear that such powers are not allowed likely to be invoked for the fall of hat as it were, and merely because the revisional authority is of different opinion on the given set of facts or on the ground that assessing authority did not hold a sufficient enquiry during the course of assessment proceedings unless the aforesaid twin conditions for invoking the said jurisdiction under section 263 are satisfied. [Para 10] The premise for invoking the revisional jurisdiction on the ground that the assessing authority made insufficient enquiry or improper enquiry and failed to verify closing stocks in the record of the assessee, before passing the assessment order, falls flat by a bare perusal of the assessment order dt. 28-3-2008 itself. The assessing authority finding the same deficiencies in the maintenance of regular day-to-day record including the stock register and in the absence of verification of expenditure incurred in execution of various contract works himself had rejected the books of accounts even though audited by the auditor in accordance with provisions of the Act; and invoking the provisions of section 145(3) of the Act had proceeded to assess the total income applying the GP rate of 12.5 per cent, which was upheld in the case of same assessee upto this Court. Even though the chart of GP rate produced for last 5 years in the assessment order showed that even for the assessment year 2006-07, under consideration, the assessee had declared the higher GP rate of 12.21 per cent, the assessing authority further raised it to 12.5 per cent making an addition of Rs. 4,06,540 on this account, and then making three more additions in the declared total income, enhanced the declared income by approximately Rs. 10 lacs converting the declared total income as per return of Rs. 70,20,830 into assessed income at Rs. 80,18,813 resulting in additional demand along with interest and also issuing penalty notice while passing the assessment order. [Para 21] The assessing authority had duly noted the auditor's comments in his audit report and had noted these very objections or deficiencies in the record maintained by the assessee, viz. non-maintenance of day-to-day stock register, which the Commissioner found sufficient to issue notice and initiate revisional jurisdiction under section 263. Once, the assessing authority rejected the books of account of the assessee on these very defects and passed the best judgment assessment on the basis of GP rate of 12.5 per cent and made additions in the declared total income, there was no occasion of revising the said order on the ground that the assessing authority did not verify the closing stocks of assessee, a fact which the assessee himself admitted and the assessing authority noticing the same and rejecting the books of accounts, passed the best judgment assessment.[Para 22] Thus, it is clear that the Commissioner had merely on a change of opinion and to substitute his own opinion about the deficiencies in the maintenance of the record by the assessee invoked the revisional jurisdiction and set aside the assessment order. This is not permissible under section 263. [Para 23] It is also worth noting that the assessee himself felt aggrieved by the addition made in the total income declared by him in his revised return to the tune of Rs. 10 lacs or so and, therefore, had filed an appeal before the appellate authority i.e., Commissioner (Appeals), who had also passed order on 6th Aug., 2009, which has not been produced with the memo of appeal but this fact is duly noted by Tribunal in its order impugned and the fact remains that the assessment order stood merged with the order passed by the appellate authority, namely, Commissioner (Appeals), in appeal filed under the provisions of section 246. Once the order of the assessing authority stood merged with higher appellate authority, the parallel authority on the administrative side, namely, Commissioner, even cannot revise later on the order passed by the assessing authority, which stood merged with the order of appellate authority.[Para 24] Tribunal was justified in holding that in these facts and upon the stated objections, the Commissioner was in error in invoking the revisional jurisdiction under section 263 of the Act, and thus the findings arrived at by the Tribunal essentially remain findings of fact, which do not give rise to any substantial question of law, requiring consideration by this Court. Mere alleged insufficiency of the enquiry in the opinion of the Commissioner by the assessing authority, could not permit him to invoke the revisional jurisdiction under section 263 and, therefore, the essential twin conditions for invoking the revisional jurisdiction, namely, the impugned assessment being erroneous as well as prejudicial to the interest of Revenue, were not at all satisfied in the present case and, therefore, the Tribunal was perfectly justified in allowing the assessee's appeal and setting aside the order of learned Commissioner under section 263. [Para 26] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0954 (Raj-HC) : (2013) 052 (I) ITCL 0445 : (2013) 257 CTR 0336 : (2013) 084 DTR 0369

INCOME TAX ACT, 1961

--Revision under section 263--Erroneous and prejudicial order Lack of proper enquiry vis-a-vis merger of order of assessing officer--Return filed was pick up for scrutiny assessment and assessing officer passed order of assessment being between judgment assessment order after rejecting books of account. Commissioner (Appeals) also passed order against order of assessing officer which was dt. 6-8-2009. However issued a notice under section 263 on 6-3-2009 and after providing on opportunity of hearing to assessee passed impugned order on 12-1-2010 setting aside order of assessment under section 143(3). Tribunal however, set aside order of Commissioner. Held : Justified. Once assessing authority rejected books of account of assessee on very defects pointed out by Commissioner and passed best judgment assessment on basis of gross profit rate of 12.5 per cent and made addition is declared total income. There was no occassion of revising assessment order on good that assessing officer did not verify closing stock of assessment a fact which assessee himself admitted and assessing officer passed, rejecting books best judgment assessment order. Moreover, AO's order was merged with Commissioner (Appeals)'s order which could not be revised by Commissioner.

Settled legal position for limitation on the revisional powers of Commissioner under section 263 of the Act is that, firstly, they are limited in nature, and secondly, such revisional powers are not to be invoked merely for reviewing the order passed by the assessing authority on a mere change of opinion. The safeguard provided to the assessee in the said provision is that mere erroneous orders are not revisable but the revisional authority has to further establish with the material on record that such erroneous order is also prejudicial to the interest of Revenue. The twin conditions of assessment order being erroneous and it also being prejudicial to the interest of Revenue, keeps the initial burden on the Revenue itself, namely, the Commissioner, who invokes such jurisdiction. From the legal precedents, it would be clear that such powers are not allowed likely to be invoked for the fall of hat as it were, and merely because the revisional authority is of different opinion on the given set of facts or on the ground that assessing authority did not hold a sufficient enquiry during the course of assessment proceedings unless the aforesaid twin conditions for invoking the said jurisdiction under section 263 are satisfied. [Para 10] The premise for invoking the revisional jurisdiction on the ground that the assessing authority made insufficient enquiry or improper enquiry and failed to verify closing stocks in the record of the assessee, before passing the assessment order, falls flat by a bare perusal of the assessment order dt. 28-3-2008 itself. The assessing authority finding the same deficiencies in the maintenance of regular day-to-day record including the stock register and in the absence of verification of expenditure incurred in execution of various contract works himself had rejected the books of accounts even though audited by the auditor in accordance with provisions of the Act; and invoking the provisions of section 145(3) of the Act had proceeded to assess the total income applying the GP rate of 12.5 per cent, which was upheld in the case of same assessee upto this Court. Even though the chart of GP rate produced for last 5 years in the assessment order showed that even for the assessment year 2006-07, under consideration, the assessee had declared the higher GP rate of 12.21 per cent, the assessing authority further raised it to 12.5 per cent making an addition of Rs. 4,06,540 on this account, and then making three more additions in the declared total income, enhanced the declared income by approximately Rs. 10 lacs converting the declared total income as per return of Rs. 70,20,830 into assessed income at Rs. 80,18,813 resulting in additional demand along with interest and also issuing penalty notice while passing the assessment order. [Para 21] The assessing authority had duly noted the auditor's comments in his audit report and had noted these very objections or deficiencies in the record maintained by the assessee, viz. non-maintenance of day-to-day stock register, which the Commissioner found sufficient to issue notice and initiate revisional jurisdiction under section 263. Once, the assessing authority rejected the books of account of the assessee on these very defects and passed the best judgment assessment on the basis of GP rate of 12.5 per cent and made additions in the declared total income, there was no occasion of revising the said order on the ground that the assessing authority did not verify the closing stocks of assessee, a fact which the assessee himself admitted and the assessing authority noticing the same and rejecting the books of accounts, passed the best judgment assessment.[Para 22] Thus, it is clear that the Commissioner had merely on a change of opinion and to substitute his own opinion about the deficiencies in the maintenance of the record by the assessee invoked the revisional jurisdiction and set aside the assessment order. This is not permissible under section 263. [Para 23] It is also worth noting that the assessee himself felt aggrieved by the addition made in the total income declared by him in his revised return to the tune of Rs. 10 lacs or so and, therefore, had filed an appeal before the appellate authority i.e., Commissioner (Appeals), who had also passed order on 6th Aug., 2009, which has not been produced with the memo of appeal but this fact is duly noted by Tribunal in its order impugned and the fact remains that the assessment order stood merged with the order passed by the appellate authority, namely, Commissioner (Appeals), in appeal filed under the provisions of section 246. Once the order of the assessing authority stood merged with higher appellate authority, the parallel authority on the administrative side, namely, Commissioner, even cannot revise later on the order passed by the assessing authority, which stood merged with the order of appellate authority.[Para 24] Tribunal was justified in holding that in these facts and upon the stated objections, the Commissioner was in error in invoking the revisional jurisdiction under section 263 of the Act, and thus the findings arrived at by the Tribunal essentially remain findings of fact, which do not give rise to any substantial question of law, requiring consideration by this Court. Mere alleged insufficiency of the enquiry in the opinion of the Commissioner by the assessing authority, could not permit him to invoke the revisional jurisdiction under section 263 and, therefore, the essential twin conditions for invoking the revisional jurisdiction, namely, the impugned assessment being erroneous as well as prejudicial to the interest of Revenue, were not at all satisfied in the present case and, therefore, the Tribunal was perfectly justified in allowing the assessee's appeal and setting aside the order of learned Commissioner under section 263. [Para 26]