Decided on September 18,2014

Chhitar Singh Shekhawat Appellant


Hari Om Maratha, Member (J) - (1.) THIS appeal of the assessee, for asst. yr. 2009 -10, is directed against the order of learned CIT, Jodhpur, passed under s. 263 of the IT Act, 1961 ('the Act' for short). Briefly stated, the facts of the case are that the assessee filed his return of income (ROI) for asst. yr. 2009 -10 on 30th Sept., 2009, declaring total income of Rs. 8,97,380. The assessment was completed under s. 143(3) of the Act on 31st Oct., 2011, at a total income of Rs. 9,66,500. The AO has made lump sum addition of Rs. 50,000 invoking s. 145(3). He has added a sum of Rs. 19,120 by applying interest of 8 per cent by estimating interest income. On National Savings Certificate (NSCs) worth Rs. 2,39,000. The assessee is engaged in the business of a civil contractor. Subsequently, the CIT called for the records of this assessment order and noticed that the assessee has debited rent of Rs. 3,05,800 for mixture and Rs. 3,10,000 in the P&L a/c relating to asst. yr. 2009 -10 but has not deducted tax at source in terms of s. 194 -I and s. 40(a)(ia) of the Act although this provision applied to the facts of this case. Accordingly, a show -cause notice was sent to the assessee under s. 263 of the Act on 13th Dec., 2011 treating the assessment order as erroneous and prejudicial to the interest of the Revenue. The assessee filed a written submission in response to this notice stating therein that the AO has taken one of the possible views out of the two legal views and has decided it under s. 143(3) after making complete and requisite verification. It was also stated that the case was selected for CASS for making specific enquiries regarding payment received from DFO (District Forest Officer, Udaipur) of Rs. 2,78,833 and from the Nagarpalika, Sadri, of Rs. 10,01,075, and that as per the CBDTs guidelines AO is not competent to make any further enquiry other than the issue(s) referred when once books of account cannot be relied upon. In this backdrop, it was submitted that the assessment order is neither erroneous nor prejudicial to the interest of the Revenue, and hence no action under s. 263 is justified. 1.1 After considering assessee's version, the learned CIT was not satisfied and has revised the order directing the AO to make a fresh order after according opportunity of being heard to the assessee. The assessee has filed appeal against this order dt. 20th March, 2014, by raising the following grounds of his appeal : "1 That in the facts and circumstances of the case, the learned CIT -I, Jodhpur erred in law and in facts in invoking s. 263 of the IT Act, 1961 and thereby erred in setting aside the assessment to be made afresh by ITO. He also erred in acquiring jurisdiction under s. 263, when the impugned assessment made under s. 143(3) was neither erroneous nor prejudicial to the interest of Revenue in any manner. The order was framed after due and diligent enquiry by the learned AO in relation to payment of hire charges of Rs. 6,15,800 on mixtures and rollers." 1.2 Before us both the parties have reiterated their earlier stand. We have carefully considered the oral as well as written submissions made before us. We have also perused carefully the entire evidences available on record. It is trite that an order can be revised only and only if twin conditions of 'error in the order' and 'prejudice caused to the Revenue' coexist. The subject of 'revision under s. 263' has been vastly examined and analyzed by various Courts including that of Hon'ble apex Court. The revisional power conferred on the CIT vide s. 263 is of wide amplitude. It enables the CIT to call for and examine the records of any proceeding under the Act. It empowers the CIT to make or cause to be made such an enquiry as he deems necessary in order to find out if any order passed by AO is erroneous insofar as it is prejudicial to the interests of the Revenue. The only limitation on his powers is that he must have some material(s) which would enable him to form a prima facie opinion that the order passed by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue. Once he comes to the above conclusion on the basis of the 'material' that the order of the AO is erroneous and also prejudicial to the interests of the Revenue, the CIT is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the assessment or he may modify the assessment. He is also empowered to cancel the assessment and direct to frame a fresh assessment. He is empowered to take recourse to any of the three courses indicated in s. 263. So, it is clear that the CIT does not have unfettered and unchequered discretion to revise an order. The CIT is required to exercise revisional power within the bounds of the law and has to satisfy the need of fairness in administrative action and fair play with due respect to the principle of audi alteram partem as envisaged in the Constitution of India as well as in s. 263. An order can be treated as erroneous' if it was passed in utter ignorance or in violation of any law; or passed without taking into consideration all the relevant facts or by taking into consideration irrelevant facts. The 'prejudice' that is contemplated under s. 263 is the prejudice to the income -tax administration as a whole. The revision has to be done for the purpose of setting right distortions and prejudices caused to the Revenue in the above context. The fundamental principles which emerge from the several cases regarding the powers of the CIT under s. 263 may be summarized below: "(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interests of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it is only when an order is erroneous, that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice for the requirement or order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interest of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under the law. (vi) If while making the assessment, the AO examines the accounts. makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under s. 263, is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi -judicial power vested in him and if he exercises such power in accordance with law and arrives as a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. (viii) The CIT, before exercising his jurisdiction under s. 263, must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allowed the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard." 1.3 Adverting to the facts of the given case, we are convinced that this case was selected for scrutiny under CASS (Scheme) for a limited purpose. However, he has made his order under s. 143(3) after making necessary enquiries and investigation. The AO has taken one of the two possible views regarding TDS provisions. When the AO adopted one of the possible views, his order does not suffer from any error. Therefore, in view of the aforestated essence of precedents on the issue of revision under s. 263, the twin conditions - -the order is erroneous and prejudicial to the interest of Revenue, do not co -exist in this case. Accordingly, we set aside the impugned revisional order and restore the assessment order. In the result, appeal of the assessee is allowed.;

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