D.b. Income Tax Appeal v. M/S Jain Construction Co

1/24 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR JUDGMENT D.B. Income Tax Appeal No.60/2012 Commissioner of Income Tax-II, Jodhpur Vs. M/s Jain Construction Co. Date of Judgment th:::24 November, 2012 PRESENT HON'BLE MR. JUSTICE DINESH MAHESHWARIHON'BLE Dr. JUSTICE VINEET KOTHARI Mr. Arun Bhansali, for the appellant-Revenue. -- BY THE COURT: (Per Dr. Vineet Kothari,J.) 1.The present appeal filed by the Revenue for Assessment Year2006-07 seek to raise substantial question of law under Section 260-A of the Income-tax Act, 1961 (for brevity, hereinafter referred to as'Act') from the order of Income Tax Appellate Tribunal, JodhpurBench, Jodhpur in ITA No.106/JU/2010 vide its order dated19.01.2012. 2.The assessee filed the said appeal before the Income TaxAppellate Tribunal, aggrieved by the order of Commissioner ofIncome-tax, Jodhpur passed under Section 263 of the Act on 12.01.2006 for the assessment year 2006-07, which was passed bythe Commissioner in exercise of its revisional jurisdiction underSection 263 of the Act against the assessment order of AssessingAuthority passed under Section 143 (3) of the Act, holding the sameas an order erroneous and prejudicial to the interest of the revenue. 3.The assessee M/s Jain Construction Company, Barmer,undertakes the construction work of construction of roads. Forassessment year 2006-07, return of income was filed by theassessee on 31.10.2006 declaring total income of Rs.67,83,280/-and revised return was filed on 02.11.2006, only two days thereafter,declaring the total income at marginally higher figure ofRs.70,20,830/-. Initially, the return was processed under Section 143(1) of the Act on 25.05.2007, however, a notice under Section 143(2) of the Act was issued by the Assessing Authority on 18.10.2007for holding enquiry and scrutiny in the assessment records forpassing the assessment order under the provisions of Section 143(3) of the Act, which order was passed by the Assessing Authority inthe present case on 28.03.2008 after due enquiry and assessing thetotal income of assessee at Rs.80,18,813/- making some addition inthe returned income of the assessee and thus raising demand ofadditional tax and interest. 4.The assessee appears to have preferred an appeal againstthe said assessment order before the Commissioner of Income Tax(Appeals), who passed the appellate order on 06.08.2009, however, D.B. Income Tax Appeal No.60/2012 Commissioner of Income Tax-II, Jodhpur Vs. M/s Jain Construction Co.3/24 the said appellate order has not been placed on record by theRevenue in the present appeal before this Court. 5.The Commissioner of Income Tax II, Jodhpur, however, issueda notice under Section 263 of the Act, which provides for revision oforders erroneous and prejudicial to revenue on 06.03.2009 and afterproviding an opportunity of hearing to the assessee, passed theimpugned revisional order on 12.01.2010 setting aside theassessment order under Section 143 (3) of the Act dated28.03.2008. 6.Aggrieved by the said order of Commissioner under Section263 of the Act, the assessee took up the matter further before theIncome Tax Appellate Tribunal, Jodhpur Bench, Jodhpur vide ITANo.106/JU/2010, which came to be allowed by the learned Tribunalby the impugned order dated 19.01.2012, holding that the learnedCommissioner was not justified in invoking revisional jurisdictionunder Section 263 of the Act in the given facts and circumstancesand thus restored the assessment order dated 28.03.2008 for AY2006-07. 7.Against the said order of the Tribunal, the Revenue has comeup before this Court under Section 260-A of the Act, purportedlyseeking to raise certain substantial question of law, allegedly, arisingout of the order of the Tribunal as aforesaid. 6.Aggrieved by the said order of Commissioner under Section263 of the Act, the assessee took up the matter further before theIncome Tax Appellate Tribunal, Jodhpur Bench, Jodhpur vide ITANo.106/JU/2010, which came to be allowed by the learned Tribunalby the impugned order dated 19.01.2012, holding that the learnedCommissioner was not justified in invoking revisional jurisdictionunder Section 263 of the Act in the given facts and circumstancesand thus restored the assessment order dated 28.03.2008 for AY2006-07. 7.Against the said order of the Tribunal, the Revenue has comeup before this Court under Section 260-A of the Act, purportedlyseeking to raise certain substantial question of law, allegedly, arisingout of the order of the Tribunal as aforesaid. 8.Mr. Arun Bhansali, learned standing counsel for Revenueurged that the Tribunal had fallen into error in setting aside the orderof Commissioner under Section 263 of the Act who had rightly found D.B. Income Tax Appeal No.60/2012 the order of assessment passed by the Assessing Authority aserroneous and prejudicial to the interest of the Revenue; and thatenquiry made by the Assessing Authority in pursuance of the noticeunder Section 143 (2) of the Act was not at all sufficient; andtherefore, the Commissioner was justified in holding that theassessment order passed by the Assessing Authority was erroneousone as well as prejudicial to the interest of Revenue. He, therefore,prayed the order of learned Tribunal gives rise to substantialquestions of law, which deserve to be determined by this Court. 9.We are unable to agree with the submissions made at the barby the learned counsel for the Revenue. 10.The settled legal position for limitation on the revisional powersof Commissioner under Section 263 of the Act is that, firstly, they arelimited in nature, and secondly, such revisional powers are not beinvoked merely for reviewing the order passed by the AssessingAuthority on a mere change of opinion. The safeguard provided tothe assessee in the said provision is that mere erroneous orders arenot revisable but the revisional authority has to further establish withthe material on record that such erroneous order is also prejudicial tothe interest of revenue. The twin conditions of assessment orderbeing erroneous and it also being prejudicial to the interest ofrevenue, keeps the initial burden on the Revenue itself, namely, theCommissioner, who invokes such jurisdiction. From the followinglegal precedents, it would be clear that such powers are not allowedlikely to be invoked for the fall of hat as it were, and merely because D.B. Income Tax Appeal No.60/2012Commissioner of Income Tax-II, Jodhpur Vs. M/s Jain Construction Co.5/24 the revisional authority is of different opinion on the given set of factsor on the ground that Assessing Authority did not hold a sufficientenquiry during the course of assessment proceedings unless theaforesaid twin conditions for invoking the said jurisdiction underSection 263 are satisfied. 11.The following legal precedents throw ample light for aforesaidlegal position: 12.In the case of Commissioner of Income Tax vs. Max IndiaLtd., reported in (2007) 295 ITR 282 (SC), the Hon'ble Apex Courthas held as under: - “3. According to the learned Addl. Solicitor Generalon interpretation of the provisions of s.80HHC (3) as it thenstood the view taken by the AO was unsustainable in law andtherefore the CIT was right in invoking s. 263 of the IT Act. Inthis connection he has further submitted that in fact 2005amendment which is clarificatory and retrospective in natureitself indicates that the view taken by the AO at the relevanttime was unsustainable in law. 4. We find no merit in the said contentions. Firstly, it isnot in dispute when the order of the CIT was passed therewere two views on the word 'profit' in that section. Theproblem with s. 80 HHCC is that it has been amended eleventimes. Different views existed on the day when the CIT passedthe above order. “3. According to the learned Addl. Solicitor Generalon interpretation of the provisions of s.80HHC (3) as it thenstood the view taken by the AO was unsustainable in law andtherefore the CIT was right in invoking s. 263 of the IT Act. Inthis connection he has further submitted that in fact 2005amendment which is clarificatory and retrospective in natureitself indicates that the view taken by the AO at the relevanttime was unsustainable in law. 4. We find no merit in the said contentions. Firstly, it isnot in dispute when the order of the CIT was passed therewere two views on the word 'profit' in that section. Theproblem with s. 80 HHCC is that it has been amended eleventimes. Different views existed on the day when the CIT passedthe above order. Moreover the mechanics of the section have become socomplicated over the years that two views were inherentlypossible. Therefore, subsequent amendment in 2005 eventhough retrospective will not attract the provision of s. 263 particularly when as stated above we have to take intoaccount the position of law as it stood on the date when theCIT passed the order dt. 5[th] March, 1997 in purportedexercise of his powers under s. 263 of the IT Act.” 13.In the case of Malabar Industrial Co. Ltd. Vs. CIT, reportedin (2000) 243 ITR 83 (SC), the Hon'ble Apex Court has held asunder: - “.... A bare reading of section 263 of the Income-taxAct, 1961, makes it clear that the prerequisite for the exerciseof jurisdiction by the Commissioner suo motu under it, is thatthe order of the Income-tax Officer is erroneous in so far as itis prejudicial to the interests of the Revenue. TheCommissioner has to be satisfied of twin conditions, namely,(i) the order of the Assessing Officer sought to be revised iserroneous; and (ii) it is prejudicial to the interests of theRevenue. If one of them is absent – if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenueor if it is not erroneous but is prejudicial to the Revenue –recourse cannot be had to section 263(1) of the Act.” 14.In the case of CIT Vs. Design and Automation Engineers(Bom.) P. Ltd., reported in (2010) 323 ITR 632 (Bom), the BombayHigh Court, while dismissing the revenue's appeal relied upon CITv/s Gabriel India Ltd. (1993) 203 ITR 108 (Bom) and has held asunder: - “Held, dismissing the appeal, that it could not be saidthat the assessing Officer had not applied his mind whilegranting deduction under section 80HHC of the Act asregards the net profit earned by the assessee pertaining to itsexport business. The Tribunal was right in holding that the view taken by the Assessing Officer was a possible view andthat the condition precedent for invoking jurisdiction undersection 263 by the Commissioner did not exist. The Tribunalwas justified in upsetting the order passed by theCommissioner under section 263 of the Act.” 15.In the case of CIT Vs. Garbiel India Ltd. reported in (1993) 203 ITR 108 (Bom), the Bombay High Court has held as under: - “Held, dismissing the appeal, that it could not be saidthat the assessing Officer had not applied his mind whilegranting deduction under section 80HHC of the Act asregards the net profit earned by the assessee pertaining to itsexport business. The Tribunal was right in holding that the view taken by the Assessing Officer was a possible view andthat the condition precedent for invoking jurisdiction undersection 263 by the Commissioner did not exist. The Tribunalwas justified in upsetting the order passed by theCommissioner under section 263 of the Act.” 15.In the case of CIT Vs. Garbiel India Ltd. reported in (1993) 203 ITR 108 (Bom), the Bombay High Court has held as under: - “The power of suo motu revision under sub-section (1)is in the nature of supervisory jurisdiction and the same canbe exercised only if the circumstance specified therein exist.Two circumstances must exist to enable the Commissioner toexercise power of revision under this sub-section, viz., (i)byvirtue of the order being erroneous prejudice has beencaused to the interests of the Revenue. It ha, therefore, to beconsidered firstly as to when an order can be said to beerroneous. We find that the expressions “erroneous”,“erroneous assessment” and “erroneous judgment” havebeen defined in Black’s law Dictionary. According todefinition, “erroneous” means “involving error; deviatingfrom the law” “Erroneous assessment” refers to anassessment that deviates from the law and is, therefore,invalid, and is a defect that is jurisdictional in its nature, anddoes not refer to the judgment of the Assessing Officer infixing the amount of valuation of the property. Similarly,“erroneous judgment” means “one rendered according tocourse and practice of court, but contrary to law, uponmistaken view of law, or upon erroneous application of legalprinciples… From the aforesaid definitions it is clear that an ordercannot be termed as erroneous unless it is not in accordancewith law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be brandedas erroneous by the Commissioner simply because, accordingto him, the order should have been written more elaborately.This section does not visualize a case of substitution of thejudgment of the Commissioner for that of the Income-taxOfficer, who passed the order, unless the decision is held tobe erroneous. Cases may be visualized where the Income-taxOfficer while making an assessment examines the accounts,makes enquiries, applies his mind to the facts andcircumstances of this case and determines the income eitherby accepting the accounts or by making some estimatehimself. The Commissioner, on perusal of the records, maybe of the opinion that the estimate made by the officerconcerned was on the lower side and left to theCommissioner he would have estimated the income at afigure higher than the one determined by the Income-taxOfficer. That would not vest the Commissioner with power tore-examine the accounts and determine the income himself ata higher figure. It is because the Income-tax Officer hasexercised the quasi-judicial power vested in him inaccordance with law and arrived at a conclusion and such aconclusion cannot be termed to be erroneous simply becausethe Commissioner does not feel satisfied with the conclusion.It may be said in such a case that in the opinion of theCommissioner the order in question is prejudicial to theinterests of the Revenue. But that by itself will not be enoughto vest the Commissioner with the power of suo motu revisionbecause the first requirement, viz., that the order iserroneous, is absent. Similarly, if an order is erroneous butnot prejudicial to the interests of the Revenue, then also thepower of the suo motu revision cannot be exercised. Any andevery erroneous order cannot be the subject-matter of revision because the second requirement also must befulfilled. There must be some prima facie material on recordto show that tax which was lawfully exigible has not beenimposed or that by the application of the relevant statute onan incorrect or incomplete interpretation a lesser tax thanwhat was just has been imposed. As observed in Dawjee Dadabhoy and Co. v. S.P. Jain(1957) 31 ITR 872 (Cal), at page 881, “the words”‘prejudicial to the interests of the Revenue’ have not beendefined, but it must mean that the orders of assessmentchallenged are such as are not in accordance with law, inconsequence whereof the lawful revenue due tot he State hasnot been realised or cannot be realized. It can mean nothingelse”. The aforesaid observations were also applied by theGujrat High Court in Addl. CIT vs. Mukur Corporation(1978) 111 ITR 312. We are of the opinion that the aforesaidinterpretation given by the Calcutta High Court to theexpression “prejudicial to the interests of the Revenue” is thecorrect interpretation”. “It is well-settled that when exercise of statutorypower is dependent upon the existence of certain objectivefacts, the authority before exercising such power must havematerials on record to satisfy it in that regard. If the action ofthe authority is challenged before the court it would be opento the courts to examine whether the relevant objectivefactors were available from the records called for andexamined by such authority. Our aforesaid conclusion getsfull support from a decision of Sabyasachi Mukharji J. (as hisLordship then was) in Russell Properties Pvt. Ltd. v. A.Chowdhury, Addl. CIT (1977) 109 ITR 229 (Cal). In ouropinion, any other view in the matter will amount to givingunbridled and arbitrary power to the revising authority to 10/24 initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which havealready been concluded under the law. As already stated it isa quasi-judicial power hedged in with limitation and has tobe exercised subject to the same and within its scope andambit. So far as calling for the records and examining thesame is concerned, undoubtedly, it is an administrative act,but on examination “to consider” or in other words, to forman opinion that the particular order is erroneous in so far asit is prejudicial to the interests of the Revenue, is a quasi-judicial act because of this consideration or opinion thewhole machinery or re-examination and reconsideration ofan order of assessment, which has already been concludedand controversy which has been set at rest, is set again inmotion. It is an important decision and the same cannot bebased on the whims or caprice of the revising authority.There must be materials available from the records called forby the Commissioner.” 16.In the case of CIT Vs. Arvind Jewellers reported in (2003)259 ITR 502 (Guj) (DB), the Gujarat High Court has held as under: - “The provisions of section 263 of the Income-tax Act,1961, cannot be invoked to correct each and every type ofmistake or error committed by the Assessing Officer. It isonly when an order is erroneous that the section will beattracted. An incorrect assumption of facts or an incorrectapplication of law will satisfy the requirement of the orderbeing erroneous. The phrase “prejudicial to the interests ofthe Revenue” has to e read in conjunction with an erroneousorder passed by the Assessing Officer and every loss ofrevenue as a consequence of an order of the AssessingOfficer cannot be treated as prejudicial to the interests of the 16.In the case of CIT Vs. Arvind Jewellers reported in (2003)259 ITR 502 (Guj) (DB), the Gujarat High Court has held as under: - “The provisions of section 263 of the Income-tax Act,1961, cannot be invoked to correct each and every type ofmistake or error committed by the Assessing Officer. It isonly when an order is erroneous that the section will beattracted. An incorrect assumption of facts or an incorrectapplication of law will satisfy the requirement of the orderbeing erroneous. The phrase “prejudicial to the interests ofthe Revenue” has to e read in conjunction with an erroneousorder passed by the Assessing Officer and every loss ofrevenue as a consequence of an order of the AssessingOfficer cannot be treated as prejudicial to the interests of the Revenue. When an Assessing Officer adopts one of thecourses permissible in law and it has resulted in loss ofrevenue, or where two views are possible and the Income-taxOfficer has taken one view with which the Commissionerdoes not agree, it cannot be treated as an erroneous orderprejudicial to the interests of the Revenue unless the viewtaken by the Income-tax Officer is unsustainable in law. “Held, that the finding of fact by the Tribunal was thatthe assessee had produced relevant material and offeredexplanations in pursuance of the notices issued under section142(1) as well as section 143(2) of the Act and afterconsidering the material and exemptions, the Income-taxOfficer had come to a definite conclusion. Since the materialwas there on record and the said material was considered bythe Income-tax Officer and a particular view was taken, themere fact that different view can be taken should not be thebasis for an action under section 263. The order of revisionwas not justified.” 17.In the case of CIT, Bikaner Vs. M/s Ganpat Ram Bishnoi,DB Income-tax Appeal No.43/1999, (decided on 8.8.2005),reportedin 296 ITR 292 (Raj.), this Court has held as under: - “From the record of the proceedings, in the presentcase, no presumption that can be drawn is that the A.O. hadnot applied its mind to the various aspects of the matter. Insuch circumstances, without even prima facie layingfoundation for holding that Assessment order is erroneousand prejudicial to interest in any matter merely on spaciousground that the A.O. was required to make an enquiry,cannot be held to be satisfied the test of existing necessarycondition for invoking jurisdiction under Section 263 of theIncome-tax Act. Undoubtedly, the jurisdiction under Section 263 iswide and had meant to ensue that due revenue ought to reachthe public treasury and if does not reach on account of somemistake of law or fact committed by the A.O., the CIT cancancel that order and require the concerned A.O. to pass afresh order in accordance with law after holding a detailedenquiry. But when enquiry in fact has been conducted and theA.O. has reached a particular conclusion, though referenceto such enquiries has not been made in the order of theassessment, but the same is apparent from the record of theproceedings, in the present case, without anything to say howand why the enquiry conducted by the A.O. was not inaccordance with law, the invocation of jurisdiction by theCIT was unsustainable. As the exercise of jurisdiction by theCIT is founded on no material, it was liable to be set aside.Jurisdiction under Section 263 cannot be invoked for makingshort enquiries or to go into the process of Assessment againand again merely on the basis that mere enquiry ought tohave been conducted to find something The finding of the Tribunal that the Income-tax Officerhad passed Assessment Order after relevant enquiries andconsidering the aspects of the matter required by the CIT tobe considered by him is a finding of fact and on basis ofwhich, the jurisdiction was assumed by the CIT being nonexistent must be held to be not sustainable. 18.In the case of CIT Vs. Mehsana District Co-operative Milk The finding of the Tribunal that the Income-tax Officerhad passed Assessment Order after relevant enquiries andconsidering the aspects of the matter required by the CIT tobe considered by him is a finding of fact and on basis ofwhich, the jurisdiction was assumed by the CIT being nonexistent must be held to be not sustainable. 18.In the case of CIT Vs. Mehsana District Co-operative Milk Producers Union Ltd.,reported in (2003) 263 ITR 645 (Guj), it has held as under: - “The provisions of section 263(1) of the Income-taxAct, 1961, cannot be invoked to correct each and every typeof mistake or error committed by the Assessing Officer, and it is only when the order is erroneous that the section will beattracted. The phrase “prejudicial to the interests of theRevenue” has to be read in conjunction with an erroneousorder passed by the Assessing Officer. When two views arepossible and the Income-tax Officer has taken one view withwhich the Commissioner does not agree, it cannot be treatedan erroneous order prejudicial to the interests of the Revenueunless the view taken by the Income-tax Officer isunsustainable in law… Moreover, the Commissioner could not exercise hispower under section 263 against the order of the Income-taxOfficer granting deduction under section 80J of the Act,which order was appealed against and had merged in theorder of the Commissioner (Appeals), which was made onJanuary 31, 1984, prior to the making of the revisional order.The order was not valid and was liable to be quashed.” 19.Turning to the facts of the present case, it appears that thelearned Commissioner invoked the revisional jurisdiction underSection 263 of the Act on grounds like that the assessee did notdisclose any closing stock or work-in-progress in the trading account,that AO has failed to verify the monthly expenditure on differentitems so as to arrive at correct quantum of closing stock or work-in-progress; the assessee has failed to declare any closing stock, rawmaterial and/or work-in-progress, no verification was made by theAssessing Authority with reference to the materials and labourcharges vis-a-vis completion/part of different contracts. 20.It is found appropriate to reproduce the relevant extract of theorder of learned Commissioner, as reproduced by the learnedTribunal in its impugned order, for the purposes of ready reference: 14/24 “8. In respect of issue stated at para P-5 of this officeshow cause notice u/s 263 dated 06.03.2009, it is submitted bythe assessee before me that the AO rejected the books ofaccounts and applied provisions of Section 145 (3). The saidrejection u/s 145 (3) was upheld by the ld. CIT (A). Thus, theassessment order has merged into the appellate order and nodisallowance/addition on account of closing stock or work inprogress could be made now. 20.It is found appropriate to reproduce the relevant extract of theorder of learned Commissioner, as reproduced by the learnedTribunal in its impugned order, for the purposes of ready reference: 14/24 “8. In respect of issue stated at para P-5 of this officeshow cause notice u/s 263 dated 06.03.2009, it is submitted bythe assessee before me that the AO rejected the books ofaccounts and applied provisions of Section 145 (3). The saidrejection u/s 145 (3) was upheld by the ld. CIT (A). Thus, theassessment order has merged into the appellate order and nodisallowance/addition on account of closing stock or work inprogress could be made now. I have given a careful consideration to the entirematerial facts and it is found that during the course ofassessment proceedings, the assessee stated that there is noclosing stock or closing work in progress for the reason thatall the works were completed. The AO accepted the statementwithout any verification. No verifications were made with thecontractees in this regard. The A.O. also failed to look intothe expenditures on different items date wise and correlate thesame with the date of contract receipts amounts to arrive at acorrect conclusion regarding closing stock of materials andclosing work in progress. The A.O. further failed to verify theTDS certificates annexed with the return of A.Y. 2007-08. If inthe return for A.Y. 2007-08, any TDS certificate showedreceipt of amounts in the month of April or May 2006, itwould mean that bills for the same were submitted by theassessee in March 2006 and under such circumstances thesame should have been shown as closing work in progress.Normally, there is a time lag of one to two months betweenpresentation of bill to the PWD and receipt of amount by thecontractor. The AO also failed to verify as to whether any ofthe contracts continued in the next year. The TDS certificateof Rs.2,19,96,512/- issued by PWD, Jaisalmer revealspayments of VI running bill on 28.03.06 for Rs.21,75,418/-.This admittedly shows that it was a running contract and D.B. Income Tax Appeal No.60/2012 15/24 therefore,should have some closing stock ofmaterials/closing work in progress. Had the AO verified thepurchases date wise, he would have quantified the closingstock of materials/closing work in progress. Similar is thecase with M/s NG Projects Ltd. who made substantialpayments (Rs.27,09,199 + Rs.6,35,200 + Rs.8,14,046 +Rs.2,31,889/-) on 31.03.06 to the assessee. Here again it wasa running contract. Simiarly, M/s B Ratan & Co. paid a sumof Rs.4,34,244/- and Rs.12,65,435/- on 29.03.06 to theassessee. The AO failed to make any verification as towhether the contract with M/s B Ratan & Co. was a runningcontract which spread over to the next year. Likewise, it isalso observed from the TDS certificates placed on recordsthat M/s Cairns Energy India Pvt. Ltd., PWD Barmer andPWD Jalore paid a sum of Rs.7,41,896/-, Rs.2,10,559/- andRs.21,36,082/- on 29.03.06 and 31.03.06, respectively. Asmentioned above, no verifications were made with referenceto closing stock of materials/closing work in progress. In anyevent, these facts suggest that the contracts continued andtherefore, the assessee had certain quantum of closing stockof materials/closing work in progress. The AO also failed toverify the purchases made and wages incurred in the month ofMarch, 2006 to ascertain the closing stock of materials asalso work in progress. All the above facts goes to prove thatthe assessment was made in undue hurry and without makingany enquries. The point to be noted here is that there isapparent and substantial suppression of closing stock andhad the AO substituted the correct figure of closingstock/work in progress, he would have ended up with a muchmore addition than the additional made by him after rejectingthe books of accounts and applying a particular NP rate. Ihave already discussed earlier that closing stock is an 16/24 16/24 integral part of accounts and any deviation therein changesthe profit. In other words, if an addition is made by rejectingthe books, yet the AO is required to and legally bound tosubstitute the figure of closing stock etc. as disclosed by theassessee with the correct figure. The above discussion amply shows that the assessmentorder so passed by the AO is erroneous as also prejudicial tothe interest of revenue and therefore, the same is set-aside tothe extent as above. The AO shall thoroughly verify andinvestigate the issue of closing stock of raw material and workin progress and take action as per law.” 21.The above premise for invoking the revisional jurisdiction onthe ground that the Assessing Authority made insufficient enquiry orimproper enquiry and failed to verify closing stocks in the record ofthe assessee, before passing the assessment order, falls flat by abare perusal of the assessment order dated 28.03.2008 itself. TheAssessing Authority finding the same deficiencies in themaintenance of regular day-to-day record including the stock registerand in the absence of verification of expenditure incurred inexecution of various contract works himself had rejected the books ofaccounts even though audited by the auditor in accordance withprovisions of the Act; and invoking the provisions of Section 145 (3)of the Act had proceeded to assess the total income applying the GPrate of 12.5%, which was upheld in the case of same assessee up tothis Court. Even though the chart of GP rate produced for last 5years in the assessment order showed that even for the assessmentyear 2006-07, under consideration, the assessee had declared the D.B. Income Tax Appeal No.60/2012 higher GP rate of 12.21%, the assessing authority further raised it to12.5% making an addition of Rs.4,06,540/- on this account, and thenmaking three more additions in the declared total income, enhancedthe declared income by approximately Rs.10 lacs converting thedeclared total income as per return of Rs.70,20,830/- into assessedincome at Rs.80,18,813/- resulting in additional demand along-withinterest and also issuing penalty notice while passing theassessment order. The relevant extract of the assessment orderdated 28.03.2008 is reproduced herein below for ready reference: “2. The assessee is engaged in the business of contractwork of roads. The accounts of the assessee are audited andthe report in form no. 3CB and 3CD are enclosed with thereturn. The assessee has furnished the comparative G.P./N.P.Chart for last four years as following: - From the perusal of the above chart, it reveals thatthe G.P. rate disclosed in the year under consideration is12.21% out of the total receipts of Rs.14,01,79,045/- which isbetter in comparison to just immediate preceding year i.e.2005-06 but it is lower in comparison to AY-2004-05. WhereG.P. Percentage of 12.22% was declared in AY 2004-05 atthe gross receipts of Rs.4,50,07,549/-.” 22.The Assessing Authority had duly noted the auditor'scomments in his audit report and had noted these very objections or 18/24 deficiencies in the record maintained by the assessee, viz. non-maintenance of day-to-day stock register, which the learnedCommissioner found sufficient to issue notice and initiate revisionaljurisdiction under Section 263 of the Act in the following terms in hisassessment order dated 28.03.2008. 22.The Assessing Authority had duly noted the auditor'scomments in his audit report and had noted these very objections or 18/24 deficiencies in the record maintained by the assessee, viz. non-maintenance of day-to-day stock register, which the learnedCommissioner found sufficient to issue notice and initiate revisionaljurisdiction under Section 263 of the Act in the following terms in hisassessment order dated 28.03.2008. “The assessee failed to give head wise break up ofexpenses. In the audit report also, the auditor made a notethat there might be some personal expenses pertaining topartners in the form of traveling expenses, food expenses andentertainment expenses. The AR also agreed that the assesseedid not maintain any register to verify part of workcompleted, expenditure incurred on various items materialsused at different sites of contract works. It was also admittedthat the assessee did not maintain log book, wages register,attendance register and complete expenses vouchers inrespect of labour, rasoda, machinery, repairing, loading &unloading, diesel, petrol, oil, kerosene, tyre tube, travelingetc. Therefore, these expenses are not subject to verification.Moreover, the assessee has not disclosed work in progress atthe year ending. No value of closing stock has beendisclosed. It is quite improbable that the contract workspecially of road construction would have been completedbefore the end of the Financial Year. Looking to the abovementioned defects, the results declared by the assesseecannot be accepted as fully correct and provisions of Section145 (3) of the IT Act are clearly applicable in this case.” Once, the Assessing Authority rejected the books of accountof the assessee on these very defects and passed the best judgmentassessment on the basis of G.P. rate of 12.5% and made additionsin the declared total income, there was no occasion of revising the D.B. Income Tax Appeal No.60/2012 Commissioner of Income Tax-II, Jodhpur Vs. M/s Jain Construction Co. 19/24 said order on the ground that the Assessing Authority did not verifythe closing stocks of assessee, a fact which the assessee himselfadmitted and the Assessing Authority noticing the same andrejecting the books of accounts, passed the best judgmentassessment. 23.Thus, it is clear that the learned Commissioner had merely ona change of opinion and to substitute his own opinion about thedeficiencies in the maintenance of the record by the assesseeinvoked the revisional jurisdiction and set aside the assessmentorder. This is not permissible under Section 263 of the Act. TheSection 263 of the Act is quoted herein below: - “Section 263- Revision of orders prejudicial to revenue. (1) The Commissioner may call for and examine therecord of any proceeding under this Act, and if he considersthat any order passed therein by the Assessing Officer iserroneous in so far as it is prejudicial to the interests of therevenue, he may, after giving the assessee an opportunity ofbeing heard and after making or causing to be made suchinquiry as he deems necessary, pass such order thereon asthe circumstances of the case justify, including an orderenhancing or modifying the assessment, or cancelling theassessment and directing a fresh assessment. Explanation. For the removal of doubts, it is herebydeclared that, for the purposes of this sub-section - (a) an order passed on or before or after the 1[st] day ofJune, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the AssistantCommissioner or Deputy Commissioner or the Income-tax 20/24 Officer on the basis of directions issued by the JointCommissioner under Section 144A. Explanation. For the removal of doubts, it is herebydeclared that, for the purposes of this sub-section - (a) an order passed on or before or after the 1[st] day ofJune, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the AssistantCommissioner or Deputy Commissioner or the Income-tax 20/24 Officer on the basis of directions issued by the JointCommissioner under Section 144A. (ii) an order made by the Joint Commissioner inexercise of the powers or in the performance of the functionsof an Assessing Officer conferred on, or assigned to, himunder the orders or directions issued by the Board or by theChief Commissioner or Director General or Commissionerauthorised by the Board in this behalf under section 120; (b) “record” shall include and shall be deemed alwaysto have included all record relating to any proceeding underthis Act available at the time of examination by theCommissioner. (c) where any order referred to in this sub-section andpassed by the Assessing Officer had been the subject matterof any appeal filed on or before or after the 1[st] day of June,1988, the powers of the Commissioner under this sub-sectionshall extend and shall be deemed always to have extended tosuch matters as had not been considered and decided in suchappeal. (2) No order shall be made under sub-section (1) afterthe expiry of two years from the end of the financial year inwhich the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section(2), an order in revisional under this section may be passedat any time in the case of any order which has been passed inconsequence of, or to give effect to, any finding or directioncontained in an order of the Appellate Tribunal, (NationalTax Tribunal) the High Court or the Supreme Court. Explanation. In computing the period of limitation forthe purposes of sub-section (2), the time taken in giving anopportunity to the assessee to be reheard under the proviso tosection 129 and any period during which any proceeding D.B. Income Tax Appeal No.60/2012 under this section is stayed by an order of injunction of anycourt shall be excluded.” 24.It is also worth noting that the assessee himself felt aggrievedby the addition made in the total income declared by him in hisrevised return to the tune of Rs.10 lacs or so and, therefore, had filedan appeal before the appellate authority i.e., CIT (Appeals), who hadalso passed order on 06.08.2009, which has not been produced withthe memo of appeal as aforesaid but this fact is duly noted byTribunal in its order impugned and the fact remains that theassessment order stood merged with the order passed by theappellate authority, namely, CIT (Appeals), in appeal filed under theprovisions of Section 246 of the Act. Once the order of the AssessingAuthority stood merged with higher appellate authority, the parallelauthority on the administrative side, namely, Commissioner, evencannot revise later on the order passed by the Assessing Authority,which stood merged with the order of appellate authority. 25.In the case of the present assesee itself , this Court onprevious occasion in (2000) 246 ITR 527 [Commissioner of Income Tax vs. Jain Construction Co. & Ors.], quashed the revisionalorder under Section 263 of the Act by holding as under: - “3. The assessee, a registered partnership firm, filedreturn for the asst. yr. 1993-94 in respect of accountingperiod of 1992-93 declaring income of Rs.17,980. On accountof certain discrepancies noticed in the books of accounts, theassessing authority viz; the ITO, Barmer, invoking theprovisions of s.145 of the Act of 1961, applied a net profitrate of 12.5 per cent on receipts of Rs.76,12,688. He further 25.In the case of the present assesee itself , this Court onprevious occasion in (2000) 246 ITR 527 [Commissioner of Income Tax vs. Jain Construction Co. & Ors.], quashed the revisionalorder under Section 263 of the Act by holding as under: - “3. The assessee, a registered partnership firm, filedreturn for the asst. yr. 1993-94 in respect of accountingperiod of 1992-93 declaring income of Rs.17,980. On accountof certain discrepancies noticed in the books of accounts, theassessing authority viz; the ITO, Barmer, invoking theprovisions of s.145 of the Act of 1961, applied a net profitrate of 12.5 per cent on receipts of Rs.76,12,688. He further allowed deduction by way of depreciation, interest and salaryto partners to the extent of Rs.8,67,691. As a result of thisdeduction, the assessable income was calculated asRs.83,895. The CIT, Jodhpur, on perusal of the assessmentrecord, found that the order of the assessing authority iserroneous as it is prejudicial to the interest of the Revenueinasmuch as a result of deduction by way of depreciation,interest and salary to the partners, the net profit in assessee'scase came down to the rate of 1.10 per cent. In his opinion,the said net rate was extremely low. He, therefore, invokedthe provisions of s. 263 of the Act of 1961 and issued anotice to the assessee. The CIT held that while taking the netprofit rate of 12.5 per cent, the assessing authority hadalready allowed expenses to the extent of 87.5 per cent in thecase of the assessee against the net receipts. In his opinion,the provisions of s. 40 (b) of the Act of 1961 were onlyenabling provisions and they did not provide for separatedeductions of such expenses even when the income was beingcomputed after adopting the net profit rate by rejecting thebooks of accounts. He also held that looking to the normalnet profit rate, which is applicable in the case of contractors,the income determined by the assessing authority by applyingeffective rate of 1.1 per cent is very much low as compared tothe income properly assessable in the case. 10. It will also be relevant to consider s. 44AD, whichis a special provision for computing profits and gains ofbusiness of civil construction, etc. This provision has beeninserted by the Finance Act of 1994 w.e.f. 1[st] April, 1994. Theprovision does not have a direct bearing on the controversyinvolved in the instant case as it pertains to asst. yr. 1993-94but it required to be dealt with as it has been referred by thelearned counsel for the Revenue. Now in case of assessee engaged in business of civil construction or supply of labourfor civil construction fixed rate of net profit of 8 per cent hasbeen provided. Proviso to sub-s.(2) permits salary andinterest paid to the partners deducted from the fixed net profitof 8 per cent subject to the conditions and limits specified incl. (b) of s. 40. Thus, there is further simplication andcertainty in computation of income. Instructions contained inpara 2 of the circular of the year 1965 have been brought inthe statute, thereby the doubts, if any, with respect to subjectcircular have been settled. 11. The Division Bench of this Court in CIT vs. S.M.Bhatia Associates (1998) 144 CTR (Raj.) 378 : (1998) 226ITR 675 (Raj.) has held that finding recorded by the Tribunalon appreciation of evidence available on record, is a findingof fact and does not give rise to the question of law forreference under s. 256 (2) of the Act, and thereby rejected theapplications seeking reference of similar questions. 11. The Division Bench of this Court in CIT vs. S.M.Bhatia Associates (1998) 144 CTR (Raj.) 378 : (1998) 226ITR 675 (Raj.) has held that finding recorded by the Tribunalon appreciation of evidence available on record, is a findingof fact and does not give rise to the question of law forreference under s. 256 (2) of the Act, and thereby rejected theapplications seeking reference of similar questions. In the instant cases, the Tribunal while allowing theappeal has directed the assessing authority to recompute thetotal income as estimated by him and allow relief on accountof payment of interest and claim of depreciation. The findingrecorded by the Tribunal is purely a finding of fact, basedon proper appreciation of material on record and theevidence produced by the assessee. As no question of lawarises out of the order passed by the Tribunal, we find nofault with the order of the Tribunal declining to refer thequestion for our opinion.” 26.Thus having heard the learned counsel for Revenue at lengthand in view of aforesaid legal position and factual matrix, we aresatisfied that the Tribunal was justified in holding that in these factsand upon the stated objections, the Commissioner was in error in invoking the revisional jurisdiction under Section 263 of the Act, andthus the findings arrived at by the Tribunal essentially remainfindings of fact, which do not give rise any substantial question oflaw, requiring consideration by this Court. Mere alleged insufficiencyof the enquiry in the opinion of the Commissioner by the AssessingAuthority, could not permit him to invoke the revisional jurisdictionunder Section 263 of the Act and, therefore, t