Pr. Commissioner Of Income Tax, Alwar v. M/S Hari Om Stones

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 293/2018 Pr. Commissioner Of Income Tax, Alwar ----Appellant Versus M/s Hari Om Stones, C/o-Shri Om Prakash Sharma, MandapuraRoad, Rudawal, The-Roopwas, Bharatwar ----Respondent For Appellant(s) : Smt. Parinitoo JainFor Respondent(s): HON'BLE MR. JUSTICE MOHAMMAD RAFIQ HON'BLE MR. JUSTICE GOVERDHAN BARDHAR 29/03/2019 Judgment (PER HON’BLE MOHAMMAD RAFIQ, J.) This appeal u/s.260A of the Income Tax Act, 1961 has beenfiled challenging the order of the Income Tax Appellate TribunalJaipur (for short-`the ITAT’) dated 4.4.2018. The ITAT by theaforesaid judgement has allowed the appeal preferred by therespondent-assessee and thereby reversed the order the CIT,Alwar dated 15.3.2016 and restored the assessment order for theassessment year 2011-12 made under Section 143 of the Act on24.3.2014 by the Assessing Officer. The Assessing Officer by the aforesaid order enhanced thetrading income of 2,99,820/- to Rs.4,55,556/- by makingadditions out of the various expenses. The CIT, Alwar issued noticeu/s.263 dated 25.01.2016 by invoking its revisional powerbecause in its view, the assessment order was “prejudicial to the interests of Revenue” since the Assessing Officer had not madeproper enquiry on various issues. The respondent-assesseecontested the notice and filed reply. The CIT however did notupheld the arguments of the assessee and held that the AssessingOfficer was required to make proper enquiry to determine whetherthe money was really lended by the third party or it has come outof the sources of the assessee himself. The apparent source ofmoney is relevant enquiry for ascertaining the genuineness of theloan to which Assessing Officer has failed to apply his mind. Suchnon-application of mind constituted passing of an erroneous order,which is also prejudicial to the interest of revenue. Regarding thegenuineness of the capital introduced in the names of thepartners, the reply of the assessee was that all details werefurnished, but the CIT concluded that as per the order-sheetentries, no inquiry/verification has been made by the AssessingOfficer and there was no application of mind on the part of theAssessing Officer with regard to this aspect. There was noevidence on record that the Assessing Officer had inquired intoeven the primary details, which were essential for completion ofthe assessment. The creditworthiness of the alleged lenders wasnot enquired into and therefore the order was erroneous andprejudicial to the interest of revenue. The Assessing Officer wasrequired to make proper investigation to determine whether themoney was really lend by a third party or its has come out of theresources of the assessee himself. The absence of proper enquirywould render the assessment order as erroneous as well asprejudicial to the interest of revenue. The ITAT has however notconcurred with the view taken by the CIT and held in para 7 asunder: “7. The Bench have heard both the sides on the issue,perused the material available on the record and alsoperused the case laws relied upon. Assessment year 2011-12 was the first year of operation of the assesseecompany. It was a partnership firm having 17 partners andthe share of the each partner was specified as evidencefrom page No.28 of the paper book. The assessee firmcommenced the business of contractor ship in the nameand style of Hari Om Stones with Mining Department andSales tax department to collect to revenue forgovernment. The partnership deed is placed at pageNos.26 to 31 of the paper book. This partnership deed alsospecifies in para 10 that the partners to whom theremunerations is to be paid and limit of the same is alsospecified. This document was submitted to the AssessingOfficer during assessment proceedings. This case wasselected for compulsory and complete scrutiny. Theassessment for assessment year 2011-12 was made U/s143(3) of the Act on 24/3/2014. The returned income ofRs.2,99,820/- was enhanced to Rs.4,55,556/- and theadditions were made out of various expenses. TheAssessing Officer made enquiries on various issues and theassessee submitted such details asked for. The enquirywith regard to remuneration to the partners andexpenses/receipts were also conducted by the AssessingOfficer. Such facts are evident from page Nos.105 to 106of the paper book which is a letter dated 11/3/2014submitted before the Assessing Officer. Another letterplaced at page Nos. 50 to 52 of the paper book was alsoestablishes that the books of accounts were producedbefore the Assessing Officer. Thus, these facts suggest thatthe Assessing Officer has taken into consideration thematerial before him and after due application of law and offacts and then reached at the conclusion to conclude theassessment U/s 143(3) of the Act. It was not a case whereAssessing Officer completed the assessment withoutconducting necessary and proper enquiries. The issue raised by the ld. Pr.CIT has been considered by theassessing Officer at the time of assessment and theassessee has submitted evidences and details in support ofits claim made in P&L account. Therefore, in ourconsidered view, the order passed by the Assessing OfficerU/s 143(3) of the Act on 24/3/2014 was not an erroneousorder, which could be said to be prejudicial to the interestof the revenue. Considering the ratio laid down in variouscase laws relied upon, we set aside the order passed bythe ld. Pr. CIT.” We are inclined to concur with the view expressed by theITAT as the order of assessment indicate that the Assessing Officerhas made enquiry on various issues and assessee submitted thedetails therefor. The enquiry pertained to the remuneration of thepartners and the expenses/receipts. The Assessing Officerenhanced the return income of the assessee of Rs.2,99,820/- toRs.4,55,556/- by making additions out of the various expenses.The nature of the assessment order does not bring the case of therevenue within the purview of Section 263 of the Income Tax Actas such order cannot be said to be “prejudicial to the interests ofRevenue.” We may in this connection refer to the judgement of theSupreme Court in Malabar Industrial Co. Ltd. vs. Commissioner ofIncome Tax, Kerala State-(2000) 2 SCC 718. The Supreme Courtin that case while not approving of the view taken by the MadrasHigh Court in Venkatakrishna Rice Co. vs. CIT-(1987) 163 ITR 129(Mad.) on the phrase “prejudicial to the interests of the Revenue”held that the scheme of the Act is to levy and collect tax inaccordance with the provisions of the Act and this task isentrusted to the Revenue. If due to an erroneous order of theIncome Tax Officer, the Revenue is losing tax lawfully payable by a We may in this connection refer to the judgement of theSupreme Court in Malabar Industrial Co. Ltd. vs. Commissioner ofIncome Tax, Kerala State-(2000) 2 SCC 718. The Supreme Courtin that case while not approving of the view taken by the MadrasHigh Court in Venkatakrishna Rice Co. vs. CIT-(1987) 163 ITR 129(Mad.) on the phrase “prejudicial to the interests of the Revenue”held that the scheme of the Act is to levy and collect tax inaccordance with the provisions of the Act and this task isentrusted to the Revenue. If due to an erroneous order of theIncome Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of theRevenue. The phrase “prejudicial to the interests of the Revenue”is not an expression of art and is not defined in the Act. When thisphrase is understood in its ordinary meaning, it is of wide importand is not confined to mere loss of tax. Relevant discussion isfound in Paras 8, 9 and 10 of the Report, which are reproduced asfollows: “8. The phrase “prejudicial to the interests of theRevenue” is not an expression of art and is notdefined in the Act. Understood in its ordinarymeaning it is of wide import and is not confined toRevenue” is not an expression of art and is notdefined in the Act. Understood in its ordinarymeaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in DawjeeDadabhoy & Co. v. S.P. Jain (1957) 31 ITR 872(Cal), the High Court of Karnataka in CIT v. T.Narayana Pai (1975) 98 ITR 422 (Kant), the HighCourt of Bombay in CIT v. Gabriel India Ltd (1993)203 ITR 108 (Bom), and the High Court of Gujaratin CIT v. Minalben S. Parikh (1995) 215 ITR 81(Guj) treated loss of tax as prejudicial to theinterests of the Revenue.Dadabhoy & Co. v. S.P. Jain (1957) 31 ITR 872(Cal), the High Court of Karnataka in CIT v. T.Narayana Pai (1975) 98 ITR 422 (Kant), the HighCourt of Bombay in CIT v. Gabriel India Ltd (1993)203 ITR 108 (Bom), and the High Court of Gujaratin CIT v. Minalben S. Parikh (1995) 215 ITR 81(Guj) treated loss of tax as prejudicial to theinterests of the Revenue. 9. Mr Abraham relied on the judgment of theDivision Bench of the High Court of Madras inVenkatakrishna Rice Co. v. CIT (1987) 163 ITR129 (Mad) interpreting “prejudicial to the interestsof the Revenue”. The High Court held:Division Bench of the High Court of Madras inVenkatakrishna Rice Co. v. CIT (1987) 163 ITR129 (Mad) interpreting “prejudicial to the interestsof the Revenue”. The High Court held: “In this context, (it must) be regarded as involvinga conception of acts or orders which aresubversive of the administration of revenue. Theremust be some grievous error in the order passedby the Income Tax Officer, which might set a badtrend or pattern for similar assessments, which ona broad reckoning, the Commissioner might thinkto be prejudicial to the interests of RevenueAdministration”. In our view this interpretation is too narrow tomerit acceptance. The scheme of the Act is to levyand collect tax in accordance with the provisions ofthe Act and this task is entrusted to the Revenue.If due to an erroneous order of the Income TaxOfficer, the Revenue is losing tax lawfully payableby a person, it will certainly be prejudicial to theinterests of the Revenue. “In this context, (it must) be regarded as involvinga conception of acts or orders which aresubversive of the administration of revenue. Theremust be some grievous error in the order passedby the Income Tax Officer, which might set a badtrend or pattern for similar assessments, which ona broad reckoning, the Commissioner might thinkto be prejudicial to the interests of RevenueAdministration”. In our view this interpretation is too narrow tomerit acceptance. The scheme of the Act is to levyand collect tax in accordance with the provisions ofthe Act and this task is entrusted to the Revenue.If due to an erroneous order of the Income TaxOfficer, the Revenue is losing tax lawfully payableby a person, it will certainly be prejudicial to theinterests of the Revenue. 10. The phrase “prejudicial to the interests of theRevenue” has to be read in conjunction with anerroneous order passed by the Assessing Officer.Every loss of revenue as a consequence of anorder of the Assessing Officer cannot be treated asprejudicial to the interests of the Revenue, forexample, when an Income Tax Officer adopted oneof the courses permissible in law and it hasresulted in loss of revenue; or where two viewsare possible and the Income Tax Officer has takenone view with which the Commissioner does notagree, it cannot be treated as an erroneous orderprejudicial to the interests of the Revenue unlessthe view taken by the Income Tax Officer isunsustainable in law. It has been held by thisCourt that where a sum not earned by a person isassessed as income in his hands on his so offering,the order passed by the Assessing Officeraccepting the same as such will be erroneous andprejudicial to the interests of the Revenue. (SeeRampyari Devi Saraogi v. CIT (1968) 67 ITR 84(SC) and in Tara Devi Aggarwal v. CIT (1973) 3SCC 482)”. In view of above discussion, we do not find any infirmity inthe order passed by the ITAT and therefore the present appealdoes not raise any question of law much less substantial questionof law. The appeal is therefore dismissed. (GOVERDHAN BARDHAR),J (MOHAMMAD RAFIQ),J RS/17